-----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, UjikotFfPYtFytznvbDZ24O61DK9hCQCBb7bGhhuRRgsHcE0Z7Gac/ibbUnXCotd s9e23N+6X8Gw7UkpQPDPBg== 0000912057-97-010881.txt : 19970515 0000912057-97-010881.hdr.sgml : 19970515 ACCESSION NUMBER: 0000912057-97-010881 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 36 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970328 DATE AS OF CHANGE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONTGOMERY WARD HOLDING CORP CENTRAL INDEX KEY: 0000836974 STANDARD INDUSTRIAL CLASSIFICATION: 5311 IRS NUMBER: 363571585 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17540 FILM NUMBER: 97568196 BUSINESS ADDRESS: STREET 1: ONE MONTGOMERY WARD PLZ CITY: CHICAGO STATE: IL ZIP: 60671 BUSINESS PHONE: 3124672000 10-K 1 10-K - - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549-1004 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the 52-Week Period Ended Commission File December 28, 1996 No. 0-17540 MONTGOMERY WARD HOLDING CORP. (Exact name of registrant as specified in its charter) DELAWARE 36-3571585 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) Montgomery Ward Plaza, Chicago, Illinois 60671-0042 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code: (312) 467-2000 Securities registered pursuant to Section 12(b) of the Act Title of each class Name of each exchange on which registered Not Applicable None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, Series 1, $.01 Par Value (Title of class) Class A Common Stock, Series 2, $.01 Par Value (Title of class) Voting Trust Certificates representing Shares of Class A Common Stock, Series 1, $.01 Par Value (Title of class) Voting Trust Certificates representing Shares of Class A Common Stock, Series 2, $.01 Par Value (Title of class) Class B Common Stock, $.01 Par Value (Title of class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . At March 20, 1997, there were 18,330,641 shares of Class A Common Stock and 25,000,000 shares of Class B Common Stock of the Registrant outstanding. Part III incorporates information by reference from the proxy statement for the annual meeting of shareholders to be held on May 16, 1997. - - - -------------------------------------------------------------------------------- PART I Item 1. Business Forward-Looking Statements Information included in this Report on Form 10-K may constitute forward- looking statements that involve a number of risks and uncertainties. From time to time, information provided by the Company or statements made by its employees may contain other forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements include but are not limited to: general economic conditions including inflation, consumer debt levels, trade restrictions and interest rate fluctuations; competitive factors including pricing pressures, technological developments and products offered by competitors; inventory risks due to changes in market demand or the Company's business strategies; and changes in effective tax rates. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly update or revise any forward- looking statements, whether as a result of new information, future events or otherwise. General Montgomery Ward Holding Corp., a Delaware corporation (the Company or MW Holding), and its wholly-owned subsidiary, Montgomery Ward & Co., Incorporated (Montgomery Ward), are engaged in retail merchandising and direct response marketing (including insurance) in the United States. See Note 21 to the Consolidated Financial Statements for financial information regarding these segments. Founded in 1872 and incorporated in Illinois in 1968, Montgomery Ward is one of the nation's largest retail merchandising organizations. As of December 28, 1996, Montgomery Ward and its wholly-owned subsidiary, Lechmere, Inc., a Massachusetts corporation (Lechmere), operated 408 retail stores in 43 states with approximately 29 million square feet of selling space. In addition, Montgomery Ward operated 4 liquidation centers which sell overstock merchandise, 24 distribution facilities and 87 product service centers. Montgomery Ward offers life and health insurance, revolving credit insurance, club products and other consumer services through Signature Financial/Marketing, Inc., a Delaware corporation (Signature), and through Signature's subsidiaries (collectively, with Signature, The Signature Group). The Signature Group is one of the largest direct marketing companies in the United States. Merchandising Montgomery Ward is one of the largest privately held retailers in the United States with over $6.6 billion in annual revenues. The Company is among the largest retailers in the country in electronics, appliances, 1 Item 1. Business Merchandising (continued) furniture and fine jewelry. It is also one of the largest retailers of many prominent name brands, including Sony, Maytag, General Electric, La-Z- Boy, Sealy, Lee, Playtex and Bugle Boy. The major product offerings by the Company are the following: Product Category ---------------- Appliances and Electronics, including service Furniture and Home Furnishings Apparel Jewelry Automotive, including service The Company offers combined consumer electronics and appliance product categories, including video, audio, home office, telephones, electronic games and kitchen, laundry and other major appliances. The product offering includes significant national brands plus some private label brands. The Company is the second largest retailer of appliances in the United States. Furniture and home furnishings include broad selections emphasizing name brands in furniture and small ticket lines for the bath, bedroom and kitchen. Furniture includes accessorized room groupings to provide customers the convenience of coordinated furniture pieces including major brands. The Company is the fourth largest retailer of furniture in the United States. The Apparel offering includes branded, value oriented merchandise in women's, men's, children's and intimate apparel as well as footwear and accessories. The apparel brand and price point offering is targeted at the large middle market between department stores and discounters. An offering of prominent name brands has been built, including Lee, Playtex, Bugle Boy, Bestform, Converse, Gloria Vanderbilt and Hanes. In addition, the Company has developed licensed and proprietary brands for certain product categories, such as Ship 'N Shore and Connie Selleca in women's apparel and BIKE in activewear. Jewelry offers all major merchandise categories: diamonds, gemstones, gold and watches. Montgomery Ward has become one of the largest fine jewelry retailers in the country, and its major vendor relationships enable it to offer highly featured products at outstanding prices. Automotive focuses on the sale and installation of tires, batteries, brakes and shocks. Montgomery Ward is one of the leading retailers of branded tires, including Goodyear, Firestone, Michelin, Bridgestone and B.F. Goodrich. Other major brands include Exide, Monroe and NAPA. 2 Item 1. Business Merchandising (continued) Montgomery Ward currently operates 341 full line stores and 67 stores featuring a variety of other formats, including 27 Lechmere stores, 11 Electric Ave. & More stores, 6 HomeImage stores and 23 stores in various other formats, including outlet, automotive and limited line stores. Full line Montgomery Ward stores average approximately 76,000 square feet of selling space. Montgomery Ward's retail business is seasonal, with over 32% of 1996 sales occurring in the fourth quarter. The results of Montgomery Ward's operations are also subject to changes in consumer demand associated with general economic conditions, which is especially true with respect to demand for durable goods and other "big ticket" merchandise. Montgomery Ward's retail operations are supported by its corporate buying division which has its principal office in Chicago, and includes foreign purchasing offices in Hong Kong, Taiwan, Japan, Singapore and Korea. In addition to its buying staff, the corporate buying division employs technical teams to ensure quality control of Montgomery Ward's merchandise. The Company considers logistics to be important to its operations and has continually invested in this area. The distribution facilities opened in Phoenix, Tampa, Baltimore and southern California in 1991 through 1994 added approximately 1.7 million square feet of space. Corporate Expansion Acquisition of the Amoco Motor Club by The Signature Group The Signature Group acquired from Amoco Corporation the Amoco Motor Club on December 31, 1995, which, combined with Signature's existing Auto Club, created the largest national auto club in the U.S. The Signature Group is a strong performer and this acquisition was an excellent fit to grow the business both internally and through acquisitions. The Signature Group's auto clubs, including the Montgomery Ward Auto Club, offer strong customer service, and with the addition of the Amoco Motor Club, the Company offers an even stronger base of services to more than five million auto club members. The Amoco Motor Club was founded in 1964, and has since developed a reputation as a reliable, customer-focused organization. The Amoco Motor Club offers year-round, 24 hour emergency road and towing services to more than two million club members. Acquisition of Lechmere In March 1994, Montgomery Ward acquired Lechmere Inc. a chain of Northeast- based superstores. Lechmere offers a comprehensive selection of nationally recognized brands of hardline merchandise (primarily consumer electronics and appliances) and currently operates 27 Lechmere stores averaging approximately 50,000 square feet of selling space. In 1996, Lechmere opened 3 Item 1. Business Corporate Expansion (continued) Acquisition of Lechmere (continued) 5 HomeImage stores under the Lechmere name and converted a Lechmere store to a HomeImage store. HomeImage stores carry a similar assortment to Lechmere but with an expanded furniture and home furnishings offering. The Company has opened 79 new stores (including 5 Lechmere stores) in the last 6 years. Other Corporate Expansion On August 8, 1995, Montgomery Ward purchased a 4.4% equity interest in ValueVision International, Inc. (ValueVison). In July 1996, Montgomery Ward restructured this agreement, including its investment in Montgomery Ward Direct (MW Direct), as discussed below. See Note 20 to the Consolidated Financial Statements for discussion of ValueVision as a related party. The Company was a partner in a joint venture, (MW Direct), formed through a partnership in 1991 between subsidiaries of Montgomery Ward and subsidiaries of Fingerhut Companies, Inc. (Fingerhut), a Minneapolis, Minnesota specialty- based catalog merchandiser. In June 1996, the subsidiaries of Fingerhut withdrew from the partnership. Also in July 1996, Montgomery Ward and ValueVision entered into an agreement whereby ValueVision acquired the assets and assumed certain liabilities of MW Direct in exchange for ValueVision warrants. This transaction was effected concurrently with the restructuring of the marketing agreement between Montgomery Ward and ValueVision. Certain of the warrants obtained in this transaction were contributed to Merchant Partners, Limited Partnership (see below) and others were pledged to secure performance of cable system advertising obligations. Montgomery Ward now owns warrants to purchase up to 14.95% of ValueVision. In the July 1996 restructuring, ValueVision's sales promotion rights were expanded beyond the television home shopping arena to include the full use of the Montgomery Ward and Lechmere service marks, and the right to market to the 10 million-plus active credit card file for direct mail catalogs and ancillary promotions. In July, 1994, Montgomery Ward became a limited partner in Merchant Partners, Limited Partnership (Merchant Partners). The purpose of this partnership was to invest in new and emerging growth businesses and leveraged buy-outs. Montgomery Ward made capital contributions of $17 million, including ValueVision warrants, to Merchant Partners in 1996, $4 million in 1995 and $1 million in 1994. On December 31, 1996, Montgomery Ward entered into an agreement under which Montgomery Ward assigned, transferred and set over unto Merchant Advisors, Limited Partnership (the general partner of Merchant Partners), Montgomery Ward's entire right, 4 Item 1. Business Corporate Expansion (continued) Other Corporate Expansion (continued) title and interest in and to its limited partnership interest, including the entire balance in its capital and contributions accounts, in Merchant Partners. The agreement eliminated Montgomery Ward's future obligations with respect to its interest in Merchant Partners. See Note 20 to the Consolidated Financial Statements regarding the 1995 distribution by Merchant Partners and the financial impact of the assignment of Montgomery Ward's interest in Merchant Partners to Merchant Advisors, Limited Partnership. Performance Initiatives Slow sales in fourth quarter 1995 and the shipment of foreign sourced goods, the quantity of which could not be reduced, resulted in Montgomery Ward entering 1996 with higher than desired inventory, particularly in apparel. A broadening of merchandise assortments had also occurred, primarily in the electronics and home office categories, which increased the need for clearance markdowns. In addition, sales in 1996 were impacted by fewer new proprietary credit accounts in the first part of the year as a result of a decline in credit marketing in Fall 1995 and early 1996. In response to these conditions, the Company has decided to narrow its merchandise assortments to focus on items which have higher margins. The Company's new strategy is to concentrate on offerings at price points and quality levels intended to appeal to consumers desiring higher quality goods than those generally available from discounters, at prices generally lower than those charged by department stores. In 1996 and continuing in 1997, the Company undertook a program to identify underperforming inventory including discontinued stock keeping units (SKU's) that did not meet its strategic criteria and to liquidate that inventory. Sales have been negatively impacted by competitive conditions and the Company's decision to reduce and redeploy this inventory in concert with its new strategic direction. 1996 was negatively impacted by significant liquidation sales that resulted in lower retail prices and the reduction of new merchandise receipts during the transition period as the Company attempted to accelerate cash flow. This heavily promoted, discounted inventory also impacted regular priced inventory offerings. To make way for the new strategies in Hardlines and Apparel, the Company is reducing certain lines of merchandise such as exiting suit separates in Apparel and narrowing the number of types of computers to be carried in Hardlines at Montgomery Ward. These factors and intense competition, most specifically in electronics and home office, resulted in the Company incurring a net loss for the year of $237 million. The Company believes the new merchandise assortment will have more universal appeal among consumers, increase inventory turnover and raise margin rates and that the emphasized merchandise categories will competitively position the Company in the niche between discounters and department stores. Narrower inventory assortments should also facilitate inventory management, improve in-stock positions, increase marketing productivity, lower distribution costs and increase cash flow. 5 Item 1. Business Performance Initiatives (continued) In addition to actions initiated to reduce inventories in response to slow industry-wide sales and identify opportunities to enhance inventory turnover and sales and gross margin productivity, inventory programs to lessen the time between ordering, receipt and sale of inventory have been undertaken. For example, the use of foreign sourcing is being decreased to shorten commitments and increase the speed at which the Company can respond to volatile sales trends. Direct Marketing The Signature Group, headquartered in Schaumburg, Illinois, sells through direct response marketing a wide array of insurance and continuity club membership programs that provide consumer services. Specifically, the Company provides consumers with credit insurance, supplemental life and health insurance, Dining a la Card, credit card registration, auto clubs, and dental and legal services plans. For two consecutive years, The Signature Group has been ranked the number one service agency by Telemarketing Magazine. The Signature Group believes it has one of the broadest product offerings among direct marketing companies. The Company is the second largest outbound telemarketer in the country. Its legal and dental services programs are the largest providers of such voluntary services in the United States. With The Signature Group's recent acquisition of the Amoco Motor Club, the Company operates the largest national automobile club in the United States. In addition, with its acquisition of Credit Card Sentinel in 1995, The Signature Group is the second largest provider of credit card registration in the United States. The Signature Group is a recognized leader in direct mail and telemarketing techniques, including the development and use of sophisticated segmentation scoring models, which the Company believes will help to optimize profits from marketing investments. The Company mails more than 475 million solicitations and makes more than 68 million calls annually. The Signature Group's 32 telemarketing facilities (24 outbound, 2 inbound, and 6 retention centers) are equipped with the latest technology, including proprietary software to maximize calling efficiency. The Signature Group has also developed a special expertise in managing networks of independent contractors. The Company's auto, dental and legal services plans and the dining customer rebate program all utilize such networks to provide services to The Signature Group customers. These networks, which have been developed over many years, would be very difficult to replicate. Also, these networks are integral components of the products, which ensure the delivery of quality service and improve the likelihood of membership renewals. All core service elements are owned by The Signature Group to ensure superiority in service delivery and implementation. 6 Item 1. Business Direct Marketing (continued) The Signature Group has marketing rights to nearly 12.2 million active Montgomery Ward and Lechmere credit card customers. The Signature Group also markets on behalf of approximately 200 other clients, including some of the nation's largest financial institutions, retailers, airlines, oil companies, associations, unions and employer groups. The Signature Group's major clients include: Citibank, Chemical Bank, American Express, The Limited, Nordstrom, United Airlines, TWA, Mobil, Texaco, Amoco, AARP, Ameritech, Nations Bank, Federated and Discover. Over the last two years, The Signature Group has aggressively sought to diversify its customer account base through new third party relationships and business acquisitions. As of December 30, 1995, The Signature Group had a total of 11.4 million members, 7.0 million (61%) of which were from Montgomery Ward accounts. As of December 28, 1996, Signature had 15.6 million members, 7.2 million (46%) of which were from Montgomery Ward and Lechmere accounts. The acquisition of the Amoco Motor Club in January 1996 added 2.1 million accounts. For 1996, Montgomery Ward and Lechmere accounts comprised 48.4% of Signature's revenue. See Note 21 to the Consolidated Financial Statements for restrictions on dividends which may be paid by insurance subsidiaries of Signature. Competition and Regulation The sale of merchandise by Montgomery Ward and Lechmere is conducted under highly competitive conditions. Buying and selling are each done in open competitive markets. Montgomery Ward's stores are in competition with specialty stores, department stores and other types of retail outlets in the areas in which they operate. The Company believes that merchandise assortments, brand names, competitive pricing and availability of services such as credit, delivery, installation and repair, are the principal factors which differentiate it from competitors. Competition in sales of Electronics and Home Office products was particularly intense in 1996. The Company believes that the 10% decline in net sales in 1996 reflected a decline in market share compared to competitors. Certain of Signature's operations are highly regulated and conducted under highly competitive conditions. To date, Signature has been able to compete effectively with other companies which offer programs similar to those provided by Signature. Signature also competes with traditional methods of marketing by unaffiliated dentists and lawyers. Insurance companies operate pursuant to specific state statutes as well as rules and regulations and are required to file reports with such agencies at least quarterly. Telemarketing and direct mail solicitations are regulated at state and federal levels, and management believes that these activities will increasingly be subject to such regulation. Such regulation may limit Signature's ability to solicit new members or to offer more products and services to existing members and may materially adversely affect 7 Item 1. Business Competition and Regulation (continued) Signature's business and revenues. The requirements of environmental protection laws and regulations have not had a material effect upon Montgomery Ward's operations. Compliance may, in certain cases, lengthen the lead time of expansion plans and could increase construction and operating costs. Account Purchase Agreements Credit is extended to Montgomery Ward customers under an open-ended revolving credit plan and is an important element of generating sales, especially in the big ticket businesses. Montgomery Ward's private label credit card sales were 50.4% and 54.2% of total sales for 1996 and 1995, respectively. Bankcard sales were an additional 19.9% and 16.4% of total sales for 1996 and 1995, respectively. Montgomery Ward entered into a Bank Credit Card Program Agreement (Card Agreement) effective April 1, 1996 with Monogram Credit Card Bank of Georgia (Monogram), and an Account-Related Agreement (Account Related Agreement) effective April 1, 1996 with Montgomery Ward Credit Corporation (Montgomery Ward Credit) (collectively referred to as the Agreements) pursuant to which Monogram and Montgomery Ward Credit (collectively referred to as the Montgomery Ward Credit Companies or MWCC), both of which are affiliates of General Electric Capital Corporation (GE Capital), make payments to Montgomery Ward as to their receivables generated by sales to customers of Montgomery Ward, its affiliates and licensees who utilize the Montgomery Ward private label credit card, and pursuant to which Agreements the Montgomery Ward Credit Companies provide services to Montgomery Ward. Under the Agreements, Monogram has the exclusive right to operate the Montgomery Ward private label credit card system and the obligation to pay to Montgomery Ward the face amount of Monogram's receivables generated by the Montgomery Ward private label credit card system, up to $7 billion outstanding at any time. If Montgomery Ward desires to receive payment for receivables generated by the Montgomery Ward private label credit card system at any time when Montgomery Ward Credit Companies own $7 billion or more of such receivables and do not desire to finance additional receivables, alternative arrangements, such as the sale of receivables to banks or other financial institutions, would be required unless Monogram agrees to fund the excess. As of December 28, 1996, there were $5.2 billion of Montgomery Ward private label credit card receivables owned by Montgomery Ward Credit Companies, and the average outstanding amount of such receivables owned by Montgomery Ward Credit Companies during 1996 was $4.8 billion. Pursuant to the Agreements, Monogram bears certain promotion expenses, while Montgomery Ward retains certain specified in-store service responsibilities with respect to credit operations. Decisions regarding certain credit program matters are subject to the approval of a marketing 8 Item 1. Business Account Purchase Agreements (continued) committee with representatives from each party. Under the Card Agreement, Montgomery Ward is required to pay Monogram the excess interest costs on a monthly basis if a blended interest rate applicable to funding costs with respect to the receivables exceeds 10% per annum. This blended interest rate has been less than 10% since 1988. Effective April 1, 1996, Montgomery Ward generally bears the risk of credit losses due to non-payment by cardholders to the extent of (i) the amount of credit losses that are between 3.9% and 5.0% of average outstanding receivables, plus (ii) 50% of credit losses that are between 5.0% and 8.0% of average outstanding receivables, subject to offsets described below relating to Montgomery Ward's share of certain incremental increases in finance charges and late fees payable by cardholders. Montgomery Ward is also responsible for losses on certain higher risk starter card accounts to the extent the loss percentage as to those accounts exceeds the loss percentage experience on the rest of the portfolio. Montgomery Ward's net unpaid liability for credit losses for 1991 through 1997 will be payable to Montgomery Ward Credit pursuant to a note (Continuation Note) due in early 2003, provided (i) the outstanding balance of such note cannot exceed $300 million, (ii) monthly principal payments are required as follows: 1997-$1.0 million, 1998-$1.417 million, 1999-$2.75 million, 2000-$1.25 million, 2001- $417 thousand, and 2002-$417 thousand, and (iii) starter card losses are payable currently. Interest on Montgomery Ward's unpaid liability for credit losses is payable at a rate equal to rates on comparable borrowings of Montgomery Ward. The Company does not expect its unpaid share of credit losses for the period through 1997 net of its share of incremental finance charges and late fee assessments to exceed the $300 million limitation. In exchange for Montgomery Ward's agreement to allow Montgomery Ward Credit to increase finance charge rates and late fees in selected states prior to 1996, Montgomery Ward receives a share of incremental finance charges and late fees resulting from such increases. Such amount is available for offset against Montgomery Ward's unpaid liability for its share of credit losses, and to the extent not currently paid or offset earns interest at the same rate as amounts owed by Montgomery Ward to Montgomery Ward Credit. Effective April of 1996 Monogram implemented additional finance charge and late fee increases in various states. The amount of these additional incremental finance charges and late fees are calculated each year (Gross Designated Incremental Revenue). Pursuant to the Account Related Agreement the Gross Designated Incremental Revenue amount is made available to pay (i) certain costs which may be incurred by Montgomery Ward and Montgomery Ward Credit Companies relating to the implementation and continuation of the new finance charges and late fees, including conversion costs, ongoing costs, loss by Montgomery Ward of certain sales tax recoveries, and certain potential costs that may arise in connection with legal proceedings, (ii) Montgomery Ward Credit's and Montgomery Ward's respective allocated shares of credit losses in excess of 3.9% of average 9 Item 1. Business Account Purchase Agreements (continued) outstanding receivables, and (iii) Montgomery Ward's Continuation Note, with 20% of any remaining portion of the Gross Designated Incremental Revenue payable to Montgomery Ward. In the event that, due to the increase in finance charge rates and late fees, refunds are required to be made; Montgomery Ward and Montgomery Ward Credit have agreed to in certain cases share the financial risk. Legislation has from time to time been introduced in certain jurisdictions, which if enacted, may require rescinding all or a portion of such increases, in which case Montgomery Ward's share of such increases may be substantially reduced. Credit losses have increased in 1996, primarily as a result of increased personal bankruptcies and lack of payments by customers. As the increased finance charge rate and late fees are added to the credit card balances, this will cause the level of losses to increase. The higher finance charges and late fees also decrease the credit available by the credit card customer. The Company and Montgomery Ward Credit are jointly working on programs to reduce this risk. In connection with the foregoing arrangements, Montgomery Ward has executed notes for its unpaid share of credit losses which totaled $333 million with respect to credit losses through 1996. The incremental finance charges and late fee assessments due to Montgomery Ward at the end of 1996 were $81 million for a net obligation of $252 million. Monogram has the right of first refusal to implement certain new financing programs proposed by Montgomery Ward. The Agreements are scheduled to expire on December 31, 2011, provided the terms shall continue thereafter from year to year unless either party gives ten years prior notice of its election to terminate. Except upon the occurrence of certain events of default, the Agreements may generally not be terminated by either party prior to December 31, 2011. GE Capital has guaranteed Montgomery Ward Credit Companies' obligations under the Agreements. Monogram makes payments in respect of Signature customer accounts receivable pursuant to the Card Agreement. In 1996, Signature paid approximately $6 million to Montgomery Ward Credit for administration services provided by Montgomery Ward Credit in connection with Signature products. In addition to the Agreements, Montgomery Ward's subsidiary, Lechmere entered into an Interim Consumer Credit Card Program Agreement (Lechmere Agreement) effective March 13, 1996 with Monogram pursuant to which Monogram makes payments to Lechmere in the face amount of Monogram's receivables generated by sales to customers of Lechmere who utilize the Lechmere private label credit card system that is provided by Monogram pursuant to the Lechmere Agreement. (The Lechmere Agreement provides that 10 Item 1. Business Account Purchase Agreements (continued) it will terminate upon the earlier of March 31, 1997 or the execution of a long-term agreement between the parties.) A term sheet was executed on March 7, 1997, outlining the major provisions that the parties intend to incorporate in the long-term agreement. The term sheet contemplates a long- term agreement for a fifteen year term which would continue thereafter from year to year unless either party gives ten years prior notice of its election to terminate. The term sheet further provides that Montgomery Ward will (i) be responsible for 50% of credit losses that are between 4.25% and 8.0% of average outstanding receivables, (ii) receive a one time payment of $3 million in consideration of entering into the agreement, (iii) be responsible for a payment to Monogram of approximately $2.5 million representing 50% of the reserve established when Monogram purchased the Lechmere portfolio from the previous provider of the Lechmere private label credit card, and (iv) receive 50% of the net income generated from the portfolio in excess of a 17.5% return. Associates At December 28, 1996, Montgomery Ward and its subsidiaries employed the equivalent of 58,100 full-time associates. During certain seasons, temporary associates are added and peak employment is approximately 80,200 associates during the Christmas season. Approximately 2,150 Montgomery Ward and Lechmere associates are covered by various collective bargaining agreements. The majority of the agreements expire in 1997. Montgomery Ward has experienced no major labor-related interruption or curtailment of operations during the last 15 years. Change of Control Effective January 6, 1997, Roger Goddu was appointed Chairman and Chief Executive Officer of Montgomery Ward and Chief Executive Officer of the Company. Coincident with the change, the Board of Directors of both companies was reconfigured from 5 designees by Bernard F. Brennan, the former CEO, and 5 designees by GE Capital, to 5 designees by GE Capital, 2 by Mr. Goddu and 3 by Mr. Brennan. Board operating control changed from a simple majority, with a two thirds super majority required for certain extraordinary actions, to a requirement that 7 out of 10 members agree. Mr. Goddu is in the process of assembling a new management team. Since January 6, 1997, additions have included: (i) Mr. Burnett Donoho, Vice Chairman and Chief Operating Officer, (ii) Mr. Thomas Grimes, President- Hardlines and (iii) Mr. Karl Taylor, Senior Vice President-Strategic and Merchandise Planning. Additional searches are underway for selected other key managers to be part of the new team. 11 Item 1. Business Business Plan Coincident with the change of control, Mr. Goddu and his management team have begun a process to develop a new business strategy for Montgomery Ward in response to its large losses and decreasing revenue. This plan will form the basis for securing a new financing structure to support the strategic actions intended to improve the retail results. It is anticipated a plan will be presented to the Company's financial institutions in the second quarter of 1997 and it is expected that elements of the financing plan will be in place during the third quarter of 1997. While the plan is not finalized, several critical elements have been discussed with lenders to the Company. Key attributes of the plan that are in process include (i) a new merchandising/marketing strategy, (ii) a review of potential sales of non-core assets, (iii) rationalization of poorer performing stores, (iv) expense reduction opportunities in overhead and operations, (v) the determination of the value of selected assets to raise cash through sale or collaterization and (vi) the financial support (and its characterization) available from GE Capital. Item 2. Properties At December 28, 1996, the Company owned or leased 498 retail, distribution and other operating facilities. The Company's properties are located throughout the continental United States and cover approximately 60 million square feet. These properties are summarized as follows: Number Approximate of Total Use Locations Square Feet --- --------- ----------- Montgomery Ward Retail Stores: Full Line............................... 341 44,130,000 Limited Line............................ 34 2,051,000 Lechmere Retail Stores..................... 27 2,344,000 HomeImage Stores........................... 6 445,000 Corporate Office Complex................... 1 2,975,000 Miscellaneous Operating Locations.......... 89 7,855,000 --------- ----------- Total Locations......................... 498 59,800,000 --------- ----------- --------- ----------- Owned and leased retail stores include approximately 29 million square feet of selling space and 19 million square feet devoted to storage, office and related uses. Miscellaneous operating locations include warehouses, office buildings and distribution centers, but exclude vacant land parcels and properties held for disposition. See Note 13 to the Consolidated Financial Statements for information with respect to leased properties. 12 Item 2. Properties (continued) The nationwide scope of Montgomery Ward's operations helps minimize the impact of changes in the economies of specific regions on the overall performance of its retail stores and allows Montgomery Ward to merchandise to a variety of demographic profiles. The regional distribution of Montgomery Ward and Lechmere retail stores, which includes HomeImage, as of December 28, 1996 is indicated in the following table: State Total ----- ----- Alabama 4 Arizona 11 Arkansas 5 California 56 Colorado 13 Connecticut 4 Florida 23 Georgia 3 Idaho 1 Illinois 32 Indiana 9 Iowa 6 Kansas 6 Kentucky 2 Louisiana 6 Maine 1 Maryland 16 Massachusetts 14 Michigan 17 Minnesota 10 Missouri 10 Montana 2 Nebraska 2 Nevada 3 New Hampshire 6 New Mexico 4 New York 19 North Carolina 4 North Dakota 1 Ohio 5 Oklahoma 5 Oregon 8 Pennsylvania 15 Rhode Island 1 South Carolina 5 Tennessee 2 Texas 45 Vermont 1 Virginia 17 Washington 3 West Virginia 5 Wisconsin 5 Wyoming 1 --- Total 408 --- --- 13 Item 3. Legal Proceedings The Company and its subsidiaries are engaged in various litigation, including purported class actions, and have a number of unresolved claims. While the amounts claimed are substantial and the ultimate liability with respect to such litigation and claims cannot be determined at this time, management is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to have a material impact on the financial condition or the results of operations of the Company. In 1979, a suit entitled "United States v. Midwest Solvent Recovery, Inc., et.al." (Civil Action Number H-79-556) was initiated by the United States Department of Justice on behalf of the Environmental Protection Agency in the U.S. District Court for the Northern District of Indiana, and an Amended Complaint was filed in January 1984. This suit is against Standard T Chemical Company, Inc., a Delaware corporation and wholly-owned subsidiary of Montgomery Ward (Standard T), which ceased operations in 1994 and is currently an inactive entity, and others involving two waste disposal sites and seeks reimbursement for the cost of surface clean-up, investigation studies concerning possible contamination of the soil and ground water and remedial action. In January 1990, the United States filed a second Amended Complaint seeking inter alia, treble damages and monetary sanctions. Standard T signed a consent decree, whereby it was obligated to provide a financial assurance up to $3 million for remediation of the site. The Company currently anticipates that its obligation will not exceed that amount. In 1985, the New York Environmental Protection Agency brought an action for remediation of a site in Staten Island, New York against the owner of the property. The owner asserted that Standard T, among others, generated wastes that were disposed of by a prior owner of the site. Standard T is in the process of completing the cleanup of this site and has purchased the site from the owner for $1.45 million. In February 1986, Standard T, along with approximately 330 other companies, was notified by the United States Environmental Protection Agency that the agency was mandating a remediation of the contamination of the American Chemical Services, Inc. (A.C.S.) site located in Griffith, Indiana, under authority vested in it by the Comprehensive Environmental Response, Compensation and Liability Act of 1980. Standard T and a Montgomery Ward paint factory were each identified as a Potentially Responsible Party (PRP), under the terms of the Act, because of their alleged status as generators of hazardous waste ultimately disposed of at the A.C.S. site. The Company will pay its proportionate share of the costs of the studies, and may ultimately pay a share of the costs of abating the contamination of the A.C.S. site. One estimate by the EPA of future costs of abating contamination at the A.C.S. site is $69 million with the Company alleged to be responsible for 2 to 2 1/2% of total costs. However, these costs cannot be estimated with any degree of accuracy at this time. Thus, the Company is currently not in a position to estimate the range or amount of potential exposure in this matter with a high degree of certainty. 14 Item 3. Legal Proceedings (continued) Standard T and Montgomery Ward are also involved at various stages with several other sites where Standard T and Montgomery Ward have been notified or sued as a PRP. The potential liability related to these sites cannot be estimated at this time. Item 4. Submission of Matters to a Vote of Security Holders. None. EXECUTIVE OFFICERS OF THE REGISTRANT Listed below are the names and ages of the executive officers of the Company as of March 28, 1997, and the positions each has held during the past five years: Roger V. Goddu, 46, has been Chairman & Chief Executive Officer and a director of the Company and Chief Executive Officer of Montgomery Ward since January 6, 1997. Prior thereto, he was with Toys "R" Us where from 1996 until 1997, he was President-U.S. Merchandising, and 1989 to 1995, he was Executive Vice President/General Merchandise Manager. Prior thereto, Mr. Goddu was with Target Stores, a division of Dayton Hudson, from 1980 through 1989 where he held various positions of increasing responsibility, including Senior Vice President and General Merchandise Manager of Hardlines, Men's and Boy's. Burnett W. Donoho, 57, has been Vice Chairman & Chief Operating Officer and a director of the Company and Chief Operating Officer of Montgomery Ward since February 3, 1997. Prior thereto, he managed his own retail consulting firm during 1996. Mr. Donoho was Chief Operating Officer of The Broadway Stores from July 1995 through January 1996. Prior thereto, he was Vice Chairman, Chief Operating Officer for Macy's East from July 1992 through December 1994. Mr. Donoho held several consulting assignments during 1990, including six months with the Chicago Public School system. Prior to his consulting assignments, Mr. Donoho was President and Chief Operating Officer at Marshall Field's from March 1984 through June 1990. Mr. Donoho is a member of the Board of Directors of Office Max, Inc. and GTech Corporation. Spencer H. Heine, 54, has been an Executive Vice President, Secretary and General Counsel of the Company since September 30, 1991 and a director from May 15, 1992 through January 6, 1997. He is currently serving as interim Chief Executive Officer of Signature. Mr. Heine was Senior Vice President, Secretary and General Counsel of the Company from June 17, 1988 through September 29, 1991. Mr. Heine has been Executive Vice President, Secretary and General Counsel of Montgomery Ward and President - Montgomery Ward Properties since April 12, 1994. Prior thereto, Mr. Heine served as Executive Vice President, Legal and Financial Services of Montgomery Ward from September 30, 1991 through April 11, 1994. He served as Senior Vice President - Legal and Real Estate from March 28, 1990 through September 29, 1991. Mr. Heine was Chairman and Chief Executive Officer of Signature from 15 Executive Officers of the Registrant (continued) March 8, 1993 through April 11, 1994. Prior thereto, he also served as President of Signature since September 30, 1991. Mr. Heine is a member of the Board of Directors of First Union Real Estate Investment, a real estate investment trust located in Cleveland, Ohio. Michael M. Searles, 47, has been President - Softlines of Montgomery Ward since February 23, 1997. Prior thereto, he was President - Merchandising from November 1996 through February 1997. Mr. Searles was Executive Vice President Apparel & Gold 'N Gems from May 1996 through November 1996. Prior thereto, he was President and CEO of Women's Specialty Retail Group (Casual Corner, Petite Sophisticate and August Max) from April 1993 through July 1995. Prior to joining Women's Specialty Retail Group, Mr. Searles was President of Kids "R" Us from May 1984 through April 1993. Thomas G. Grimes, 59, has been President - Hardlines of Montgomery Ward and Chief Executive Officer - Lechmere and a director of the Company since February 23, 1997. Prior thereto, he was Managing Director of Trimingham Bros. Ltd. from January 1996 through February 1997. Prior to joining Trimingham Bros. Ltd., Mr. Grimes was Chairman and Chief Executive Officer of the John Breuner Company, a division of Batus Inc., since 1986. Prior thereto, he was Chairman and Chief Executive Officer of Gimbels Midwest from July 1978 through September 1986 and Senior Vice President and General Merchandise manager of Gimbels New York from January 1976 through April 1978. Mr. Grimes began his 34 years in retailing at Federated Department Stores where he held positions of increasing responsibility up to Vice President General Merchandise Manager until January 1976. Alan E. DiGangi, 49, has been Executive Vice President, Electric Ave. and Auto Express of Montgomery Ward since November 1996. Prior thereto, he was Executive Vice President Marketing of Montgomery Ward from March 1996 through November 1996. Mr. DiGangi has been Executive Vice President, Electric Ave., Rooms & More/Soft Home of Montgomery Ward since January 5, 1996. Prior thereto, he was Executive Vice President, Electric Ave. & More from April, 1995 to January, 1996. Mr. DiGangi joined Montgomery Ward in April, 1970 and has held various positions within Store Management, Field Operations, Marketing and Sales Promotion. John L. Workman, 45, has been Executive Vice President, Chief Financial Officer and Assistant Secretary of the Company since January 28, 1994 and a director from May 12, 1995 through January 6, 1997. Prior thereto, he served as Senior Vice President, Chief Financial Officer and Assistant Secretary from August 31, 1992 through January 27, 1994 and Vice President and Assistant Secretary from May 15, 1992 through August 30, 1992. Mr. Workman has been Executive Vice President and Chief Financial Officer of Montgomery Ward since January 28, 1994 and served as Senior Vice President and Chief Financial Officer from August 31, 1992 to January 27, 1994. Prior thereto, he served as Vice President and Corporate Controller from January 16, 1991 through August 30, 1992 and Corporate Controller from August 2, 1988 through January 15, 1991. Mr. Workman is a member of the 16 Executive Officers of the Registrant (continued) Board of Directors of ValueVision International, Inc., Minneapolis, Minnesota. Mr. Workman has announced his intention to resign from the Company. While his departure date has not been determined, it is likely not to be before the third quarter of 1997. Robert A. Kasenter, 50, has been an Executive Vice President of the Company since February 21, 1992. Prior thereto, he was a Senior Vice President of the Company from June 17, 1988 through February 20, 1992. Mr. Kasenter has served as Executive Vice President, Human Resources and Corporate Communications of Montgomery Ward since January 27, 1992 and was Senior Vice President - Human Resources and Customer Satisfaction from June 23, 1988 to January 26, 1992. Carol J. Harms, 43, has been Vice President and Treasurer of the Company since January 1, 1989 and Senior Vice President of Finance for Montgomery Ward since February 5, 1996. Prior thereto, she was Vice President and Treasurer of Montgomery Ward from May 1, 1988 to February 4, 1996. 17 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters There is no established public trading market for the Common Stock of the Company. All shares are subject to restrictions on transfers contained in the Stockholders' Agreement dated as of June 17, 1988, as amended (Stockholders' Agreement), or the Terms and Conditions (Terms and Conditions) imposed under the Montgomery Ward & Co., Incorporated Stock Ownership Plan (Stock Ownership Plan). It is not expected that a market will develop in the near term. Transfers of shares of Class A Common Stock are restricted for a period of three years from certain applicable dates under the Stockholders' Agreement and the Terms and Conditions. Transfers of Class A shares purchased other than pursuant to the Stock Ownership Plan are restricted for a period of three years from the holder's first acquisition of any such shares, while transfers of shares received under the Stock Ownership Plan are restricted for a period of three years after the award of such shares, exercise of purchase rights for such shares or grant of options with respect to such shares, as applicable. After the applicable three-year periods, limited transfers of such shares which have become vested in accordance with the Stockholders' Agreement or the Terms and Conditions, as applicable, are permitted, subject to certain rights of first refusal. All of the Class B shares and virtually all of the outstanding Class A shares are eligible for transfer. Montgomery Ward declared $12 million and paid $9 million in preferred stock dividends to the Company in 1996, which declared $12 million and paid $9 million preferred stock dividends in 1996. Montgomery Ward declared and paid preferred stock dividends of $4 million to the Company in 1995, which declared and paid preferred stock dividends of $4 million in 1995. For information concerning limitations on the amount of dividends which Montgomery Ward may pay, see Note 12 to the Consolidated Financial Statements. Future payments of dividends, if any, are dependent upon future levels of earnings and capitalization. As of March 20, 1997, there were three holders of record of Class A Common Stock, Series 1, one such holder of Class A, Common Stock, Series 2, and one such holder of Class B Common Stock. No shares of Class A Common Stock, Series 3, were outstanding as of that date. As of March 20, 1997, there were 91 holders of record of Voting Trust Certificates representing beneficial ownership in shares of Class A Common Stock, Series 1, of which 438,655 shares are pledged as collateral for notes issued to effect the repurchase of shares. The Company does not have the capacity under its borrowing agreements to satisfy the payments for these notes. If this situation is not cured within one year after a note payment is missed the noteholder can foreclose on the pledge of shares repurchased. See Note 15 to the Consolidated Financial Statements. There were 194 holders of record of Voting Trust Certificates representing beneficial ownership in shares of Class A Common Stock, Series 2. 18 Item 6. Selected Financial Data The following summary of certain financial information for each of the five fiscal years in the period ended December 28, 1996 has been derived from the Consolidated Financial Statements of MW Holding. Such information for each fiscal year should be read in conjunction with the Consolidated Financial Statements and notes thereto and the report of independent public accountants beginning on page 29.
(Dollars in millions, except per share amounts) ---------------------------------------------------------------------- As Of And For the... ---------------------------------------------------------------------- 53-Week 52-Week Period Period Ended Ended Jan. 2 Jan. 1, Dec. 31, Dec. 30, Dec. 28, 1993 1994 1994 1995 1996 ------ ------- ------- -------- -------- Total Revenues $5,803 $6,023 $7,029 $7,085 $6,620 Net Income (Loss) (a) 100 101 109 (9) (237) Net Income (Loss) Applicable to Common Share- holders (a) 92 101 107 (13) (249) Net Income (Loss) per Class A Common Share (a) 2.01 2.29 2.48 (.31) (6.18) Total Assets 3,485 3,835 4,537 4,884 4,879 Long-Term Debt 125 213 228 423 87 Obligations Under Capital Leases 95 89 81 66 60 Total Share- holders' Equity (a) 553 607 679 700 433 Redeemable Preferred Stock - - 75 175 175 Cash Dividends per Common Share .25 .50 .50 - -
a) 1994 amounts are presented before the cumulative effect of a change in accounting principle, see Note 6 in the Notes to the Consolidated Financial Statements. 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of results of operations for the Company compares 1996 to 1995, as well as 1995 to 1994. Montgomery Ward is on a 52- or 53- week fiscal year basis, with 1996, 1995 and 1994 each being 52-week years. All dollar amounts are in millions, and all income and expense items and gains and losses are shown before income taxes, unless specifically stated otherwise. The Company's retail business is seasonal, with more than 32% of the 1996 sales occurring in the fourth quarter. Results of Operations: 1996 Compared with 1995 Management's identification of slow-moving inventory resulted in inventory liquidation efforts which negatively impacted 1996 results. From September through December, the Company accelerated efforts to reduce and redeploy inventory to allow for a shift in focus to items the Company believes will provide higher inventory turnover and improved merchandise assortments in the future. As of the beginning of fourth quarter 1996, over $300 in inventory was identified in items which would not be re-ordered and which was competitively disadvantaging the Company. Aggressive markdowns and promotional advertising to liquidate this inventory were initiated in the fourth quarter of 1996 and will continue in the future. While these actions have an adverse earnings impact, they are generating positive cash flows. At December 28, 1996, the remaining amount of this inventory was $130 before any additional markdowns. In December, the Company provided $54 for the loss on liquidation of this remaining inventory and also identified $55 of other inventory that would be sold at a loss and provided $19 for the loss on liquidation for this inventory as well. The Company believes that the liquidation of this inventory should position it with balanced inventory assortments to execute its strategic plan in future periods. However, the Company anticipates that the trends resulting from competitive pressures underlying declining revenues and margin rates will continue in fiscal 1997. The Company's performance reflected the impact of the change in inventory assortment and difficult competitive conditions discussed above with the consolidated net loss increasing $228 from the prior year's net loss of $9. The consolidated net loss applicable to common shareholders for 1996 was $249 versus $13 last year. Consolidated total revenues (net sales and direct response marketing revenues, including insurance) were $6,620 compared with $7,085 in 1995, decreasing by $465 or 6%. The $465 total revenue decrease consisted of a $652 decrease in net sales and a $187 increase in direct marketing revenues. The change in total net sales represented a 10% decline. Specifically, Apparel sales declined 10%, Jewelry sales declined 11%, Home and Furniture sales declined 9%, Electronics declined 10%, Appliances declined 8% and Automotive sales declined 6%. Sales on a comparable store basis, which reflect only the 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations: 1996 Compared with 1995 (continued) stores in operation for both 1996 and 1995, decreased 11%. The Company believes that the decline in net sales in 1996 reflected a decline in market share compared to competitors. The increase in direct response marketing revenues was primarily due to increased clubs' membership driven by the acquisition of the Amoco Motor Club business and increased insurance policy holder levels. Gross margin (net sales less cost of goods sold) dollars were $1,010, a decrease of $310, or 23%, from 1995. This decrease was due to the gross margin impact of the decreased sales of $163, a decrease in the margin rate on sales of $142, and increased occupancy costs of $7 related to increased depreciation on capital investments in new and existing stores, partially offset by decreased buying and other expenses of $3. The liquidation of slow moving and discontinued inventory and the continued competitive pressures also had a significant impact on margin rates. Operating, selling, general and administrative expenses increased $209, or 12%, from the prior year. The increase includes the impact of new store openings of $16, increased provision for bad debt expense under the Account Purchase Agreements of $21, increased advertising and other promotional costs of $74, increased amortization of direct response and insurance acquisition cost of $61 and increased operating and administrative expenses of $11, and decreased income generated from the sale of product service contracts of $10 (See Note 10 to the Consolidated Financial Statements). 1995 included a provision for severance costs and relocation of certain administrative functions of both Montgomery Ward and Lechmere of $25. Net interest expense increased $20, or 22%, from the prior year. The increase is due to increased borrowings resulting from a combination of higher average working capital levels and reduced cash flow resulting from slower than anticipated sales, partially offset by reduced capital expenditures for new and existing stores. Income tax benefit was $138 for 1996 as compared to an income tax benefit of $14 for 1995. See Note 9 to the Consolidated Financial Statements. Results of Operations: 1995 Compared with 1994 Increasingly difficult industry conditions further challenged retailers' ability to provide profitable, value-driven products, appropriate assortment and maintain disciplined inventories. The Company's performance reflected this with a consolidated net loss of $(9) compared to the prior year's net income of $109. Consolidated net income applicable to common shareholders for 1995 was $(13). Net income for 1995 includes the first quarter loss from operations of Lechmere. Lechmere was acquired on March 30, 1994, therefore, 1994 results exclude Lechmere's first quarter 1994 results. Given the seasonality of Lechmere's business, it has historically experienced losses in the first quarter of the year. 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations: 1995 Compared with 1994 (continued) Consolidated total revenues (net sales and direct response marketing revenues, including insurance) were $7,085 compared with $7,029 in 1994, increasing by $56 or 1%. The $56 total revenue increase consisted of a $33 decrease in net sales and an $89 increase in direct marketing revenues. The change in total net sales represented a 1% decline, however, excluding Lechmere's first quarter 1995 impact of $192, as described above, net sales decreased $225, or 3%. Apparel and domestics sales declined 6% and included the negative impact of exiting the sale of paint supplies. Hardlines sales decreased by 2%. Sales on a comparable store basis, which reflect only the stores in operation for both 1995 and 1994, decreased 5%. The increase in direct response marketing revenues was primarily due to increased clubs' membership and insurance policyholder levels. Gross margin (net sales less cost of goods sold) dollars, including Lechmere, were $1,320, a decrease of $137, or 9%, from 1994. This decrease was due to the gross margin impact of the decreased sales of $10, a decrease in the margin rate on sales of $99, and increased occupancy costs of $29 related to increased depreciation on capital investments in new and existing stores, partially offset by decreased buying and other expenses of $20. The 1995 gross margin rate reflects the gross margin results for Lechmere for twelve months while the 1994 rate reflects Lechmere's results for only nine months. While Lechmere added to gross margin dollars, its emphasis in appliances and electronics, which tend to have lower gross margin rates, contributed to the decrease in the 1995 gross margin rate. Continued competitive pressures also had an impact on margin rates, and Montgomery Ward's margin trends were consistent with overall industry results. Operating, selling, general and administrative expenses increased $107, or 6%, from the prior year. Excluding Lechmere's 1995 first quarter impact, operating, selling, general and administrative expenses increased by $73, or 4%. The increase includes the impact of new store openings of $39, a provision for severance costs and relocation of certain administrative functions of both Montgomery Ward and Lechmere of $25, increased provision for bad debt expense under the Account Purchase Agreement of $21, increased advertising and other promotional costs of $17 and increased operating and administrative expenses of $8, partially offset by increased income generated from the sale of product service contracts of $37 (See Note 10 to the Consolidated Financial Statements). Net interest expense increased $33, or 57% from the prior year. The increase is due to increased borrowings resulting from a combination of costs associated with the acquisition of, and added investment in, Lechmere, higher average working capital levels from slower than anticipated sales and capital expenditures for new and existing stores, as well as increased interest rates in 1995. 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations: 1995 Compared with 1994 (continued) Income tax benefit was $14 for 1995 as compared to income tax expense of $56 for 1994. See Note 9 to the Consolidated Financial Statements. Discussion of Financial Condition Montgomery Ward is the only subsidiary of MW Holding and, therefore, Montgomery Ward and its subsidiaries are MW Holding's sole source of funds. Net cash used in the Company's operating activities totaled $356 for 1996 compared to $182 for 1995. Historically, net cash provided by operating activities was the Company's primary source of liquidity and capital. The sharply worsened results of operations over the last two fiscal years have significantly weakened the Company's financial condition and reduced its liquidity. The Company has obtained waivers under the Long Term Credit Agreement (Long Term Agreement) and the Short Term Credit Agreement (Short Term Agreement) with respect to compliance for the fiscal quarter ending March 29, 1997 with covenants requiring maintenance of minimum consolidated shareholders' equity, a minimum ratio of debt to capitalization and minimum earnings before interest, taxes, depreciation, amortization and rent (EBITDAR). These waivers and amendments also reduce the maximum amount of debt permitted to be incurred by Signature and the maturity of the Long Term Agreement was changed from February 28, 1998 to August 29, 1997. Similar amendments to corresponding covenants in the Company's two Purchase and Master Lease Agreements were made. The Long Term Credit Agreement and the Short Term Credit Agreement were amended on December 23, 1996, to substitute for the three quarters ended June 28, 1997, the EBITDAR test for an earnings to fixed charges test, to add a limitation on capital expenditures and require prepayments if proceeds of certain asset dispositions are received, and to amend the minimum debt to equity ratio required to permit payment of preferred stock dividends. In connection with these amendments the Company paid fees totaling $3, the rates of interest under both agreements were increased in three stages, at the date of the agreement and effective at the end of the first and second quarters of 1997, the commitment fee was increased by .375% of the unused commitment and the maturity of the Long Term Agreement was changed to February 15, 1998 from September 6, 2000. These amendments also limited the amount of debt which can be incurred by Signature. Similar amendments to the corresponding covenants in the Company's two Purchase and Master Lease Agreements were made (including shortening the lease expiration dates to August 29, 1997) and the rents thereunder were increased. The minimum debt to capitalization ratio in the Long Term Credit Agreement and Short Term Credit Agreement was also amended September 6, 1996, when a 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Discussion of Financial Condition (continued) minimum ratio of earnings to fixed charges was added. A similar amendment was made to the two Purchase and Master Lease Agreements. The Company entered into an amendment and waiver agreement with holders of the notes issued under the 1993 and 1995 Note Purchase Agreements, which includes a waiver through June 27, 1997 of compliance with the minimum shareholders' equity test, added restrictions on the disposition of assets and the incurrence of debt and funded debt, requires a mandatory pro rata prepayment in the event of any prepayment of any loans or termination of bank commitments under the Long Term and Short Term Agreements and shortened the maturity dates of all Notes to August 29, 1997. In connection therewith the noteholders received fees totaling $1 and interest rates on the Notes were increased in two stages. Montgomery Ward also entered into a Credit Agreement (Seasonal Credit Agreement) dated as of October 4, 1996 with various lenders, including GE Capital. The Seasonal Credit Agreement expires August 29, 1997 and provides a revolving loan facility in the principal amount of $165. A waiver corresponding to those most recently obtained as to the Long Term and Short Term Agreements has been obtained by the Company. The purpose of this facility is to provide back-up liquidity as the Company reduces its inventory levels. Unless the lenders otherwise agree, loans may be made under this facility only after the commitments under the Short Term Agreement and the Long Term Agreement are fully used. Under the Seasonal Credit Agreement, Montgomery Ward may select among several interest rate options which are based on market rates. A commitment fee is payable based upon the unused commitment. At December 28, 1996, no amount was outstanding. It will likely be necessary for the Company to obtain amendments or waivers with respect to the remaining quarters of fiscal 1997 and thereafter under the loan and financing agreements discussed above. The Company intends to improve its financial condition and reduce its dependence on borrowing by slowing expansion, controlling expenses, closing certain unprofitable stores and continuing to implement its inventory reduction program. Management is in the process of reevaluating the Company's merchandising, marketing, store operations and real estate strategies. The Company is also considering the sale of certain operating units as a means of generating cash. Future cash is also expected to continue to be provided by ongoing operations, receipt of payment for credit sales under the Agreements with Montgomery Ward Credit Companies, borrowings under revolving loan facilities and vendor financing programs. The Company is currently in discussions with financing sources with a view toward a longer term solution to its liquidity problems and obtaining refinancing for all or a substantial portion of its outstanding indebtedness, including a total of $1,008, which will mature on 24 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Discussion of Financial Condition (continued) or about August 29, 1997. This would include repayment of the current bank borrowings and amounts outstanding under the Note Purchase Agreements. The Company's management is highly confident that the indebtedness can be refinanced. Its largest shareholder, GE Capital, also expects the Company to be able to refinance such indebtedness. However, there can be no assurance that such refinancing can be obtained or that amendments or waivers required to maintain compliance with the previous agreements can be obtained. The loan agreements discussed above all limit dividends which Montgomery Ward may pay with respect to its stock and advances which it may make to the Company. Under these limitations Montgomery Ward currently may only make dividends, distributions or advances to Montgomery Ward Holding to fund the payment of business and corporate expenses up to $2 per year. Because Montgomery Ward Holding's sole source of funds is Montgomery Ward, it does not currently expect to have sufficient funds to make payments otherwise due on the outstanding notes issued to repurchase shares of its common stock. Holders of those notes are not permitted to accelerate the indebtedness thereunder or bring suit to collect it for one year from the date of a missed payment. The Company does not anticipate that it will be able to repurchase any shares of its common stock, under the Stockholders' Agreement or otherwise, during the foreseeable future. As a result of the inventory reduction program and better management of receipts of inventory, inventory decreased by $225 from 1995. This was offset by a decrease in trade accounts payable of $222 and an increase in Direct response and insurance acquisition costs of $294. As a result of reduced cash flows and inventory, the Company had a working capital deficit at the end of fiscal 1996. Net cash used in the Company's investing activities totaled $148 in 1996, compared to $109 for 1995. Uses in 1996 included $100 for the acquisition of Amoco Enterprises. Net cash provided by financing activities totaled $499 for 1996, compared to $295 for 1995. The Long Term Agreement provides a revolving facility in the principal amount of $603. As of December 28, 1996, $170 was outstanding under the Long Term Agreement. On September 6, 1996, the Short Term Agreement, which was extended to August 29, 1997 from March 29, 1997, was further amended to increase the principal amount of this revolving loan facility from $297 to $436. On October 24, 1996, this facility was further increased from $436 to $456. As Of December 28, 1996, $456 was outstanding under the Short Term Agreement. 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Discussion of Financial Condition (continued) In 1996, Montgomery Ward has facilities under vendor financing programs (which are reflected in Trade Accounts Payable) which totaled $450. At December 28, 1996, these facilities were principally all drawn. There was an increase in the facility of $150 in the first quarter of 1997. On December 28, 1996, Montgomery Ward had outstanding $20 under the short term uncommitted lines of credit. 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 and Short Term Agreement. The aggregate notional principal amounts under the interest rate exchange agreement is $175 in 1996 and 1997 and $75 in 1998 and 1999. Under the terms of the interest rate exchange agreements, Montgomery Ward pays the banks a weighted average fixed rate of 7.4% in 1996 and 1997 and 7.6% in 1998 and 1999, in each case multiplied by the notional principal amount and, in each case, 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 and $113 in 1997. Under the terms of the cap agreements, Montgomery Ward receives payments from the banks when the one- month daily average LIBO rate exceeds the 6.0% cap strike rate in 1996 and 7.0% cap strike rate in 1997. Such payments will equal the amount determined by multiplying the notional principal amount by the excess of the percentage rate, if any, of the one-month daily average LIBO rate over the cap strike rate. The interest rate exchange and cap agreements increased the effective borrowing rate under the Agreements by .76% for 1996. 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. Signature Financial/Marketing, Inc. (Signature), a wholly owned subsidiary of Montgomery Ward, borrowed $102 under a Credit Agreement (Signature Credit Agreement) dated as of September 27, 1996 as amended and restated October 21, 1996 and amended December 23, 1996 between Signature and various lenders. The proceeds were used to repay the inter-company loan from Montgomery Ward to Signature arising from Signature's acquisition of the Amoco Motor Club. The Signature Credit Agreement expires on August 29, 1997. On October 24, 1996, Montgomery Ward prepaid a $25 term loan which had been outstanding under the Term Loan Agreement dated September 29, 1995. 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Discussion of Financial Condition (continued) Capital expenditures during 1996 of $75 were primarily related to expenditures for the opening of two full-line Montgomery Ward stores, 5 HomeImage stores and 1 Lechmere store converted to a HomeImage store and implementing conversion strategies in conventional retail stores and various merchandise fixture and presentation programs. Capital expenditures for 1995 were $122. The decrease in capital expenditures from the prior year was due to a reduction in new stores of $16, major remodels and conversions of $19, and corporate and store capital programs of $12.
1996 1995 1994 ------ ------ ------ Total Capital Expenditures............ $ 75 $122 $184 ------ ------ ------ ------ ------ ------ Capital appropriations authorized during the year...................... $ 86 $152 $247 ------ ------ ------ ------ ------ ------ Cancellations of prior year's appropriations....................... $(34) $(75) $(25) ------ ------ ------ ------ ------ ------ Unexpended capital appropriations at year-end.......................... $113 $136 $181 ------ ------ ------ ------ ------ ------
Montgomery Ward and Lechmere are not contractually committed to spend all of the capital appropriations unexpended at December 28, 1996, but generally expect to do so. Until the Company's financial condition is improved, it is anticipated that annual capital expenditures will be at or below the 1996 level. 27 Item 8. Financial Statements
Page ---- Report of Independent Public Accountants.............. 29 Consolidated Balance Sheet at December 28, 1996 and December 30, 1995................................... 32 For the 52-Week Periods Ended December 28, 1996, December 30, 1995 and December 31, 1994 Consolidated Statement of Income.................. 30 Consolidated Statement of Shareholders' Equity.... 33 Consolidated Statement of Cash Flows.............. 36 Notes to Consolidated Financial Statements............. 38
28 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Board of Directors and Shareholders of Montgomery Ward Holding Corp.: We have audited the accompanying consolidated balance sheets of MONTGOMERY WARD HOLDING CORP. (a Delaware Corporation) AND SUBSIDIARY as of December 28, 1996 and December 30, 1995, and the related consolidated statements of income, shareholders' equity and cash flows for the fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Montgomery Ward Holding Corp. and Subsidiary as of December 28, 1996 and December 30, 1995 and the results of their operations and their cash flows for the fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 6 to the Consolidated Financial Statements, Montgomery Ward Holding Corp. and Subsidiary have given retroactive effect to the change in accounting for merchandise inventories. Arthur Andersen LLP Chicago, Illinois March 27, 1997 29
MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF INCOME (Millions of dollars) 52-Week Period Ended ----------------------------- Dec. 28, Dec. 30, Dec. 31, 1996 1995 1994 -------- --------- -------- Revenues Net Sales, including leased and licensed department sales........................... $5,879 $6,531 $6,564 Direct response marketing revenues, including insurance ....................... 741 554 465 -------- --------- -------- Total Revenues........................... 6,620 7,085 7,029 -------- --------- -------- Costs and Expenses Cost of goods sold, including net occupancy and buying expense............... 4,869 5,211 5,107 Operating, selling, general and adminis- trative expenses, including benefits and losses of direct response operations (Note 17).................................. 2,015 1,806 1,699 Interest expense, net (Note 18)............. 111 91 58 -------- --------- -------- Total Costs and Expenses.................. 6,995 7,108 6,864 -------- --------- -------- Income (Loss) Before Income Taxes............ (375) (23) 165 Income Tax (Benefit) Expense (Note 9)........ (138) (14) 56 -------- --------- -------- Net Income (Loss) Before Cumulative Effect of Change in Accounting Principle .......... (237) (9) 109 Cumulative Effect of Change in Accounting Principle (Note 6)......................... - - 28 -------- --------- -------- Net Income (Loss)............................ (237) (9) 137 Preferred Stock Dividend Requirements (Note 14)............. 12 4 2 -------- --------- -------- Net Income (Loss )Applicable to Common Shareholders......................... $ (249) $ (13) $ 135 -------- --------- -------- -------- --------- --------
See notes to consolidated financial statements. 30
MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF INCOME (Continued) (Millions of dollars, except per share amounts) 52-Week Period Ended ----------------------------- Dec. 28, Dec. 30, Dec. 31, 1996 1995 1994 -------- -------- -------- Net Income (Loss) per Class A Common Share before cumulative effect of change in accounting principle (Note 6)...... $(6.18) $ (.31) $2.48 -------- --------- -------- Cumulative effect of change in accounting principle (Note 6)........................... - - .67 -------- --------- -------- Net Income (Loss) per Class A Common Share (Note 15).............................. $(6.18) $ (.31) $3.15 -------- --------- -------- -------- --------- -------- Net Income (Loss) per Class B Common Share before cumulative impact of change in accounting principle (Note 6)...... $(5.25) $ (.28) $2.13 Cumulative effect of change in accounting principle (Note 6)................ - - .57 -------- --------- -------- Net Income (Loss) per Class B Common Share (Note 15)....................... $(5.25) $ (.28) $2.70 -------- --------- -------- -------- --------- -------- Cash Dividends declared per Common Share Class A...................................... $ - $ - $ .50 Class B...................................... $ - $ - $ .50
See notes to consolidated financial statements. 31 MONTGOMERY WARD HOLDING CORP. CONSOLIDATED BALANCE SHEET (Millions of dollars) ASSETS Dec. 28, Dec. 30, 1996 1995 -------- -------- Cash and cash equivalents................................. $ 32 $ 37 Short-term investments.................................... 3 1 Investments of insurance operations (Note 4).............. 317 345 ------ ------ Total Cash and Investments........................... 352 383 Trade and other accounts receivable....................... 213 166 Accounts and notes receivable from affiliates (Note 5).... 13 22 ------ ------ Total Receivables.................................... 226 188 Merchandise inventories (Note 6).......................... 1,545 1,770 Prepaid pension cost ..................................... 351 335 Properties, plants and equipment, net of accumulated depreciation and amortization (Note 8).................. 1,308 1,366 Direct response and insurance acquisition costs........... 603 395 Other assets.............................................. 494 447 ------ ------ Total Assets......................................... $4,879 $4,884 ------ ------ ------ ------ LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt (Note 12)................................. $1,028 $ 160 Trade accounts payable.................................... 1,585 1,804 Federal income taxes payable (Note 9)..................... 4 6 Accrued liabilities and other obligations (Notes 3, 5, 7, 10 and 15).............................. 1,228 1,195 Insurance policy claim reserves (Note 11)................. 227 236 Long-term debt (Note 12).................................. 87 423 Obligations under capital leases (Note 13)................ 60 66 Deferred income taxes (Note 9)............................ 52 119 ------ ------ Total Liabilities.................................... 4,271 4,009 Commitments and Contingent Liabilities (Notes 12 and 19) Redeemable Preferred Stock (Note 14)...................... 175 175 Shareholders' Equity Common stock (Note 15).................................. 1 1 Capital in excess of par value.......................... 53 45 Retained earnings....................................... 509 758 Unrealized gain on marketable equity securities......... 9 10 Less: Treasury stock, at cost.......................... (139) (114) ------ ------ Total Shareholders' Equity........................... 433 700 ------ ------ Total Liabilities and Shareholders' Equity................ $4,879 $4,884 ------ ------ ------ ------ See notes to consolidated financial statements. 32 MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Millions of dollars, except per share amounts) (No. of Shares in Thousands) Class Class A B Capital Common Common in Stock Stock Excess Treasury Total $.01 $.01 of Unre- Stock, Share- Par Par Par Retained alized at holders' Value Value Value Earnings Gains Cost Equity ------- ------ ------ -------- ------ -------- -------- Balance, Jan. 1, 1994, 19,610 25,000 $19 $658 $16 $(73) $620 Cumulative effect of change in accounting principle - - - 28 - - 28 ------- ------ ------ -------- ------ -------- -------- Balance, Jan. 1, 1994, as restated 19,610 25,000 19 686 16 (73) 648 Net income before cumulative effect of change in accounting principle - - - 109 - - 109 Cash dividends paid - - - (24) - - (24) Tax benefit of stock option exercises - - 1 - - - 1 Change in un- realized gain on marketable securities - - - - (14) - (14) Shares re- purchased as Treasury stock (629) - - - - (16) (16) Shares issued upon exercise of options 297 - 3 - - - 3 Shares issued upon exercise of conversion rights 2 - - - - - - ------- ------ ------ -------- ------ -------- -------- Balance Dec. 31, 1994 as restated 19,280 25,000 $23 $771 $ 2 $(89) $707 See notes to consolidated financial statements. 33 MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued) (Millions of dollars, except per share amounts)
(No. of Shares in Thousands) Class Class A B Capital Common Common in Stock Stock Excess Treasury Total $.01 $.01 of Unre- Stock, Share- Par Par Common Par Retained alized at holders' Value Value Stock Value Earnings Gains Cost Equity ------- ------ ------ ------- -------- ------ -------- -------- Balance Jan. 1, 1995 as restated 19,280 25,000 $ - $23 $771 $ 2 $(89) $707 Net (loss) - - - - (9) - - (9) Cash dividends paid - - - - (4) - - (4) Compensation expense on stock option grants/ repurchases - - - 5 - - - 5 Changes in un- realized gain on marketable securities - - - - - 8 - 8 Shares repur- chased as Treasury stock (1,052) - - - - - (25) (25) Shares issued upon exercise of options 980 - 1 17 - - - 18 Shares issued upon exercise of conversion rights 2 - - - - - - - ------- ------ ------ ------- -------- ------ -------- -------- Balance, Dec. 30, 1995 as restated 19,210 25,000 $ 1 $45 $758 $10 $(114) $700 ------- ------ ------ ------- -------- ------ -------- -------- ------- ------ ------ ------- -------- ------ -------- --------
See notes to consolidated financial statements. 34 MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued) (Millions of dollars, except per share amounts)
(No. of Shares in Thousands) Class Class A B Capital Common Common in Stock Stock Excess Treasury Total $.01 $.01 of Unre- Stock, Share- Par Par Common Par Retained alized at holders' Value Value Stock Value Earnings Gains Cost Equity --------- -------- -------- -------- ----------- --------- ------------ ---------- Balance, Dec. 31, 1995 as restated 19,210 25,000 $1 $45 $758 $10 $(114) $700 Net (loss) - - - (237) - - (237) Cash dividends declared and paid - - - - (9) - - (9) Cash dividends declared - - - - (3) - - (3) Compensation expense on stock option exercises and other share exchanges - - - 5 - - - 5 Change in unrealized gain on marketable securities - - - - - (1) - (1) Shares re- purchased as Treasury stock (1,233) - - - - (25) (25) Shares issued upon exercise of options 352 - 3 - - - 3 Shares issued upon exercise of conversion rights 2 - - - - - - --------- -------- -------- -------- ----------- --------- ------------ ---------- Balance Dec. 28, 1996 18,331 25,000 $1 $53 $509 $ 9 $(139) $433 --------- -------- -------- -------- ----------- --------- ------------ ---------- --------- -------- -------- -------- ----------- --------- ------------ ----------
See notes to consolidated financial statements. 35 MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (Millions of dollars)
52-Week Period Ended -------------------------------------------- Dec. 28, Dec. 30, Dec. 31, 1996 1995 1994 -------- -------- -------- Cash flows from operating activities: Net income (loss) before cumulative effect of change in accounting principle.......... $(237) $ (9) $ 109 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization............. 122 115 109 Amortization of goodwill.................. 8 4 - Amortization of direct response and insurance acquisition cost........... 209 148 121 Deferred income taxes..................... (110) (20) 23 Gain on sale of assets.................... (5) (11) (1) Gain on stock distribution................ - (16) - Compensation expense on stock option grants/repurchases...................... 5 4 1 Changes in operating assets and liabilities, net of businesses acquired: (Increase) decrease in: Trade and other accounts receivable....... (32) (54) (38) Accounts and notes receivable from affiliates............................... 9 (16) (2) Merchandise inventories................... 225 (112) (229) Prepaid pension cost...................... (16) (11) (15) Direct response insurance acquisition costs....................... (291) (220) (149) Other assets.............................. 34 (5) (22) Increase (decrease) in: Trade accounts payable.................... (222) 85 291 Federal income taxes payable, net......... (2) (9) 5 Accrued liabilities and other obligations.............................. (44) (55) (41) Insurance policy claim reserves........... (9) - (1) Deferred income taxes..................... - - (8) -------- -------- -------- Net cash (used in) provided by operations.............................. (356) (182) 153 -------- -------- -------- Cash flows from investing activities: Investment in ValueVision.................... - (8) - Investment in Merchant Partners.............. (9) (4) (1) Acquisition of Amoco Enterprises Net of Cash and Cash Equivalents............ (100) - - Investment in Scrip Plus (Signature)......... (2) - - Investment in Emanacom (Signature)........... (1) - - Acquisition of Lechmere, net of cash acquired.................................... - - (109) Acquisition of Smilesaver, net of cash acquired.................................... - - (11) Purchase of short-term investments........... (2) (60) (231) Purchase of investments of insurance operations.................................. (756) (791) (691) Sale of short-term investments............... - 62 247 Sale of investments of insurance operations.................................. 778 775 671 Disposition of properties, plants and equipment, net.......................... 19 39 8 Capital expenditures......................... (75) (122) (184) -------- -------- -------- Net cash used in investing activities.............................. $(148) $(109) $(301) -------- -------- -------- -------- -------- --------
See notes to consolidated financial statements. 36 MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (Millions of dollars)
52-Week Period Ended -------------------------------- Dec. 28, Dec. 30, Dec. 31, 1996 1995 1996 --------- ----------- ---------- Cash flows from financing activities: Proceeds from issuance of short-term debt, net.................................... $588 $ 16 $144 Proceeds from issuance of long-term debt......................................... - 205 168 Payments of Montgomery Ward long-term debt......................................... (56) (10) (179) Payments of Lechmere long-term debt........... - - (88) Payments of obligations under capital leases....................................... (7) (7) (8) Proceeds from issuance of common stock........ 3 18 3 Proceeds from issuance of preferred stock..... - 175 75 Payments to redeem preferred stock............ - (75) - Cash dividends paid........................... (9) (4) (24) Purchase of treasury stock, at cost........... (20) (23) (9) Tax benefit of stock options exercised and other share exchanges.................... - - 1 ---------- ---------- ---------- Net cash provided by financing activities................................. 499 295 83 ---------- ---------- ---------- Increase (Decrease) in cash and cash equivalents................................... (5) 4 (65) Cash and cash equivalents at beginning of period..................................... 37 33 98 ---------- ---------- ---------- Cash and cash equivalents at end of period..... $ 32 $ 37 $33 ---------- ---------- ---------- ---------- ---------- ---------- See notes to consolidated financial statements.
37 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in millions) 1. Major Accounting Policies Business Segments Montgomery Ward Holding Corp. (the Company or MW Holding) and its wholly owned subsidiary, Montgomery Ward & Co., Incorporated (Montgomery Ward), are engaged in retail merchandising and direct response marketing (including insurance) in the United States. Retail merchandising operations are conducted through Montgomery Ward and Montgomery Ward's, wholly-owned subsidiary Lechmere, Inc. (Lechmere), while direct response marketing operations are conducted primarily through Signature Financial/Marketing, Inc. (Signature), a wholly-owned subsidiary of Montgomery Ward. Signature markets consumer club products and insurance products through its subsidiaries. See Note 21 for information regarding these segments. Principles of Consolidation; Use of Estimates The consolidated financial statements include the Company and all subsidiaries. Investments in 20 percent to 50 percent owned affiliates where significant influence exists are accounted for on the equity method. All significant intercompany accounts and transactions are eliminated in consolidation. Certain prior period amounts have been reclassified to be comparable with the current period presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fiscal Year The Company operates on a 52- or 53- week fiscal year basis. The Company's fiscal year ends on the Saturday closest to December 31. The fiscal years ended December 28, 1996, December 30, 1995 and December 31, 1994 included 52 weeks. 38 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 1. Major Accounting Policies (continued) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, time deposits and highly liquid debt instruments with an original maturity of three months or less from the date of purchase. The carrying amount reported in the financial statements for cash and cash equivalents approximates the fair value of these assets. Following is a summary of cash payments for interest and income taxes and non-cash financing and investing activities:
52-Week Period Ended ------------------------------- Dec. 28, Dec. 30, Dec. 31, 1996 1995 1994 ---------- ---------- --------- Cash paid (refunded) for: Income taxes.............................. $(22) $ 24 $ 33 Interest.................................. $119 $ 82 $ 56 Non-cash financing activities: Notes issued for purchase of Treasury stock........................... $ 5 $ 2 $ 7 Non-cash investing activities: Changes in unrealized gain on marketable securities................... $ (1) $ 8 $(14) Like-kind exchange of assets.............. $ - $ - $ 5 Gain on Stock distribution................ $ - $ 16 $ -
Investments of Insurance Operations The Company accounts for investments under Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments In Debt and Equity Securities". Under SFAS No. 115, all debt and equity securities are classified by management as "available-for-sale" and are stated at fair market value with all changes in unrealized gains or losses included in Shareholders' Equity. 39 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 1. Major Accounting Policies (continued) Merchandise Inventories The Company has valued inventory at the lower of the cost or market using the retail inventory method, first-in, first-out (FIFO) method. In 1996, the Company changed its cost flow assumptions for accounting for inventories from the retail inventory last-in, first-out (LIFO) method to the current method. Refer to Note 6 which explains the Company's change in method for inventory valuation. Properties, plants and equipment Depreciation is computed on a straight-line basis over the estimated useful lives of the properties, with annual rates ranging between 2% and 3% for buildings and between 12% and 25% for fixtures and equipment. Leasehold improvements and assets under capital leases are amortized on a straight-line basis over no longer than the primary term of the lease. Upon retirement or disposition, the cost and the related depreciation or amortization are removed from the accounts, with the gains or losses included in income. Interest relating to construction in progress is capitalized and amortized over the useful life of the property. Pre-operating expenditures which are not capital in nature are charged against income in the year the store is opened. Normal maintenance and repairs are expensed as incurred. Major repairs that materially extend the lives of properties are capitalized, and the assets replaced, if any, are retired. Accounting for Long-Lived Assets In fiscal 1996, the Company implemented SFAS No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR THE LONG-LIVED ASSETS TO BE DISPOSED OF." This standard prescribes the method for asset impairment evaluation for long-lived assets and certain identifiable intangibles that are either held and used or to be disposed of. The implementation of this standard did not have an effect on the Company's financial position or results of operations for the 52-week period ended December 28, 1996. Direct Response Marketing Revenues Life and accident and health insurance premiums, which are recognized as revenue when due from policyholders, are associated with related benefits and expenses to result in the recognition of profit over the terms of the policies. Property-liability insurance premiums and club membership dues are deferred and earned on a pro-rata basis over the terms of the policies 40 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 1. Major Accounting Policies (continued) Direct Response Marketing Revenues (continued) and memberships. Unearned premiums and club memberships of $119 and $61 at December 28, 1996 and December 30, 1995, respectively, are included in accrued liabilities and other obligations. Interest Rate Exchange and Cap Agreements Amounts paid or received pursuant to interest rate exchange and cap agreements are deferred and amortized as interest expense or income over the remaining life of the applicable agreement. Direct Response and Insurance Acquisition Costs Costs of acquiring new club memberships and insurance business (primarily marketing expenditures) are deferred when considered recoverable. Such costs are amortized in proportion to the anticipated revenue to be recognized from club memberships (over a period not to exceed 10 years) and from insurance policies (over the life of the policy). The time period over which deferred policy and membership acquisition costs are being amortized and the recoverability of such costs could differ from estimates due to changing market conditions. Amortization periods of deferred policy and membership acquisition costs are continually reviewed for potential impairment and, as adjustments become necessary, they are reflected in current operations. Value of business in force represents costs allocated to the insurance and club memberships acquired and is being amortized in proportion to the anticipated revenue to be recognized from club memberships and from insurance policies. The initial amortization periods range from 5 to 20 years. Amounts included amortization of these:
52-Week Period Ended -------------------- Dec. 28, Dec. 30, 1996 1995 --------- --------- Deferred Acquisition Costs................... $180 $136 Present Value of Future Profits.............. 29 13 Intangible (Goodwill, Licenses, etc.)........ 5 2 --------- --------- Total................................... $214 $151 --------- --------- --------- ---------
41 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 1. Major Accounting Policies (continued) Insurance Policy Claim Reserves Liabilities for future policy benefits have been determined principally by the net level premium method. These amounts have been computed by using assumptions that include provisions for risk of adverse deviation. The assumptions developed for interest rates (average 6%-8%) and withdrawal rates are based on the experience of Montgomery Ward Life Insurance Company, a wholly-owned subsidiary of Signature. The principal mortality tables used to develop the assumed mortality rates are the 1960 Commissioners' Standard Group Table, the 1955-1960 and 1965-1970 Basic Mortality Tables and the 1969-1971 U.S. Life Tables. The reserve for claims and related adjustment expenses is based on estimates of the costs of individual claims reported and incurred but not reported prior to year-end. While management believes the reserve for claims and related adjustment expenses is adequate, the reserve is continually reviewed and as adjustments become necessary, they are reflected in current operations. Federal Income Tax The Company and its subsidiaries file a consolidated federal income tax return. Beginning in 1994, insurance subsidiaries which had previously filed separate federal income tax returns are included in the consolidated return. The Company determines its income tax benefit and related deferred federal income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." 2. Liquidity The Company had a net loss of $237 in 1996 and its short term debt increased by $868 at the end of 1996. An amendment to its bank agreements was required at year end 1996. Due to the Company's worsening financial condition, waivers were required and obtained for the first quarter of 1997. It will likely be necessary for the Company to obtain amendments or waivers with respect to the remaining quarters of fiscal 1997 and thereafter under its loan and financing agreements. The Company intends to improve its financial condition and reduce its dependence on borrowing by slowing expansion, controlling expenses, closing certain unprofitable stores and continuing to implement its inventory reduction program. Management is in the process of reevaluating the Company's merchandising, marketing, store operations and real estate strategies. The Company is also considering the sale of certain operating units as means of generating cash. Future cash is also expected to continue to be provided by ongoing operations, sale of receivables under the Account Purchase Agreements with Monogram Bank/GE Capital and Montgomery Ward Credit, borrowings under revolving loan facilities and vendor financing programs. The Company is currently in discussions with financing sources with a view toward a longer term solution to its liquidity problems and obtaining refinancing for all or a substantial portion of its outstanding indebtedness, including a total of $1,008, which will mature on or about August 29, 1997. This would include repayment of the current bank borrowings and amounts under the Note Purchase Agreements. The Company's management is highly confident that the indebtedness can be refinanced. Its largest shareholder, GE Capital, also expects the Company to be able to refinance such indebtedness. However, there can be no assurance that such refinancing can be obtained or if obtained will be on terms favorable to the Company or that amendments or waivers required to maintain compliance with the previous agreements can be obtained. 42 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 3. Significant Acquisitions 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 $100. The acquisition was financed through the use of the majority of the proceeds generated from the issuance of the Montgomery Ward Holding Corp. Senior Preferred Stock. On January 2, 1996, Montgomery Ward's wholly-owned subsidiary, Signature, purchased Enterprises from Montgomery Ward for $100, net of cash and cash equivalents. The allocation of the purchase price is summarized as follows: Cash and cash equivalents............................$ 63 Present value of future profits...................... 126 Goodwill............................................. 67 Other assets......................................... 22 Trade accounts payable............................... (3) Accrued liabilities and other obligations............ (67) Deferred income taxes................................ (45) ------- $163 ------- ------- Acquisition of Lechmere, Inc. Montgomery Ward acquired in a merger transaction all the stock of LMR Acquisition Corporation, which owned 100% of the stock of Lechmere, on March 30, 1994. The aggregate purchase price was $113. The closing price included a $10 promissory note (the Note) of Montgomery Ward, which bears interest at a rate of 4.87% per annum. The Note balance was $3 at December 28, 1996 and is included in Accrued liabilities and other obligations. The balance is payable three years after the date of the Note. The Note is secured by a standby letter of credit. As part of the closing, Montgomery Ward advanced approximately $88 and assumed $3 in obligations to enable Lechmere to retire its outstanding bank debt and subordinated debt. The acquisition was accounted for as a purchase. The purchase price has been allocated to Lechmere's net assets based upon results of asset valuations and liability and contingency assessments. 43 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 3. Significant Acquisitions (continued) Acquisition of Lechmere, Inc. (continued) The allocation of the purchase price is summarized as follows: Inventory........................................ $140 Properties, Plants & Equipment................... 54 Goodwill......................................... 124 Other Assets..................................... 50 Due to Montgomery Ward........................... (88) Accounts Payable and Other Liabilities........... (167) ------ $113 ------ ------ 44 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 4. Investments of Insurance Operations Following is a summary of investments of insurance operations other than related party investments. The market values for marketable debt and equity securities are based on quoted market prices. December 28, 1996 --------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Type of Investment Cost Gains Losses Value ------------------ --------- ---------- ---------- ------ Fixed maturities Bonds: United States Government and government agencies and authorities............. $ 52 $ - $ - $ 52 Public utilities.............. 60 5 - 65 All other corporate bonds........................ 9 1 - 10 Mortgage-backed securities................... 108 2 (1) 109 ---- ---- ---- ---- Total fixed maturities................. 229 8 (1) 236 ---- ---- ---- ---- Equity securities: Common stock.................. 17 4 - 21 ---- ---- ---- ---- Policy loans................... 7 - - 7 Limited Partnership............ 2 - - 2 Short-term investments................... 51 - - 51 ---- ---- ---- ---- Total Investments................ $306 $12 $(1) $317 ---- ---- ---- ---- ---- ---- ---- ---- 45 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 4. Investments of Insurance Operations (continued) December 30, 1995 --------------------------------------------- Gross Gross Amortized Unrealized Unrealized Market Type of Investment Cost Gains Losses Value ------------------ --------- ---------- ---------- ------ Fixed maturities Bonds: United States Government and government agencies and authorities...............$ 54 $ 1 $ - $ 55 Public utilities................ 70 8 - 78 All other corporate bonds.......................... 19 2 - 21 Mortgage-backed securities...................... 133 3 (1) 135 ---- ---- ---- ---- Total fixed maturities.................... 276 14 (1) 289 ---- ---- ---- ---- Equity securities: Common stock.................... 13 4 - 17 ---- ---- ---- ---- Policy loans..................... 7 - - 7 Short-term investments..................... 32 - - 32 ---- ---- ---- ---- Total Investments...................$328 $18 $(1) $345 ---- ---- ---- ---- ---- ---- ---- ---- 46 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 4. Investments of Insurance Operations (continued) Proceeds from sales of investments in debt securities during 1996 and 1995 were $26 and $13, respectively. Gross unrealized gains on equity securities were $5 and gross unrealized losses were $0.5. During 1996, proceeds from sales of equity securities were $9. Gross gains of $4 were realized on those sales. At December 30, 1995, gross unrealized gains were $4. During 1995, proceeds from sales of equity securities were $9. Gross gains of $5 were realized on those sales. The contractual maturities as of December 28, 1996 are as follows: Amortized Market Cost Value --------- ----- Due in 1996.................................. $ 29 $ 29 Due in 1997 through 2001..................... 77 83 Due in 2002 through 2006..................... 12 12 Due in 2007 and beyond....................... 3 3 Mortgage-backed securities................... 108 109 --------- ----- $229 $236 --------- ----- --------- ----- Consolidated realized gains on sales of investments before income tax and changes in unrealized gains (losses) after income tax on fixed maturities, mortgage loans and equity securities are as follows: Fixed Maturities and Mortgage Equity Loans Securities ---------- ---------- 52-Week Period Ended December 28, 1996 Realized...................................... $ - $ 4 Unrealized.................................... $(4) $ - 52-Week Period Ended December 30, 1995 Realized...................................... $ 1 $ 5 Unrealized.................................... $10 $(1) 52-Week Period Ended December 31, 1994 Realized...................................... $ - $ - Unrealized.................................... $(2) $ - 5. Accounts and Notes Receivable from Affiliates Montgomery Ward entered into a Bank Credit Card Program Agreement (Card Agreement) effective April 1, 1996 with Monogram Credit Card Bank of Georgia (Monogram), and an Account-Related Agreement (Account Related Agreement) effective April 1, 1996 with Montgomery Ward Credit Corporation (Montgomery Ward Credit) (collectively referred to as the Agreements) pursuant to which Monogram and Montgomery Ward Credit (collectively referred to as the Montgomery Ward Credit Companies or 47 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 5. Accounts and Notes Receivable from Affiliates (continued) MWCC) both of which are affiliates of General Electric Capital Corporation, make payments to Montgomery Ward as to their receivables generated by sales to customers of Montgomery Ward, its affiliates and licensees who utilize the Montgomery Ward private label credit card, and pursuant to which Agreements the Montgomery Ward Credit Companies provide services to Montgomery Ward. Under the Agreements, Monogram has the exclusive right to operate the Montgomery Ward private label credit card system and the obligation to pay to Montgomery Ward the face amount of Monogram's receivables generated by the Montgomery Ward private label credit card system, up to $7,000 outstanding at any time. Sales of receivables to Montgomery Ward Credit under the prior arrangements, and payments in respect of receivables under the current Agreements, were $3,591, $3,938 and $4,092 for 1996, 1995 and 1994, respectively. At December 28, 1996 and December 30, 1995, there were $5,248 and $5,348, respectively, of Montgomery Ward credit card receivables owned by Monogram. Amounts receivable from Monogram in connection with such receivables are included in accounts and notes receivable from affiliates. Montgomery Ward is exposed to both market risk and credit risk under the Agreements. Under the Agreements, Montgomery Ward is required to pay Monogram the excess interest costs on a monthly basis if a blended interest rate applicable to funding costs with respect to the receivables exceeds 10% per annum. Since 1988, the blended interest rate has been less than 10%. Should Montgomery Ward Credit Companies, or their guarantor General Electric Capital Corporation, fail to perform their obligations under the Agreements, Montgomery Ward would suffer an accounting loss up to the amount of Montgomery Ward's share of finance charges and late fees (as described below), (net of applicable reserves carried by Montgomery Ward Credit). Montgomery Ward estimates that any accounting loss would be immaterial at December 28, 1996. Montgomery Ward Credit Company's obligations under the Agreements are not collateralized. Effective April 1, 1996, Montgomery Ward generally bears the risk of credit losses due to non-payment by cardholders to the extent of (i) the amount of credit losses that are between 3.9% and 5.0% of average outstanding receivables, plus (ii) 50% of credit losses that are between 5.0% and 8.0% of average outstanding receivables, subject to offsets relating to Montgomery Ward's share of certain incremental increases in finance charges and late fees payable by cardholders. Montgomery Ward is also responsible for losses on certain higher risk starter card accounts to the extent the loss percentage as to those accounts exceeds the loss 48 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 5. Accounts and Notes Receivable from Affiliates (continued) percentage experience on the rest of the portfolio. Montgomery Ward's net unpaid liability for credit losses for 1991 through 1997 will be payable to Montgomery Ward Credit pursuant to a note (Continuation Note) due in early 2003, provided (i) the outstanding balance of such note cannot exceed $300, (ii) monthly principal payments are required as follows: 1997-$1.0, 1998-$1.417, 1999-$2.75, 2000-$1.25, 2001-$.417, 2002-$.417 and (iii) starter card losses are payable currently. Interest on Montgomery Ward's unpaid liability for credit losses is payable at a rate equal to rates on comparable borrowings of Montgomery Ward. In exchange for Montgomery Ward's agreement to allow MWCC to increase finance charge rates and late fees in selected states prior to 1996, Montgomery Ward receives a share of incremental finance charges and late fees resulting from such increases. Such amount is available for offset against Montgomery Ward's unpaid liability for its share of credit losses, and to the extent not currently paid or offset earns interest at the same rate as amounts owned by Montgomery Ward to Montgomery Ward Credit. Effective April of 1996, MWCC implemented additional finance charge and late fee increases in various states. The amount of these additional incremental finance charges and late fees are calculated each year (Gross Designated Incremental Revenue). Pursuant to the Account Related Agreement the Gross Designated Incremental Revenue amount is made available to pay (i) certain costs which may be incurred by Montgomery Ward and MWCC relating to the implementation and continuation of the new finance charges and late fees, including conversion costs, ongoing costs, loss by Montgomery Ward of certain sales tax deductions, and certain potential costs that may arise in connection with legal proceedings, (ii) MWCC and Montgomery Ward's respective allocated shares of credit losses in excess of 3.9% of average outstanding receivables, and (iii) Montgomery Ward's Continuation Note, with 20% of any remaining portion of the Gross Designated Incremental Revenue payable to Montgomery Ward. In the event that, due to the increase in finance charge rates and late fees, refunds are required to be made, Montgomery Ward and MWCC have agreed to in certain cases share the financial risk. Legislation has from time to time been introduced in certain jurisdictions, which if enacted, may require rescinding all or a portion of such increases, in which case Montgomery Ward's share of such increases may be substantially reduced. Credit losses have increased in 1996 primarily as a result of personal bankruptcies and increased contractual delinquencies. As the increased finance charge rate and late fees are added to the credit card balance, this will cause the level of losses to increase. The higher finance charges and late fees also decreases the credit available to the credit card customer. 49 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 5. Accounts and Notes Receivable from Affiliates (continued) Montgomery Ward has executed notes for its unpaid share of credit losses which totaled $333 with respect to credit losses through 1996. The incremental finance charges and late fee assessments earned by Montgomery Ward at the end of 1996 were $81 for a net obligation of $252. These amounts are included in Accrued liabilities and other obligations at December 28, 1996. The Company does not expect its unpaid share of credit losses, net of incremental finance charges and late fee assessments, for the period through 1997 to exceed the $300 limitation. The Agreements are scheduled to expire on December 31, 2011, provided the terms shall continue thereafter from year to year unless either party gives ten years prior notice of its election to terminate. In addition to the Agreements, Montgomery Ward's subsidiary, Lechmere, Inc. (Lechmere), entered into an Interim Consumer Credit Card Program Agreement (Lechmere Agreement) effective March 13, 1996 with Monogram pursuant to which Monogram makes payments to Lechmere in the face amount of Monogram's receivables generated by sales to customers of Lechmere who utilize the Lechmere private label credit card system that is provided by Monogram pursuant to the Lechmere Agreement. The Lechmere Agreement provides that it will terminate upon the earlier of March 31, 1997 or the execution of a long-term agreement between the parties. A term sheet was executed on March 7, 1997 outlining the major provisions that the parties intend to incorporate in the long-term agreement. The term sheet contemplates a long- term agreement for a 15 year term which would continue thereafter from year to year unless either party gives ten years prior notice of its election to terminate. The term sheet further provides that Montgomery Ward will (i) be responsible for 50% of credit losses that are between 4.25% and 8.0% of average outstanding receivables, (ii) receive a one time payment of $3 in consideration of entering into the agreement, (iii) be responsible for a payment to Monogram of approximately $2.5 representing 50% of the loss reserve established when Monogram purchased the Lechmere portfolio from the previous provider of the Lechmere private label credit card and (iv) receive 50% of the net income generated from the portfolio in excess of a 17.5% return. 6. Merchandise Inventories The Company has historically valued inventory at the lower of the cost or market using the retail inventory method. As of December 28, 1996, the Company changed its cost flow assumptions for accounting for inventories from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. Under the current environment of low inflation, the Company believes that the FIFO method better measures the current value of such inventories and provides for a more appropriate matching of current costs and current revenues consistent with the Company's merchandising strategy. The Company has also applied to the 50 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 6. Merchandise Inventories (continued) Internal Revenue Service to change to the FIFO method of inventory valuation for income tax reporting purposes. This change has been applied by retroactively restating the consolidated financial statements. The cumulative effect of the change, increasing shareholders' equity by $28 million (reported as an adjustment to retained earnings as of January 1, 1994), represents the reversal of the LIFO inventory valuation and recognition of the FIFO inventory valuation. Restatement of operating results due to the change increased net income by $22 in 1996, decreased net income by $20 in 1995 and decreased net income by $9 in 1994 (exclusive of the cumulative effect). The aggregate effect of the change was to increase shareholders' equity by $22, as of December 28, 1996. 7. Retirement Plans Retirement plans of a contributory nature cover a majority of full-time associates of Montgomery Ward and its subsidiaries. Retirement benefits are provided through a defined benefit pension plan as well as through a savings and profit sharing plan. Montgomery Ward and its subsidiaries contribute to the defined benefit pension plan to cover any excess of defined minimum benefits over the benefits available. The components of the net pension credit were as follows: 52-Week Period Ended ---------------------------- Dec. 28, Dec. 30, Dec. 31, 1996 1995 1994 -------- -------- -------- Service cost-benefits earned during the period......................... $(12) $ (10) $ (13) Interest cost on projected benefit obligation........................ (48) (51) (46) Actual return on assets.................... 112 185 4 Deferral of unanticipated investment performance.................... (34) (110) 72 Amortization of unrecognized prior service cost........................ 1 - - Amortization of unrecognized net loss...... (6) (3) (2) -------- -------- -------- Net pension credit......................... $ 13 $ 11 $ 15 -------- -------- -------- -------- -------- -------- Assumptions: Discount rate............................. 7.7% 8.5% 7.5% Increase in future compensation........... 6.0% 6.0% 6.0% Rate of return on plan assets............. 9.5% 9.5% 9.5% 51 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 7. Retirement Plans (continued) The funded status of the defined benefit pension plan was as follows: Dec. 28, Dec. 30, 1996 1995 -------- -------- Actuarial present value of accumulated benefit obligation: Vested........................................ $(655) $(660) Nonvested..................................... (2) (3) -------- -------- Accumulated benefit obligation.................. (657) (663) Additional amounts related to projected increases in compensation levels............... (19) (16) -------- -------- Projected benefit obligation.................... (676) (679) Plan assets at fair value, primarily in equity and fixed income securities............. 946 898 -------- -------- Plan assets in excess of projected benefit obligation............................. $ 270 $ 219 -------- -------- -------- -------- Unrecognized net loss since initial application of FAS 87......................... $ 72 $ 118 Unrecognized prior service cost since initial application of FAS 87................. 7 $ (2) -------- -------- Prepaid pension cost........................... $ 349 $ 335 -------- -------- -------- -------- The projected benefit obligation was determined using an assumed discount rate of 7.7% at December 28, 1996 and 8.5% at December 30, 1995 and an assumed rate of increase in future compensation levels of 6% for 1996 and 1995. Excess unrecognized net gains and losses and prior service costs are amortized over the average future service period. The savings and profit sharing plan includes a voluntary savings feature for eligible associates and matching company contributions based on a fixed percentage of certain associates' contributions. The company matching expense was $6 for each of 1996, 1995 and 1994. As of December 28, 1996, the retirement plan and the savings and profit sharing plan (master trust) has a $4 investment in the common stock of General Electric Corp. 52 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 7. Retirement Plans (continued) Substantially all associates who retired on or before December 28, 1996, and had participated in the retirement plan for ten years and who were members of the health care plan for the year prior to retirement are eligible for certain post-retirement health care and life insurance benefits, the cost of which is shared with the retirees. Associates who retire as of January 1, 1996 are no longer eligible for post-retirement life insurance benefits. In 1992, the Company established a limit on its future annual contributions on behalf of retirees at a maximum of 125% of the projected 1992 company contributions. The Company accounts for postretirement benefits under the provisions of SFAS No. 106, "Employers Accounting for Postretirement Benefits other than Pensions. The components of the net periodic postretirement benefit cost were as follows: 52-Week Period Ended ----------------------- 1996 1995 1994 ------ ------ ------ Service cost............................... $ 1 $ 2 $ 2 Interest cost on accumulated post- 10 11 retirement benefit obligation............. 9 Curtailment gain on life insurance benefit termination....................... - (3) - Amortization of prior service cost......... (1) - - Net periodic post-retirement ------ ------ ------ benefit cost.............................. $ 9 $ 9 $13 ------ ------ ------ ------ ------ ------ The status of the Company's liability for postretirement benefits at December 28, 1996 and December 30, 1995, which are included in Accrued liabilities and other obligations is as follows: 1996 1995 ----- ----- Accumulated post-retirement obligation: Retirees........................................... $ 82 $ 90 Fully eligible active associates................... 16 17 Other active associates............................ 22 22 ----- ----- Total accumulated post-retirement benefit obligation................................ 120 129 Unrecognized prior service cost.................... 15 15 Unrecognized net gain (loss)....................... 5 (4) ----- ----- Accumulated post-retirement benefit obligation........................................ $ 140 $ 140 ----- ----- ----- ----- 53 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 7. Retirement Plans (continued) The weighted average discount rate used in measuring the accumulated postretirement benefit obligation was 7.7% at December 28, 1996 and 7.5% at December 30, 1995. The assumed health care cost trend rate and the impact of a 1% increase in the medical trend rate on the accumulated postretirement benefit obligation, service cost and interest cost are not applicable due to caps established on current cost levels. The Company continues to evaluate ways in which it can better manage retiree benefits and control costs. Any changes in the plan or revisions to assumptions that affect the amount of expected future benefits may have a significant effect on the amount of the reported obligation and annual expense. 8. Properties, Plants and Equipment The details of the properties, plants and equipment accounts are shown below at cost: Dec. 28, Dec. 30, 1996 1995 --------- --------- Land............................................ $ 193 $ 201 Buildings....................................... 886 867 Leasehold improvements.......................... 353 355 Fixtures and equipment.......................... 585 534 Assets under capital leases..................... 96 101 Less accumulated depreciation and amortization................................... (805) (692) --------- --------- Properties, Plants and Equipment, net........... $1,308 $1,366 --------- --------- --------- --------- Gains or (losses) on the sale of properties were $5, $11 and $1 for 1996, 1995 and 1994, respectively. Accumulated amortization on capital lease assets was $53 and $50 for 1996 and 1995, respectively. Depreciation expense for property plant and equipment was $122 and $115 for 1996 and 1995, respectively. The amount of assets held for disposition was $17 and $17 for 1996 and 1995, respectively. The amortization of capital lease assets is included in accumulated depreciation and amortization above. 54 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 9. Income Taxes As of December 28, 1996, the Company has alternative minimum tax (AMT) credits of $1 available to offset future Federal income tax liabilities. The Company has targeted jobs tax credit (TJTC) carryforwards of $11, which begin expiring in 2009 and a tax benefit of $315 attributable to NOL carryforwards available as of December 28, 1996, which expire beginning in 2010. The approximate tax effects of temporary differences and carryforwards that give rise to the net deferred tax liability are as follows:
Dec. 28, Dec. 30, 1996 1995 --------- -------- Accrued liabilities............................... $(112) $(130) Post-retirement benefits.......................... (71) (56) Insurance reserves................................ (55) (65) Other deferred tax assets......................... (4) (29) --------- -------- Total deferred tax assets........................ (242) (280) Prepaid pension contribution..................... 141 132 Direct response and insurance acquisition costs............................... 238 150 Property, plants and equipment................... 159 145 Other deferred tax liabilities................... 51 50 --------- -------- Total deferred tax liabilities.................. 589 477 AMT, TJTC and NOL credit carryforwards........... (327) (110) Valuation allowance.............................. 32 32 --------- -------- Net deferred tax liability...................... $ 52 $ 119 --------- -------- --------- --------
55 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 9. Income Taxes (continued) Income tax expense consists of:
52-Week Period Ended ---------------------------- Dec. 28, Dec. 30, Dec.31, 1996 1995 1994 -------- -------- -------- Federal Currently payable....................... $ 2 $ 7 $25 Deferred (benefit) payable.............. (134) (20) 23 State, local and foreign (benefit) payable....................... (6) (1) 8 -------- -------- -------- Total income tax (benefit) expense................................. $(138) $(14) $56 -------- -------- -------- -------- -------- --------
A reconciliation of the statutory to effective federal income tax rate is as follows:
52-Week Period Ended ---------------------------- Dec. 28, Dec. 30, Dec.31, 1996 1995 1994 -------- -------- -------- Federal income tax rate.................. 35% 35% 35% State taxes, net of reduction of Federal tax and NOL benefit............. 1 7 3 Tax Credits.............................. 2 31 (3) Deferred rate differential, net of adjustments............................. - 2 (3) Permanent differences.................... (1) (14) 2 -------- -------- -------- Effective income tax rate................ 37% 61% 34% -------- -------- -------- -------- -------- --------
56 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 10. Deferred Service Contract Revenue Montgomery Ward sells product service contracts on its own behalf, and beginning in 1994, on behalf of Virginia Surety Company, Inc. (VSC) and National Product Care Co. (NPC). Also, beginning in 1995, the Company sold service contracts for computers on behalf of General Electric (GE) and in 1996 Lechmere sold service contracts on behalf of Warrantech. VSC, NPC, GE and Warrantech are referred to as the Product Service Companies. The Company recognizes the revenue related to sales of Montgomery Ward service contracts in proportion to the costs expected to be incurred in performing services under the contracts. Deferred service contract revenue of $106 and $169 at December 28, 1996 and December 30, 1995, respectively, is included in Accrued liabilities and other obligations. The Company recognizes the revenue, net of the fixed payment due to the Product Service Companies on sales of Product Service Companies' contracts at the time of sale. Insured contracts comprised 66% and 52% of sales of service contracts to Montgomery Ward and Lechmere customers in 1996 and 1995, respectively. Montgomery Ward has contracted with certain of the Product Service Companies to provide repair services. 11. Reinsurance The Company's insurance subsidiaries are involved in both the cession and assumption of reinsurance with other companies. Risks are reinsured with other companies to permit the recovery of a portion of the direct losses. Policy related liabilities and accruals, including incurred but not reported claims, are included in the financial statements as Insurance policy claim reserves, and reinsurance ceded is reflected as a component of Other assets. The Company remains liable to the extent the reinsuring companies cannot meet their obligations under these reinsurance treaties. 57 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 11. Reinsurance (continued) Premium revenues, which are included in Direct response marketing revenues, are as follows:
Percentage Ceded Assumed of Amount To From Assumed Gross Other Other Net To Be Amount Companies Companies Amount Net ------ --------- --------- ------ ---------- 52-Week Period Ended December 28, 1996: Life insurance in force.............. $5,940 $(104) $ - $5,836 0.0% ------ ----- --- ------ ---- ------ ----- --- ------ ---- Premiums Life insurance...................... $ 59 $ (1) $ 7 $ 65 10.8% Accident and health insurance.......................... 94 (5) 11 100 11.0 Property and liability insurance.......................... 76 (15) - 61 0.0 ------ ----- --- ------ ---- Total............................ $ 229 $ (21) $18 $ 226 8.0% ------ ----- --- ------ ---- ------ ----- --- ------ ---- 52-Week Period Ended December 30, 1995: Life insurance in force.............. $5,886 $ (84) $ - $5,802 0.0% ------ ----- --- ------ ---- ------ ----- --- ------ ---- Premiums Life insurance...................... $ 53 $ (1) $ 2 $ 54 3.7% Accident and health insurance.......................... 91 (5) 15 101 14.9% Property and liability insurance.......................... 73 (12) - 61 0.0% Total............................ $ 217 $ (18) $17 $ 216 7.9% ------ ----- --- ------ ---- ------ ----- --- ------ ---- 52-Week Period Ended December 31, 1994: Life insurance in force.............. $5,729 $ (93) $ - $5,636 0.0% ------ ----- --- ------ ---- ------ ----- --- ------ ---- Premiums Life insurance...................... $ 50 $ (1) $ 3 $ 52 5.8% Accident and health insurance.......................... 76 - 11 87 12.6% Property and liability insurance.......................... 62 (9) - 53 0.0% ------ ----- --- ------ ---- Total............................ $ 188 $ (10) $14 $ 192 7.3% ------ ----- --- ------ ---- ------ ----- --- ------ ----
58 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 12. Short-Term and Long-Term Debt The long-term debt of Montgomery Ward and its subsidiaries is as follows: Dec. 28, Dec. 30, 1996 1995 -------- -------- Montgomery Ward Note Purchase Agreements; Senior Notes Series A to Series J due in 1998 to 2005 at 6.52% to 8.18% interest rates......................................... $ - (a) $280 Bank Term Loan at adjustable interest rates, based on market rates........................................ - 25 Commercial Development Revenue Bonds, due in 2013 at 4.5% interest rate, adjusted at three-year intervals.............................................. 5 5 Other................................................... 2 2 Montgomery Ward Real Estate Subsidiaries 11-1/2% Secured Note, due serially to September 1, 2001................................... 12 14 7-1/2% Secured Note, due serially to November 30, 2002................................... 5 6 9.45% Secured Notes, due serially to November 30, 2003................................... 15 16 7-3/4% Secured Notes, due serially to August 31, 2004..................................... 17 19 7-7/8% Secured Notes, due serially to December 15, 2005................................... 7 8 9% Secured Notes, due serially to January 1, 2006........................................ 12 12 Other................................................... 8 8 Lechmere 9.65% Secured Mortgage Notes, due October 31, 1996...... - 24 Other................................................... 4 4 -------- -------- -------- -------- Total long-term debt................................. $87 $423 -------- -------- -------- -------- a) Subsequent to December 28, 1996, the maturity of this debt of $280 was shortened to August 29, 1997 in connection with a waiver obtained in the first quarter of 1997. The amounts of long-term debt that become due during the fiscal years 1997 through 2001 are as follows: 1997--$10, 1998--$9, 1999--$10, 2000--$12, and 2001--$10. 59 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 12. Short-Term and Long-Term Debt (continued) 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. The Company has obtained waivers under the Long Term Credit Agreement (Long Term Agreement) and the Short Term Credit Agreement (Short Term Agreement) with respect to compliance for the fiscal quarter ending March 29, 1997 with covenants requiring maintenance of minimum consolidated shareholders' equity, a minimum ratio of debt to capitalization and minimum earnings before interest, taxes, depreciation, amortization and rent ("EBITDAR"). These waivers and amendments also reduce the maximum amount of debt permitted to be incurred by Signature and the maturity of the Long Term Agreement was changed from February 28, 1998 to August 29, 1997. Similar amendments to corresponding covenants in the Company's two Purchase and Master Lease Agreements were made. The Long Term Credit Agreement and the Short Term Credit Agreement were amended on December 23, 1996, to substitute for the three quarters ended June 28, 1997, the EBITDAR test for an earnings to fixed charges test, to add a limitation on capital expenditures and require prepayments if proceeds of certain asset dispositions are received, and to amend the minimum debt to equity ratio required to permit payment of preferred stock dividends. In connection with these amendments the Company paid fees totaling $3, the rates of interest under both agreements were increased in three stages, at the date of the agreement and effective at the end of the first and second quarters of 1997, the commitment fee was increased by .375% of the unused commitment and the maturity of the Long Term Agreement was changed to February 15, 1998 from September 6, 2000. These amendments also limited the amount of debt which can be incurred by Signature. Similar amendments to the corresponding covenants in the Company's two Purchase and Master Lease Agreements were made (including shortening the lease expiration dates to August 29, 1997) and the rents thereunder were increased. Signature Financial/Marketing, Inc. (Signature), a wholly owned subsidiary of Montgomery Ward, borrowed $102 under a Credit Agreement (Signature Credit Agreement) dated as of September 27, 1996 between Signature and various lenders. The proceeds were used to repay the inter- company loan 60 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 12. Short-Term and Long-Term Debt (continued) from Montgomery Ward to Signature arising from Signature's acquisition of the Amoco Motor Club. The Signature Credit Agreement expires on August 29, 1997. The minimum debt to capitalization ratio in the Long Term Credit Agreement and Short Term Credit Agreement was also amended September 6, 1996, when a minimum ratio of earnings to fixed charges was added. A similar amendment was made to the two Purchase and Master Lease Agreements. The Company entered into an amendment and waiver agreement with holders of the notes issued under the 1993 and 1995 Note Purchase Agreements, which includes a waiver through June 27, 1997 of compliance with the minimum shareholders' equity and funded debt to capitalization tests and added a restriction of sale of assets. In connection therewith, the noteholders received fees totaling $1 and interest rates on the notes were increased in two stages. Montgomery Ward also entered into a Credit Agreement (Seasonal Credit Agreement) dated as of October 4, 1996 with various lenders, including GE Capital. The Seasonal Credit Agreement expires August 29, 1997 and provides a revolving loan facility in the principal amount of $165. A waiver corresponding to those most recently obtained as to the Long Term and Short Term Agreements have been obtained by the Company. The purpose of this facility is to provide back-up liquidity as the Company reduces its inventory levels during the fourth quarter. Unless the lenders otherwise agree, loans may be made under this facility only after the commitments under the Short Term Agreement and the Long Term Agreement are fully used. Under the Seasonal Credit Agreement, Montgomery Ward may select among several interest rate options which are based on market rates. A commitment fee is payable upon the unused commitment. At December 28, 1996, no amount was outstanding. 61 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 12. Short-Term and Long-Term Debt (continued) The loan agreements, previously discussed, all limit dividends which Montgomery Ward may pay with respect to its stock and advances which it may make to the Company. Under these limitations, Montgomery Ward currently may only make dividends, distributions or advances to Montgomery Ward Holding to fund the payment of business and corporate expenses up to $2 per year. Because Montgomery Ward Holding's sole source of funds is Montgomery Ward, it does not currently expect to have sufficient funds to make payments otherwise due on the outstanding notes issued to repurchase shares of its common stock. Holders of those notes are not permitted to accelerate the indebtedness thereunder or bring suit to collect it for one year. The Company does not anticipate that it will be able to repurchase any shares of its common stock, under the Stockholders' Agreement or otherwise, during the foreseeable future. The Long Term Agreement provides a revolving facility in the principal amount of $603. As of December 28, 1996, $170 was outstanding under the Long Term Agreement. On September 6, 1996, the Short Term Agreement which was extended to August 29, 1997 from March 29, 1997 was further amended to increase the principal amount of this revolving loan facility from $297 million to $436. On October 24, 1996, this facility was further increased from $436 to $456. As of December 28, 1996, $456 was outstanding under the Short Term Agreement. On December 28, 1996, Montgomery Ward had outstanding $20 under short-term uncommitted lines of credit. 62 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 12. Short-Term and Long-Term Debt (continued) At December 28, 1996, total short-term debt is summarized as follows: Borrowings under Long-Term Credit Agreement............ $ 170 Borrowings under Short-Term Credit Agreement........... 456 Borrowings under the Signature Loan.................... 102 Borrowings under the uncommitted lines................. 20 ------ Short-term borrowings.................................. $ 748 Note Purchase Agreements reclassified to Short-term debt................................................ 280 ------ Total Short-Term Debt.................................. $1,028 ------ ------ 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 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 rate. The interest rate exchange and cap agreements increased the effective borrowing rate under the Agreements by .76% for 1996. 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. On October 24, 1996, Montgomery Ward prepaid a $25 term loan which had been outstanding under the Term Loan Agreement dated September 29, 1995. 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 Montgomery Ward Holding Corp. 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 Montgomery Ward Holding Corp. Senior Preferred Stock held by GE Capital. 63 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 12. Short-Term and Long-Term Debt (continued) 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. Montgomery Ward has outstanding Commercial Development Revenue Bonds, which are adjusted to the market rate of interest at three-year intervals. The rate was adjusted to 4.5% in 1995. The Secured Notes of the real estate subsidiaries and the secured Mortgage Notes of Lechmere are secured by mortgage liens and/or assignments of rental agreements whereby the real estate subsidiaries have assigned to trustees certain monies payable under leases with Montgomery Ward. 13. Leases The Company leases real and personal property principally through noncancelable capital and operating leases, which generally provide for the payment of minimum rentals and, in certain instances, executory costs and additional rentals based upon a percentage of sales. The terms of the real estate leases typically contain renewal options for additional periods. At December 28, 1996, the minimum lease payments under all noncancelable operating leases with an initial term of more than one year, not including $34 of future sublease rentals, and under capital leases are as follows: Capital Operating Leases Leases ------- --------- 1997........................................... $12 $ 126 1998........................................... 12 117 1999........................................... 11 102 2000........................................... 11 94 2001........................................... 9 87 Later Years.................................... 31 789 ------- --------- Total Minimum Lease Payments $86 $1,315 ------- --------- ------- --------- Less Executory Costs, principally real estate taxes to be paid by the lessor.......... (3) Less Imputed Interest........................... (23) ------- Present Value of Net Minimum Capital Lease Payments Including Portion due within one year of $7.......................... $60 ------- ------- 64 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 13. Leases Net rent expense charged to earnings was $149 for 1996, $140 for 1995 and $130 for 1994, after deducting rentals from subleases of $10 in 1996, $9 in 1995 and 1994. Rent expense includes contingent lease rentals for capital and operating leases of $10 for 1996, $12 for 1995, and $13 for 1994. These contingent lease rentals are generally based on sales revenues. Some rental agreements contain escalation provisions that may require higher future rent payments. Rent expense incurred under rental agreements which contain escalation clauses is recognized on a straight-line basis over the life of the lease. 14. Redeemable Preferred Stock On April 27, 1994, the Company's Certificate of Incorporation was amended to authorize the issuance of a new series of senior preferred stock (Senior Preferred Stock). On that date, the Company issued all of the 750 shares of Senior Preferred Stock authorized by the Certificate of Incorporation to General Electric Capital Corporation in exchange for $75 in cash. The Company used the proceeds to acquire 750 shares of a new issue of senior preferred stock of Montgomery Ward (Montgomery Ward Preferred) for $75 and Montgomery Ward used the proceeds to reduce short-term borrowings. On December 29, 1995, Montgomery Ward redeemed the Montgomery Ward Preferred held by the Company for $75. The Company used the proceeds to redeem the Senior Preferred Stock held by GE Capital for $75. The source of the funds for these transactions was borrowing under the Agreements. Dividends on the Senior Preferred Stock and Montgomery Ward Preferred had been paid quarterly at an annual rate of $4,850 per share. On December 29, 1995, Montgomery Ward issued 1,750 shares of a new series of senior preferred stock (MW Senior Preferred Stock), par value of $1.00 per share, to GE Capital in exchange for $175 in cash. Subsequent to year end, Montgomery Ward used a portion of the proceeds to finance the purchase of the Amoco Motor Club by its wholly-owned subsidiary, Signature. The subscription agreement for the MW Senior Preferred Stock contained an exchange option which gave GE Capital the option to exchange the MW Senior Preferred Stock for senior preferred stock of the Company with identical terms. On January 31, 1996, GE Capital exercised the exchange option 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 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 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. 65 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 14. Redeemable Preferred Stock (continued) 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. 15. Common Stock As of December 28, 1996, the Company has the following authorized classes of common stock: Class A Common Stock, Series 1; $.01 par value; 25,000,000 shares authorized; 18,223,618 shares issued and outstanding, net of 6,794,016 shares held in treasury. Class A Common Stock, Series 2; $.01 par value; 5,412,000 shares authorized; 107,023 shares issued and outstanding, net of 2,110,608 shares held in treasury. Class A Common Stock, Series 3; $.01 par value; 2,400,000 shares authorized; no shares issued or outstanding. Class B Common Stock; $.01 par value; 25,000,000 shares authorized, issued and outstanding; all owned by GE Capital. The Company has repurchased 5,982,897 shares held by certain former officers of the Company, Montgomery Ward and Signature and their permitted transferees by making cash payments and issuing installment notes in the aggregate of approximately $54. As of December 28, 1996, the outstanding balance of these notes was $7. These installment notes bear interest at varying rates, are payable over multi-year periods (generally three to five years) and are secured by shares of Common Stock, the fair market value of which is equal to the outstanding principal amount under each note. The notes are classified as Accrued liabilities and other obligations. The Company does not have the capacity under its borrowing agreements to satisfy the payments for these notes. If the situation is not cured within one year after a note payment is missed, the noteholder may foreclose on the pledge of shares repurchased. In years where net income is recognized, options under the Nonqualified Stock Option Plan are included as Common Stock Equivalents in computing primary Earnings Per Share (EPS). In 1996 and 1995, because net losses were incurred, these potentially dilutive securities have an antidilutive effect and are, consequently, omitted from the primary EPS calculation. As a result, 1996 and 1995 EPS calculations are equal to Basic EPS calculations. 66 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 15. Common Stock (continued) There were no conversions subsequent to year-end that would have affected (either dilutively or incrementally) primary EPS had they taken place at the beginning of the period. Each share of Class B Common Stock entitles the holder thereof to one vote. All shares of Class A Common Stock entitle the holders to a total of 25,000,000 votes, or one vote per share if the total number of Class A shares issued and outstanding is less than 25,000,000. 67 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 15. Common Stock (continued) Net (loss) income per common share is computed as follows: 52-Week Period Ended December 28, 1996 ---------------------- Class A Class B --------- --------- Earnings (loss) available for Common Shareholders.................................. $(118) $(131) Weighted average number of common and common equivalent share (stock options) outstanding.. 19,058,574 25,000,000 Earnings (loss) per share...................... $(6.18) $(5.25) 52-Week Period Ended December 30, 1995 ---------------------- Class A Class B --------- --------- Earnings (loss) available for Common Shareholders................................. $ (6) $ (7) Weighted average number of common and common equivalent shares (stock options) outstanding. 20,824,514 25,000,000 Earnings (loss) per share..................... $(.31) $(.28) 52-Week Period Ended December 31, 1994 ---------------------- Class A Class B --------- -------- Earnings available for Common Shareholders after deducting preferred stock dividend requirements and the cumulative effect of $ 67 $ 68 the change in accounting principle (Note 5)... Weighted average number of common and common equivalent shares (stock options) outstanding. 21,407,379 25,000,000 Earnings per share............................ $3.15 $2.70 68 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 16. Stock Ownership Plan The Montgomery Ward & Co., Incorporated Stock Ownership Plan was adopted effective July 19, 1988. A total of 1,000,000 Class A Common Stock, Series 1, 5,412,000 shares of Class A Common Stock, Series 2, and 2,000,000 shares of Class A Common Stock, Series 3, have been reserved for issuance under the plan. Key associates of Montgomery Ward and its subsidiaries are eligible to participate and may receive awards, purchase rights and options. Awards are grants of shares for no consideration. Options for 3,981,000 and 3,980,000 of Class A Common Stock, Series 2 and Series 3 shares were exercisable at December 28, 1996 and December 30, 1995, respectively. During 1991, the Board of Directors approved the Directors Plan. The Directors Plan was established to, among other things, allow outside directors to receive all or any portion of the fees for their services as directors of the Company and Montgomery Ward via conversion rights in Series 1 or Series 2 shares. In 1996, 1995 and 1994, 2,421, 2,476 and 2,489 Series 1 shares were issued from treasury stock as payment for directors fees, respectively. Following is a summary of activity under the plans:
December 28, 1996 December 30, 1995 December 31, 1994 ------------------------- ------------------------ -------------------------- Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg. (000) Ex. Price (000) Ex. Price (000) Ex. Price ------ ------------ ------- ---------- ------- ------------ Outstanding, beg. of year 5,165 $17.61 6,163 $17.76 4,974 $14.49 Granted 340 23.95 673 24.90 1,967 24.68 Exercised (352) 9.52 (981) 19.29 (298) 9.13 Forfeited (458) 21.14 (71) 19.22 (53) 17.20 Canceled (357) 23.86 (619) 24.15 (427) 20.10 Expired 0 -- 0 -- 0 -- ----- ----- ----- Outstanding, end of year 4,338 $17.87 5,165 $17.61 6,163 $17.76 ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ Exercisable, end of year 3,981 $16.39 3,980 $15.92 3,631 $14.73 ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ Weighted average fair value of options granted $11.82 $11.92 n/a ------ ------ ------ ------ ------ ------
2,042 of the 4,338 options outstanding at December 28, 1996 have exercise prices between $.20 and $18.75, with a weighted average exercise price of $11.02 and a weighted average remaining contractual life of 3.94 years. 1,959 of these options are exercisable. The remaining 2,296 options have exercise prices between $22.50 and $26.50, with a weighted average exercise price of $23.96 and a weighted average remaining contractual life of 7.30 years. 1,567 of these options are exercisable. Pro Forma Disclosure In applying Accounting Principles Board (APB) Opinion No. 25, no expense was recognized for stock options granted under the Plans. In 1996, the Company implemented the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", requiring that the fair market value of all awards of stock based compensation be determined using an option pricing model and that pro forma net income and net income per common share be disclosed as follows:
December 28, 1996 December 30, 1995 ----------------- ------------------ Net Income (Loss) Applicable to Common Shareholders: As Reported $(249) $(13) Pro Forma (251) (15) Net Income (Loss) per Class A Common Share: As Reported $(6.18) $(.31) Pro Forma (6.27) (.43)
Because SFAS No. 123 provisions have not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation expense may not be representative of that to be expected in future years. The weighted average fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for 1995 and 1996: risk-free interest rates of 7.18 and 5.67 percent; expected dividend yield of 0 percent; expected life of 10.0 years. 69 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 17. Operating, Selling, General and Administrative Expenses Operating, selling, general and administrative expenses include insurance benefits, claims and losses related to direct response marketing operations of $144, $100 and $102 for the periods ended December 28, 1996, December 30, 1995 and December 31, 1994, respectively. Unamortized software costs included in other assets were $30, $28 and $17 and the amortization of these costs were $7, $5 and $3 for the periods ended December 28, 1996, December 30, 1995 and December 31, 1994, respectively. 18. Interest Expense, Net of Investment Income Net interest expense is as follows:
52-Week Period Ended ---------------------------- Dec. 28, Dec. 30, Dec. 31, 1996 1995 1994 -------- -------- -------- Interest on short-term borrowings..... $ 53 $47 $19 Interest on long-term debt and obligations under capital leases..... 44 32 30 Miscellaneous interest, net........... 16 15 11 Investment income..................... (2) (3) (2) -------- -------- -------- Total interest expense, net of investment income............. $111 $91 $58 -------- -------- -------- -------- -------- --------
19. Litigation and Other Proceedings MW Holding, Montgomery Ward and its subsidiaries are engaged in various litigation and have a number of unresolved claims. While the amounts claimed are substantial and the ultimate liability with respect to such litigation and claims cannot be determined at this time, management is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to have a material impact on the financial condition and the results of operations of the Company. 20. Related Party Transactions Bernard F. Brennan Substantially all shares of Class A Series 1 and Series 2 Common Stock, except those held by Bernard F. Brennan and a trust established for the benefit of his children, are held by a Voting Trust which was created in 1988. In 1994, a second voting trust was created to hold shares of Class A Series 3 Common Stock. A Voting Trustee, Bernard F. Brennan, has sole voting power and control of all shares held by both Voting Trusts. The 70 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 20. Related Party Transactions (continued) 1988 Voting Trust will expire June 21, 1998 or upon the occurrence of certain specified events in accordance with the Voting Trust Agreement. The 1994 Voting Trust has no expiration date but may expire upon the occurrence of certain specified events in accordance with the Voting Trust Agreement. In conjunction with a Relationship Agreement entered into between Mr. Brennan and the Company, the Company provided a loan to Mr. Brennan of $12.5. (His stock is pledged as collateral). The loan does not bear interest. In addition, Mr. Brennan is being paid $1.5 annually (for a five year period) for consulting services he provides to the Company. GE Capital Corporation The Company engages in various transactions with GE Capital Corporation as described in Notes 2, 5, 14 and 15. ValueVision International, Inc. On August 8, 1995, Montgomery Ward purchased 1,280,000 unregistered shares of common stock of ValueVision International, Inc. (ValueVision) at $6.25 per share, which represented approximately 4.4% of the issued and outstanding shares of common stock of ValueVision International, Inc. (ValueVision). Montgomery Ward also received warrants to purchase an additional 25 million shares of common stock of ValueVision with exercise prices ranging from $6.50 to $17.00 per share, with an average exercise price of $9.16 per share. The warrants were valued at $18 at the time of grant and were included in Other assets at December 30, 1995. The corresponding deferred revenue of $18 was recognized as a liability and included in Accrued liabilities and other obligations. At December 30, 1995, the balance of the deferred revenue was $17. The Company was a partner in a joint venture, Montgomery Ward Direct, Limited Partnership (MW Direct), formed through a partnership in 1991 between subsidiaries of Montgomery Ward and subsidiaries of Fingerhut Companies, Inc. a Minneapolis, Minnesota specialty-based catalog merchandiser. In June of 1996, the subsidiaries of Fingerhut Companies withdrew from the partnership. Immediately prior to the withdrawal, the Fingerhut subsidiaries contributed to the capital of MW Direct cash and all claims that the Fingerhut subsidiaries had against MW Direct. In July of 1996, the Company and ValueVision, a Minneapolis, Minnesota based television home shopping enterprise, entered into an agreement where ValueVision acquired the assets and assumed certain liabilities of MW Direct concurrent with the restructuring of the marketing agreement between Montgomery Ward and ValueVision as discussed below. Also, in July of 1996, ValueVision and Montgomery Ward & Co., entered into an agreement for the expansion and restructuring of their ongoing marketing agreement. ValueVision issued to Montgomery Ward vested warrants (Class P Warrants) to purchase 2.97 million shares of ValueVision common stock at an exercise 71 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 20. Related Party Transactions (continued) ValueVision International, Inc. (continued) price of $0.01 per share. The new warrants replaced 18.0 million unvested warrants (Class C-O Warrants) from an earlier grant. Concurrent with this agreement, ValueVision issued to Merchant Partners Limited Partnership (Merchant Partners) vested Class P warrants to purchase 199,100 shares of ValueVision common stock at an exercise price of $0.01 per share. Montgomery Ward was at the time a limited partner in Merchant Partners. Montgomery Ward recognized a pretax gain of $8 from the exchange of the Class C-O unvested warrants and the exchange of Montgomery Ward Direct assets and liabilities. The gain was included in Operating, selling, general and administrative expense. In September of 1996, Montgomery Ward and ValueVision exchanged warrants to purchase ValueVision common stock. Montgomery Ward exchanged 6.0 million vested warrants (Class A-B Warrants) from the earlier grant of 25.0 million warrants which were exercisable at prices ranging from $6.50 to $6.75, in return for vested warrants (Class P Warrants) to purchase 2.2 million shares of ValueVision common stock at an exercise price of $0.01 per share. Montgomery Ward recognized a pretax gain of $7 from this transaction which is included in Operating, selling, general and administrative expense. The earlier ValueVision warrants had been subject to certain vesting conditions and termination rights which do not apply to the replacement grant. Under the new agreements, Montgomery Ward's potential ownership of ValueVision, on a fully diluted basis, following the exercise of all warrants, would be 14.95%. Montgomery Ward accounts for ValueVision on the cost method. The total investment in ValueVision common stock and warrants after the above transactions was $34. A portion of the warrants are pledged as security for the performance of Montgomery Ward's advertising commitment. Montgomery Ward has an advertising commitment with ValueVision to purchase not less than $20 of advertising time on cable systems through ValueVision during the five year period commencing August 1, 1996. Montgomery Ward in 1996 deferred revenue recognition on the exchange of warrants discussed above of $16, which is included in Accrued liabilities and other obligations. This amount represents the net present value of the advertising commitment Montgomery Ward has with ValueVision. The deferred revenue will be recognized as services are provided by ValueVision in the future. These services include expenses incurred for advertising by ValueVision, purchasing cable TV time for Montgomery Ward goods and services, use of the Montgomery Ward service mark and use of Montgomery Ward Credit. 72 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 20. Related Party Transactions (continued) Merchant Partners In July 1994, Montgomery Ward became a limited partner in Merchant Partners, Limited Partnership (Merchant Partners). The purpose of this partnership is to invest in new and emerging growth businesses and leveraged buy-outs. Montgomery Ward made capital contributions of $17 to Merchant Partners, Limited Partnership in 1996, $4 in 1995 and $1 in 1994. In December 1995, Merchant Partners made a partnership distribution of $22 to Montgomery Ward. The distribution consisted of $8 of common stock and $14 warrants of a publicly traded company. After recognition of the portion of the distribution that was recorded as a return of capital of $5 and the partnership's net loss allocation as of December 30, 1995 of $1, a gain of $16 was recognized in the Consolidated Statement of Income. On December 31, 1996, Montgomery Ward entered into an agreement under which Montgomery Ward assigned, transferred and set over unto Merchant Advisors, Limited Partnership (the general partner of Merchant Partners), Montgomery Ward's entire right, title and interest in and to its limited partnership interest, including the entire balance in its capital and contributions accounts, in Merchant Partners. Merchant Advisors, Limited Partnership, assumed the performance of all of the covenants and obligations associated with the interest under the Limited Partnership Agreement of the Partnership. The agreement eliminated Montgomery Ward's future obligations with respect to its interest in Merchant Partners. As a result, Montgomery Ward reduced its investment in Merchant Partners recognizing a charge to earnings of $10 included in Operating, selling, general and administrative expense. 73 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 21. Business Segments Montgomery Ward and its subsidiaries are engaged in retail merchandising and direct response marketing, including insurance, in the United States. Following is information regarding revenues, earnings and assets of the Company by segment. 52-Week Period Ended -------------------------------- Dec. 28, Dec. 30, Dec. 31, 1996 1995 1994 ---------- ---------- ---------- Total Revenues Retail Merchandising.................. $5,879 $6,531 $6,564 Direct Response Marketing............. 741 554 465 ---------- ---------- ---------- Total............................... 6,620 7,085 7,029 ---------- ---------- ---------- ---------- ---------- ---------- Operating Earnings (Losses) Retail Merchandising.................. $ (320) $ 31 $ 194 Direct Response Marketing............. 71 70 60 Corporate and Other (a)............... (126) (124) (89) ---------- ---------- ---------- Total............................... $ (375) $ (23) $ 165 ---------- ---------- ---------- ---------- ---------- ---------- Identifiable Assets Retail Merchandising.................. $3,207 $3,504 $3,314 Direct Response Marketing............. 1,203 920 789 Corporate and Other................... 469 460 434 ---------- ---------- ---------- Total............................... $4,879 $4,884 $4,537 ---------- ---------- ---------- ---------- ---------- ---------- Depreciation and Amortization Retail Merchandising.................. $ 119 $ 118 $ 105 Direct Response Marketing............. 220 149 125 ---------- ---------- ---------- Total............................... $ 339 $ 267 $ 230 ---------- ---------- ---------- ---------- ---------- ---------- Capital Expenditures Retail Merchandising.................. $ 58 $ 109 $ 108 Direct Response Marketing............. 17 13 4 ---------- ---------- ---------- Total............................... $ 75 $ 122 $ 112 ---------- ---------- ---------- ---------- ---------- ---------- (a) 1995 included $25 of severance and relocation costs. Under the laws and regulations applicable to insurance companies, certain subsidiaries of Signature are limited in the amount of dividends they may pay without the approval of the Illinois Insurance Department and are prohibited from making any loans and advances to Montgomery Ward and its affiliates. Under these laws, the restricted subsidiaries, which had aggregate retained earnings of $176, and aggregate total shareholders' equity of $231, can pay dividends of $39 during 1997 as determined on a statutory basis, subject to the ability of certain subsidiaries to generate earned surplus. Dividends received by Signature from insurance subsidiaries were $44, $42 and $35 for 1996, 1995 and 1994. 74 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 22. Parent Company Financial Information Following is the MW Holding balance sheet as of December 28, 1996 and December 30, 1995 and the statements of income and cash flows for the 52-week periods ended December 28, 1996, December 30, 1995 and December 31, 1994. MONTGOMERY WARD HOLDING CORP. BALANCE SHEET ASSETS Dec. 28, Dec. 30, 1996 1995 ---------- ---------- Federal Income Taxes Receivable.................... $ 4 $ 4 Investment in Montgomery Ward...................... 534 782 Redeemable Preferred Stock of Montgomery Ward...... 175 - Other assets....................................... 1 1 ---------- ---------- Total Assets..................................... $ 714 $ 787 ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Accounts Payable to Montgomery Ward................ $ 98 $ 73 Accrued Liabilities................................ 8 14 ---------- ---------- Total Liabilities................................ 106 87 Redeemable Preferred Stock......................... 175 - Common Stock....................................... 1 1 Capital in excess of par value..................... 53 45 Retained Earnings.................................. 509 758 Unrealized gain on marketable equity securities.... 9 10 Less: Treasury stock, at cost..................... (139) (114) ---------- ---------- Total Shareholders' Equity........................ 433 700 Total Liabilities and Shareholders' Equity......... $ 714 $ 787 ---------- ---------- ---------- ---------- STATEMENT OF INCOME 52-Week Period Ended -------------------------------- Dec. 28, Dec. 30, Dec. 31, 1996 1995 1994 ---------- ---------- ---------- Miscellaneous Costs........................ $ (2) $ (1) $ (2) ---------- ---------- ---------- Total Costs and Expenses................ (2) (1) (2) Tax Benefits............................... - - - ---------- ---------- ---------- Net Loss Before Earnings of Montgomery Ward........................... (2) (1) (2) Equity in Net Income of Montgomery Ward.... (235) (8) 139 ---------- ---------- ---------- Net Income................................. (237) (9) 137 Preferred Stock Dividend Requirements...... 12 4 2 ---------- ---------- ---------- Net Income Available for Common Shareholders.............................. $ (249) $ (13) $ 135 ---------- ---------- ---------- ---------- ---------- ---------- 75 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 22. Parent Company Financial Information (continued) STATEMENT OF CASH FLOWS
Dec. 28, Dec. 30, Dec. 31, 1996 1995 1994 -------- -------- -------- Net Income................................. $(237) $ (9) $137 Adjustments to reconcile net income to net cash provided: Change in undistributed earnings of subsidiary........................... 235 12 (116) Compensation expense on stock option grants/repurchases...................... 5 4 1 Decrease (increase) in: Other assets............................ - (1) - Increase (decrease) in: Accounts payable to Montgomery Ward..... 36 16 22 Accrued liabilities..................... (13) (13) (15) -------- ------- ------ Net cash provided before financing activities................................ 26 9 29 -------- ------- ------ Cash flows from financing activities: Proceeds from issuance of common stock.... 3 18 3 Proceeds from redemption of Montgomery Ward preferred stock..................... - 75 - Proceeds from issuance of preferred stock.................................... 175 - 75 Purchase of Montgomery Ward preferred stock.................................... (175) - (75) Cash dividends paid....................... (9) (4) (24) Payments to redeem preferred stock........ - (75) - Purchase of treasury stock, at cost....... (20) (23) (9) Tax benefit of stock options exercised and other stock exchanges................ - - 1 ------- ------- ------- Net cash used for financing activities...... (26) (9) (29) ------- ------- ------- Cash at end of period....................... $ - $ - $ - ------- ------- ------- ------- ------- ------- Non-cash investing activities: Change in unrealized gain on investments... $ (1) $ 8 $ (1) Non-cash financing activities: Notes issued for purchase of treasury stock............................ $ 5 $ 2 $ 7
76 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 23. Quarterly Financial Data (unaudited) The quarterly operations of MW Holding are summarized as follows and reflect the impact of the change in accounting principle, as discussed in Note 6:
Quarter ----------------------------------------- First Second Third Fourth Year ------ ------ ------ ------ -------- 52-Week Period Ended December 28, 1996 Net sales.......................... $1,254 $1,354 $1,376 $1,895 $5,879 Cost of goods sold................. 1,038 1,099 1,096 1,629 4,862 Net Income (Loss).................. (48) 11 (35) (165) (237) Net Income (Loss) per Class A Common Share...................... (1.27) .20 (.95) (4.16) (6.18) Net Income (Loss) per Class B Common Share...................... (1.07) .18 (.82) (3.54) (5.25) 52-Week Period Ended December 30, 1995 Net sales.......................... $1,357 $1,521 $1,561 $2,092 $6,531 Cost of goods sold................. 1,075 1,211 1,240 1,685 5,211 Net Income (Loss).................. (4) 11 3 (20) (9) Net Income (Loss) per Class A Common Share...................... (.12) .25 .05 (.49) (.31) Net Income (Loss) per Class B Common Share...................... (.10) .20 .04 (.42) (.28)
77 Item 9. Disagreements on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Company Information as to executive officers required by this item is included under the caption "Executive Officers of the Registrant" beginning on page 15. Information as to directors required by this item is incorporated herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the Registrant's definitive proxy statement, for the annual meeting of shareholders to be held on May 16, 1997, to be filed within 120 days of the end of the Registrant's fiscal year. Item 11. Executive Compensation Incorporated herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the Registrant's definitive proxy statement, for the annual meeting of shareholders to be held on May 16, 1997, to be filed within 120 days of the end of the Registrant's fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the Registrant's definitive proxy statement, for the annual meeting of shareholders to be held on May 16, 1997, to be filed within 120 days of the end of the Registrant's fiscal year. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the Registrant's definitive proxy statement, for the annual meeting of shareholders to be held on May 16, 1997, to be filed within 120 days of the end of the Registrant's fiscal year. 78 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K's. (a) 1. Financial Statements Page ------ Report of Independent Public Accountants................... 29 Consolidated Balance Sheet at December 28, 1996 and December 30, 1995.................................... 32 For the 52-Week Periods Ended December 28, 1996 December 30, 1995 and December 31, 1994 Consolidated Statement of Income....................... 30 Consolidated Statement of Shareholders' Equity......... 33 Consolidated Statement of Cash Flows................... 36 Notes to Consolidated Financial Statements................. 38 2. Financial Statement Schedules Schedules have been omitted because they are not applicable, not required, not material, or the required information is given in the financial statements or notes thereto or combined with the information presented in other schedules or exhibits. 79 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued) 3. Exhibits 3.1 Third Restated Certificate of Incorporation of the Company, filed June 28, 1994, incorporated by reference to Exhibit 3.2(ii) of the Company's Registration Statement on Form S-1 (Registration No. 33-33252). 3.1 (i) Certificate of Amendment to Certificate of Incorporation of Montgomery Ward Holding Corp. dated October 25, 1994, incorporated by reference to Exhibit 3.2(iv) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 3.1(ii) Certificate of Amendment to Certificate of Incorporation of Montgomery Ward Holding Corp. dated March 29, 1996. 3.3 Amended and Restated By-laws of the Company, dated as of December 29, 1994, incorporated by reference to Exhibit 3.3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995. 3.3(i) Amendment to By-laws of Montgomery Ward Holding Corp., dated as of December 10, 1996. 9. Voting Trust Agreement dated as of June 21, 1988, incorporated by reference to Exhibit 3(a) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 9.(i) Voting Trust Agreement dated as of October 21, 1994, incorporated by reference to Exhibit 9.(i) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 10.(i)(A)(1) Stockholders' Agreement dated as of June 17, 1988, as amended and restated as of December 29, 1994, incorporated by reference to Exhibit 4.(e) to the Company's Registration Statement on Form S-8 (Registration No. 33-57075). 10.(i)(A)(2) Amendment Agreement dated as of December 10, 1996, incorporated by reference from Exhibit 1 to the Company's Current Report on Form 8-K for an event occurring January 6, 1997. 80 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued) 3. Exhibits (continued) 10.(i)(A)(3) Montgomery Ward & Co., Incorporated Stock Ownership Plan Terms and Conditions, as amended and restated, as of December 29, 1994, incorporated by reference to Exhibit 4.(f) of the Company's Registration Statement on Form S-1 (Registration No. 33-57075). 10.(i)(B) Stock Purchase Agreement dated March 6, 1988 between Mobil Corporation, Marcor Inc. and BFB Acquisition Corp. incorporated by reference to Exhibit 10.(i)(B) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(i)(C) Subscription Agreement dated as of December 29, 1995 between General Electric Capital Corporation, Montgomery Ward & Co., Montgomery Ward Holding Corp., and Bernard F. Brennan, incorporated by reference to Exhibit 10.(i)(C) of the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995. 10.(i)(F) Note Purchase Agreements dated March 1, 1993 between Montgomery Ward & Co., Incorporated and various lenders, incorporated by reference to Exhibit 10.(i)(F) of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. 10.(i)(F)(1) Amendment dated June 30, 1995 to Note Purchase Agreements dated March 1, 1993 between Montgomery Ward & Co., Incorporated and various lenders, incorporated by reference to Exhibit 10.(i)(F)(1) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended July 1, 1995. 10.(i)(H) Long Term Credit Agreement dated as of September 15, 1994 among Montgomery Ward & Co., Incorporated, various banks, The First National Bank of Chicago, as Documentary Agent, The Bank of Nova Scotia, as Administrative Agent, The Bank of New York, as Negotiated Loan Agent and Bank of America National Trust and Savings Association, as Advisory Agent, incorporated by reference to Exhibit 10.(i)(G) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 81 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued) 3. Exhibits (continued) 10.(i)(H)(1) Amended Schedule 1 to the Long Term Credit Agreement dated as of September 15, 1994 among Montgomery Ward & Co., Incorporated, various banks, The First National Bank of Chicago, as Documentary Agent, The Bank of Nova Scotia, as Administrative Agent, The Bank of New York, as Negotiated Loan Agent and Bank of America National Trust and Savings Association, as Advisory Agent incorporated by reference to Exhibit 10.(i)(H)(1) of the Company's Quarterly Report on Form 10-Q, for the fiscal quarterly period ended September 30, 1995. 10.(i)(H)(2) Amendment dated March 19, 1996 to the Long Term Credit Agreement dated as of September 15, 1994 among Montgomery Ward & Co., Incorporated, various banks, The First National Bank of Chicago, as Documentary Agent, The Bank of Nova Scotia, as Administrative Agent, The Bank of New York, as Negotiated Loan Agent and Bank of America National Trust and Savings Association, as Advisory Agent, incorporated by reference to Exhibit 10.(i)(H)(2) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 30, 1996. 10.(i)(H)(3) Amendment to 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, which became effective September 6, 1996, incorporated by reference to Exhibit 10.(i)(H)(3) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended September 28, 1996. 10.(i)(H)(4) Amendment to Long Term Credit Agreement dated as of December 23, 1996 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. 82 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued) 3. Exhibits (continued) 10.(i)(I) Short Term Credit Agreement dated as of September 15, 1994 among Montgomery Ward & Co., Incorporated, various banks, The First National Bank of Chicago, as Documentary Agent, The Bank of Nova Scotia, as Administrative Agent, The Bank of New York, as Negotiated Loan Agent and Bank of America National Trust and Savings Association, as Advisory Agent, incorporated by reference to Exhibit 10.(i)(H) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 10.(i)(I)(1) Amended Schedule 1 to the Short Term Credit Agreement dated as of September 15, 1994 among Montgomery Ward & Co., Incorporated, various banks, The First National Bank of Chicago, as Documentary Agent, The Bank of Nova Scotia, as Administrative Agent, the Bank of New York, as Negotiated Loan Agent and Bank of America National Trust and Savings Association, as Advisory Agent, incorporated by reference to Exhibit 10.(i)(I)(1) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended September 30, 1995. 10.(i)(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, incorporated by reference to Exhibit 10.(i)(I)(2) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 30, 1996. 83 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued) 3. Exhibits (continued) 10.(i)(I)(3) Amendment dated September 6, 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, incorporated by reference to Exhibit 10.(i)(I)(3) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended September 28, 1996. 10.(i)(I)(4) Confirmation of New Bank executed by The Industrial Bank of Japan, Limited, Chicago Branch and The Bank of Nova Scotia, as Administrative Agent, pursuant to Section 2.6(c) of 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, as amended and extended, and (b) a letter dated October 24, 1996 from The Bank of Nova Scotia, as Administrative Agent, to the Banks and other Agents who are parties to said Short Term Credit Agreement transmitting an attached revised Schedule 1 to such Agreement, incorporated by reference to Exhibit 10.(i)(I)(4) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended September 28, 1996. 10.(i)(I)(5) Amendment dated December 23, 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. 84 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued) 3. Exhibits (continued) 10.(i)(J) Note Purchase Agreement dated July 11, 1995 between Montgomery Ward & Co., Incorporated and various lenders, incorporated by reference to Exhibit 10.(i)(J) on the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended July 1, 1995. 10.(i)(L) Credit Agreement dated as of September 27, 1996 as amended and restated as of October 21, 1996, among Signature Financial/Marketing, Inc., various lenders, The Bank of New York, as Documentation Agent and The Bank of Nova Scotia, as Administrative Agent. 10.(i)(L)(1) Amendment to Credit Agreement dated as of December 23, 1996 among Signature Financial/Marketing, Inc., various lenders, The Bank of New York, as Documentation Agent and The Bank of Nova Scotia, as Administrative Agent. 10.(i)(M) Credit Agreement dated October 4, 1996 among Montgomery Ward & Co., Incorporated, various lenders, The Bank of Nova Scotia, as Administrative Agent, and The Bank of New York, as Documentation Agent, incorporated by reference to Exhibit 10.(i)(M) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended September 28, 1996. 10.(i)(M)(1) Amendment to Credit Agreement dated as of December 23, 1996 among Montgomery Ward & Co., Incorporated, various lenders, The Bank of Nova Scotia, as Administrative Agent, and The Bank of New York, as Documentation Agent. 10.(i)(M)(2) Second Amendment to Credit Agreement dated as of December 23, 1996 among Montgomery Ward & Co., Incorporated, various lenders, The Bank of Nova Scotia, as Administrative Agent, and The Bank of New York, as Documentation Agent. 10.(ii)(A)* Interim Consumer Credit Card Program dated as of April 1, 1996, as amended, restated and renamed the Bank Credit Card Program Agreement dated as of April 1, 1996 by and between Monogram Credit Card Bank of Georgia and Montgomery Ward & Co., Incorporated. * Confidential treatment has been requested from the Secretary of the Commission, with respect to portions of this document. 85 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued) 3. Exhibits (continued) 10.(ii)(B)* Account Purchase Agreement dated as of June 24, 1988, as amended, restated and renamed the Account-Related Agreement and dated as of April 1, 1996 by and between Montgomery Ward Credit Corporation and Montgomery Ward & Co., Incorporated. 10.(ii)(C)(1) Letter Agreement dated as of April 1, 1996 between Signature Financial/Marketing, Inc., Monogram Credit Card Bank of Georgia, Montgomery Ward Credit Corporation, and Montgomery Ward & Co., Incorporated. 10.(ii)(C)(2) Letter Agreement dated as of April 1, 1996 between Signature Financial/Marketing, Inc. and Montgomery Ward Credit Corporation. 10.(ii)(C)(3) Letter Agreement dated September 17, 1996 between Montgomery Ward & Co., Incorporated, Monogram Credit Card Bank of Georgia and Montgomery Ward Credit Corporation. 10.(ii)(C)(4)*Letter Agreement dated as of August 2, 1995 between Monogram Retailer Credit Services, Inc. and Montgomery Ward & Co., Incorporated. 10.(ii)(D)* Interim Consumer Credit Card Program Agreement dated as of March 13, 1996 between Monogram Credit Card Bank of Georgia and Lechmere, Inc. 10.(ii)(D)(1)*Letter Agreement dated January 23, 1996 between Montgomery Ward & Co., Incorporated, Montgomery Ward Credit and General Electric Capital Corporation. 10.(ii)(D)(2) Letter Agreement dated March 13, 1996 between Montgomery Ward & Co., Incorporated, Lechmere, Inc., General Electric Capital Corporation and Montgomery Ward Credit Corporation. 10.(ii)(E)* MWCC Program Agreement dated as of April 3, 1996 between Montgomery Ward Credit Corporation, Montgomery Ward & Co., Incorporated and Lechmere, Inc. 10.(iii)(A) Program Agreement dated October 12, 1989 between Montgomery Ward & Co., Incorporated and General Electric Capital Corporation. 10.(iii)(B) Amendment to Program Agreement dated March 4, 1997 between General Electric Corporation, Montgomery Ward & Co., Incorporated and Lechmere, Inc. * Confidential treatment has been requested from the Secretary of the Commission, with respect to portions of this document. 86 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued) 3. Exhibits (continued) 10.(iv)(A) Montgomery Ward & Co., Incorporated Stock Ownership Plan, amended and restated as of May 20, 1994, incorporated by reference to Exhibit 10.(iv)(A)(ii) (A) of the Company's Registration Statement on Form S-1 (No. 33-33252). 10.(iv)(A)(1) Amendment No. 1 to the Amended and Restated Montgomery Ward & Co. Stock Ownership Plan dated October 20, 1994, incorporated by reference to Exhibit 10.(iv)(A)(iii) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 10.(iv)(B) Montgomery Ward & Co., Incorporated Long Term Incentive Plan, incorporated by reference to Exhibit 10.(iv)(B) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(iv)(B)(i) Montgomery Ward & Co., Incorporated Executive Long-Term Incentive Plan, incorporated by reference to Exhibit 10.(iv)(B)(1) of the Company's Registration Statement on Form S-1 (No. 33-33252). 10.(iv)(C) Montgomery Ward & Co., Incorporated Performance Management Program, incorporated by reference to Exhibit 10.(iv)(C) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(iv)(C)(i) Montgomery Ward & Co., Incorporated Senior Executive Performance Management Program, incorporated by reference to Exhibit 10.(iv)(C)(i) of the Company's Registration Statement on Form S-1 (No. 33-33252). 10.(iv)(D) Montgomery Ward & Co., Incorporated Retirement Security Plan (as amended and restated effective as of January 1, 1994), incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10.(iv)(D)(1) First Amendment to the Montgomery Ward & Co., Incorporated Retirement Security Plan dated October 9, 1995. 10.(iv)(D)(2) Second Amendment to the Montgomery Ward & Co., Incorporated Retirement Security Plan dated October 31, 1996. 87 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued) 3. Exhibits (continued) 10.(iv)(E) Montgomery Ward & Co., Incorporated Supplemental Retirement Plan, incorporated by reference to Exhibit 10.(iv)(E) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(iv)(F) Montgomery Ward Holding Corp. Directors Fee and Stock Ownership Plan, incorporated by reference to Exhibit 10. (iv)(F) of the Company's Registration Statement on Form S-1 (Registration No. 33-41161). 10.(iv)(G) Montgomery Ward Holding Corp. Senior Officer Severance Plan, incorporated by reference to Exhibit 10.(iv)(G) of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. 10.(iv)(H) Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan (as amended and restated as of January 1, 1994), incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10.(iv)(H)(1) First Amendment to the Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan dated as of October 31, 1996. 10.(iv)(I) Montgomery Ward & Co., Incorporated Success Plan, incorporated by reference to Exhibit 10.(iv)(I) of the Company's Registration Statement on Form S-1 (No. 33-33252). 10.(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, incorporated by reference to Exhibit 10.(iv)(J) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 30, 1996. 88 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued) 3. Exhibits (continued) 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 Workman, incorporated by reference to Exhibit 10.(iv)(L) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 30, 1996. 10.(v) Relationship Agreement effective December 10, 1996 between Bernard F. Brennan, Montgomery Ward Holding Corp., Montgomery Ward & Co., Incorporated and General Electric Capital Corporation. 10.(vi) Employment Agreement effective December 20, 1996 between Montgomery Ward & Co., Incorporated, Montgomery Ward Holding Corp., and Roger V. Goddu. 10.(vii) Employment Agreement effective January 31, 1997 between Montgomery Ward & Co., Incorporated, Montgomery Ward Holding Corp., and Burnett Donoho. 10.(viii) Line of Credit Agreement effective December 19, 1996 between Montgomery Ward & Co., Incorporated and The Northern Trust Company. 10.(ix) Employment Agreement effective August 31, 1995 between Montgomery Ward & Co., Incorporated and Robert J. Stevenish. 10.(x) Employment Agreement effective January 28, 1997 between Montgomery Ward & Co., Incorporated and Thomas Grimes. 10.(xi) Employment Agreement effective April 22, 1996 between Montgomery Ward & Co., Incorporated and Michael Searles. 10.(xii) Employment Agreement effective April 12, 1994 between Montgomery Ward & Co., Incorporated, and G. Joseph Reddington, incorporated by reference to Exhibit 10.(xii) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 89 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued) 3. Exhibits (continued) 10.(xiii) Employment Agreement effective October 24, 1995 between Montgomery Ward & Co., Incorporated and Frederick E. Meiser. 11. Statement regarding computation of per share earnings. 12. Not applicable. 13. Not applicable. 16. Not applicable. 18. Letter from Arthur Andersen LLP regarding change in accounting principle. 19. Not applicable. 21. Subsidiaries of the Registrant, incorporated by reference to Exhibit 21 of the Company's Registration Statement on Form S-1 (Registration No. 33-33252). 22. Not applicable. 23. Consent of independent public accountants. 24. Not applicable. 27. Financial data schedule. 28. Not applicable. (b) Reports on Form 8-K. None during the fiscal quarter ended December 28, 1996. 90 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, Montgomery Ward Holding Corp., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGISTRANT MONTGOMERY WARD HOLDING CORP. BY JOHN L. WORKMAN NAME AND TITLE John L. Workman, Executive Vice President, Chief Financial Officer and Assistant Secretary DATE March 28, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. BY ROGER V. GODDU NAME AND TITLE Roger V. Goddu, Director and Principal Executive Officer DATE March 28, 1997 BY BURNETT W. DONOHO NAME AND TITLE Burnett W. Donoho, Director DATE March 28, 1997 BY BERNARD F. BRENNAN NAME AND TITLE Bernard F. Brennan, Director DATE March 28, 1997 BY EDWIN G. POHLMANN NAME AND TITLE Edwin G. Pohlmann, Director DATE March 28, 1997 BY MYRON LIEBERMAN NAME AND TITLE Myron Lieberman, Director DATE March 28, 1997 91 SIGNATURES BY SILAS S. CATHCART NAME AND TITLE Silas S. Cathcart, Director DATE March 28, 1997 BY _________________________ NAME AND TITLE Denis J. Nayden, Director DATE March __, 1997 BY _________________________ NAME AND TITLE Gary C. Wendt, Director DATE March __, 1997 BY DANIEL W. PORTER NAME AND TITLE Daniel W. Porter, Director DATE March __, 1997 BY EDWARD D. STEWART NAME AND TITLE Edward D. Stewart, Director DATE March __, 1997 BY JOHN L. WORKMAN NAME AND TITLE John L. Workman, Executive Vice President, Chief Financial Officer and Assistant Secretary (Principal Financial and Accounting Officer) DATE March __, 1997 92 EX-3.1(II) 2 CERTIFICATE OF AMENDMENT TO CERT. OF INCORP. CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF MONTGOMERY WARD HOLDING CORP. MONTGOMERY WARD HOLDING CORP., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify as follows: 1. The original Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of Delaware on February 8, 1988 and recorded in the Office of the Recorder of Kent County, Delaware. The name under which the Corporation was originally incorporated is BFB Acquisition Corp. 2. The Certificate of Correction of Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of Delaware on February 9, 1988. 3. The original Restated Certificate of Incorporation was filed in the office of the Secretary of State of Delaware on June 17, 1988 and amendments thereto were filed on each of June 20, 1988; June 24, 1988; January 30, 1990; and March 20, 1992. 4. The Second Restated Certificate of Incorporation of the Corporation was filed in the office of the Secretary of State of Delaware on June 25, 1992 and an amendment thereto was filed on April 27, 1994. 5. The Third Restated Certificate of Incorporation was filed in the office of the Secretary of State of Delaware on June 28, 1994, and an amendment thereto was filed on October 25, 1994. 6. The Board of Directors of the Corporation, by unanimous written consent, authorized, adopted and approved resolutions proposing and declaring advisable this amendment to the Third Restated Certificate of Incorporation of the Corporation, setting forth amendments to Article FOURTH as follows: The introduction to Article FOURTH and Part A thereof are amended in their entirety to read as follows: "FOURTH: The total number of shares of capital stock which the Corporation shall have authority to issue is fifty-seven million eight hundred thirteen thousand seven hundred fifty (57,813,750) consisting of the following amounts in the following designations: 1. COMMON STOCK. Fifty-seven million eight hundred twelve thousand (57,812,000) shares of Common Stock, par value one cent ($0.01) per share (hereinafter referred to as "Common Stock"), which shall consist of the following classes: (a) thirty-two million eight hundred twelve thousand (32,812,000) shares of Class A Common Stock (hereinafter referred to as "Class A Common Stock"), which shall consist of the following series: (i) twenty-five million (25,000,000) shares of Class A Common Stock, Series 1 (hereinafter referred to as "Class A Common Stock, Series 1"), and (ii) five million four hundred twelve thousand (5,412,000) shares of Class A Common Stock, Series 2 (hereinafter referred to as "Class A Common Stock, Series 2"), and (iii) two million four hundred thousand (2,400,000) shares of Class A Common Stock, Series 3 (hereinafter referred to a "Class A Common Stock, Series 3"), and (b) twenty-five million (25,000,000) shares of Class B Common Stock (hereinafter referred to as the "Class B Common Stock"). 2. PREFERRED STOCK. One thousand seven hundred fifty (1,750) shares of Preferred Stock, par value one dollar ($1.00) per share (hereinafter referred to as "Senior Preferred Stock") Such shares of Common Stock and Preferred Stock may be issued for such consideration, not less than the par value thereof, as shall be fixed from time to time by the Board of Directors, and shares issued for not less than the consideration so fixed shall be fully paid and non-assessable. A statement of the powers, preferences, rights, qualifications, limitations, restrictions and the relative, participating, optional and other special rights in respect of the shares of each class or series of stock is as follows: PART A. SENIOR PREFERRED STOCK Except as otherwise provided herein, each share of Senior Preferred Stock shall be identical in all respects to all other shares of Senior Preferred Stock and shall entitle the holder thereof to the same rights and privileges as to which the holders of the other shares of Senior Preferred Stock are entitled. 1. RANK. The Senior Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank prior to the Common Stock. 2. DIVIDENDS. (a) In each year, the holders of the shares of Senior Preferred Stock shall be entitled to receive, before any dividends shall be declared and paid upon or set aside for the Common Stock or any other Stock Junior to the Senior Preferred Stock (defined in Section A.2(a)(i)(A), when and as declared by the Board of Directors, except as may be prohibited by Section A.5, out of funds legally available for that purpose, cumulative cash dividends payable quarterly in arrears on the last business day of March, June, September and December (each of such dates being a "Dividend Payment Date") at a rate per annum equal to 7.01% based on the $100,000 per share Liquidation Payment (defined in Section A.3(a)) computed without regard to Accrued Dividends (defined in Section A.4(c)(i))(the "Dividend Rate"), subject to adjustment as provided in Section A.2(c); provided, however, that the dividend payable on the Dividend Payment Date in March, 1996 with respect to any share of Senior Preferred Stock shall be based upon the number of days from and including the date of first issuance (the "Issuance Date") of the Senior Preferred Stock up to and including the Dividend Payment Date in March, 1996 and A-2 a 365-day year. The period from the Issuance Date to the initial Dividend Payment Date and each quarterly period between consecutive Dividend Payment Dates, shall hereinafter be referred to as a "Dividend Period." Such dividends shall be paid to the holders of record at the close of business on the date specified by the Board of Directors of the Corporation at the time such dividend is declared; provided, however, that such date shall not be more than sixty (60) days nor less than ten (10) days prior to the respective Dividend Payment Date. Dividends on the Senior Preferred Stock shall be cumulative from the Issuance Date (whether or not there shall be net profits or net assets of the Corporation legally available for the payment of such dividends), so that: (i) except as provided in Section A.2(a)(ii), the Corporation shall not take any of the following actions: (A) declare, order or pay any dividend on any class of stock ranking as to dividends or on liquidation junior to the Senior Preferred Stock (such junior stock being herein sometimes referred to as the "Stock Junior to the Senior Preferred Stock"), or (B) redeem any Stock Junior to the Senior Preferred Stock, (each of such actions described in clauses A.2(a)(i)(A) or (B) above being herein sometimes referred to as "Junior Distribution" and the proposed date of each such action being herein sometimes referred to as a "Proposed Junior Distribution Date") if the Corporation shall not, on or before the Proposed Junior Distribution Date, have completed both of the following: (1) declared on the outstanding shares of Senior Preferred Stock, and paid or set apart for payment, all "Accrued Dividends" (defined in Section A.4(c)(i)) to the Proposed Junior Distribution Date; and (2) paid or deposited as required in this Part A all amounts payable to holders of Senior Preferred Stock in respect of all mandatory redemptions required to have been paid or deposited for their benefit on or before the Proposed Junior Distribution Date; and (ii) the Corporation may redeem or purchase any shares of Common Stock in accordance with either (x) the terms, conditions and provisions of the "Stockholders Agreement" (defined in Section B.1) or (y) the Terms and Conditions (as defined in the Stockholders Agreement), if on or before the date of each such proposed Common Stock redemption or purchase (each such time, with respect to redemptions or purchases under either the Stockholders Agreement or the Terms and Conditions, being herein sometimes referred to as a "Proposed Common Stock Repurchase Date"), the Corporation shall have: (A) declared on the outstanding shares of Senior Preferred Stock, and paid or set apart for payment, all Accrued Dividends (defined in Section A-3 A.4(c)(i)) through all Dividend Payment Dates occurring on or prior to such Proposed Common Stock Repurchase Date, and (B) paid or deposited as required in this Part A all amounts payable to holders of Senior Preferred Stock in respect of the mandatory redemption required to have been paid or deposited for their benefit on the "Mandatory Redemption Date" (defined in Section A.4(a)(i)), if such Mandatory Redemption Date occurs on or prior to such Proposed Common Stock Repurchase Date. All dividends declared upon Senior Preferred Stock and any other class of stock ranking on a parity as to dividends with the Senior Preferred Stock shall be declared pro rata per share. Accrued but unpaid dividends shall not bear interest. (b) Each fractional share of the Senior Preferred Stock outstanding shall be entitled to a ratably proportionate amount of all dividends to which each outstanding full share of the Senior Preferred Stock is entitled pursuant to Section A.2(a) hereof, and all of such dividends with respect to such outstanding fractional shares shall be fully cumulative and shall accrue (whether or not declared) and shall be payable in the same manner and at such times as provided for in Section A.2(a) with respect to dividends on each outstanding full share of the Senior Preferred Stock. (c) The Dividend Rate for the shares of Senior Preferred Stock shall be (i) increased to 9.01% per annum if, and so long as, Accrued Dividends (defined in Section A.4(c)(i) are not paid in full on any Dividend Payment Date, and (ii) increased to 8.01% per annum if, and so long as, the consolidated shareholder equity of the Corporation and its subsidiaries (excluding preferred stock) (as determined in accordance with generally accepted accounting principles as in effect as of the Issuance Date) is less than the Equity Threshold (as defined below). The "Equity Threshold" means $520,000,000, reduced, dollar for dollar, by the amount of any dividends paid with respect to Common Stock at any time at which shares of Senior Preferred Stock are outstanding, which dividends are approved by a majority of those directors of the Corporation who have been designated as directors by General Electric Capital Corporation ("GE Capital") pursuant to the terms of the Stockholders Agreement (as defined herein). 3. RIGHTS ON LIQUIDATION, DISSOLUTION OR WINDING UP. (a) In the event of any liquidation, dissolution or winding up of the Corporation, the holders of shares of Senior Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, except as may be prohibited by Section A.5, but before any payment shall be made to the holders of any stock ranking on liquidation junior to the Senior Preferred Stock, an amount equal to one hundred thousand dollars ($100,000) per share, plus an amount equal to Accrued Dividends (as defined in Section A.4(c)(i)) to the date of payment (the "Liquidation Payment"). If upon any liquidation, dissolution or winding up of the Corporation the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Senior Preferred Stock the full amounts to which they respectively shall be entitled, the holders of shares of Senior Preferred Stock, and any class of A-4 stock ranking on liquidation on a parity with the Senior Preferred Stock, shall share ratably in any distribution of assets according to the respective amounts which would be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. In the event of any liquidation, dissolution or winding up of the Corporation after payment shall have been made to the holders of shares of Senior Preferred Stock and any class of stock ranking on liquidation on a parity with the Senior Preferred Stock of the full amount to which they shall be entitled as aforesaid, the holders of any class or classes of stock ranking on liquidation junior to the Senior Preferred Stock shall be entitled, to the exclusion of the holders of shares of Senior Preferred Stock, to share, according to their respective rights and preferences, in all remaining assets of the Corporation available for distribution to its stockholders. (b) The Liquidation Payment with respect to each fractional share of the Senior Preferred Stock outstanding shall be equal to a ratably proportionate amount of the Liquidation Payment with respect to each outstanding share of Senior Preferred Stock. (c) For the purposes of this Section A.3, neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets shall be deemed to be a liquidation, dissolution or winding up of the Corporation, unless such transaction shall be in connection with the liquidation, dissolution or winding up of the Corporation. 4. REDEMPTION. (a) MANDATORY REDEMPTION. (i) Except as may be prohibited by Section A.5, on June 30, 2002, the Corporation shall redeem all of the outstanding shares of Senior Preferred Stock at a redemption price of (A) one hundred thousand dollars ($100,000) per share (payable in cash or other consideration as the Corporation and holders of a majority of the Senior Preferred Stock may agree), plus (B) an amount equal to Accrued Dividends (defined in Section A.4(c)(i)) to the date of payment (the "Redemption Price") (each such date being herein sometimes referred to as a "Mandatory Redemption Date") (ii) On and after the Mandatory Redemption Date (unless default shall be made by the Corporation in depositing moneys for the payment of the Redemption Price as hereinafter provided), all rights of the holders of shares of Senior Preferred Stock as stockholders of the Corporation with respect to those shares of Senior Preferred Stock to be redeemed, except the right to receive the Redemption Price as hereinafter provided, shall cease and terminate. (iii) The Corporation shall provide moneys for the payment of the Redemption Price by depositing on the Mandatory Redemption Date the amount thereof for the account of the holders of record of the Senior Preferred Stock entitled thereto with Bank of America Illinois, or such other bank or trust company doing business in the City of Chicago, as may be designated by (A) the holders of not less than a majority of the outstanding shares of Senior Preferred Stock, and, failing said designation, (B) the Corporation, as paying agent for the benefit of such holders. The A-5 holders of the shares of Senior Preferred Stock redeemed shall surrender to the Corporation the certificates for the shares of Senior Preferred Stock so redeemed. Upon notification by such designated bank or trust company to the holders of the Senior Preferred Stock that such moneys representing the Redemption Price have been deposited by the Corporation, the shares designated for redemption shall no longer be outstanding, whether or not the certificates for the shares so redeemed have been received by the Corporation on the date of such notification and all rights relating thereto shall cease and terminate. (b) OPTIONAL REDEMPTION. (i) So long as any shares of Senior Preferred Stock are outstanding, except as may be prohibited by Section A.5, the Corporation may, at the option of the Board of Directors, at any time or from time to time after the Issuance Date, redeem the whole or any part of such Senior Preferred Stock. Any redemption pursuant to this Section A.4(b)(i) shall be at the Redemption Price. If less than all the shares of Senior Preferred Stock at any time outstanding shall be called for redemption, the redemption shall be made pro rata with respect to such shares and in such manner as may be prescribed by resolution of the Board of Directors. The date of each such redemption is herein sometimes referred to as an "Optional Redemption Date". (ii) Notice of every redemption pursuant to this Section A.4(b) shall be sent by first-class mail, postage prepaid, to the holders of record of the shares of Senior Preferred Stock so to be redeemed at their respective addresses as the same shall appear on the books of the Corporation. Such notice shall be mailed not less than ten (10) business days in advance of the Optional Redemption Date to the holders of record of the shares of Senior Preferred Stock so to be redeemed. On and after the Optional Redemption Date, unless default shall be made by the Corporation in providing moneys to the bank or trust company for the account of the holders of record of the Senior Preferred Stock as provided in Section A.4(a)(iii) for the payment of the Redemption Price, all rights of the holders of Senior Preferred Stock as stockholders of the Corporation with respect to those shares of Senior Preferred Stock to be redeemed, except the right to receive the Redemption Price, shall cease and terminate whether or not the certificates for the shares so redeemed have been received by the Corporation as provided in Section A.4(a)(iii). In this Section A.4(b)(ii), a business day refers to any day, except a Saturday, Sunday or any day on which banks in the City of Chicago are authorized or required by law to close. (c) DEFINITIONS. (i) The term "Accrued Dividends" with respect to the Senior Preferred Stock shall mean, as of any given time, the then "Full Cumulative Dividends" (defined in Section A.4(c)(ii)) less the amount of all dividends theretofore paid upon the relevant shares of Senior Preferred Stock. (ii) The term "Full Cumulative Dividends" with respect to the Senior Preferred Stock shall mean (whether or not in any Dividend Period, or any part thereof, in respect of which such term is used there shall have been net profits or net assets of A-6 the Corporation legally available for the payment of such dividends) that amount which shall be equal to dividends upon the relevant shares at the full rate fixed for Senior Preferred Stock as provided herein for the period of time elapsed from the date of issuance thereof to the date as of which Full Cumulative Dividends are computed. (d) Shares of Senior Preferred Stock which have been issued and reacquired in any manner, including shares purchased or redeemed or exchanged, shall not be reissued. (e) Each fractional share of the Senior Preferred Stock outstanding shall be entitled to a ratably proportionate fraction of the Redemption Price payable in respect of each outstanding full share of the Senior Preferred Stock pursuant to this Section A.4, and such fraction of the price shall be payable in the same manner and at such times as provided for in this Section A.4 with respect to redemptions of each outstanding full share of the Senior Preferred Stock. (f) The foregoing provisions of this Section A.4 to the contrary notwithstanding but without limitation of the Corporation's obligations to make mandatory redemptions as required by Section A.4(a), unless the Accrued Dividends on all outstanding shares of Senior Preferred Stock shall have been paid or contemporaneously are declared and paid through the date of a proposed optional redemption, none of the shares of Senior Preferred Stock shall be redeemed unless all outstanding shares of Senior Preferred Stock are simultaneously redeemed and the Corporation shall not purchase by optional redemption or otherwise acquire any shares of Senior Preferred Stock; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of Senior Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Senior Preferred Stock. (g) If fewer than all the outstanding shares of Senior Preferred Stock are to be redeemed, the number of shares to be redeemed shall be determined by the Board of Directors in accordance with the provisions of this Part A, and the shares to be redeemed shall be determined by lot or pro rata as may be determined by the Board of Directors. 5. RESTRICTION ON PAYMENTS. Anything contained in this Article to the contrary notwithstanding, no cash dividends or dividends paid by transfer of any other property on shares of the Senior Preferred Stock shall be declared by the Board of Directors or paid or set apart for payment by the Corporation, no distribution in respect of the Senior Preferred Stock shall be paid or set apart for payment by the Corporation, and no payment shall be made by the Corporation with respect to any redemption of the Senior Preferred Stock (such payments, distributions and settings aside being herein sometimes referred to collectively as "Distributions") at any time when the terms and provisions of any agreement to which the Corporation or any other member of the "Ward Group" (defined in Section B.1) is a party relating to indebtedness for money borrowed specifically prohibits or limits such Distribution (and such Distribution exceeds said limits), or such Distribution would constitute a breach, default or event of default thereunder. 6. VOTING RIGHTS. (a) Except as expressly provided in Section A.6(b) or elsewhere in this certificate of incorporation or as required by law (in relation to which the holders of shares of Senior Preferred Stock shall be treated as a class), the holders of shares of Senior Preferred Stock shall not have voting rights and at every meeting of the stockholders of the Corporation, or by written consent in lieu of any such A-7 meeting, all voting power in the election of directors and/or for all other purposes shall be vested exclusively in the holders of shares of Common Stock. Without limitation of the next preceding sentence and without implication that the contrary would otherwise be true, no consent of the holders of Senior Preferred Stock shall be required for (a) the creation of any indebtedness of any kind of the Corporation, (b) the creation of any class of stock of the Corporation junior in right as to dividends and upon liquidation to the Senior Preferred Stock, or (c) any increase or decrease in the amount of authorized Common Stock or any increase, decrease or change in the par value thereof. (b) Anything elsewhere in this certificate of incorporation to the contrary notwithstanding, if (i) Accrued Dividends on the Senior Preferred Stock are not paid in full on any of four (4) consecutive Dividend Payment Dates, or (ii) the Corporation shall have failed to effect the redemption of shares of Senior Preferred Stock on a Mandatory Redemption Date as required in Section A.4(a), the holders of shares of Senior Preferred Stock shall have voting rights as specified in this Section A.6(b). In the event of the occurrence of either of the foregoing events, such occurrence shall mark the beginning of a period (the "Default Period") which shall continue until such time as (i) Accrued Dividends on the Senior Preferred Stock have been paid in full through the date of payment, or (ii) the failure to redeem shares of Senior Preferred Stock as required by Section A.4(a) has been cured by the Corporation. Any provision of the by-laws of the Corporation to the contrary notwithstanding, during any Default Period, the holders of shares of the Senior Preferred Stock then outstanding shall have the exclusive and special right (but not the obligation), voting separately as a class (each share of Senior Preferred Stock being entitled to one (1) vote), to elect one (1) director to the Board of Directors of the Corporation (the "Preferred Stock Director") and the number of directors constituting the Board of Directors of the Corporation shall be automatically increased in order to provide one (1) vacancy for the Preferred Stock Director. Upon written request, made at any time after the beginning of the Default Period, by the holders of not less than a majority of the shares of the Senior Preferred Stock then outstanding, the Corporation shall call a special meeting of all of the stockholders of the Corporation, at which meeting the holders of shares of Senior Preferred Stock, voting separately as a class, shall elect the Preferred Stock Director as set forth above; provided, however, that if such meeting shall not have been called by the Corporation within ten (10) days after the beginning of a Default Period, such meeting may be called, upon like notice, at the expense of the Corporation, by the holders of not less than a majority of the outstanding shares of Senior Preferred Stock. After the first such election during any Default Period, the holders of the shares of Senior Preferred Stock, voting separately as a class, may continue to exercise their voting rights, as set forth above, at each annual meeting of the stockholders of the Corporation occurring during such Default Period. During any Default Period, no Preferred Stock Director may be removed from office without the vote or consent of the holders of a majority of the numbers of shares of the Senior Preferred Stock at the time outstanding. If at any time during a Default Period the directorship of the Preferred Stock Director is vacant, the secretary of the Corporation shall, upon the written request of the holders of shares representing at least a majority of the Senior Preferred Stock then outstanding, call a special meeting of all of the stockholders at the expense of the Corporation, upon the notice required for special meetings of stockholders. At any meeting held for the purpose of electing directors at which the holders of the Senior Preferred Stock shall have the right, voting separately as a class, to elect the Preferred Stock Director, the presence, in person or by proxy, of the holders of a majority of the Senior Preferred Stock then outstanding shall be required to constitute a quorum of the Senior Preferred Stock on such election. At any such meeting or adjournment thereof, the absence of the quorum of the Senior Preferred Stock shall not prevent the election of directors other than the Preferred Stock Director, and the absence of a quorum for the election of such other directors shall not prevent the election of the Preferred Stock Director, and in the absence of either or both such quorums, a majority of the holders present in person or by proxy of the stock which lacks a quorum shall have the power to adjourn the A-8 meeting for the election of directors which they are entitled to elect from time to time without notice other than announcement at the meeting until a quorum shall be present. A vacancy in the directorship of the Preferred Stock Director may be filled only by the vote or written consent of holders of a majority of the shares of the outstanding Senior Preferred Stock. Upon termination of a Default Period, the term of office of the then Preferred Stock Director shall automatically terminate, the shares of Senior Preferred Stock shall cease to have the voting rights specified in this Section A.6(b), the number of directors constituting the Board of Directors of the Corporation shall be automatically reduced to eliminate the vacancy caused by the termination of the office of the Preferred Stock Director and all voting rights shall be vested exclusively in the holders of shares of Common Stock, subject to the revesting of voting rights in the shares of Senior Preferred Stock in the event of the beginning of another Default Period. 7. AMENDMENT. This certificate of incorporation of the Corporation shall not be amended in any manner which would alter or change the powers, preferences or special rights of the Senior Preferred Stock so as to affect them adversely (including, without limitation, providing for the creation of any new class of capital stock senior to, or on a parity with, the Senior Preferred Stock as to dividends, redemption rights or on liquidation) without the affirmative vote of the holders of at least a majority of the outstanding shares of Senior Preferred Stock, voting together as a single class. The Board of Directors reserves the right to act by resolution from time to time to decrease the number of shares which constitute Senior Preferred Stock (but not below the number of shares thereof outstanding). A-9 7. The Stockholders of the Corporation, by unanimous written consent, adopted resolutions authorizing, adopting and approving the aforesaid amendment to Article FOURTH of the Third Restated Certificate of Incorporation of the Corporation. 8. Except to the extent specifically provided to the contrary in this Certificate of Amendment, the terms, provisions and conditions of the Third Restated Certificate of Incorporation of the Corporation shall remain unamended and in full force and effect. 9. This Certificate of Amendment has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, MONTGOMERY WARD HOLDING CORP. has caused this certificate to be signed by Bernard F. Brennan, its Chairman of the Board, and attested by Spencer H. Heine, its Secretary, this day of March, 1996. MONTGOMERY WARD HOLDING CORP. By:____________________________________ Bernard F. Brennan Chairman of the Board (CORPORATE SEAL) ATTEST: By:___________________________ Spencer H. Heine Secretary A-10 EX-3.3(I) 3 AMENDMENTS TO BY-LAWS Amendments to By-laws Amendments to the By-laws of Montgomery Ward Holding Corp. adopted by the Board of Directors by unanimous written consent: 1. Paragraph (a) of Section 1 of Article III of the By-laws of Montgomery Ward Holding Corp. (as amended and restated as of December 29, 1994) is hereby amended and restated to read in its entirety as follows: "(a) Except as otherwise provided in the other paragraphs of this Section 1, the total number of directors which shall be elected by the stockholders shall be ten (10), five to be designated by Brennan and five to be designated by GE Capital; PROVIDED, HOWEVER, at such time as Brennan ceases to be the Chairman of the Board and Chief Executive Officer of Ward, Brennan shall cause two of his designees then serving as members of the board of directors to resign effective upon the appointment of a successor Chairman of the Board and Chief Executive Officer of Ward, which such successor shall be entitled to designate two members (including himself) and Brennan thereafter shall be entitled to designate three members of the board of directors." 2. Section 1 of Article III of the By-laws is hereby amended to add new subparagraphs (d) and (e) to read in their entirety as follows: "(d) (x) at such time, if any, as Brennan and his Permitted Transferees collectively shall cease to own, in the aggregate, more than 50% of the Shares which they held on December 1, 1996 and Brennan is no longer Chairman of the Board and Chief Executive Officer of Ward, the number of members of the board of directors which GE Capital shall have the right to designate shall be increased by two and the number of members of the board of directors which Brennan shall have the right to designate shall be reduced by two, and (y) at such time, if any, as Brennan and his Permitted Transferees collectively shall cease to own, in the aggregate, more than 20% of the Shares which they held on December 1, 1996 and Brennan is no longer Chairman of the Board and Chief Executive Officer of Ward, Brennan shall no longer have the right to designate any member of the board of directors and the members that Brennan would have been entitled to designate (after taking into account the number of directors that GE Capital is entitled to designate as a result of the decrease in ownership below the 50% level describe in (x) above) shall be designated by the Chairman of the Board and Chief Executive Officer of Ward. 7 (e) in the event of Brennan's death or legal incompetence, his rights, if any, to designate directors hereunder shall be exercisable by his Permitted Transferees based on a vote of a majority of the Shares held by such Permitted Transferees." Paragraphs (d) through (f) of Section 1 of Article III of the By-laws prior to such amendment shall be renumbered such that such paragraph (d) shall be numbered paragraph (f) and so forth. 3. The lead-in paragraph of Section 10 of Article III of the By-laws is hereby amended and restated in its entirety to read as follows: "SECTION 10. CERTAIN SUPERMAJORITY REQUIREMENTS. Any matter requiring action of the board of directors of the corporation shall require the affirmative vote of not less than two-thirds (2/3) of the entire board of directors (i.e., at least two-thirds (2/3) of the number of directorships, regardless of how many directors are then in office). The actions which shall require action by such board of directors shall include, without limitation, the following:" 8 4. The By-laws are hereby amended to add a new Article X which reads in its entirety as follows: "ARTICLE X SHARE TRANSFERS SUBJECT TO VOTING AGREEMENTS Any Transfer of Shares to any Person shall not be effective until such Person executes a written agreement pursuant to which such Person acknowledges and agrees that the Shares Transferred to it remain subject to all restrictions on Transfer contained in the Stockholders' Agreement and that it is subject to the voting provisions applicable to Brennan immediately prior to the consummation of the Transfer including, without limitation, the provisions contained therein relating to voting for members of the Board of Directors designated by Brennan, GE Capital and the Chairman of the Board and Chief Executive Officer of Ward." 9 EX-10.(I)(H)(4) 4 THIRD AMENDMENT TO LONG TERM CREDIT THIRD AMENDMENT TO LONG TERM CREDIT AGREEMENT THIS AMENDMENT (the "Amendment") dated as of December 23, 1996 (the "Third Amendment Effective Date"), is made and entered into among MONTGOMERY WARD & CO., INCORPORATED (the "Company") and the banks listed on the signature pages hereof (herein, together with their respective successors and assigns, collectively called the "Banks" and individually called a "Bank"). WHEREAS the Banks are parties to that certain Long Term Credit Agreement dated as of September 15, 1994, as amended as of March 19, 1996 and September 6, 1996 (the "Long Term Credit Agreement"), among Montgomery Ward & Co., Incorporated, various banks named therein, 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; and WHEREAS the Company and the Banks desire to amend the Long Term Credit Agreement in certain respects; NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I AMENDMENTS 1.1 SECTION 1.1 of the Long Term Credit Agreement is hereby amended by adding the following definitions thereto (or in the case of the definition of Termination Date, amending such definition to read in its entirety, as set forth below): "APPLICABLE MARGIN" means as to any Type of Loan, for any period set forth below, a rate per annum, as follows: EURODOLLAR BASE RATE LOAN PERIOD LOAN SWING LOAN ------ ---------- --------------- December 23, 1996 through March 31, 1997 1.50% 0.25% April 1, 1997 through June 30, 1997 2.00% 0.75% EURODOLLAR BASE RATE LOAN PERIOD LOAN SWING LOAN ------ ---------- --------------- After June 30, 1997 2.50% 1.25% "EBITDAR" means, for any fiscal period, on a consolidated basis for the Company and its Subsidiaries, net income, PLUS interest expense, PLUS provision for taxes on income, PLUS depreciation and amortization expense, PLUS rent expense, MINUS interest income, in each case, for such fiscal period. "CONSOLIDATED CAPITAL EXPENDITURES" means, for any fiscal period, the consolidated capital expenditures of the Company and its Subsidiaries for such period, as the same are (or would in accordance with GAAP be) set forth in the consolidated statement of changes in cash flow of the Company and its Subsidiaries for such period. "CREDIT AGREEMENT PERCENTAGE" means a percentage corresponding to the fraction, the numerator of which is equal to the aggregate principal of Loans then outstanding under this Agreement, and the denominator of which is equal to the aggregate principal amount of loans then outstanding under this Agreement and under the Short Term Credit Agreement. "DISPOSITION" means the sale, assignment, transfer, contribution, conveyance, issuance or other disposition of, or granting of options, warrants or other similar rights with respect to, any asset of the Company or any Subsidiary, EXCLUDING, HOWEVER,(i) the sale or transfer of inventory in the ordinary course of business,(ii) the sale or transfer of obsolete fixtures and equipment in the ordinary course of business,(iii) the sale or transfer of receivables pursuant to the Retail Credit Program Agreement and other receivables agreements similar to the receivables agreements currently in effect,(iv) the liquidation of cash equivalents in the ordinary course of business,(v) the sale or transfer by Signature of investment portfolio assets in the ordinary course of business,(vi) any sale or transfer by the Company or any Subsidiary to the Company or any other Subsidiary, (vii) the sale or transfer by Signature of fixtures, equipment and certain hardware and software acquired after January 1, 1996 for telemarketing/customer service centers, provided that the aggregate sale price thereof does not exceed $10,000,000, and (viii) any sale or transfer or related series of sales or transfers in which the aggregate Net Proceeds shall be less than $50,000. "NET PROCEEDS" means the aggregate amount of cash and readily marketable cash equivalents, and all other proceeds (excluding rental income) received by the Company or any Subsidiary in connection with any Disposition (including, when received by the Company or any Subsidiary, any principal installments with respect to installment sales contracts or purchase money indebtedness of purchasers or other similar deferred consideration), LESS the amount (as estimated by the Company in good faith) of: (i) all reasonable costs of the Company or such Subsidiary (excluding any rental expense) associated with such Disposition, (ii) all amounts paid by the Company or such Subsidiary in retiring or satisfying any Lien on such asset which is required to be retired or satisfied in connection with such Disposition, (iii) in the case of a Disposition of assets of Signature, all indebtedness of Signature which is required to be repaid in connection with such Disposition, (iv) any and all taxes (including Federal and state income or gross receipts taxes) arising from or related to such Disposition, (v) solely with respect to Dispositions of real property (and the related fixtures and equipment) on which retail stores or distribution centers are located, any amounts which the Company expends (or reasonably estimates it will expend in a written notice promptly delivered to the Administrative Agent and each Bank) for the purchase and/or construction and fixturing of a replacement or substitute facility in the geographic area in which such real property is situated, PROVIDED that the agreement or letter of intent pursuant to which such replacement or substitute facility is to be acquired is entered into prior to or within 3 Business Days after the Disposition of such real property and that such agreement or such letter of intent is not subsequently cancelled prior to the acquisition or substantial completion of such replacement or substitute facility, and (vi) proceeds (other than cash or cash equivalent proceeds) with respect to properties (and the related fixtures and equipment) listed on SCHEDULE IX. "SIGNATURE" means collectively Signature Financial/Marketing, Inc. and/or its Subsidiaries. "SIGNATURE CREDIT AGREEMENT" means the Credit Agreement dated as of September 27, 1996, as amended and restated as of October 21, 1996, among Signature Financial/Marketing, Inc., various Banks, The Bank of New York as Documentation Agent, and The Bank of Nova Scotia, as Administrative Agent, as the same may be further amended or modified from time to time. "TERMINATION DATE" means, with respect to each Bank, the earlier to occur of (i) February 15, 1998, or (ii) such other date on which the Aggregate Commitments shall terminate pursuant to SECTION 5 or 13.2 or be reduced to zero pursuant to SECTION 2.6 and, if in any case such day is not a Business Day, the next succeeding Business Day. Notwithstanding any provision herein to the contrary, after the Third Amendment Effective Date, the Company shall not be entitled to request an extension of the Termination Date pursuant to SECTION 2.7. "THIRD AMENDMENT EFFECTIVE DATE" means December 23, 1996. 1.2 SECTION 2 of the Long Term Credit Agreement is hereby amended by adding the following SECTION 2.8 thereto: 2.8. MANDATORY PREPAYMENTS. After the Third Amendment Effective Date, following receipt by the Company or any Subsidiary of any Net Proceeds from any Disposition, the Company shall make a mandatory prepayment of the Loans, such prepayment to be equal to the Credit Agreement Percentage of 80% of such Net Proceeds (the "Net Proceeds Share") or the aggregate unpaid principal amount of all Loans then outstanding, whichever is less; PROVIDED, HOWEVER, that up to $20,000,000 of Net Proceeds received after the Third Amendment Effective Date by the Company or its Subsidiaries from all Dispositions shall not be subject to this SECTION 2.8. Each prepayment pursuant to this SECTION 2.8 shall be made within 3 Business Days of the date upon which the amount of the Net Proceeds which have not theretofore been applied by the Company to prepayments under this Agreement or the Short Term Credit Agreement shall equal or exceed $1,000,000. Concurrently with any prepayment required under this SECTION 2.8 the Aggregate Commitment shall automatically be reduced by the amount of such Net Proceeds Share (such reduction to be prorata among the Banks according to their respective Commitments). 1.3 SECTION 4 of the Long Term Credit Agreement is hereby amended by adding the following SECTION 4.6 thereto: 4.6. SUSPENSION PERIOD FOR NEGOTIATED LOANS. Notwithstanding any provision of this Agreement to the contrary, commencing on and after the Third Amendment Effective Date until the Termination Date, the Company shall not request and no Bank shall make Negotiated Loans. 1.4 SECTION 6.1 of the Long Term Credit Agreement is hereby amended so that SECTION 6.1 through SECTION 6.1(b) shall read in its entirety as follows: 6.1 INTEREST RATES. The Company hereby promises to pay interest on the unpaid principal amount of each Loan for the period commencing on the Funding Date of such Loan until such Loan is paid in full, as follows: (a) if such Loan is a Base Rate Loan or a Swing Loan, at a rate per annum equal to the Base Rate from time to time in effect, plus on and after the Third Amendment Effective Date, the Applicable Margin; (b) if such Loan is a Eurodollar Loan, at a rate per annum during each Interest Period equal to the Eurodollar Rate applicable to such Interest Period, plus (i) prior to the Third Amendment Effective Date, 0.375% plus any Eurodollar Margin Increment, and (ii) on and after the Third Amendment Effective Date, the Applicable Margin; 1.5 SECTION 6.2 of the Long Term Credit Agreement is deleted as of the Third Amendment Effective Date (it being understood, however, that the provisions of such section shall survive as to any additional interest accruing prior to the Third Amendment Effective Date). 1.6 SECTION 6.3 of the Long Term Credit Agreement is amended to read in its entirety as follows: 6.3 INTEREST PAYMENT DATES. Accrued interest on each Loan shall be payable on the last day of the Interest Period therefor and on each Conversion date related to such Loan; PROVIDED, HOWEVER, that accrued interest on each Eurodollar Loan which has an Interest Period of 6 months shall be payable on the 90th day of such Interest Period or, if such day is not a Business Day, on the next succeeding Business Day. After maturity of any Loan, accrued interest on such Loan shall be payable on demand. 1.7 SUPPLEMENTAL COMMITMENT FEE. SECTION 6 of the Long Term Credit Agreement is amended by adding the following SECTION 6.10 thereto: 6.10 SUPPLEMENTAL COMMITMENT FEE. The Company agrees to pay to the Administrative Agent for the account of each Bank (PRO RATA in accordance with the average daily amount of the Unused Commitment of such Bank), within fifteen days of the last day of December 1996, and thereafter within fifteen days of the last day of each calendar quarter of each year until the Termination Date for such Bank, and on the Termination Date for such Bank, a commitment fee which, when added to the fees payable under SECTIONS 6.5 and 6.6 in respect of the corresponding period for which the commitment fee under this SECTION 6.10 is computed, shall equal a commitment fee computed at the rate of 0.375% per annum on the average daily amount of the Aggregate Commitment minus the aggregate principal amount of all Loans then outstanding during the quarterly or other period preceding the date of such payment. Such commitment fee shall commence accruing on the Third Amendment Effective Date and shall be payable in arrears. Commitment fees shall be payable regardless of the occurrence of an Event of Default or an Unmatured Event of Default. 1.8 SECTION 11.1(b) of the Long Term Credit Agreement is amended to read in its entirety as follows: (b) INTERIM REPORTS. (i) Within 10 days after each fiscal month, a flash report containing (x) the total retail sales of the Company and its Subsidiaries (other than Signature) for the fiscal month then ended and for the corresponding fiscal month of the previous Fiscal Year, (y) the aggregate reinvestment by the Company of borrowings under its loan agreements and uncommitted lines in cash equivalents as of the end of such month, and (z) the aggregate principal amount of loans as of the end of such month which are then outstanding under the Company's revolving loan agreements (including this Agreement), any uncommitted lines of the Company, and any loan agreement of Signature, together with a breakdown thereof, (ii) Within 30 days after each fiscal month (or in the case of the last fiscal month in a Fiscal Year, within 60 days after such fiscal month), (A) a copy of the unaudited internally prepared (x) consolidated financial statements of the Company and its Subsidiaries (but accounting for Signature on the equity method) consisting of at least a balance sheet as at the close of such fiscal month, statements of earnings for such fiscal month and for the period from the beginning of such Fiscal Year to the close of such fiscal month, and a statement of cash flows for the period from the beginning of such Fiscal Year to the close of such fiscal month, and (y) consolidated financial statements of Signature, consisting of at least a balance sheet of Signature as at the close of such fiscal month and statements of earnings of Signature for such fiscal month and for the period from the beginning of such Fiscal Year to the close of such fiscal month, and (B) a report setting forth the cumulative amount of all Net Proceeds received after the Third Amendment Effective Date, together with the aggregate amount of prepayments and Commitment reductions related thereto, and (iii) within 60 days after each Fiscal Quarter (except the last Fiscal Quarter in a Fiscal Year), a copy of the unaudited consolidated financial statements of the Company and its Subsidiaries prepared in accordance with GAAP (subject to normal year end audit adjustments) consisting of at least a balance sheet as at the close of such Fiscal Quarter, statements of earnings for such Fiscal Quarter and for the period from the beginning of such Fiscal Year to the close of such Fiscal Quarter, and a statement of cash flows from the beginning of such Fiscal Year to the close of such Fiscal Quarter. 1.9 SECTION 11.3 of the Long Term Credit Agreement is hereby amended by adding thereto a second paragraph as follows: Notwithstanding the foregoing, the provisions of the first paragraph of this SECTION 11.3 shall not apply to the end of the Fiscal Year ending December 28, 1996 or the Fiscal Quarters ending March 29, 1997 or June 28, 1997; it being understood (and the Company hereby agrees) that (i) as of the end of the Fiscal Year ending December 28, 1996, and of its Fiscal Quarters ending March 29, 1997 and June 28, 1997, it will not permit the Consolidated Shareholder's Equity to be less than $450,000,000; and (ii) after June 28, 1997 the provisions of the first paragraph of this SECTION 11.3 shall reapply to the end of each Fiscal Year or Fiscal Quarter, as the case may be, which ends thereafter (i.e., the required Consolidated Shareholder's Equity for the Fiscal Quarter ending September 27, 1997 shall be based on the Ratio of Earnings to Fixed Charges for the Fiscal Quarter ending June 28, 1997). 1.10 SECTION 11.4 of the Long Term Credit Agreement is hereby amended to read in its entirety as follows: 11.4 RATIO OF DEBT TO TOTAL CAPITALIZATION. Not permit the Debt of the Company and its Restricted Subsidiaries at the end of any Fiscal Quarter to exceed the percentage of Total Capitalization applicable to such Fiscal Quarter as follows: Percentage of Total Fiscal Quarter End Capitalization ------------------ ------------------- December 28, 1996 70% March 29, 1997 75% June 28, 1997 75% September 27, 1997 60% January 3, 1998 50% 1.11 SECTION 11.18 of the Long Term Credit Agreement is hereby amended by adding the following proviso at the end of the section: ; provided, however, in the case of the Fiscal Quarters ending March 29, 1997 and June 28, 1997, "75%" shall replace "60%" in clause (a) above; and in the case of the Fiscal Quarter ending December 28, 1996, "70%" shall replace "50%" in clause (b) above. 1.12 SECTION 11.20 of the Long Term Credit Agreement is hereby amended to read in its entirety as follows: 11.20 EBITDAR; FIXED CHARGE RATIO. (a) EBITDAR. As of the end of any Fiscal Quarter set forth below, not permit EBITDAR of the Company and its Subsidiaries for the 4 consecutive Fiscal Quarters then ending to be less than the amount applicable to the end of such Fiscal Quarter as follows: 4-Fiscal Quarters Ended EBITDAR ----------------------- -------- December 28, 1996 $190,000,000 March 29, 1997 $220,000,000 June 28, 1997 $190,000,000 (b) RATIO OF EARNINGS TO FIXED CHARGES. Not permit, for the Fiscal Quarters ending September 27, 1997 and January 3, 1998, the Ratio of Earnings to Fixed Charges determined as of the last day of each Fiscal Quarter to be less than 1.10:1. 1.13 SECTION 11 of the Long Term Credit Agreement is hereby amended by adding the following SECTION 11.21 thereto: 11.21. CAPITAL EXPENDITURES. Not permit Consolidated Capital Expenditures in any Fiscal Quarter ending on or after December 23, 1996, to exceed $30,000,000. 1.14 SECTION 11 of the Long Term Credit Agreement is amended by adding the following SECTION 11.22 thereto: 11.22. LECHMERE GUARANTY. Cause the Liabilities to be guaranteed by Lechmere, Inc. ("Guarantor") pursuant to a guaranty substantially in the form of EXHIBIT N ("Guaranty"). 1.15 SECTION 11 of the Long Term Credit Agreement is amended by adding the following SECTION 11.23 thereto: 11.23 LIMITATION ON SIGNATURE DEBT. Not permit Signature to incur or permit to exist any Indebtedness for Borrowed Money, except (i) Indebtedness for Borrowed Money which in the aggregate (including Indebtedness for Borrowed Money under the Signature Credit Agreement) does not exceed $200,000,000, and (ii) Indebtedness for Borrowed Money of Signature to the Company or its other Subsidiaries. 1.16 EVENTS OF DEFAULT. SECTION 13.1(e) of the Long Term Credit Agreement is amended to read in its entirety as follows: (e) SPECIFIED NON-COMPLIANCE WITH THIS AGREEMENT. Failure by the Company to comply with or to perform its obligations under SECTIONS 11.3, 11.4, 11.5, 11.6, 11.17, 11.18, 11.20, or 11.21 of this Agreement. 1.17 SECTION 13.1 of the Long Term Credit Agreement is further amended by adding thereto SECTION 13.1(l) as follows: (l) GUARANTOR DEFAULTS. Guarantor fails in any material respect to perform or observe any term, covenant or agreement in its Guaranty; or the Guaranty of Guarantor is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases to be in full force and effect, or Guarantor or any other Person contests in any manner the validity or enforceability thereof or denies that it has any further liability or obligation thereunder. 1.18 SCHEDULE VIII to the Long Term Credit Agreement is hereby amended as set forth in SCHEDULE VIII hereto. 1.19 EXHIBIT I to the Long Term Credit Agreement shall be revised in form and substance acceptable to the Administrative Agent and the Documentary Agent so as to reflect the foregoing amendments. 1.20 The Long Term Credit Agreement is further amended by adding SCHEDULE IX and EXHIBIT N in the form attached hereto. ARTICLE II REPRESENTATIONS AND WARRANTIES The Company hereby represents and warrants to the Agents and the Banks as of the Third Amendment Effective Date: 2.1 NO DEFAULT. No Event of Default or Unmatured Event of Default has occurred and is continuing which will not be cured by this Amendment becoming effective. No Event of Default or Unmatured Event of Default will exist after giving effect to this Amendment. 2.2 DUE EXECUTION. The execution, delivery and performance of this Amendment, (i) are within the Company's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not require any governmental approval which has not been previously obtained (and each such governmental approval that has been previously obtained remains effective), (iv) do not and will not contravene or conflict with any provision of law, or of any judgment, decree or order, or of the Company's charter or by-laws, and (v) do not and will not contravene or conflict with, or cause any Lien to arise under, any provision of any agreement binding upon the Company, any Subsidiary or any of their respective properties. 2.3 VALIDITY. The Long Term Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset. 2.4 LONG TERM CREDIT AGREEMENT. All representations and warranties of the Company contained in SECTIONS 10.1, 10.2, 10.3, 10.4(a), 10.7, 10.10, 10.11, 10.12, 10.15 and 10.18 of the Long Term Credit Agreement are true and correct as of the date hereof with the same effect as though made on the date hereof. 2.5 NEGOTIATED LOANS; RATABILITY OF LOANS, ETC. As of the date of this Amendment, all Loans of all Banks are ratable (by principal and by Group) according to the amount of each Bank's Commitment; and no Negotiated Loans are outstanding. ARTICLE III GENERAL ------------- 3.1 EXPENSES. The Company agrees to pay all fees and expenses of McDermott, Will & Emery as counsel to the Documentary Agent, the Administrative Agent and the Negotiated Loan Agent in connection with the preparation, execution and delivery of this Amendment. 3.2 EFFECTIVENESS. Article I of this Amendment shall become effective as of the Third Amendment Effective Date, subject to receipt by the Documentary Agent of the following, each duly executed and dated the Third Amendment Effective Date or such other date satisfactory to the Documentary Agent, in form and substance reasonably satisfactory to the Documentary Agent: (a) AMENDMENT. Counterparts of this Amendment whether on the same or different counterparts, executed by the Company and the Required Banks (or in the case of any Bank as to which an executed counterpart shall not have been so received, telegraphic, telefax, telex or other written confirmation of execution of a counterpart hereof by such Bank); (b) AMENDMENT FEE. Evidence of payment from the Company to the Administrative Agent of a fee payable to the Administrative Agent for the account of each Bank for which the Documentary Agent receives by 12:00 noon (New York City time) on December 23, 1996 an executed counterpart hereof (including by fax), such fee to be equal to 0.25% of the amount of such Bank's Commitment and to be distributed by the Administrative Agent to each such Bank upon the effectiveness of this Amendment; (c) GUARANTY. The Guaranty executed by the Guarantor; (d) RESOLUTIONS. Copies of the resolutions of the board of directors of each of the Company and the Guarantor authorizing the transactions contemplated by this Amendment and the Guaranty, certified as of the Third Amendment Effective Date by the Secretary or an Assistant Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk) of the Company and the Guarantor; (e) INCUMBENCY. A certificate of the Secretary or Assistant Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk) of each of the Company and the Guarantor certifying the names and true signatures of the officers of the Company or the Guarantor authorized to execute, deliver and perform, as applicable, this Amendment and the Guaranty; (f) OPINION OF COUNSEL FOR THE COMPANY AND THE GUARANTOR. A letter from Altheimer & Gray, counsel for the Company and the Guarantor, addressed to the Agents and the Banks substantially in the form attached hereto; and (g) EXTENSION OF SIGNATURE CREDIT AGREEMENT. Evidence of the extension to August 29, 1997 of the maturity date of loans under the Signature Credit Agreement. (h) AMENDMENT OF OTHER CREDIT AGREEMENT. Evidence of (i) the extension to August 29, 1997 of the termination date under the Credit Agreement dated as of October 4, 1996 among the Company, various lenders, The Bank of New York, as Administrative Agent, and The Bank of Nova Scotia, as Documentation Agent, and (ii) the amendment of the covenants therein to conform to the Long Term Credit Agreement as amended hereby. 3.3 DEFINITIONS. Except as otherwise herein specifically defined, all the capitalized terms contained herein shall have the meaning ascribed to such terms in the Long Term Credit Agreement. 3.4 REAFFIRMATION. 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 Amendment. This Amendment shall be deemed incorporated into, and a part of, the Long Term Credit Agreement. 3.5 SUCCESSORS. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 3.6 GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Illinois. 3.7 COUNTERPARTS. This Amendment 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. Delivered at Chicago, Illinois as of the day, month and year first above written. MONTGOMERY WARD & CO., INCORPORATED By: /s/ Douglas V. Gathany -------------------------------- Name: Douglas V. Gathany ACCEPTED AND APPROVED: THE FIRST NATIONAL BANK OF CHICAGO, in its individual capacity and in its capacity as Documentary Agent By: /s/ Tara W. Clark ----------------------------- Name: Tara W. Clark THE BANK OF NEW YORK, in its individual capacity and in its capacity as Negotiated Loan Agent By: /s/ Michael Flannery ----------------------------- Name: Michael Flannery THE BANK OF NOVA SCOTIA, in its individual capacity and in its capacity as Administrative Agent By: /s/ J.H. Youssef ----------------------------- Name: J.H. Youssef Title: Senior Manager Finance & Administration BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, in its individual capacity and in its capacity as Advisory Agent By: /s/ Sandra S. Ober ----------------------------- Name: Sandra S. Ober CIBC INC. By: /s/ Christopher P. Kleczkowski ------------------------------- Name: Christopher P. Kleczkowski Title: Director, CIBC Wood Gundy Securities Corp., AS AGENT NATIONSBANK, N.A. By: /s/ Valerie C. Mills ------------------------------- Name: Valerie C. Mills SVP THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: /s/ Mark A. Thompson ------------------------------- Name: Mark A. Thompson Title: Vice President and Deputy General Manager CREDIT LYONNAIS CHICAGO BRANCH By: /s/ Mary Ann Klemm ------------------------------- Name: Mary Ann Klemm Title: Vice President and Group Head BANCA COMMERCIALE ITALIANA, CHICAGO BRANCH By: /s/ Julian M. Teodori ------------------------------- Name: Julian M. Teodori Title: Senior Vice President and Manager By: /s/ Matthew V. Trujillo ------------------------------- Name: Matthew V. Trujillo Title: Assistant Vice President THE DAI-ICHI KANGYO BANK, LTD., CHICAGO BRANCH By: /s/ Seiichiro Ino ------------------------------- Name: Seiichiro Ino THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By: /s/ Noburu Kobayashi ------------------------------- Name: Noboru Kobayashi Title: Deputy General Manager THE NORTHERN TRUST COMPANY By: /s/ Sidney R. Dillard ------------------------------- Name: Sidney R. Dillard THE SAKURA BANK, LTD. By: /s/ Takao Okada ------------------------------- Name: Takao Okada Title: Senior Manager THE SANWA BANK, LIMITED, CHICAGO BRANCH By: /s/ Tomomi Omura ------------------------------- Name: Tomomi Omura Title: Assistant General Manager SWISS BANK CORPORATION, CHICAGO BRANCH By: /s/ Thomas R. Salzano ------------------------------- Name: Thomas R. Salzano Title: Associate Director Banking Finance Support, N.A. By: /s/ Peter V. Matton /s/ Carole Reading ----------------------------------------------- Name: Peter V. Matton Carole Reading Title: Executive Director Executive Director Restructuring Credit Risk Management, N.A. UNITED STATES NATIONAL BANK OF OREGON By: /s/ Monica Treacy ------------------------------- Name: Monica Treacy Title: Asst. Vice President UNION BANK By: /s/ Richard A. Sutter ------------------------------- Name: Richard A. Sutter Title: Vice President ABN AMRO BANK N.V. By: /s/ David C. Sagers ------------------------------- Name: David C. Sagers Title: Vice President By: /s/ Laurie D. Flom ------------------------------- Name: Laurie D. Flom Title: Vice President FIRST BANK NATIONAL ASSOCIATION By: /s/ Christopher H. Patton ------------------------------- Name: Christopher H. Patton Title: THE FIRST NATIONAL BANK OF BOSTON By: /s/ Bethann R. Halligan ------------------------------- Name: Bethann R. Halligan Title: Division Executive THE FUJI BANK, LIMITED By: /s/ Peter L. Chinnici ------------------------------- Name: Peter L. Chinnici Title: Joint General Manager PNC BANK, NATIONAL ASSOCIATION By: /s/ Karen C. Brogan ------------------------------- Name: Karen C. Brogan THE YASUDA TRUST AND BANKING CO., LTD. By: /s/ Joseph C. Meek ------------------------------- Name: Joseph C. Meek Title: Deputy General Manager THE FIRST NATIONAL BANK OF MARYLAND By: /s/ Andrew W. Fish ------------------------------- Name: Andrew W. Fish Title: Vice President INSTITUTO BANCARIO SAN PAOLO DI TORINO, S.P.A. By: /s/ Carlo Persico ------------------------------- Name: Carlo Perisco Title: Deputy General Manager By: /s/ Robert Wurster ------------------------------- Name: Robert Wurster Title: First Vice President KREDIETBANK N.V. By: /s/ Raymond F. Murray ------------------------------- Name: Raymond F. Murray Title: Vice President By: /s/ Tod R. Angus ------------------------------- Name: Tod R. Angus Title: Vice President UNION BANK OF SWITZERLAND - NEW YORK BRANCH By: /s/ Michael J. Ahearn ------------------------------- Name: Michael J. Ahearn Title: Managing Director By: /s/ Daniel R. Strickford ------------------------------- Name: Daniel R. Strickford Title: Assistant Vice President WELLS FARGO BANK, N.A. By: /s/ Seth D. Moldoff ------------------------------- Name: Seth D. Moldoff BANCA DI ROMA, S.P.A. By: /s/ Steven Paley ------------------------------- Name: Steven Paley Title: Vice President By: /s/ Claudio Perna ------------------------------- Name: Claudio Perna Title: Vice President and Deputy Manager COMERICA BANK By: /s/ Harve C. Light ------------------------------- Name: Harve C. Light BANK OF AMERICA ILLINOIS By: /s/ Sandra S. Ober ------------------------------- Name: Sandra S. Ober SCHEDULE VIII FINDER'S LIST Schedule VIII to the Long Term Credit Agreement is hereby amended to add the following thereto: "APPLICABLE MARGIN" - used in SECTION 6.1. "CONSOLIDATED CAPITAL EXPENDITURES" - used in SECTION 11.21. "CREDIT AGREEMENT PERCENTAGE" - used in SECTION 2.8. "DISPOSITION" - used in the definition of Net Proceeds and SECTION 2.8. "EBITDAR" - used in SECTION 11.20. "GUARANTOR" - used in SECTIONS 11.22 and 13.1(l). "GUARANTY" - used in SECTIONS 11.22 and 13.1(l). "NET PROCEEDS" - used in SECTION 2.8. "SIGNATURE" - used in the definition of Net Proceeds and SECTIONS 11.1(b) and 11.23. "SIGNATURE CREDIT AGREEMENT" - used in SECTION 11.23. "THIRD AMENDMENT EFFECTIVE DATE" - used in SECTIONS 2.8, 4.6, 6.1, 6.9, and 6.10. SCHEDULE IX (List of Locations referred to in clause (vi) of definition of "Net Proceeds") 1. Former catalog house and warehouse situated at Monroe and Washington streets Baltimore, MD. 2. Former administration center situated at Shadeland and Widget Lane, Walnut Creek, CA. 3. Former Jefferson Ward retail store at 815-25 Hendrix Street, Philadelphia, PA. 4. Distribution Center situated at Schnelling and Wynne, St. Paul, MN. 5. Retail store situated at Lafayette Square in Indianapolis, IN. 6. Retail store situated at Washington Square in Indianapolis, IN. 7. Retail store situated at Castleton Square in Indianapolis, IN. 8. Retail store situated at Greenwood Mall, Greenwood, IN. If any one or more of the above listed properties is owned by a Subsidiary of the Company and comprises substantially all the assets of such Subsidiary, the disposition of the stock of such Subsidiary shall be treated as the Disposition of the properties owned by such Subsidiary for the purpose of applying clause (vi) of the definition of "Net Proceeds" contained in Section 1.1 of this Agreement. EX-10.(I)(I)(5) 5 THIRD AMENDMENT TO SHORT TERM CREDIT THIRD AMENDMENT TO SHORT TERM CREDIT AGREEMENT THIS AMENDMENT (the "Amendment") dated as of December 23, 1996 (the "Third Amendment Effective Date"), is made and entered into among MONTGOMERY WARD & CO., INCORPORATED (the "Company") and the banks listed on the signature pages hereof (herein, together with their respective successors and assigns, collectively called the "Banks" and individually called a "Bank"). WHEREAS the Banks are parties to that certain Short Term Credit Agreement dated as of September 15, 1994, as amended as of March 19, 1996 and September 6, 1996 (the "Short Term Credit Agreement"), among Montgomery Ward & Co., Incorporated, various banks named therein, 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; and WHEREAS the Company and the Banks desire to amend the Short Term Credit Agreement in certain respects; NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I AMENDMENTS 1.1 SECTION 1.1 of the Short Term Credit Agreement is hereby amended by adding the following definitions thereto (or in the case of the definitions of Maturity Date and Termination Date, amending such definitions to read in their entirety, as set forth below): "APPLICABLE MARGIN" means as to any Type of Loan, for any period set forth below, a rate per annum, as follows: EURODOLLAR BASE RATE LOAN PERIOD LOAN SWING LOAN ------ ---------- -------------- December 23, 1996 1.50% 0.25% through March 31, 1997 April 1, 1997 2.00% 0.75% through June 30, 1997 EURODOLLAR BASE RATE LOAN PERIOD LOAN SWING LOAN ------ ---------- -------------- After June 30, 1997 2.50% 1.25% "EBITDAR" means, for any fiscal period, on a consolidated basis for the Company and its Subsidiaries, net income, PLUS interest expense, PLUS provision for taxes on income, PLUS depreciation and amortization expense, PLUS rent expense, MINUS interest income, in each case, for such fiscal period. "CONSOLIDATED CAPITAL EXPENDITURES" means, for any fiscal period, the consolidated capital expenditures of the Company and its Subsidiaries for such period, as the same are (or would in accordance with GAAP be) set forth in the consolidated statement of changes in cash flow of the Company and its Subsidiaries for such period. "CREDIT AGREEMENT PERCENTAGE" means a percentage corresponding to the fraction, the numerator of which is equal to the aggregate principal of Loans then outstanding under this Agreement, and the denominator of which is equal to the aggregate principal amount of loans then outstanding under this Agreement and under the Long Term Credit Agreement. "DISPOSITION" means the sale, assignment, transfer, contribution, conveyance, issuance or other disposition of, or granting of options, warrants or other similar rights with respect to, any asset of the Company or any Subsidiary, EXCLUDING, HOWEVER, (i) the sale or transfer of inventory in the ordinary course of business, (ii) the sale or transfer of obsolete fixtures and equipment in the ordinary course of business, (iii) the sale or transfer of receivables pursuant to the Retail Credit Program Agreement and other receivables agreements similar to the receivables agreements currently in effect, (iv) the liquidation of cash equivalents in the ordinary course of business, (v) the sale or transfer by Signature of investment portfolio assets in the ordinary course of business, (vi) any sale or transfer by the Company or any Subsidiary to the Company or any other Subsidiary, (vii) the sale or transfer by Signature of fixtures, equipment and certain hardware and software acquired after January 1, 1996 for telemarketing/customer service centers, provided that the aggregate sale price thereof does not exceed $10,000,000, and (viii) any sale or transfer or related series of sales or transfers in which the aggregate Net Proceeds shall be less than $50,000. "MATURITY DATE" means the Termination Date. "NET PROCEEDS" means the aggregate amount of cash and readily marketable cash equivalents, and all other proceeds (excluding rental income) received by the Company or any Subsidiary in connection with any Disposition (including, when received by the Company or any Subsidiary, any principal installments with respect to installment sales contracts or purchase money indebtedness of purchasers or other similar deferred consideration), LESS the amount (as estimated by the Company in good faith) of: (i) all reasonable costs of the Company or such Subsidiary (excluding any rental expense) associated with such Disposition, (ii) all amounts paid by the Company or such Subsidiary in retiring or satisfying any Lien on such asset which is required to be retired or satisfied in connection with such Disposition, (iii) in the case of a Disposition of assets of Signature, all indebtedness of Signature which is required to be repaid in connection with such Disposition, (iv) any and all taxes (including Federal and state income or gross receipts taxes) arising from or related to such Disposition, (v) solely with respect to Dispositions of real property (and the related fixtures and equipment) on which retail stores or distribution centers are located, any amounts which the Company expends (or reasonably estimates it will expend in a written notice promptly delivered to the Administrative Agent and each Bank) for the purchase and/or construction and fixturing of a replacement or substitute facility in the geographic area in which such real property is situated, PROVIDED that the agreement or letter of intent pursuant to which such replacement or substitute facility is to be acquired is entered into prior to or within 3 Business Days after the Disposition of such real property and that such agreement or such letter of intent is not subsequently cancelled prior to the acquisition or substantial completion of such replacement or substitute facility, and (vi) proceeds (other than cash or cash equivalent proceeds) with respect to properties (and the related fixtures and equipment) listed on SCHEDULE IX. "SIGNATURE" means collectively Signature Financial/Marketing, Inc. and/or its Subsidiaries. "SIGNATURE CREDIT AGREEMENT" means the Credit Agreement dated as of September 27, 1996, as amended and restated as of October 21, 1996, among Signature Financial/Marketing, Inc., various Banks, The Bank of New York as Documentation Agent, and The Bank of Nova Scotia, as Administrative Agent, as the same may be further amended or modified from time to time. "TERMINATION DATE" means, with respect to each Bank, the earlier to occur of (i) August 29, 1997, or (ii) such other date on which the Aggregate Commitments shall terminate pursuant to SECTION 5 or 13.2 or be reduced to zero pursuant to SECTION 2.6 and, if in any case such day is not a Business Day, the next succeeding Business Day. Notwithstanding any provision herein to the contrary, after the Third Amendment Effective Date, the Company shall not be entitled to request an extension of the Termination Date pursuant to SECTION 2.7. "THIRD AMENDMENT EFFECTIVE DATE" means December 23, 1996. 1.2 SECTION 2 of the Short Term Credit Agreement is hereby amended by adding the following SECTION 2.8 thereto: 2.8. MANDATORY PREPAYMENTS. After the Third Amendment Effective Date, following receipt by the Company or any Subsidiary of any Net Proceeds from any Disposition, the Company shall make a mandatory prepayment of the Loans, such prepayment to be equal to the Credit Agreement Percentage of 80% of such Net Proceeds (the "Net Proceeds Share") or the aggregate unpaid principal amount of all Loans then outstanding, whichever is less; PROVIDED, HOWEVER, that up to $20,000,000 of Net Proceeds received after the Third Amendment Effective Date by the Company or its Subsidiaries from all Dispositions shall not be subject to this SECTION 2.8. Each prepayment pursuant to this SECTION 2.8 shall be made within 3 Business Days of the date upon which the amount of the Net Proceeds which have not theretofore been applied by the Company to prepayments under this Agreement or the Long Term Credit Agreement shall equal or exceed $1,000,000. Concurrently with any prepayment required under this SECTION 2.8 the Aggregate Commitment shall automatically be reduced by the amount of such Net Proceeds Share (such reduction to be prorata among the Banks according to their respective Commitments). 1.3 SECTION 4 of the Short Term Credit Agreement is hereby amended by adding the following SECTION 4.6 thereto: 4.6. SUSPENSION PERIOD FOR NEGOTIATED LOANS. Notwithstanding any provision of this Agreement to the contrary, commencing on and after the Third Amendment Effective Date until the Termination Date, the Company shall not request and no Bank shall make Negotiated Loans. 1.4 SECTION 6.1 of the Short Term Credit Agreement is hereby amended so that SECTION 6.1 through SECTION 6.1(b) shall read in its entirety as follows: 6.1 INTEREST RATES. The Company hereby promises to pay interest on the unpaid principal amount of each Loan for the period commencing on the Funding Date of such Loan until such Loan is paid in full, as follows: (a) if such Loan is a Base Rate Loan or a Swing Loan, at a rate per annum equal to the Base Rate from time to time in effect, plus on and after the Third Amendment Effective Date, the Applicable Margin; (b) if such Loan is a Eurodollar Loan, at a rate per annum during each Interest Period equal to the Eurodollar Rate applicable to such Interest Period, plus (i) prior to the Third Amendment Effective Date, 0.375% plus any Eurodollar Margin Increment, and (ii) on and after the Third Amendment Effective Date, the Applicable Margin; 1.5 SECTION 6.2 of the Short Term Credit Agreement is deleted as of the Third Amendment Effective Date (it being understood, however, that the provisions of such section shall survive as to any additional interest accruing prior to the Third Amendment Effective Date). 1.6 SECTION 6.3 of the Short Term Credit Agreement is amended to read in its entirety as follows: 6.3 INTEREST PAYMENT DATES. Accrued interest on each Loan shall be payable on the last day of the Interest Period therefor and on each Conversion date related to such Loan; PROVIDED, HOWEVER, that accrued interest on each Eurodollar Loan which has an Interest Period of 6 months shall be payable on the 90th day of such Interest Period or, if such day is not a Business Day, on the next succeeding Business Day. After maturity of any Loan, accrued interest on such Loan shall be payable on demand. 1.7 SUPPLEMENTAL COMMITMENT FEE. SECTION 6.10 of the Short Term Credit Agreement is amended to read in its entirety as follows: 6.10 SUPPLEMENTAL COMMITMENT FEE. The Company agrees to pay to the Administrative Agent for the account of each Bank (PRO RATA in accordance with the average daily amount of the Unused Commitment of such Bank), within fifteen days of the last day of December 1996, and thereafter within fifteen days of the last day of each calendar quarter of each year until the Termination Date for such Bank, and on the Termination Date for such Bank, a commitment fee which, when added to the fees payable under SECTIONS 6.5 and 6.6 in respect of the corresponding period for which the commitment fee under this SECTION 6.10 is computed, shall equal a commitment fee computed at the rate of 0.375% per annum on the average daily amount of the Aggregate Commitment minus the aggregate principal amount of all Loans then outstanding during the quarterly or other period preceding the date of such payment. Such commitment fee shall commence accruing on the Third Amendment Effective Date and shall be payable in arrears. Commitment fees shall be payable regardless of the occurrence of an Event of Default or an Unmatured Event of Default. Fees for any period prior to the Third Amendment Effective Date shall be computed according to the provisions of the Short Term Credit Agreement as in effect prior to the Third Amendment Effective Date. 1.8 SECTION 11.1(b) of the Short Term Credit Agreement is amended to read in its entirety as follows: (b) INTERIM REPORTS. (i) Within 10 days after each fiscal month, a flash report containing (x) the total retail sales of the Company and its Subsidiaries (other than Signature) for the fiscal month then ended and for the corresponding fiscal month of the previous Fiscal Year, (y) the aggregate reinvestment by the Company of borrowings under its loan agreements and uncommitted lines in cash equivalents as of the end of such month, and (z) the aggregate principal amount of loans as of the end of such month which are then outstanding under the Company's revolving loan agreements (including this Agreement), any uncommitted lines of the Company, and any loan agreement of Signature, together with a breakdown thereof, (ii) Within 30 days after each fiscal month (or in the case of the last fiscal month in a Fiscal Year, within 60 days after such fiscal month), (A) a copy of the unaudited internally prepared (x) consolidated financial statements of the Company and its Subsidiaries (but accounting for Signature on the equity method) consisting of at least a balance sheet as at the close of such fiscal month, statements of earnings for such fiscal month and for the period from the beginning of such Fiscal Year to the close of such fiscal month, and a statement of cash flows for the period from the beginning of such Fiscal Year to the close of such fiscal month, and (y) consolidated financial statements of Signature, consisting of at least a balance sheet of Signature as at the close of such fiscal month and statements of earnings of Signature for such fiscal month and for the period from the beginning of such Fiscal Year to the close of such fiscal month, (B) a report setting forth the cumulative amount of all Net Proceeds received after the Third Amendment Effective Date, together with the aggregate amount of prepayments and Commitment reductions related thereto, and (iii) within 60 days after each Fiscal Quarter (except the last Fiscal Quarter in a Fiscal Year), a copy of the unaudited consolidated financial statements of the Company and its Subsidiaries prepared in accordance with GAAP (subject to normal year end audit adjustments) consisting of at least a balance sheet as at the close of such Fiscal Quarter, statements of earnings for such Fiscal Quarter and for the period from the beginning of such Fiscal Year to the close of such Fiscal Quarter, and a statement of cash flows from the beginning of such Fiscal Year to the close of such Fiscal Quarter. 1.9 SECTION 11.3 of the Short Term Credit Agreement is hereby amended by deleting the text contained in SECTION 11.3 and substituting the following therefor: 11.3 MINIMUM CONSOLIDATED SHAREHOLDER'S EQUITY. As of the end of any Fiscal Quarter ending on or after December 28, 1996, not permit the Consolidated Shareholder's Equity of the Company to be less than $450,000,000. 1.10 SECTION 11.4 of the Short Term Credit Agreement is hereby amended to read in its entirety as follows: 11.4 RATIO OF DEBT TO TOTAL CAPITALIZATION. Not permit the Debt of the Company and its Restricted Subsidiaries at the end of any Fiscal Quarter to exceed the percentage of Total Capitalization applicable to such Fiscal Quarter as follows: Percentage of Total Fiscal Quarter End Capitalization ------------------ ------------------- December 28, 1996 70% March 29, 1997 75% June 28, 1997 75% 1.11 SECTION 11.18 of the Short Term Credit Agreement is hereby amended by adding the following proviso at the end of the section: ; provided, however, in the case of the Fiscal Quarters ending March 29, 1997 and June 28, 1997, "75%" shall replace "60%" in clause (a) above; and in the case of the Fiscal Quarter ending December 28, 1996, "70%" shall replace "50%" in clause (b) above. 1.12 SECTION 11.20 of the Short Term Credit Agreement is hereby amended to read in its entirety as follows: 11.20 EBITDAR. As of the end of any Fiscal Quarter set forth below, not permit EBITDAR of the Company and its Subsidiaries for the 4 consecutive Fiscal Quarters then ending to be less than the amount applicable to the end of such Fiscal Quarter as follows: 4-Fiscal Quarters Ended EBITDAR ----------------------- ------- December 28, 1996 $190,000,000 March 29, 1997 $220,000,000 June 28, 1997 $190,000,000 1.13 SECTION 11 of the Short Term Credit Agreement is hereby amended by adding the following SECTION 11.21 thereto: 11.21. CAPITAL EXPENDITURES. Not permit Consolidated Capital Expenditures in any Fiscal Quarter ending on or after December 23, 1996, to exceed $30,000,000. 1.14 SECTION 11 of the Short Term Credit Agreement is amended by adding the following SECTION 11.22 thereto: 11.22. LECHMERE GUARANTY. Cause the Liabilities to be guaranteed by Lechmere, Inc. ("Guarantor") pursuant to a guaranty substantially in the form of EXHIBIT N ("Guaranty"). 1.15 SECTION 11 of the Short Term Credit Agreement is amended by adding the following SECTION 11.23 thereto: 11.23 LIMITATION ON SIGNATURE DEBT. Not permit Signature to incur or permit to exist any Indebtedness for Borrowed Money, except (i) Indebtedness for Borrowed Money which in the aggregate (including Indebtedness for Borrowed Money under the Signature Credit Agreement) does not exceed $200,000,000, and (ii) Indebtedness for Borrowed Money of Signature to the Company or its other Subsidiaries. 1.16 EVENTS OF DEFAULT. SECTION 13.1(e) of the Short Term Credit Agreement is amended to read in its entirety as follows: (e) SPECIFIED NON-COMPLIANCE WITH THIS AGREEMENT. Failure by the Company to comply with or to perform its obligations under SECTIONS 11.3, 11.4, 11.5, 11.6, 11.17, 11.18, 11.20 or 11.21 of this Agreement. 1.17 SECTION 13.1 of the Short Term Credit Agreement is further amended by adding thereto SECTION 13.1(l) as follows: (l) GUARANTOR DEFAULTS. Guarantor fails in any material respect to perform or observe any term, covenant or agreement in its Guaranty; or the Guaranty of Guarantor is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases to be in full force and effect, or Guarantor or any other Person contests in any manner the validity or enforceability thereof or denies that it has any further liability or obligation thereunder. 1.18 SCHEDULE VIII to the Short Term Credit Agreement is hereby amended as set forth in SCHEDULE VIII hereto. 1.19 EXHIBIT I to the Short Term Credit Agreement shall be revised in form and substance acceptable to the Administrative Agent and the Documentary Agent so as to reflect the foregoing amendments. 1.20 The Short Term Credit Agreement is further amended by adding SCHEDULE IX and EXHIBIT N in the form attached hereto. ARTICLE II REPRESENTATIONS AND WARRANTIES The Company hereby represents and warrants to the Agents and the Banks as of the Third Amendment Effective Date: 2.1 NO DEFAULT. No Event of Default or Unmatured Event of Default has occurred and is continuing which will not be cured by this Amendment becoming effective. No Event of Default or Unmatured Event of Default will exist after giving effect to this Amendment. 2.2 DUE EXECUTION. The execution, delivery and performance of this Amendment, (i) are within the Company's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not require any governmental approval which has not been previously obtained (and each such governmental approval that has been previously obtained remains effective), (iv) do not and will not contravene or conflict with any provision of law, or of any judgment, decree or order, or of the Company's charter or by-laws, and (v) do not and will not contravene or conflict with, or cause any Lien to arise under, any provision of any agreement binding upon the Company, any Subsidiary or any of their respective properties. 2.3 VALIDITY. The Short Term Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset. 2.4 SHORT TERM CREDIT AGREEMENT. All representations and warranties of the Company contained in SECTIONS 10.1, 10.2, 10.3, 10.4(a), 10.7, 10.10, 10.11, 10.12, 10.15 and 10.18 of the Short Term Credit Agreement are true and correct as of the date hereof with the same effect as though made on the date hereof. 2.5 NEGOTIATED LOANS; RATABILITY OF LOANS, ETC. As of the date of this Amendment, all Loans of all Banks are ratable (by principal and by Group) according to the amount of each Bank's Commitment; and no Negotiated Loans are outstanding. ARTICLE III GENERAL 3.1 EXPENSES. The Company agrees to pay all fees and expenses of McDermott, Will & Emery as counsel to the Documentary Agent, the Administrative Agent and the Negotiated Loan Agent in connection with the preparation, execution and delivery of this Amendment. 3.2 EFFECTIVENESS. Article I of this Amendment shall become effective as of the Third Amendment Effective Date, subject to receipt by the Documentary Agent of the following, each duly executed and dated the Third Amendment Effective Date or such other date satisfactory to the Documentary Agent, in form and substance reasonably satisfactory to the Documentary Agent: (a) AMENDMENT. Counterparts of this Amendment whether on the same or different counterparts, executed by the Company and the Required Banks (or in the case of any Bank as to which an executed counterpart shall not have been so received, telegraphic, telefax, telex or other written confirmation of execution of a counterpart hereof by such Bank); (b) AMENDMENT FEE. Evidence of payment from the Company to the Administrative Agent of a fee payable to the Administrative Agent for the account of each Bank for which the Documentary Agent receives by 12:00 noon (New York City time) on December 23, 1996 an executed counterpart hereof (including by fax), such fee to be equal to 0.25% of the amount of such Bank's Commitment and to be distributed by the Administrative Agent to each such Bank upon the effectiveness of this Amendment; (c) GUARANTY. The Guaranty executed by the Guarantor; (d) RESOLUTIONS. Copies of the resolutions of the board of directors of each of the Company and the Guarantor authorizing the transactions contemplated by this Amendment and the Guaranty, certified as of the Third Amendment Effective Date by the Secretary or an Assistant Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk) of the Company and the Guarantor; (e) INCUMBENCY. A certificate of the Secretary or Assistant Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk) of each of the Company and the Guarantor certifying the names and true signatures of the officers of the Company or the Guarantor authorized to execute, deliver and perform, as applicable, this Amendment and the Guaranty; (f) OPINION OF COUNSEL FOR THE COMPANY AND THE GUARANTOR. A letter from Altheimer & Gray, counsel for the Company and the Guarantor, addressed to the Agents and the Banks substantially in the form attached hereto; and (g) EXTENSION OF SIGNATURE CREDIT AGREEMENT. Evidence of the extension to August 29, 1997 of the maturity date of loans under the Signature Credit Agreement. (h) AMENDMENT OF OTHER CREDIT AGREEMENT. Evidence of (i) the extension to August 29, 1997 of the termination date under the Credit Agreement dated as of October 4, 1996 among the Company, various lenders, The Bank of New York, as Administrative Agent, and The Bank of Nova Scotia, as Documentation Agent, and (ii) the amendment of the covenants therein to conform to the Short Term Credit Agreement as amended hereby. 3.3 DEFINITIONS. Except as otherwise herein specifically defined, all the capitalized terms contained herein shall have the meaning ascribed to such terms in the Short Term Credit Agreement. 3.4 REAFFIRMATION. 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 Amendment. This Amendment shall be deemed incorporated into, and a part of, the Short Term Credit Agreement. 3.5 SUCCESSORS. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 3.6 GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Illinois. 3.7 COUNTERPARTS. This Amendment 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. Delivered at Chicago, Illinois as of the day, month and year first above written. MONTGOMERY WARD & CO., INCORPORATED By: /s/ Douglas V. Gathany ------------------------------------- Name: Douglas V. Gathany ACCEPTED AND APPROVED: THE FIRST NATIONAL BANK OF CHICAGO, in its individual capacity and in its capacity as Documentary Agent By: /s/ Tara W. Clark ------------------------------------- Name: Tara W. Clark THE BANK OF NEW YORK, in its individual capacity and in its capacity as Negotiated Loan Agent By: /s/ Michael Flannery ------------------------------------- Name: Michael Flannery THE BANK OF NOVA SCOTIA, in its individual capacity and in its capacity as Administrative Agent By: /s/ J.H. Youssef ------------------------------------- Name: J.H. Youssef Title: Senior Manager Finance & Administration BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, in its individual capacity and in its capacity as Advisory Agent By: /s/ Sandra S. Ober ------------------------------------- Name: Sandra S. Ober CIBC INC. By: /s/ Christopher P. Kleczkowski ------------------------------------- Name: Christopher P. Kleczkowski Title: Director, CIBC Wood Gundy Securities Corp., AS AGENT NATIONSBANK, N.A. By: /s/ Valerie C. Mills ------------------------------------- Name: Valerie C. Mills SVP THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: /s/ Mark A. Thompson ------------------------------------- Name: Mark A. Thompson Title: Vice President and Deputy General Manager CREDIT LYONNAIS CHICAGO BRANCH By: /s/ Mary Ann Klemm ------------------------------------- Name: Mary Ann Klemm Title: Vice President and Group Head BANCA COMMERCIALE ITALIANA, CHICAGO BRANCH By: /s/ Julian M. Teodori ------------------------------------- Name: Julian M. Teodori Title: Senior Vice President and Manager By: /s/ Matthew V. Trujillo ------------------------------------- Name: Matthew V. Trujillo Title: Assistant Vice President THE DAI-ICHI KANGYO BANK, LTD., CHICAGO BRANCH By: /s/ Seiichiro Ino ------------------------------------- Name: Seiichiro Ino THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By: /s/ Noburu Kobayashi ------------------------------------- Name: Noburu Kobayashi Title: Deputy General Manager THE NORTHERN TRUST COMPANY By: /s/ Sidney R. Dillard ------------------------------------- Name: Sidney R. Dillard THE SAKURA BANK, LTD. By: /s/ Takao Okada ------------------------------------- Name: Takao Okada Title: Senior Manager SWISS BANK CORPORATION, CHICAGO BRANCH By: /s/ Thomas R. Salzano ------------------------------------- Name: Thomas R. Salzano Title: Associate Director Banking Finance Support, N.A. By: /s/ Peter V. Matton /s/ Carole Reading ------------------------------------------------------ Name: Peter V. Matton Carole Reading Title: Executive Director Executive Director Restructuring Credit Risk Management, N.A. UNION BANK By: /s/ Richard A. Sutter ------------------------------------- Name: Richard A. Sutter Title: Vice President ABN AMRO BANK N.V. By: /s/ David G. Sagers ------------------------------------- Name: David G. Sagers Title: Vice President By: /s/ Laurie D. Flom ------------------------------------- Name: Laurie D. Flom Title: Vice President FIRST BANK NATIONAL ASSOCIATION By: /s/ Christopher H. Patton ------------------------------------- Name: Christopher H. Patton THE FIRST NATIONAL BANK OF BOSTON By: /s/ Bethann R. Halligan ------------------------------------- Name: Bethann R. Halligan Title: Division Executive PNC BANK, NATIONAL ASSOCIATION By: /s/ Karen C. Brogan ------------------------------------- Name: Karen C. Brogan THE YASUDA TRUST AND BANKING CO., LTD. By: /s/ Joseph C. Meek ------------------------------------- Name: Joseph C. Meek Title: Deputy General Manager THE FIRST NATIONAL BANK OF MARYLAND By: /s/ Andrew W. Fish ------------------------------------- Name: Andrew W. Fish Title: Vice President ISTITUTO BANCARIO SAN PAOLO DI TORINO, S.P.A. By: /s/ Carlo Persico ------------------------------------- Name: Carlo Persico Title: Deputy General Manager By: /s/ Robert Wurster ------------------------------------- Name: Robert Wurster Title: First Vice President UNION BANK OF SWITZERLAND - NEW YORK BRANCH By: /s/ Michael J. Ahearn ------------------------------------- Name: Michael J. Ahearn Title: Managing Director By: /s/ Daniel R. Strickford ------------------------------------- Name: Daniel R. Strickford Title: Assistant Vice President WELLS FARGO BANK, N.A. By: /s/ Seth D. Moldoff ------------------------------------- Name: Seth D. Moldoff COMERICA BANK By: /s/ Harve C. Light ------------------------------------- Name: Harve C. Light BANK OF AMERICA ILLINOIS By: /s/ Sandra S. Ober ------------------------------------- Name: Sandra S. Ober THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ Hiroaki Nakamura ------------------------------------- Name: Hiroaki Nakamura SCHEDULE VIII FINDER'S LIST Schedule VIII to the Short Term Credit Agreement is hereby amended to add the following thereto: "APPLICABLE MARGIN" - used in SECTION 6.1. "CONSOLIDATED CAPITAL EXPENDITURES" - used in SECTION 11.21. "CREDIT AGREEMENT PERCENTAGE" - used in SECTION 2.8. "DISPOSITION" - used in the definition of Net Proceeds and SECTION 2.8. "EBITDAR" - used in SECTION 11.20. "GUARANTOR" - used in SECTIONS 11.22 and 13.1(l). "GUARANTY" - used in SECTIONS 11.22 and 13.1(l). "NET PROCEEDS" - used in SECTION 2.8. "SIGNATURE" - used in the definition of Net Proceeds and SECTIONS 11.1(b) and 11.23. "SIGNATURE CREDIT AGREEMENT" - used in SECTION 11.23. "THIRD AMENDMENT EFFECTIVE DATE" - used in SECTIONS 2.8, 4.6, 6.1, 6.9, and 6.10. SCHDULE IX (List of Locations referred to in clause (vi) of definition of "Net Proceeds") 1. Former catalog house and warehouse situated at Monroe and Washington streets Baltimore, MD. 2. Former administration center situated at Shadeland and Widget Lane, Walnut Creek, CA. 3. Former Jefferson Ward retail store at 815-25 Hendrix Street, Philadelphia, PA. 4. Distribution Center situated at Schnelling and Wynne, St. Paul, MN. 5. Retail store situated at Lafayette Square in Indianapolis, IN. 6. Retail store situated at Washington Square in Indianapolis, IN. 7. Retail store situated at Castleton Square in Indianapolis, IN. 8. Retail store situated at Greenwood Mall, Greenwood, IN. If any one or more of the above listed properties is owned by a Subsidiary of the Company and comprises substantially all the assets of such Subsidiary, the disposition of the stock of such Subsidiary shall be treated as the Disposition of the properties owned by such Subsidiary for the purpose of applying clause (vi) of the definition of "Net Proceeds" contained in Section 1.1 of this Agreement. EX-10.(I)(L) 6 AMENDED CREDIT AGREEMENT - - - -------------------------------------------------------------------------------- - - - -------------------------------------------------------------------------------- CREDIT AGREEMENT Dated as of September 27, 1996 as Amended and Restated as of October 21, 1996 among SIGNATURE FINANCIAL/MARKETING, INC., as Borrower VARIOUS BANKS, THE BANK OF NEW YORK, as Documentation Agent and THE BANK OF NOVA SCOTIA, as Administrative Agent - - - -------------------------------------------------------------------------------- - - - -------------------------------------------------------------------------------- TABLE OF CONTENTS Section Page ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . (1) 1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . (1) 1.2 Other Interpretive Provisions . . . . . . . . . . . . . . . . . . . (15) 1.3 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . (16) ARTICLE II THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . (17) 2.1 Amounts and Terms . . . . . . . . . . . . . . . . . . . . . . . . . (17) 2.2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) 2.3 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . . . . (17) 2.4 Conversion and Continuation Elections . . . . . . . . . . . . . . . (18) 2.5 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . (19) 2.6 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19) 2.7 Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . (19) 2.8 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . (20) 2.9 Payments by the Borrower . . . . . . . . . . . . . . . . . . . . . (21) 2.10 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . (21) ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . (22) 3.1 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22) 3.2 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23) 3.3 Increased Costs and Reduction of Return . . . . . . . . . . . . . . (24) 3.4 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . (25) 3.5 Inability to Determine Rates . . . . . . . . . . . . . . . . . . . (25) 3.6 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26) ARTICLE IV CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . (26) 4.1 Conditions To Initial Borrowing . . . . . . . . . . . . . . . . . . (26) (a) Existing Credit Agreement . . . . . . . . . . . . . . . . . . (26) (b) Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26) (c) Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . (26) (d) Resolutions; Incumbency . . . . . . . . . . . . . . . . . . . (26) (e) Organization Documents; Good Standing . . . . . . . . . . . . (26) (f) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . (27) (g) Payment of Existing Signature Note . . . . . . . . . . . . . (27) (h) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . (27) (i) Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27) (j) Other Documents . . . . . . . . . . . . . . . . . . . . . . . (27) 4.2 Further Conditions to Borrowing . . . . . . . . . . . . . . . . . . (27) (a) Notice of Borrowing or Conversion/Continuation . . . . . . . (27) (b) Continuation of Representations and Warranties . . . . . . . (27) (c) No Existing Default . . . . . . . . . . . . . . . . . . . . . (27) 4.3 Condition to this Agreement . . . . . . . . . . . . . . . . . . . . (28) (a) Amended and Restated Credit Agreement . . . . . . . . . . . . (28) (b) Resolutions; Incumbency . . . . . . . . . . . . . . . . . . . (28) (c) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . (28) (d) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . (28) (e) Other Documents . . . . . . . . . . . . . . . . . . . . . . . (28) ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . (29) (i) Section Page 5.1 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . (29) 5.2 Corporate Authorization; No Contravention . . . . . . . . . . . . . (29) 5.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . (30) 5.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . (30) 5.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30) 5.6 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30) 5.7 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . (31) 5.8 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . (32) 5.9 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . (32) 5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32) 5.11 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . (32) 5.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . (33) 5.13 Regulated Entities . . . . . . . . . . . . . . . . . . . . . . . . (33) 5.14 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . (33) 5.15 Copyrights, Patents, Trademarks and Licenses, etc. . . . . . . . . (33) 5.16 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . (34) 5.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34) 5.18 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . (34) ARTICLE VI AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . (34) 6.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . (34) 6.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . (36) 6.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36) 6.4 Preservation of Corporate Existence, Etc. . . . . . . . . . . . . . (37) 6.5 Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . (38) 6.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38) 6.7 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . (38) 6.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . (38) 6.9 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . (39) 6.10 Inspection of Property and Books and Records . . . . . . . . . . . (39) 6.11 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . (39) 6.12 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . (39) 6.13 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39) ARTICLE VII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . (40) 7.1 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . (40) 7.2 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . (41) 7.3 Consolidations and Mergers . . . . . . . . . . . . . . . . . . . . (42) 7.4 Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . (42) 7.5 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . (44) 7.6 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . (44) 7.7 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . (44) 7.8 Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . (44) 7.9 Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . (45) 7.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45) 7.11 Change in Business . . . . . . . . . . . . . . . . . . . . . . . . (45) 7.12 Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . (45) ARTICLE VIII EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . (46) (ii) Section Page 8.1 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . (46) (a) Non-Payment . . . . . . . . . . . . . . . . . . . . . . . . . (46) (b) Representation or Warranty . . . . . . . . . . . . . . . . . (46) (c) Specific Defaults . . . . . . . . . . . . . . . . . . . . . . (46) (d) Special Defaults . . . . . . . . . . . . . . . . . . . . . . (46) (e) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . (46) (f) Cross-Default . . . . . . . . . . . . . . . . . . . . . . . . (47) (g) Insolvency; Voluntary Proceedings . . . . . . . . . . . . . . (47) (h) Involuntary Proceedings . . . . . . . . . . . . . . . . . . . (47) (i) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48) (j) Monetary Judgments . . . . . . . . . . . . . . . . . . . . . (48) (k) Non-Monetary Judgments . . . . . . . . . . . . . . . . . . . (48) (l) Change of Control . . . . . . . . . . . . . . . . . . . . . . (48) (m) Guarantor Defaults . . . . . . . . . . . . . . . . . . . . . (49) (n) MW Credit Agreement Event of Default . . . . . . . . . . . . (49) (o) Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . (49) (p) Impairment . . . . . . . . . . . . . . . . . . . . . . . . . (49) 8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49) 8.3 Rights Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . (50) ARTICLE IX THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . (50) 9.1 Appointment and Authorization; "Agents" . . . . . . . . . . . . . . (50) 9.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . (50) 9.3 Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . (50) 9.4 Reliance by Agents . . . . . . . . . . . . . . . . . . . . . . . . (51) 9.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . (51) 9.6 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . (52) 9.7 Indemnification of Agents . . . . . . . . . . . . . . . . . . . . . (52) 9.8 Agents in Individual Capacity . . . . . . . . . . . . . . . . . . . (53) 9.9 Successor Agents . . . . . . . . . . . . . . . . . . . . . . . . . (53) 9.10 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . . . (54) ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . (55) 10.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . (56) 10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56) 10.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . (57) 10.4 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . (57) 10.5 Borrower Indemnification . . . . . . . . . . . . . . . . . . . . . (58) 10.6 Payments Set Aside . . . . . . . . . . . . . . . . . . . . . . . . (58) 10.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . (59) 10.8 Assignments, Participations, etc. . . . . . . . . . . . . . . . . . (59) 10.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . (61) 10.10 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62) 10.11 Automatic Debits of Fees . . . . . . . . . . . . . . . . . . . . . (62) 10.12 Notification of Addresses, Lending Offices, Etc.. . . . . . . . . . (62) 10.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . (62) 10.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . (63) 10.15 No Third Parties Benefited . . . . . . . . . . . . . . . . . . . . (63) 10.16 Governing Law and Jurisdiction . . . . . . . . . . . . . . . . . . (63) (iii) Section Page 10.17 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . (63) 10.18 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . (64) 10.19 Reaffirmation, Restatement and Waivers . . . . . . . . . . . . . . (64) (iv) SCHEDULES Schedule 1.1 Guarantor Subsidiaries Schedule 2.1 Commitments and Pro Rata Share Schedule 5.5 Litigation Schedule 5.7 ERISA Schedule 5.11 Permitted Liabilities Schedule 5.12 Environmental Matters Schedule 5.16 Subsidiaries and Minority Interests Schedule 5.17 Insurance Matters Schedule 7.1 Permitted Liens Schedule 7.4 Investments Schedule 7.5 Permitted Indebtedness Schedule 7.8 Contingent Obligations Schedule 10.2 Lending Offices; Addresses for Notices EXHIBITS Exhibit A Form of Notice of Borrowing Exhibit B Form of Notice of Conversion/Continuation Exhibit C Form of Compliance Certificate Exhibit D Form of Legal Opinion of Borrower's Counsel Exhibit E Form of Promissory Note Exhibit F-1 Form of MW Guaranty Exhibit F-2 Form of Non-Insurance Subsidiary Guaranty Exhibit G Form of Assignment and Acceptance Agreement Exhibit H Form of Legal Opinion of Borrower's Counsel (v) CREDIT AGREEMENT This CREDIT AGREEMENT dated as of September 27, 1996 as amended and restated as of October 21, 1996 (the "Restatement Effective Date") among Signature Financial/Marketing, Inc., a Delaware corporation (the "BORROWER"), the banks listed on the signature pages hereof (herein, together and with their respective successors and assigns, collectively called the "Banks" and individually called a "Bank"), The Bank of New York ("BNY"), as documentation agent for the Banks (herein, in such capacity, together with its successors and assigns in such capacity, called the "Documentation Agent") and The Bank of Nova Scotia ("BNS"), as administrative agent to the Banks (herein, in such capacity, together with its successors and assigns in such capacity, called the "Administrative Agent") (the Documentation Agent and the Administrative Agent are herein collectively called the "Agents" and individually called an "Agent"). WHEREAS, the Borrower, BNY and BNS are parties to a Credit Agreement dated as of September 27, 1996 (the "Existing Credit Agreement") pursuant to which BNY and BNS have made loans to the Borrower in the aggregate principal amount of $101,886,491. WHEREAS, the Borrower, BNY and BNS now desire to amend and restate the Existing Credit Agreement to, among other things, provide for (i) assignments of Loans, (ii) certain provisions to be subject to the rights of the Required Banks, and (iii) certain Banks to act as Agents. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree that as of the Restatement Effective Date the Existing Credit Agreement is amended and restated in its entirety as follows: ARTICLE I DEFINITIONS 1.1 CERTAIN DEFINED TERMS. The following terms have the following meanings: "ADMINISTRATIVE AGENT" - see Preamble. "ADMINISTRATIVE AGENT'S PAYMENT OFFICE" means the address for payments set forth on SCHEDULE 10.2 or such other address as the Administrative Agent may from time to time specify. -1- "AFFILIATE" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise. "AGENT" - see Preamble. "AGENT-RELATED PERSONS" means each Agent and any successor agent arising under Section 9.9, together with their respective Affiliates, and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "AGREEMENT" means this Amended and Restated Credit Agreement, as the same may be further amended or modified from time to time. "ASSIGNEE" has the meaning specified in SECTION 10.8. "ASSIGNMENT AND ACCEPTANCE" has the meaning specified in SECTION 10.8. "ATTORNEY COSTS" means and includes all fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "BANKS" has the meaning specified in the introductory clause hereto. "BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101, ET SEQ.) as amended from time to time. "BASE RATE" means, for any day, the higher of: (a) 0.50% per annum above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by the Reference Bank as its "reference rate." (The "reference rate" is a rate set by the Reference Bank based upon various factors including the Reference Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the reference rate announced by the Reference Bank shall take effect at the opening of business -2- on the day specified in the public announcement of such change. The Reference Bank shall notify the Banks and the Borrower of the "reference rate" and any change therein. "BASE RATE LOAN" means a Loan that bears interest based on the Base Rate. "BORROWING" means the borrowing hereunder consisting of Loans of the same Type made to the Borrower on the same day by the Banks under Article II, and, other than in the case of Base Rate Loans, having the same Interest Period. "BORROWING DATE" means the date on which the Borrowing occurs under SECTION 2.3. "BUSINESS DAY" means any day, other than a Saturday, Sunday or other day on which commercial banks in New York City or Chicago are authorized or required by law to close, which is a day on which dealings are carried on in the London interbank market. "CAPITAL ADEQUACY REGULATION" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "CHANGE OF CONTROL" shall be deemed to have occurred at such time as: (i) General Electric Capital Corporation ceases to own on a fully-diluted basis the percentage of each class of the capital stock of MW which is owned by it on the Original Closing Date on a fully-diluted basis, (ii) MW ceases to own 100% of the capital stock of the Borrower on a fully-diluted basis or (iii) the Borrower ceases to own, directly or indirectly, 100% of the capital stock of any Subsidiary of the Borrower on a fully-diluted basis. "CODE" means the Internal Revenue Code of 1986 as amended from time to time, and regulations promulgated thereunder. "COMMITMENT", as to each Bank, has the meaning specified in SECTION 2.1. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of EXHIBIT C. "CONTINGENT OBLIGATION" means, as to any Person, any direct or indirect liability of that Person, whether or not contingent, with or without recourse, (a) with respect to -3- any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each, a "GUARANTY OBLIGATION"); (b) with respect to any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (d) in respect of any Swap Contract. The amount of any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made, or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof, and in the case of other Contingent Obligations, shall be equal to the maximum reasonably anticipated liability in respect thereof. Notwithstanding the foregoing, Contingent Obligations shall not include any obligations of a Subsidiary of the Borrower where the primary obligor is a customer of such Subsidiary and such obligation is incurred in the ordinary course of business or any Surety Instrument issued by a Subsidiary of the Borrower where the principal is a customer of such Subsidiary and such Surety Instrument is issued in the ordinary course of business. "CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. -4- "CONVERSION/CONTINUATION DATE" means any date on which, under SECTION 2.4, the Borrower (a) converts Loans of one Type to another Type, or (b) continues as Loans of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "DEFAULT" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "DESIGNATED LEASES" means that certain Purchase and Master Lease Agreement, dated as of January 13, 1995 among certain lessors referred to therein, MW, Lechmere, Inc. and Credit Lyonnais, Chicago Branch and that certain Purchase and Master Lease Agreement, dated as of March 15, 1995 among certain lessors referred to therein, MW, Lechmere, Inc. and Sumitomo Bank Leasing and Finance, Inc., each as amended or modified. "DOCUMENTATION AGENT" - see Preamble. "DOLLARS", "dollars" and "$" each mean lawful money of the United States. "ELIGIBLE ASSIGNEE" means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States; and (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank is a Subsidiary, or (iii) a Person of which a Bank is a Subsidiary. "ENVIRONMENTAL CLAIMS" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. "ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations -5- and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters. "ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA EVENT" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate. "EURODOLLAR RESERVE PERCENTAGE" has the meaning specified in the definition of "LIBO Rate". "EVENT OF DEFAULT" means any of the events or circumstances specified in SECTION 8.1. "EXCHANGE ACT" means the Securities and Exchange Act of 1934, as amended from time to time, and regulations promulgated thereunder. "EXISTING CREDIT AGREEMENT" - see Preamble. "EXISTING SIGNATURE NOTE" means the Promissory Note dated January 2, 1996 of the Borrower payable to the order -6- of MW in the principal amount of $101,886,491.23 on or before June 30, 2002. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "FEDERAL FUNDS RATE" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Reference Bank of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the Original Closing Date. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "GUARANTORS" means MW and each Subsidiary of the Borrower listed on SCHEDULE 1.1 hereto. "GUARANTY" means the guaranty executed by the Guarantors in substantially the form of EXHIBIT F-1 or F-2. -7- "GUARANTY OBLIGATION" has the meaning specified in the definition of "Contingent Obligation." "INDEBTEDNESS" of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business on ordinary terms); (c) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (d) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (e) all obligations with respect to capital leases; (f) all net obligations with respect to Swap Contracts; (g) all indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (h) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (f) above. "INDEMNIFIED LIABILITIES" has the meaning specified in SECTION 10.5. "INDEMNIFIED PERSON" has the meaning specified in SECTION 10.5. "INDEPENDENT AUDITOR" has the meaning specified in SUBSECTION 6.1(a) "INSOLVENCY PROCEEDING" means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, rehabilitation, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. -8- "INSURANCE SUBSIDIARY" shall mean any Subsidiary of the Borrower that is authorized or admitted to carry on or transact one or more aspects of the business of selling, issuing or underwriting insurance or reinsurance. "INTEREST PAYMENT DATE" means, as to any LIBO Rate Loan, the last day of each Interest Period applicable to such Loan and, as to any Base Rate Loan, the last Business Day of each calendar quarter and each date such Loan is converted into another Type of Loan, PROVIDED, HOWEVER, that if any Interest Period for a LIBO Rate Loan exceeds three months, the date that falls three months after the beginning of such Interest Period and after each Interest Payment Date thereafter is also an Interest Payment Date. "INTEREST PERIOD" means, as to any LIBO Rate Loan, the period commencing on the date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as a LIBO Rate Loan, and ending on the date one, two, or three months thereafter (and any other period of less than three months that is consented to by the Required Banks in the given instance) as selected by the Borrower; PROVIDED that: (a) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (c) no Interest Period for any Loan shall extend beyond the Maturity Date. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code. "LENDING OFFICE" means, as to any Bank, the office or offices of such Bank specified as its "Lending Office" or "Domestic Lending Office" or "LIBO Lending Office", as the -9- case may be, on SCHEDULE 10.2, or such other office or offices as such Bank may from time to time notify the Borrower and the Administrative Agent. "LIBO RATE" means, for any Interest Period, with respect to LIBO Rate Loans comprising part of the same Loan, the rate of interest per annum (rounded upward to the next 1/16th of 1%) determined by the Reference Bank as follows: LIBO Rate = LIBO ----------------------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "EURODOLLAR RESERVE PERCENTAGE" means for any day for any Interest Period the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to any Bank) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and "LIBO" means the rate of interest per annum determined by the Reference Bank to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the rates of interest per annum at which deposits in Dollars in the approximate amount of the amount of the Loan to continued as, or converted into, a LIBO Rate Loan and having a maturity comparable to such Interest Period are offered to the Reference Bank in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. The LIBO Rate shall be adjusted automatically as to all LIBO Rate Loans then outstanding as of the effective date of any change in the Eurodollar Reserve Percentage. "LIBO RATE LOAN" means a Loan that bears interest based on the LIBO Rate. "LIEN" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title -10- retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease. "LOAN" means an extension of credit (whether the initial Borrowing or a continuation/conversion thereof) by a Bank to the Borrower and may be a Base Rate Loan or a LIBO Rate Loan (each, a "TYPE" of Loan). "LOAN DOCUMENTS" means this Agreement, the Guaranties, the Notes, any fee letter and all other documents delivered to any Agent or any Bank in connection herewith. "MARGIN STOCK" means "margin stock" as such term is defined in Regulation G, T, U or X of the FRB. "MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole or MW and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Borrower or any Guarantor to perform under any Loan Document and to avoid any Event of Default; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Borrower or any Guarantor of any Loan Document. "MATURITY DATE" means the earlier to occur of: (a) March 1, 1997; and (b) the date on which the Obligations are due and payable in accordance with the provisions of this Agreement. "MULTIEMPLOYER PLAN" means a "multiemployer plan", within the meaning of Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions. "MW" means Montgomery Ward & Co., Incorporated. "MW CREDIT AGREEMENT" shall mean either or both of the Long Term Credit Agreement and/or the Short Term Credit Agreement, each dated as of September 15, 1994, among MW, various banks, and various agents, as amended to and -11- including September 6, 1996, and with the consent of the Banks, as further amended or modified from time to time; PROVIDED, THAT any increase in the aggregate commitments thereunder which is provided for therein shall not be deemed an amendment or modification. "NOTE" means any promissory note executed by the Borrower in favor of a Bank pursuant to SECTION 2.2, in substantially the form of EXHIBIT E. "NOTICE OF CONVERSION/CONTINUATION" means a notice in substantially the form of EXHIBIT B. "OBLIGATIONS" means all advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by the Borrower or any Guarantor to any Agent, any Bank or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "ORGANIZATION DOCUMENTS" means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation. "ORIGINAL CLOSING DATE" means the date on which all conditions precedent set forth in SECTION 4.1 were satisfied or waived by the Banks. "OTHER TAXES" means any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "PARTICIPANT" is defined in SUBSECTION 10.8(d). "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA. "PENSION PLAN" means a pension plan (as defined in Section 3(2) of ERISA but not including any Multiemployer Plan) subject to Title IV of ERISA which the Borrower sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a -12- multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years. "PERMITTED LIENS" has the meaning specified in SECTION 7.1. "PERSON" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "PLAN" means an employee benefit plan (as defined in Section 3(3) of ERISA) for its employees, consultants or former employees which the Borrower sponsors or maintains or to which the Borrower makes, is making, or is obligated to make contributions with respect to its employees, consultants or former employees and includes any Pension Plan. "PRO RATA SHARE" means, relative to any Bank, the percentage set forth opposite the name of such Bank on SCHEDULE 2.1 hereto, as such percentage may be adjusted from time to time pursuant to any subsequent Assignment and Acceptance executed by such Bank and any Assignee and delivered pursuant to Section 10.8. "REFERENCE BANK" means BNY. "REQUIRED BANKS" means at any time Banks then holding at least 2/3rds of the then aggregate unpaid principal amount of the Loans. "REPORTABLE EVENT" means, any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "REQUIREMENT OF LAW" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "RESPONSIBLE OFFICER" means the chief executive officer, chief financial officer or the president of the Borrower or any Guarantor, or any other officer having substantially the same authority and responsibility; or the chief executive officer, the chief financial officer, the senior vice president (finance) or the treasurer of MW, or -13- any other officer having substantially the same authority and responsibility. "RESTATEMENT EFFECTIVE DATE" - see Preamble. "SAP" means, as to any Insurance Subsidiary of the Borrower, the statutory accounting practices prescribed or permitted by the insurance department of the state in which such Insurance Subsidiary is domiciled. "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "SUBSIDIARY" of a Person means any corporation, association, partnership, joint venture or other business entity of which more than 50% of the voting stock or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Borrower. "SURETY INSTRUMENTS" means all letters of credit (including standby and commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments. "SWAP CONTRACT" means any agreement (including any master agreement and any agreement, whether or not in writing, relating to any single transaction) that is an interest rate swap agreement, basis swap, forward rate agreement, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, forward foreign exchange agreement, rate cap, collar or floor agreement, currency swap agreement, cross-currency rate swap agreement, swaption, currency option or any other, similar agreement (including any option to enter into any of the foregoing). "TAXES" means any and all present future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Bank's net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Bank is organized or maintains a lending office. -14- "TYPE" has the meaning specified in the definition of "Loan." "UNFUNDED PENSION LIABILITY" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. "UNITED STATES" and "U.S." each means the United States of America. "WHOLLY-OWNED SUBSIDIARY" means any corporation, association, partnership, joint venture or other business entity of which (other than directors' qualifying shares required by law) 100% of the voting stock or other equity interest of each class having ordinary voting power, and 100% of the voting stock or other equity interest of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by the Borrower, or by one or more of the other Wholly-Owned Subsidiaries, or both. 1.2 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (c) (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. (ii) The term "including" is not limiting and means "including without limitation." (iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the -15- extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (e) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. (g) This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Agents and the Borrower and are the products of all parties. Accordingly, they shall not be construed against the Banks or the Agents merely because of the Banks' and Agents' involvement in their preparation. 1.3 ACCOUNTING PRINCIPLES. (a) Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Borrower. ARTICLE II THE CREDITS 2.1 AMOUNTS AND TERMS. Each Bank severally agrees, on the terms and conditions set forth herein, to make a single Loan to the Borrower on the Original Closing Date in an aggregate amount not to exceed such Banks' Pro Rata Share of $101,886,491 (as to each such Bank, its "COMMITMENT") (the Borrower acknowledges that prior to the Restatement Effective Date, the Banks made such Loan to the Borrower and accordingly each Bank's Commitment has been permanently reduced to zero). Amounts borrowed which are repaid or prepaid by the Borrower may not be reborrowed. 2.2 NOTES. The Loan made by each Bank shall be evidenced by a Note. Each Bank shall endorse on the schedules annexed to its Note the date and amount of each payment of interest and -16- principal made by the Borrower with respect thereto. Each Bank is irrevocably authorized by the Borrower to endorse its Note and each Bank's record shall be conclusive absent manifest error; PROVIDED, HOWEVER, that the failure of a Bank to make, or an error in making, a notation thereon with respect to any Borrowing or repayment shall not limit or otherwise affect the obligations of the Borrower hereunder or under any such Note to such Bank. 2.3 PROCEDURE FOR BORROWING. The Borrowing shall be made upon the Borrower's irrevocable written notice delivered to the Banks in the form of a Notice of Borrowing (which notice must be received by the Banks prior to 3:00 p.m. (New York City time) on the Original Closing Date, specifying (a) the amount of the Borrowing, which shall be in an aggregate minimum amount necessary, together with other amounts provided by the Borrower, to repay in full all of the obligations of the Borrower under the Existing Signature Note; and (b) the requested Borrowing Date, which shall be a Business Day. On the Borrowing Date, each Bank will make the amount of its Pro Rata Share of the Borrowing available to the Borrower by wire transfer in accordance with written instructions provided to such Bank by the Borrower. The Borrower acknowledges that as of and after the Restatement Effective Date, no further Borrowings shall be made under this Agreement other than a conversion or continuation pursuant to SECTION 2.4. 2.4 CONVERSION AND CONTINUATION ELECTIONS. (a) The Borrower may, upon irrevocable written notice to the Administrative Agent in accordance with SUBSECTION 2.4(b): (i) elect, as of any Business Day, in the case of its Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of its LIBO Rate Loans, to convert any such Loans into Loans of any other Type; or (ii) elect, as of the last day of the applicable Interest Period, to continue any of its Loans having Interest Periods expiring on such day; PROVIDED, that if at any time the aggregate amount of LIBO Rate Loans is reduced, by payment, prepayment, or conversion or part thereof to be less than $5,000,000, such LIBO Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Borrower to continue such Loans as, and convert such Loans into, LIBO Rate Loans shall terminate. (b) The Borrower shall deliver a Notice of Conversion/Continuation to be received by the Administrative Agent not later than 9:00 a.m. (New York City time) at least (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as LIBO -17- Rate Loans; and (iii) one Business Day in advance of the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Loans to be converted or continued; (C) the Type of Loans resulting from the proposed conversion or continuation; and (D) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to LIBO Rate Loans, the Borrower has failed to select timely a new Interest Period to be applicable to such LIBO Rate Loans, or if any Default or Event of Default then exists, the Borrower shall be deemed to have elected to convert such LIBO Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) The Administrative Agent will promptly notify each Bank of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by the Borrower, the Administrative Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Bank. (e) Unless the Required Banks otherwise agree, during the existence of a Default or Event of Default, the Borrower may not elect to have a Loan converted into or continued as a LIBO Rate Loan. (f) After giving effect to any conversion or continuation of Loans, there may not be more than two different Interest Periods in effect. 2.5 OPTIONAL PREPAYMENTS. Subject to SECTION 3.4, the Borrower may without any other premium or penalty, at any time or from time to time, ratably prepay Loans in whole or in part, in minimum amounts of $10,000,000 or any multiple of $1,000,000 in excess thereof (or, if less, the remaining principal amount thereof). The Borrower shall deliver a notice of prepayment in accordance with SECTION 10.2 to be received by the Administrative Agent not later than 9:00 a.m. (New York time) (i) at least three -18- Business Days in advance of the prepayment date if the Loans to be prepaid are LIBO Rate Loans, and (ii) at least one Business Day in advance of the prepayment date if the Loans to be prepaid are Base Rate Loans. Such notice of prepayment shall specify the date and amount of such prepayment and whether such prepayment is of Base Rate Loans, LIBO Rate Loans, or any combination thereof. Such notice shall not thereafter be revocable by the Borrower. The Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to SECTION 3.4. 2.6 REPAYMENT. The Borrower shall repay to the Administrative Agent, for the benefit of the Banks, on the Maturity Date the aggregate amount of all Obligations outstanding on such date. 2.7 INTEREST RATES. (a) With respect to each Loan, the Borrower hereby promises to pay interest on the unpaid principal amount thereof for the period commencing on the date of such Loan until such Loan is paid in full, as follows: (i) While such Loan is a Base Rate Loan, at a rate per annum equal to the Base Rate from time to time in effect; and (ii) While such Loan is a LIBO Rate Loan, for each Interest Period, at a rate per annum equal to the LIBO Rate applicable to such Interest Period, plus 1.5% per annum. (b) Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans under SECTION 2.5 or 2.6 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest shall be paid on demand of the Administrative Agent at the request or with the consent of the Required Banks. (c) Notwithstanding subsection (a) of this Section, while any Event of Default exists or after acceleration, the Borrower shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Loans, at a rate per annum which is determined by adding 2% per annum to the rate otherwise in effect hereunder for such Loans; PROVIDED, HOWEVER, that, on and after the expiration of any Interest Period applicable to any LIBO Rate Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Loan shall, -19- during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Base Rate plus 2%. (d) Anything herein to the contrary notwithstanding, the obligations of the Borrower to any Agent or any Bank hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by such Agent or such Bank would be contrary to the provisions of any law applicable to such Agent or such Bank limiting the highest rate of interest that may be lawfully contracted for, charged or received by such Agent or such Bank, and in such event the Borrower shall pay such Agent or such Bank interest at the highest rate permitted by applicable law. 2.8 COMPUTATION OF INTEREST. (a) All computations of interest for Base Rate Loans to the extent based on the "reference rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) Each determination of an interest rate by the Administrative Agent or Reference Bank, as the case may be, shall be conclusive and binding on the Borrower in the absence of manifest error. 2.9 PAYMENTS BY THE BORROWER. (a) All payments to be made by the Borrower shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments shall be made by the Borrower directly to the Administrative Agent at the Administrative Agent's Payment Office. The Administrative Agent shall thereafter promptly remit in same day or immediately available funds to each Bank or other holder of a Note as so directed by any such Bank to the Administrative Agent, its Pro Rate Share of such payments. Any payment received by an Administrative Agent later than 3:00 p.m. New York time shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be -20- made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. 2.10 SHARING OF PAYMENTS, ETC. If, other than as expressly provided elsewhere herein, any Bank shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its ratable share (or other share contemplated hereunder), such Bank shall immediately (a) notify the Administrative Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment pro rata with each of them; PROVIDED, HOWEVER, that if all or any portion of such excess payment is thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank's ratable share (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Borrower agrees that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 10.10) with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Banks following any such purchases or repayments. ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY 3.1 TAXES. (a) Any and all payments by the Borrower to any Bank or any Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for any Taxes. In addition, the Borrower shall pay all Other Taxes. (b) The Borrower agrees to indemnify and hold harmless each Agent and each Bank for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section) paid by such Agent or such Bank and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes -21- were correctly or legally asserted. Payment under this indemnification shall be made with 30 days after the date such Agent or such Bank or the Administrative Agent makes written demand therefor. (c) If the Borrower shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Agent or any Bank, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) such Agent or such Bank receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Borrower shall make such deductions and withholdings; (iii) the Borrower shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) the Borrower shall also pay to such Agent or such Bank, at the time interest is paid, all additional amounts which such Agent or such Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes or Other Taxes had not been imposed. (d) Within 30 days after the date of any payment by the Borrower of Taxes or Other Taxes, the Borrower shall furnish the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Administrative Agent. (e) If the Borrower is required to pay additional amounts to any Agent or any Bank pursuant to subsection (c) of this Section, then such Agent or such Bank shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its lending office so as to eliminate any such additional payment by the Borrower which may thereafter accrue, if such change in the judgment of such Agent or such Bank is not otherwise disadvantageous to such Agent or such Bank. 3.2 ILLEGALITY. (a) If any Bank determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Bank or its applicable lending office to make -22- LIBO Rate Loans, then, on notice thereof by the Bank to the Borrower through the Administrative Agent, any obligation of that Bank to make LIBO Rate Loans shall be suspended until the Bank notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. (b) If a Bank determines that it is unlawful to maintain any LIBO Rate Loan, the Borrower shall, upon receipt by the Borrower of notice of such fact and demand from such Bank, (with a copy to the Administrative Agent) prepay in full such LIBO Rate Loans of that Bank then outstanding, together with interest accrued thereon and amounts required under SECTION 3.4, either on the last day of the Interest Period thereof, if the Bank may lawfully continue to maintain such LIBO Rate Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such LIBO Rate Loan. If the Borrower is required to so prepay any LIBO Rate Loan, then concurrently with such prepayment, the Borrower shall borrow from the affected Bank, in the amount of such repayment, a Base Rate Loan. (c) If the obligation of any Bank to make or maintain LIBO Rate Loans has been so terminated or suspended, the Borrower may elect, by giving notice to the Bank, through the Administrative Agent, that all Loans which would otherwise be made by the Bank as LIBO Rate Loans shall be instead Base Rate Loans. (d) Before giving any notice to the Administrative Agent or any Bank under this Section, the affected Bank shall designate a different lending office with respect to its LIBO Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of such Bank, be illegal or otherwise disadvantageous to such Bank. 3.3 INCREASED COSTS AND REDUCTION OF RETURN. (a) If any Bank determines that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the LIBO Rate or in respect of the assessment rate payable by any Bank to the FDIC for insuring U.S. deposits) in or in the interpretation of any law or regulation or (ii) the compliance by such Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any LIBO Rate Loans, then the Borrower shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be delivered to the Administrative Agent), pay to the Administrative Agent for the account of such Bank, additional amounts as are sufficient to compensate such Bank for such increased costs. -23- (b) If any Bank shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its lending office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits or obligations under this Agreement, then, upon demand of such Bank to the Borrower through the Administrative Agent, the Borrower shall pay to such Bank, from time to time as specified by such Bank, additional amounts sufficient to compensate such Bank for such increase. 3.4 FUNDING LOSSES. The Borrower shall reimburse each Bank and hold each Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of: (a) the failure of the Borrower to make on a timely basis any payment of principal of any LIBO Rate Loan; (b) the failure of the Borrower to continue or convert a Loan after the Borrower has given (or is deemed to have given) a Notice of Conversion/Continuation; (c) the failure of the Borrower to make any prepayment in accordance with any notice delivered under SECTION 2.5; (d) the prepayment (including pursuant to SECTION 2.6) or other payment (including after acceleration thereof) of a LIBO Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) the automatic conversion under SECTION 2.4 of any LIBO Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its LIBO Rate Loans. 3.5 INABILITY TO DETERMINE RATES. If any Bank determines that for any reason adequate and reasonable means do not exist for determining the LIBO Rate for any requested Interest Period -24- with respect to a proposed LIBO Rate Loan, or that the LIBO Rate applicable pursuant to SUBSECTION 2.7(a) for any requested Interest Period with respect to a proposed LIBO Rate Loan does not adequately and fairly reflect the cost to such Bank of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Bank. Thereafter, the obligation of the Banks to make or maintain LIBO Rate Loans hereunder shall be suspended until the Administrative Agent upon instruction of the Required Banks revokes such notice in writing. Upon receipt of such notice, the Borrower may revoke any Notice of Conversion/Continuation then submitted by it. If the Borrower does not revoke such Notice, the Banks shall convert or continue the Loans, as proposed by the Borrower, in the amount specified in the applicable notice submitted by the Borrower, but such Loans shall be made, converted or continued as Base Rate Loans instead of LIBO Rate Loans. 3.6 SURVIVAL. The agreements and obligations of the Borrower in this ARTICLE III shall survive the payment of all other Obligations. ARTICLE IV CONDITIONS PRECEDENT 4.1 CONDITIONS TO INITIAL BORROWING. As a condition to the obligation of BNY and BNS to fund the Borrowing under the Existing Credit Agreement on the Original Closing Date, in addition to the conditions set forth in SECTION 4.2, the Borrower delivered the following to BNY and BNS: (a) EXISTING CREDIT AGREEMENT. The Existing Credit Agreement executed by each party thereto; (b) NOTES. The Notes executed by the Borrower; (c) GUARANTY. The Guaranties executed by MW and the other Guarantors; (d) RESOLUTIONS; INCUMBENCY. (i) Copies of the resolutions of the board of directors of each of the Borrower and MW authorizing the transactions contemplated by the Existing Credit Agreement, certified as of the Original Closing Date by the Secretary or an Assistant Secretary of the Borrower or MW; and (ii) A certificate of the Secretary or Assistant Secretary of each of the Borrower and MW certifying the names and true signatures of the officers of the Borrower or -25- MW authorized to execute, deliver and perform, as applicable, the Existing Credit Agreement, and all other Loan Documents (as such term is defined in the Existing Credit Agreement) to be delivered by it under the Existing Credit Agreement; (e) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the following documents: (i) the articles or certificate of incorporation and the bylaws of the Borrower and MW as in effect on the Original Closing Date, certified by the Secretary or Assistant Secretary of the Borrower or MW, as the case may be, as of the Original Closing Date; and (ii) a good standing certificate for the Borrower from the Secretary of State (or similar, applicable Governmental Authority) of its jurisdiction of incorporation, dated as of a recent date; (f) LEGAL OPINION. An opinion or opinions of counsel to the Borrower and MW and addressed to BNY and BNS, substantially in the form of EXHIBIT D; (g) PAYMENT OF EXISTING SIGNATURE NOTE. Evidence of payment by the Borrower of all of the indebtedness under the Existing Signature Note; (h) CERTIFICATE. A certificate signed by a Responsible Officer, dated as of the Original Closing Date, stating that: (i) the representations and warranties contained in ARTICLE V are true and correct on and as of such date, as though made on and as of such date; and (ii) no Default or Event of Default then exists or would result from the Borrowing; (i) FEES. Evidence of payment of all fees required by any fee letter; and (j) OTHER DOCUMENTS. Such other approvals, opinions, documents or materials as BNY and BNS requested. 4.2 FURTHER CONDITIONS TO BORROWING. The obligation of each Bank to make its Loan or to continue or convert any Loan under SECTION 2.4 is subject to the satisfaction of the following conditions precedent on the Borrowing Date or the relevant Conversion/Continuation Date: (a) NOTICE OF BORROWING OR CONVERSION/CONTINUATION. The Administrative Agent shall have received a Notice of Borrowing or a Notice of Conversion/Continuation, as applicable; -26- (b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The representations and warranties in ARTICLE V shall be true and correct on and as of such Borrowing Date or Conversion/Continuation Date with the same effect as if made on and as of such Borrowing Date or Conversion/Continuation Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date); and (c) NO EXISTING DEFAULT. No Default or Event of Default shall exist or shall result from such Borrowing or continuation or conversion. Each Notice of Borrowing and Notice of Conversion/Continuation submitted by the Borrower hereunder shall constitute a representation and warranty by the Borrower hereunder, as of the date of each such notice and as of each Borrowing Date or Conversion/Continuation Date, as applicable, that the conditions in this SECTION 4.2 are satisfied. 4.3 CONDITION TO THIS AGREEMENT. This Agreement shall become effective on the Restatement Effective Date, subject, however, to the conditions precedent that the Documentation Agent shall have received each of the following, in form and substance satisfactory to the Documentation Agent, and in sufficient copies for each Bank then a party hereto: (a) AMENDED AND RESTATED CREDIT AGREEMENT. This Agreement executed by each party hereto, together with an acknowledgement thereof executed by each Guarantor; (b) RESOLUTIONS; INCUMBENCY. (i) Copies of the resolutions of the board of directors of each of the Borrower and MW authorizing the transactions contemplated hereby, certified as of the Restatement Effective Date by the Secretary or an Assistant Secretary of the Borrower or MW; and (ii) A certificate of the Secretary or Assistant Secretary of each of the Borrower and MW dated as of the Restatement Effective Date certifying the names and true signatures of the officers of the Borrower or MW authorized to execute, deliver and perform, as applicable, this Agreement, and all other Loan Documents to be delivered by it hereunder; (c) LEGAL OPINION. An opinion or opinions of counsel to the Borrower and MW dated as of the Restatement Effective Date and addressed to the Agents and the Banks, substantially in the form of EXHIBIT H; -27- (d) CERTIFICATE. A certificate signed by a Responsible Officer, dated as of the Restatement Effective Date, stating that: (i) the representations and warranties contained in ARTICLE V are true and correct on and as of such date, as though made on and as of such date; (ii) no Default or Event of Default then exists and (iii) all conditions precedent to the Restatement Effective Date have been satisfied; and (e) OTHER DOCUMENTS. Such other approvals, opinions, documents or materials as the Banks my request (including, without limitation, additional original copies of the closing documents (other than the Notes) referred to in SECTION 4.1). ARTICLE V REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to each Agent and each Bank that: 5.1 CORPORATE EXISTENCE AND POWER. The Borrower and each of its Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has (or, as to the Guaranties by Subsidiaries, will have within fifteen (15) days after the Original Closing Date) the power and authority and all governmental licenses, authorizations, consents and approvals to own it assets, carry on its business and to execute, deliver, and perform its obligations under the Loan Documents; (c) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law; except, in each case referred to in clause (c) or clause (d), to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. 5.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Borrower and each Guarantor of this Agreement and each other Loan Document to which the Borrower or such Guarantor is party, have been (or, as to the Guaranties by Subsidiaries, will be within fifteen (15) days -28- after the Original Closing Date) duly authorized by all necessary corporate action, and do not and/or will not: (a) contravene the terms of any of the Borrower's or such Guarantor's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which the Borrower or such Guarantor is a party or any order, injunction, writ or decree of any Governmental Authority to which the Borrower or such Guarantor or their property is subject; or (c) violate any Requirement of Law. 5.3 GOVERNMENTAL AUTHORIZATION. Except as contemplated in SECTION 6.13, no approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Borrower or any Guarantor of the Agreement or any other Loan Document. 5.4 BINDING EFFECT. This Agreement and each other Loan Document to which the Borrower or any Guarantor is a party constitute (or, as to the Guaranties by Subsidiaries, will constitute within fifteen (15) days after the Original Closing Date) the legal, valid and binding obligations of the Borrower or such Guarantor to the extent it is a party thereto, enforceable against the Borrower or such Guarantor in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 5.5 LITIGATION. Except as specifically disclosed in SCHEDULE 5.5, there are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Borrower, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Borrower or its Subsidiaries or any of their respective properties which: (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (b) if determined adversely to the Borrower or its Subsidiaries, would reasonably be expected to have a Material Adverse Effect. -29- No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 5.6 NO DEFAULT. No Default or Event of Default exists or would result from the incurring of any Obligations by the Borrower. As of the Original Closing Date, neither the Borrower nor any Subsidiary is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect, or that would, if such default had occurred after the Original Closing Date, create an Event of Default under SUBSECTION 8.1 (f). 5.7 ERISA COMPLIANCE. Except as specifically disclosed in SCHEDULE 5.7: (a) Each Plan and to the knowledge of Borrower, each Multiemployer Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law, except to the extent noncompliance could not reasonably be expected to result in a Material Adverse Effect. Each Plan and to the knowledge of Borrower, each Multiemployer Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Borrower, nothing has occurred which would cause the loss of such qualification. The Borrower and each ERISA Affiliate has made all required contributions to any Plan and each Multiemployer Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan and to the best of Borrower's knowledge Multiemployer Plan. (b) There are no pending or, to the best knowledge of Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan and to the best of Borrower's knowledge Multiemployer Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan and to the knowledge of Borrower, each Multiemployer Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) (i) Except for any event which would not reasonably be expected to result in a Material Adverse Effect, no ERISA Event has occurred or is reasonably expected to occur; -30- (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan or Multiemployer Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 5.8 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans are to be used solely for the purposes set forth in and permitted by SECTION 6.12 and SECTION 7.7. Neither the Borrower nor any Subsidiary is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. 5.9 TITLE TO PROPERTIES. The Borrower and each Subsidiary have good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of their respective businesses, except for such defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. As of the Original Closing Date, the property of the Borrower and its Subsidiaries is subject to no Liens, other than Permitted Liens. 5.10 TAXES. The Borrower and its Subsidiaries have filed all Federal and other material tax returns and reports required to be filed, and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Borrower or any Subsidiary that would, if made, have a Material Adverse Effect. 5.11 FINANCIAL CONDITION. (a) The audited consolidated financial statements of the Borrower and its Subsidiaries dated December 31, 1995, and the related consolidated statements of income or operations, shareholders' equity and cash flows for the fiscal year ended on that date: (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; -31- (ii) fairly present the financial condition of the Borrower and its Subsidiaries as of the date thereof and results of operations for the period covered thereby; and (iii) except as specifically disclosed in SCHEDULE 5.11 or as otherwise incurred in the ordinary course of business by the Subsidiaries of the Borrower that are insurance companies, show all material indebtedness and other liabilities, direct or contingent, of the Borrower and its consolidated Subsidiaries as of the Original Closing Date, including liabilities for taxes, material commitments and Contingent Obligations. (b) Since December 31, 1995, there has been no Material Adverse Effect. 5.12 ENVIRONMENTAL MATTERS. The Borrower conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and as a result thereof the Borrower has reasonably concluded that, except as specifically disclosed in SCHEDULE 5.12, such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.13 REGULATED ENTITIES. None of the Borrower, any Person controlling the Borrower, or any Subsidiary (other than Signature Investment Advisors, Inc.) is an "Investment Company" within the meaning of the Investment Company Act of 1940. The Borrower is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation (other than applicable insurance regulations) limiting its ability to incur Indebtedness. 5.14 NO BURDENSOME RESTRICTIONS. Neither the Borrower nor any Subsidiary is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect. 5.15 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The Borrower or its Subsidiaries own or are licensed or otherwise have the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed, -32- or now contemplated to be employed, by the Borrower or any Subsidiary infringes upon any rights held by any other Person. Except as specifically disclosed in SCHEDULE 5.5, no claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Borrower, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. 5.16 SUBSIDIARIES. The Borrower has no Subsidiaries other than those specifically disclosed in part (a) of SCHEDULE 5.16 hereto and has no equity investments in any other corporation or entity other than those specifically disclosed in part (b) of SCHEDULE 5.16 except for investments in the ordinary course of business by any Subsidiary of the Borrower. 5.17 INSURANCE. Except as specifically disclosed in SCHEDULE 5.17, the properties of the Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Borrower, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or such Subsidiary operates. 5.18 FULL DISCLOSURE. None of the representations or warranties made by the Borrower or any Subsidiary in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Borrower or any Subsidiary in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Borrower to the Banks prior to the Original Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. ARTICLE VI AFFIRMATIVE COVENANTS So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Required Banks waive compliance in writing: -33- 6.1 FINANCIAL STATEMENTS. The Borrower shall deliver to the Administrative Agent and each Bank, in form and detail satisfactory to each Agent and the Required Banks: (a) as soon as available, but not later than ninety (90) days after the end of each fiscal year, a copy of the audited consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income or operations, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of Arthur Andersen LLP or another nationally-recognized independent public accounting firm ("INDEPENDENT AUDITOR") which report shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Borrower's or any Subsidiary's records and shall be delivered to the Administrative Agent and each Bank pursuant to a reliance agreement between the Agents, the Banks and such Independent Auditor in form and substance satisfactory to the Administrative Agent; (b) as soon as available, but not later than sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such quarter and the related consolidated statements of income, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, and certified by a Responsible Officer as fairly presenting, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Borrower and the Subsidiaries; (c) As soon as available, but in any event within fifteen (15) days after the beginning of each fiscal year of the Borrower, a copy of the plan (including a projected closing consolidated balance sheet, income statement and funds flow statements) of the Borrower for each month of such fiscal year; (d) As soon as possible, but in any event within ninety (90) days after the end of each fiscal year of each Insurance Subsidiary of the Borrower, a copy of the annual statement of such Insurance Subsidiary for such fiscal year prepared in accordance with SAP and accompanied by the certification of a Responsible Officer that such financial statement presents fairly, in accordance with SAP, the financial -34- position of such Insurance Subsidiary for the period then ended; and (e) As soon as possible, but in any event within sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year of each of the Insurance Subsidiaries of the Borrower, a copy of the quarterly statement of such Insurance Subsidiary for such fiscal quarter, all prepared in accordance with SAP and accompanied by the certification of a Responsible Officer that all such financial statements present fairly in accordance with SAP the financial position of such Insurance Subsidiary for the periods then ended. 6.2 CERTIFICATES; OTHER INFORMATION. The Borrower shall furnish to each Agent and each Bank: (a) concurrently with the delivery of the financial statements referred to in SUBSECTION 6.1(a), a certificate of the Independent Auditor stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default as to accounting matters, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in SUBSECTIONS 6.1(a) and (b), a Compliance Certificate executed by a Responsible Officer; (c) promptly, copies of all financial statements and reports that MW sends to its shareholders, and copies of all financial statements and regular, periodical or special reports (including Forms 10K, 10Q and 8K) that MW or the Borrower may make to, or file with, the SEC; (d) promptly, such additional information regarding the business, financial or corporate affairs of the Borrower or any Subsidiary as the Administrative Agent, at the request of any Bank, may from time to time request; and (e) concurrently with the declaration of any dividends or distributions or the agreement to make any advances by the Borrower to MW, a notice of the amount and proposed date of any dividend, distribution or advance. 6.3 NOTICES. The Borrower shall promptly notify each Agent and each Bank: (a) of the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default; -35- (b) of any matter that has resulted or may result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Borrower or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Borrower or any Subsidiary, including pursuant to any applicable Environmental Laws; (c) of the occurrence of any of the following events affecting the Borrower or any ERISA Affiliate (but in no event more than 10 days after such event), and deliver to the Administrative Agent and each Bank a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Borrower or any ERISA Affiliate with respect to such event: (i) an ERISA Event which would result in a material liability to Borrower; (ii) a material increase in the Unfunded Pension Liability of any Pension Plan; (iii) the adoption of, or the commencement of contributions to, any Plan subject to Section 412 of the Code by the Borrower or any ERISA Affiliate; or (iv) the adoption of any amendment to a Plan subject to Section 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability. (d) of any material change in accounting policies or financial reporting practices by the Borrower or any of its consolidated Subsidiaries. Each notice under this Section shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Borrower or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under SUBSECTION 6.3(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been (or foreseeably will be) breached or violated. 6.4 PRESERVATION OF CORPORATE EXISTENCE, ETC. The Borrower shall, and shall cause each Subsidiary to: -36- (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation; (b) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business except in connection with transactions permitted by SECTION 7.3 and sales of assets permitted by SECTION 7.2; (c) use reasonable efforts, in the ordinary course of business, to preserve its business organization and goodwill; and (d) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. 6.5 MAINTENANCE OF PROPERTY. The Borrower shall maintain, and shall cause each Subsidiary to maintain, and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted, except as permitted by SECTION 7.2. The Borrower and each Subsidiary shall use the standard of care typical in the industry in the operation and maintenance of its facilities. 6.6 INSURANCE. The Borrower shall maintain, and shall cause each Subsidiary to maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons. 6.7 PAYMENT OF OBLIGATIONS. The Borrower shall, and shall cause each Subsidiary to, pay and discharge as the same shall become due and payable, all of their respective obligations and liabilities, including: (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property; and -37- (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness. 6.8 COMPLIANCE WITH LAWS. The Borrower shall comply, and shall cause each Subsidiary to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except such as may be contested in good faith or as to which a bona fide dispute may exist. 6.9 COMPLIANCE WITH ERISA. The Borrower shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code. 6.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Borrower shall maintain and shall cause each Subsidiary to maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Borrower and such Subsidiary. The Borrower shall permit, and shall cause each Subsidiary to permit, representatives and independent contractors of the Administrative Agent or any Bank to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants, all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; PROVIDED, HOWEVER, when an Event of Default exists the Administrative Agent or any Bank may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice. 6.11 ENVIRONMENTAL LAWS. The Borrower shall, and shall cause each Subsidiary to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws. 6.12 USE OF PROCEEDS. The proceeds of the Existing Signature Note were used by the Borrower to acquire Amoco Enterprises, Inc., Amoco Motor Club, Inc. and Amoco Enterprises Canada, Limited. Concurrently with the Borrowing hereunder, the Borrower shall use the proceeds of the Loans to repay the Existing Signature Note. -38- 6.13 GUARANTIES. Within fifteen days of the Original Closing Date, the Borrower shall cause each Guarantor to deliver to the Banks (a) a certificate of the Secretary or Assistant Secretary of each Guarantor, as to (i) copies of the resolutions of its board of directors authorizing its Guaranty, (ii) the names and true signatures of its officers authorized to execute, deliver and perform its Guaranty, and (iii) its articles or certificate of incorporation and bylaws, and (b) an opinion of counsel acceptable to the Banks as to the due authorization, execution, delivery and validity of the Guaranties (such opinion to be in form and substance satisfactory to the Banks). ARTICLE VII NEGATIVE COVENANTS So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Required Banks waive compliance in writing: 7.1 LIMITATION ON LIENS. The Borrower shall not, and shall not suffer or permit any Subsidiary to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following ("PERMITTED LIENS"): (a) any Lien existing on property of the Borrower or any Subsidiary on the Original Closing Date and set forth in SCHEDULE 7.1 securing Indebtedness outstanding on such date; (b) any Lien created under any Loan Document; (c) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by SECTION 6.7, provided that no notice of lien has been filed or recorded under the Code; (d) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; (e) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; -39- (f) Liens on the property of the Borrower or its Subsidiary securing (i) the non-delinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, (ii) contingent obligations on surety and appeal bonds, and (iii) other non-delinquent obligations of a like nature; in each case, incurred in the ordinary course of business; (g) Liens consisting of judgment or judicial attachment liens, provided that the enforcement of such Liens is effectively stayed and all such liens in the aggregate at any time outstanding for the Borrower and its Subsidiaries do not exceed $500,000; (h) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Borrower and its Subsidiaries; (i) Liens securing obligations in respect of capital leases on assets subject to such leases, provided that such capital leases are otherwise permitted hereunder; (j) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; PROVIDED, THAT (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Borrower or any Subsidiary in excess of those set forth by regulations promulgated by the FRB, and (ii) such deposit account is not intended by the Borrower or any Subsidiary to provide collateral to the depository institution; (k) deposits by the Subsidiaries of the Borrower which are required by applicable regulation or in the ordinary course of business; and (l) Liens arising in the ordinary course of business for sums being contested in good faith and by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP, or for sums not due, and in either case not involving any deposits or advances for borrowed money or the deferred purchase price of property or services. 7.2 DISPOSITION OF ASSETS. The Borrower shall not, and shall not suffer or permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any -40- property (including accounts and notes receivable, with or without recourse) or enter into any agreement to do any of the foregoing, except: (a) dispositions of inventory, or used, worn-out or surplus equipment, all in the ordinary course of business; (b) the sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; (c) dispositions not otherwise permitted hereunder which are made for fair market value; PROVIDED, that (i) after giving effect to any such disposition, no Default or Event of Default would exist, (ii) the aggregate sales price from such disposition shall be paid in cash, (iii) the assets which are subject of such disposition do not include accounts or notes receivable and (iv) the aggregate value of all assets so sold by the Borrower and its Subsidiaries, together, shall not exceed in any fiscal year $5,000,000 (except that in fiscal year 1997, the aggregate value of all such assets can be in excess of $5,000,000 but shall not exceed $10,000,000); (d) dispositions of investments of the types permitted by SUBSECTIONS 7.4(a) and 7.4(d); and (e) sales by the Borrower of accounts receivable pursuant to the Retail Credit Program Agreement or MWCC Receivables Purchase Agreement (each as defined in the MW Credit Agreement). 7.3 CONSOLIDATIONS AND MERGERS. The Borrower shall not, and shall not suffer or permit any Subsidiary to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except: (a) any Guarantor may merge with the Borrower; PROVIDED, that the Borrower shall be the continuing or surviving corporation, or with any one or more Guarantors; and further PROVIDED, that if any transaction shall be between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or surviving corporation; and (b) any Subsidiary may sell all or substantially all of its assets (upon voluntary liquidation or otherwise), to the Borrower or another Wholly-Owned Subsidiary. -41- 7.4 LOANS AND INVESTMENTS. The Borrower shall not purchase or acquire, or suffer or permit any Subsidiary to purchase or acquire, or make any commitment therefor, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make or commit to make any Acquisitions, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person including any Affiliate of the Borrower, except for: (a) investments in cash equivalents and short term marketable securities; (b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (c) extensions of credit and investments (i) by the Borrower or any Subsidiary of the Borrower to the Borrower or any of the Guarantors (ii) or by any Guarantor to another Guarantor or (iii) by an Insurance Subsidiary to an Insurance Subsidiary or (iv) by a Subsidiary which is not an Insurance Subsidiary or a Guarantor to a Subsidiary which is not an Insurance Subsidiary or a Guarantor or (v) by an Insurance Subsidiary to a Subsidiary which is not an Insurance Subsidiary or a Guarantor; (d) extensions of credit and investments in the ordinary course of business by Subsidiaries of the Borrower; (e) advance to MW; (f) investments set forth on SCHEDULE 7.4; (g) other investments not exceeding $2,000,000 in the aggregate; (h) intercompany advances among the Borrower and its Subsidiaries for administrative and operational services being provided by the Borrower or one of its Subsidiaries; and (i) in addition to the investments and extensions of credit permitted under subsection 7.4(c) investments and extensions of credit (net of repayments) by the Borrower and all Subsidiaries of the Borrower which are Guarantors, as a group, to all other Subsidiaries of the Borrower, as a group, or by all Subsidiaries of the Borrower which are neither Insurance Subsidiaries nor Guarantors, as a group, to all Insurance Subsidiaries of the Borrower, as a group, provided the aggregate amount of such net investments and extensions of credit made after September 30, 1996 shall not exceed $30 million. -42- 7.5 LIMITATION ON INDEBTEDNESS. The Borrower shall not, and shall not suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (a) Indebtedness incurred pursuant to this Agreement; (b) Indebtedness consisting of Contingent Obligations permitted pursuant to SECTION 7.8; (c) Indebtedness existing on the Original Closing Date and set forth in SCHEDULE 7.5; (d) Indebtedness incurred in connection with leases permitted pursuant to SECTION 7.9; (e) Indebtedness permitted by SUBSECTIONS 7.4(c) and 7.4(i); and (f) Indebtedness owed to MW. 7.6 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, and shall not suffer or permit any Subsidiary to, enter into any transaction with any Affiliate (other than a Wholly-Owned Subsidiary of the Borrower and Scrip Plus, Inc.), except upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate of the Borrower or such Subsidiary. 7.7 USE OF PROCEEDS. The Borrower shall not, and shall not suffer or permit any Subsidiary to, use any portion of the Loan proceeds, directly and indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of the Borrower or others incurred to purchase or carry Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act. 7.8 CONTINGENT OBLIGATIONS. The Borrower shall not, and shall not suffer or permit any Subsidiary to, create, incur, assume or suffer to exist any Contingent Obligations except: (a) endorsements for collection or deposit in the ordinary course of business; (b) Swap Contracts entered into in the ordinary course of business as bona fide hedging transactions; -43- (c) Contingent Obligations of the Borrower and its Subsidiaries listed in SCHEDULE 7.8; (d) the Guaranties; and (e) Contingent Obligations incurred in the ordinary course of business by Insurance Subsidiaries. 7.9 LEASE OBLIGATIONS. The Borrower shall not, and shall not suffer or permit any Subsidiary to, create or suffer to exist any obligations for the payment of rent for any property under lease or agreement to lease, except for: (a) leases of the Borrower and of Subsidiaries in existence on the Original Closing Date and any renewal, extension or refinancing thereof; (b) operating leases entered into by the Borrower or any Subsidiary after the Original Closing Date in the ordinary course of business (including, without limitation, leasebacks in connection with dispositions permitted under Section 7.2(c)); and (c) capital leases other than those permitted under clause (a) of this Section, entered into by the Borrower or any Subsidiary after the Original Closing Date to finance the acquisition of equipment; PROVIDED, that the aggregate net present value of all future rental payments for all such capital leases shall not exceed in any fiscal year $10,000,000; 7.10 ERISA. The Borrower shall not, and shall not suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably expected to result in liability of the Borrower in an aggregate amount in excess of $500,000; or (b) engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 7.11 CHANGE IN BUSINESS. The Borrower shall not, and shall not suffer or permit any Subsidiary to, engage in any material line of business substantially different from those lines of business carried on by the Borrower and its Subsidiaries on the date hereof. 7.12 ACCOUNTING CHANGES. The Borrower shall not, and shall not suffer or permit any Subsidiary to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Borrower or of any Subsidiary. -44- ARTICLE VIII EVENTS OF DEFAULT 8.1 EVENT OF DEFAULT. Any of the following shall constitute an "EVENT OF DEFAULT": (a) NON-PAYMENT. The Borrower fails to pay, (i) when and as required to be paid herein, any amount of principal of any Loan, or (ii) within two Business Days after the same becomes due, any interest, fee or any other amount payable hereunder or under any other Loan Document; or (b) REPRESENTATION OR WARRANTY. Any representation or warranty by the Borrower or any Subsidiary made or deemed made herein, in any other Loan Document, or which is contained in any certificate, document or financial or other statement by the Borrower, any Subsidiary, or any Responsible Officer, furnished at any time under this Agreement, or in or under any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made; or (c) SPECIFIC DEFAULTS. The Borrower fails to perform or observe any term, covenant or agreement contained in any of SECTION 6.1, 6.2, 6.3, 6.9 or 6.13 or in ARTICLE VII (except Sections 7.1, 7.4, 7.5 (to the limited extent provided for in SECTION 8.1(d)) and 7.8); or (d) SPECIAL DEFAULTS. The Borrower fails to perform or observe any term, covenant or agreement contained in any of Sections 7.1, 7.4, 7.5 (to the extent, and only to the extent, such Default under SECTION 7.5 is also a Default under SECTION 7.4) or 7.8 and such failure shall continue unremedied for a period of two Business Days (or with respect to SECTIONS 7.4 or 7.5 one Business Day) after the earlier of (i) the date upon which a Responsible Officer knew or reasonably should have known of such failure or (ii) the date upon which written notice thereof is given to the Borrower by any Bank; or (e) OTHER DEFAULTS. The Borrower fails to perform or observe any other term, covenant or agreement contained in this Agreement or any other Loan Document, and such failure shall continue unremedied for a period of 20 days after the earlier of (i) the date upon which a Responsible Officer knew or reasonably should have known of such failure or (ii) the date upon which written notice thereof is given to the Borrower by the Administrative Agent or any Bank; or (f) CROSS-DEFAULT. (i) MW, any of its Subsidiaries, the Borrower or any Subsidiary of the Borrower (A) fails to make any payment in respect of any Indebtedness or Contingent -45- Obligation (other than in respect of Swap Contracts) or lease obligations under the Designated Leases, having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $5,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure; or (B) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness or Contingent Obligation or lease obligation under the Designated Leases, and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness or Contingent Obligation or lease obligation under the Designated Leases to be declared to be due and payable prior to its stated maturity, or such Contingent Obligation to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an early termination date resulting from (1) any event or default under such Swap Contract as to which MW, any Subsidiary of MW, the Borrower or any Subsidiary is the defaulting party or (2) any termination event as to which MW, any Subsidiary of MW, the Borrower or any Subsidiary is an affected party, and, in either event, the swap termination value owed by MW, any Subsidiary of MW, the Borrower or such Subsidiary as a result thereof is greater then $5,000,000; or (G) INSOLVENCY; VOLUNTARY PROCEEDINGS. MW or the Borrower or any Subsidiary of MW (i) ceases or fails to be solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or (h) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency Proceeding is commenced or filed against MW or the Borrower or any Subsidiary of MW, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of MW's or the Borrower's or any MW Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of -46- attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) MW or the Borrower or any Subsidiary of MW admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) MW or the Borrower or any Subsidiary of MW acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (i) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $500,000; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $500,000; or (iii) the Borrower or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $500,000; or (j) MONETARY JUDGMENTS. One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Borrower or any Subsidiary involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $500,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of 10 days after the entry thereof; or (k) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order or decree is entered against the Borrower or any Subsidiary which does or would reasonably be expected to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (l) CHANGE OF CONTROL. There occurs any Change of Control; or (m) GUARANTOR DEFAULTS. Any Guarantor fails in any material respect to perform or observe any term, covenant or agreement in its Guaranty; or the Guaranty of any Guarantor is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases -47- to be in full force and effect, or any Guarantor or any other Person contests in any manner the validity or enforceability thereof or denies that it has any further liability or obligation thereunder; or any event described at subsections (f) or (g) of this Section occurs with respect to any Guarantor; or (n) MW CREDIT AGREEMENT EVENT OF DEFAULT. Any Event of Default (as defined in the MW Credit Agreement) shall occur; or (o) MINIMUM NET WORTH. The net worth of the Borrower and its Subsidiaries (calculated on a consolidated basis in accordance with GAAP) is less than $450,000,000 at any time; or (p) IMPAIRMENT. The Banks in good faith believe that the prospect of payment of all or any part of the Obligations evidenced by the Notes is impaired. 8.2 REMEDIES. If any Event of Default occurs, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Banks, (a) declare the Commitment of each Bank to be terminated, whereupon such Commitments shall be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; and (c) exercise on behalf of itself and the Banks all rights and remedies available to it and the Banks under the Loan Documents or applicable law; PROVIDED, HOWEVER, that upon the occurrence of any event specified in subsection (g) or (h) of SECTION 8.1 (in the case of clause (i) of subsection (h) upon the expiration of the 60-day period mentioned therein), the obligation of each Bank to make its Loan shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of any Agent or any Bank. 8.3 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. -48- ARTICLE IX THE AGENT 9.1 APPOINTMENT AND AUTHORIZATION; "AGENTS". Each Bank hereby irrevocably (subject to Section 9.9) appoints, designates and authorizes the Agents to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, neither Agent shall have any duties or responsibilities, except those expressly set forth herein, nor shall either Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against either Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to either of the Agents is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. 9.2 DELEGATION OF DUTIES. Each of the Agents may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither of the Agents shall be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 9.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Borrower or any Subsidiary or Affiliate of the Borrower, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by either Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Borrower or any other party -49- to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower or any of the Borrower's Subsidiaries or Affiliates. 9.4 RELIANCE BY AGENTS. (a) Each of the Agents shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Borrower), independent accountants and other experts selected by the Agents. Each of the Agents shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each of the Agents shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Sections 4.1 and 4.3, each Bank that has executed the Existing Credit Agreement and this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by either Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 9.5 NOTICE OF DEFAULT. Neither Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default (except in the case of the Administrative Agent, with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Banks) unless such Agent has received written notice from a Bank or the Borrower referring to this Agreement, describing such Default or Event or Default and stating that such notice is a "notice of default". Each of the Agents will notify the Banks of its receipt of any such notice. The Administrative Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Banks in -50- accordance with Article VIII; PROVIDED, HOWEVER, that unless and until the Administrative Agent has received any such request, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Banks. 9.6 CREDIT DECISION. Each Bank acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by either Agent hereinafter taken, including any review of the affairs of the Borrower and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Agents that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrower hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Agents, neither Agent shall have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Borrower which may come into the possession of any of the Agent-Related Persons. 9.7 INDEMNIFICATION OF AGENTS. Whether or not the transactions contemplated hereby are consummated, the Banks shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Borrower and without limiting the obligation of the Borrower to do so), pro rata, from and against any and all Indemnified Liabilities; PROVIDED, HOWEVER, that no Bank shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse each of the Agents upon demand for such Banks ratable share of any costs or out-of-pocket expenses -51- (including Attorney Costs) incurred by either of the Agents in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that either of the Agents is not reimbursed for such expenses by or on behalf of the Borrower. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of either of the Agents. 9.8 AGENTS IN INDIVIDUAL CAPACITY. Each of BNS and BNY may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Borrower and its Subsidiaries and Affiliates as though BNS and BNY were not the Agents hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, BNS and BNY may receive information regarding the Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Borrower or such Subsidiary) and acknowledge that neither of the Agents shall be under any obligation to provide such information to them. With respect to its Loans, BNS and BNY shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though they were not the Agents. 9.9 SUCCESSOR AGENTS. Each of the Agents may, and at the request of the Required Banks shall, resign as Agent upon 30 days' notice to the Banks. If either of the Agents shall resign under this Agreement, the Required Banks shall appoint from among the Banks a successor agent for the Banks. If no successor agent is appointed prior to the effective date of the resignation of such retiring Agent, the Agents may appoint, after consulting with the Banks and the Borrower, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article IX and Sections 10.4 and 10.5 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the -52- duties of the Agent hereunder until such time, if any, as the Required Banks appoint a successor agent as provided for above. 9.10 WITHHOLDING TAX. (a) If any Bank is a "foreign corporation, partnership or trust" within the meaning of the Code and such Bank claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Bank agrees with and in favor of the Administrative Agent, to deliver to the Administrative Agent: (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, two properly completed and executed copies of IRS Form 1001 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Bank, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Bank agrees to promptly notify the Administrative Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Borrower to such Bank, such Bank agrees to notify the Administrative Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Borrower to such Bank. To the extent of such percentage amount, the Administrative Agent will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Administrative Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Borrower to such -53- Bank, such Bank agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Administrative Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such reduction. However, if the forms or other documentation required by subsection (a) of this Section are not delivered to the Administrative Agent, then the Administrative Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax imposed by Sections 1441 and 1442 of the Code, without reduction. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered or was not properly executed, or because such Bank failed to notify the Administrative Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Banks under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Administrative Agent. ARTICLE X MISCELLANEOUS 10.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Borrower or any applicable Subsidiary therefrom, shall be effective unless the same shall be in writing and signed by the Required Banks (or by the Administrative Agent at the written request of the Required Banks) and the Borrower and acknowledged by the Administrative Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that no such waiver, amendment, or consent shall, unless in writing signed by all the Banks -54- and the Borrower and acknowledged by the Administrative Agent, do any of the following: (a) increase or extend the Commitment of any Bank (or reinstate any Commitment terminated pursuant to Section 8.2); (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Banks (or any of them) hereunder or under any other Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or (subject to clause (ii) below) any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Banks or any of them to take any action hereunder; or (e) release any of the Guaranties; or (f) amend this Section, or Section 2.10, or any provision herein providing for consent or other action by all Banks; and, PROVIDED FURTHER, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Required Banks or all the Banks, as the case may be, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document, and (ii) any fee letters may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto. 10.2 NOTICES. (a) All notices, requests and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Borrower by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on SCHEDULE 10.2, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on SCHEDULE 10.2; or, as directed to the Borrower or to the Administrative Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Borrower and to the Administrative Agent. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be -55- effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to ARTICLE II or X shall not be effective until actually received by the Administrative Agent. (c) Any agreement of the Agents and the Banks herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower. The Agents and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Agents and the Banks shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Agents or the Banks in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans shall not be affected in any way or to any extent by any failure by the Agents and the Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agents and the Banks of a confirmation which is at variance with the terms understood by the Agents and the Banks to be contained in the telephonic or facsimile notice. 10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of any Agent or Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 10.4 COSTS AND EXPENSES. The Borrower shall: (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse any Agent and/or any Bank within five Business Days after demand (subject to SUBSECTION 4.1(i)) for all costs and expenses incurred by such Agent and/or by such Bank which is an Agent in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by such Agent with respect thereto; and (b) pay or reimburse any Agent and/or any Bank within five Business Days after demand for all costs and expenses (including Attorney Costs) incurred by such Agent and/or such -56- Bank in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). 10.5 BORROWER INDEMNIFICATION. Whether or not the transactions contemplated hereby are consummated, the Borrower shall indemnify and hold the Agent-Related Persons, each Bank and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "INDEMNIFIED PERSON") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED, that the Borrower shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. 10.6 PAYMENTS SET ASIDE. To the extent that the Borrower makes a payment to the Administrative Agent or the Banks, or the Administrative Agent or the Banks exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Bank severally agrees to pay to the Administrative Agent upon demand its Pro Rata Share of any amount so recovered from or repaid by the Administrative Agent. -57- 10.7 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent and each Bank. 10.8 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) Any Bank may, with the written consent of the Administrative Agent, which consent shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Administrative Agent shall be required in connection with any assignment and delegation by a Bank to an Eligible Assignee that is an Affiliate of such Bank) (each an "ASSIGNEE") all, or any ratable part of all, of the Loans, the obligations, and the other rights and obligations of such Bank hereunder, in a minimum amount of $5,000,000; PROVIDED, HOWEVER, that the Borrower and the Administrative Agent may continue to deal solely and directly with such Bank in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Borrower and the Administrative Agent by such Bank and the Assignee; (ii) such Bank and its Assignee shall have delivered to the Borrower and the Administrative Agent an assignment and acceptance agreement in the form of EXHIBIT G ("ASSIGNMENT AND ACCEPTANCE") together with any Note or Notes subject to such assignment and (iii) the assignor Bank or Assignee has paid to the Administrative Agent a processing fee in the amount of $3,000. (b) From and after the date that the Administrative Agent notifies the assignor Bank that it has received (and provided its consent with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. (c) Within five Business Days after its receipt of notice by the Administrative Agent that it has received an executed Assignment and Acceptance and payment of the processing fee, (and provided that it consents to such assignment in accordance with SUBSECTION 10.8(a)), the Borrower shall execute and deliver to the Administrative Agent, new Notes evidencing -58- such Assignee's assigned Loans, Obligations and, if the assignor Bank has retained a portion of its Loans, replacement Notes in the principal amount of the Loans retained by the assignor Bank (such Notes to be in exchange for, but not in payment of, the Notes held by such Bank). Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the Administrative Agent shall deliver a revised SCHEDULE 2.1 to the Banks and the Borrower to reflect such assignment. (d) Any Bank may at any time sell to one or more commercial banks or other Persons not Affiliates of the Borrower (a "PARTICIPANT") participating interests in any Loans and the other interests of that Bank (the "originating Bank") hereunder and under the other Loan Documents; PROVIDED, HOWEVER, that (i) the originating Bank's obligations under this Agreement shall remain unchanged, (ii) the originating Bank shall remain solely responsible for the performance of such obligations, (iii) the Borrower and the Administrative Agent shall continue to deal solely and directly with the originating Bank in connection with the originating Bank's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Bank shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would postpone or delay any date fixed for payment of principal, interest, fees or other amounts hereunder or reduce the principal of or rate of interest specified herein. In the case of any such participation, the Participant shall not have any rights under this Agreement, or any of the other Loan Documents, and all amounts payable by the Borrower hereunder shall be determined as if such Bank had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement. (e) Notwithstanding any other provision in this Agreement, any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Note held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal -59- Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 10.9 CONFIDENTIALITY. Each Agent and each Bank agrees to take and to cause its Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Borrower and provided to it by the Borrower or any Subsidiary or by the Agents on the Borrower's or such Subsidiary's behalf, under this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with the Borrower or any Subsidiary; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by an Agent or a Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Borrower or any Subsidiary; PROVIDED, that such source is not bound by a confidentiality agreement with the Borrower known to the Agents or Banks; PROVIDED, HOWEVER, that any Agent or any Bank may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which such Agent or such Agent or any Bank is subject or in connection with an examination of such Agent or such Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which any Agent or any Bank or their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Agent's or such Bank's independent auditors and other professional advisors; (G) to any Participant, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Agents and the Banks hereunder; (H) as to any Agent or any Bank or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Borrower or any Subsidiary is party or is deemed party with such Agent, such Bank or such Affiliate; and (I) to its Affiliates. 10.10 SET-OFF. In addition to any rights and remedies of the Banks provided by law, if an Event of Default exists or the Loans have been accelerated, each Bank is authorized at any time and from time to time, without prior notice to the Borrower, any such notice being waived by the Borrower to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such -60- Bank to or for the credit or the account of the Borrower against any and all Obligations owing to such Bank, now or hereafter existing, irrespective of whether or not the Agents or such Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Borrower and the Administrative Agent after any such set-off and application made by such Bank; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. 10.11 AUTOMATIC DEBITS OF FEES. With respect to any fee, or any other cost or expense (including Attorney Costs) due and payable to the Agents or any Bank under the Loan Documents, the Borrower hereby irrevocably authorizes such Agent or such Bank to debit any deposit account of the Borrower with such Agent or such Bank in an amount such that the aggregate amount debited from all such deposit accounts does not exceed such fee or other cost or expense. If there are insufficient funds in such deposit accounts to cover the amount of the fee or other cost or expense then due, such debits will be reversed (in whole or in part, in such Agent's or such Bank's sole discretion) and such amount not debited shall be deemed to be unpaid. No such debit under this Section shall be deemed a set-off. 10.12 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Bank shall notify the Administrative Agent in writing of any changes in the address to which notices to such Bank should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Administrative Agent shall reasonably request. 10.13 COUNTERPARTS. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 10.14 SEVERABILITY. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 10.15 NO THIRD PARTIES BENEFITED. This Agreement is made and entered into for the sole protection and legal benefit of the Borrower, the Banks, the Agents, the Agent-Related Persons and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct -61- or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 10.16 GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT AND OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS; PROVIDED THAT THE AGENTS AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE AGENTS, THE BORROWER AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE AGENTS, THE BORROWER AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE AGENTS, THE BORROWER AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW. 10.17 WAIVER OF JURY TRIAL. THE AGENTS, THE BORROWER AND THE BANKS EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTICIPANT, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE AGENTS, THE BORROWER AND THE BANKS EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 10.18 ENTIRE AGREEMENT. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the Agents, the Borrower and the Banks, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. -62- 10.19 REAFFIRMATION, RESTATEMENT AND WAIVERS. This Agreement constitutes an amendment and restatement of the Existing Credit Agreement and the indebtedness evidenced by the Existing Credit Agreement is continuing indebtedness, and nothing herein shall be deemed to constitute a payment, settlement or novation of the indebtedness evidenced by the Existing Credit Agreement except to the extent provided herein, or to release or otherwise adversely affect any lien, mortgage or security interest securing such indebtedness or any rights of any Agent or any Bank against any guarantor, surety or other party primarily or secondarily liable for such indebtedness. -63- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in Chicago, Illinois by their proper and duly authorized officers as of the day and year first above written. SIGNATURE FINANCIAL/MARKETING, INC. By: /s/ Alan Portelli ------------------------------ Title: EXECUTIVE VP & CFO ---------------------------- THE BANK OF NEW YORK, in its individual capacity and in its capacity as Documentation Agent By: /s/ Michael Flannery ------------------------------ Title: VICE PRESIDENT ---------------------------- THE BANK OF NOVA SCOTIA, in its individual capacity and in its capacity as Administrative Agent By: /s/ A.S. Norsworthy ------------------------------------ Title: SR. TEAM LEADER - LOAN OPERATIONS ------------------------------------ A. S. NORSWORTHY SR. TEAM LEADER-LOAN OPERATIONS GUARANTOR ACKNOWLEDGMENT AND REAFFIRMATION ------------------------------ The undersigned, each a guarantor with respect to the Borrower's obligations to the Banks under the Credit Agreement dated as of September 27, 1996 among Signature Financial/Marketing, Inc. (the "Borrower"), The Bank of Nova Scotia and The Bank of New York (the "Existing Credit Agreement"), each hereby (i) acknowledge and consent to the execution, delivery and performance by the Borrower of the Credit Agreement dated as of September 27, 1996 as amended and restated as of October 21, 1996 among Signature Financial/Marketing, Inc., various Banks, and The Bank of Nova Scotia and The Bank of New York as agents (the "RESTATED CREDIT AGREEMENT"), and (ii) reaffirm and agree that the respective guaranty to which the undersigned is party and all other documents and agreements executed and delivered by the undersigned to the Banks in connection with the Existing Credit Agreement (as amended and restated through the Restated Credit Agreement) are in full force and effect, without defense, offset or counterclaim. (Capitalized terms used herein have the meanings specified in the Restated Credit Agreement.) MONTGOMERY WARD & CO., INCORPORATED By /s/ Douglas V. Gathany ---------------------------- Title: TREASURER CREDIT CARD SENTINEL, INC. By /s/ John B. Euwema ---------------------------- Title: SR. VP, SEC. AND GENERAL COUNSEL ISS AGENCY, INC. By /s/ John B. Euwema ---------------------------- Title: SR. VP, SEC. AND GENERAL COUNSEL MONTGOMERY WARD CLUBS, INC. By /s/ John B. Euwema ---------------------------- Title: SR. VP, SEC. AND GENERAL COUNSEL MONTGOMERY WARD ENTERPRISES, INC. By /s/ John B. Euwema ---------------------------- Title: SR. VP, SEC. AND GENERAL COUNSEL SIGNATURECARD, INC. By /s/ John B. Euwema ---------------------------- Title: SR. VP, SEC. AND GENERAL COUNSEL MONTGOMERY WARD FINANCIAL CENTER, INC. By /s/ John B. Euwema ---------------------------- Title: SR. VP, SEC. AND GENERAL COUNSEL MONTGOMERY WARD AGENCY, INC. By /s/ John B. Euwema ---------------------------- Title: SR. VP, SEC. AND GENERAL COUNSEL NATIONAL DENTAL SERVICE, INC. By /s/ John B. Euwema ---------------------------- Title: SR. VP, SEC. AND GENERAL COUNSEL SIGNATURE DIRECT, INC. By /s/ John B. Euwema ---------------------------- Title: SR. VP, SEC. AND GENERAL COUNSEL SIGNATURE INVESTMENT ADVISORS, INC. By /s/ John B. Euwema ---------------------------- Title: SR. VP, SEC. AND GENERAL COUNSEL AMOCO MOTOR CLUB, INC. By /s/ John B. Euwema ---------------------------- Title: SR. VP, SEC. AND GENERAL COUNSEL EX-10.(I)(L)(1) 7 AMENDMENT TO CREDIT AGREEMENT AMENDMENT TO CREDIT AGREEMENT THIS AMENDMENT (the "Amendment") dated as of December 23, 1996, is made and entered into among SIGNATURE FINANCIAL/MARKETING, INC. (the "Borrower") and the banks listed on the signature pages hereof (herein, together with their respective successors and assigns, collectively called the "Banks" and individually called a "Bank"). WHEREAS the Banks are parties to that certain Credit Agreement dated as of September 27, 1996, as amended and restated as of October 21, 1996 (the "Credit Agreement"), among Signature Financial/Marketing, Inc., various Banks, The Bank of New York as Documentation Agent, and The Bank of Nova Scotia, as Administrative Agent; and WHEREAS the Borrower and the Banks desire to amend the Credit Agreement in certain respects; NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I AMENDMENTS 1.1 SECTION 1.1 of the Credit Agreement is hereby amended so that the following definition shall read in its entirety as follows: "MATURITY DATE" means the earlier to occur of: (a) August 29, 1997; and (b) the date on which the Obligations are due and payable in accordance with the provisions of this agreement. 1.2 SECTION 2 of the Credit Agreement is hereby amended by adding the following SECTION 2.11 thereto: 2.11 MANDATORY PREPAYMENTS. Following receipt by the Borrower or any Subsidiary of any net cash proceeds from any sale, transfer or disposition or sale of any asset for which consent is required under SECTION 7.2 or which is otherwise outside the ordinary course of business, the Borrower shall make a mandatory prepayment of the Loans, such prepayment to be equal to the amount of such Net Proceeds or the aggregate unpaid principal amount of all Loans then outstanding, whichever is less. Each prepayment pursuant to this SECTION 2.11 shall be made within 3 Business Days of the date upon which the amount of the net cash proceeds which have not theretofore been applied by the Borrower to prepayments under this Agreement shall equal or exceed $1,000,000. Sales or transfers pursuant to SECTION 7.2(c) or 7.2(e) shall not be subject to this SECTION 2.11 regardless of whether such sales or transfers are in or outside the ordinary course of business. 1.3 SECTION 7.4(i) of the Credit Agreement is amended by substituting "$65 million" for "$30 million". 1.4 SECTION 8.1(f) of the Credit Agreement is hereby corrected by replacing in lines 21 and 22 the phrase "of such Indebtedness" with the word "thereof". ARTICLE II REPRESENTATIONS AND WARRANTIES The Borrower hereby represents and warrants to the Agents and the Banks as follows: 2.1 NO DEFAULT. No Default or Event of Default has occurred and is continuing or will exist after giving effect to this Amendment. 2.2 DUE EXECUTION. The execution, delivery and performance of this Amendment, (i) are within the Borrower's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not require any governmental approval which has not been previously obtained (and each such governmental approval that has been previously obtained remains effective), (iv) do not and will not contravene or conflict with any provision of law, or of any judgment, decree or order, or of the Borrower's charter or by-laws, and (v) do not and will not contravene or conflict with, or cause any Lien to arise under, any provision of any agreement binding upon the Borrower, any Subsidiary or any of their respective properties. 2.3 VALIDITY. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Borrower, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset. 2.4 CREDIT AGREEMENT. All representations and warranties of the Borrower contained in SECTIONS 5.1, 5.2, 5.3, 5.4, 5.6, 5.8, 5.11, 5.13, 5.14, and 5.18 of the Credit Agreement are true and correct as of the date hereof with the same effect as though made on the date hereof. ARTICLE III GENERAL 3.1 EXPENSES. The Borrower agrees to pay all fees and expenses of McDermott, Will & Emery as counsel to the Documentation Agent and the Administrative Agent in connection with the preparation, execution and delivery of this Amendment. 3.2 EFFECTIVENESS. This Amendment shall become effective on the date on which, the Documentary Agent shall have received counterparts of this Amendment whether on the same or different counterparts, executed by the Borrower and the Required Banks (or in the case of any Bank as to which an executed counterpart shall not have been so received, telegraphic, telefax, telex or other written confirmation of execution of a counterpart hereof by such Bank). 3.3 DEFINITIONS. Except as otherwise herein specifically defined, all the capitalized terms contained herein shall have the meaning ascribed to such terms in the Credit Agreement. 3.4 REAFFIRMATION. Except as hereinabove expressly provided, all the terms and provisions of the Credit Agreement shall remain in full force and effect and all references therein and in any related documents to the Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. 3.5 SUCCESSORS. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 3.6 GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Illinois. 3.7 COUNTERPARTS. This Amendment 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. Delivered at Chicago, Illinois as of the day, month and year first above written. SIGNATURE FINANCIAL/MARKETING, INC. By: /s/ G. Joseph Reddington ------------------------------------- Name: G. Joseph Reddington ACCEPTED AND APPROVED: THE BANK OF NEW YORK, in its individual capacity and in its capacity as Documentation Agent By: /s/ Michael Flannery ------------------------------------- Name: Michael Flannery THE BANK OF NOVA SCOTIA, in its individual capacity and in its capacity as Administrative Agent By: /s/ J.H. Youssef ------------------------------------- Name: J.H. Youssef GUARANTY REAFFIRMED: MONTGOMERY WARD & CO., INCORPORATED By: /s/ Douglas V. Gathany ------------------------------------- Name: Douglas V. Gathany CREDIT CARD SENTINEL, INC ISS AGENCY, INC. MONTGOMERY WARD CLUBS, INC. MONTGOMERY WARD ENTERPRISES, INC. SIGNATURECARD, INC. MONTGOMERY WARD FINANCIAL CENTER, INC. MONTGOMERY WARD AGENCY, INC. NATIONAL DENTAL SERVICE, INC. SIGNATURE DIRECT, INC. SIGNATURE INVESTMENT ADVISORS, INC. AMOCO MOTOR CLUB, INC. By: /s/ G. Joseph Reddington ------------------------------------- Name: G. Joseph Reddington EX-10.(I)(M)(1) 8 AMENDMENT TO CREDIT AGREEMENT DATED 12/23/96 AMENDMENT TO CREDIT AGREEMENT THIS AMENDMENT (the "Amendment") dated as of December 23, 1996, is made and entered into among MONTGOMERY WARD & CO., INCORPORATED (the "Company") and the banks listed on the signature pages hereof (herein, together with their respective successors and assigns, collectively called the "Lenders" and individually called a "Lender"). WHEREAS the Lenders are parties to that certain Credit Agreement dated as of October 4, 1996 (the "Credit Agreement"), among Montgomery Ward & Co., Incorporated, various Lenders, The Bank of New York as Documentation Agent, and The Bank of Nova Scotia, as Administrative Agent; and WHEREAS the Company and the Lenders desire to amend the Credit Agreement in certain respects; NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I AMENDMENTS 1.1 SECTION 1.1 of the Credit Agreement is hereby amended by adding definitions of "Guarantor" and "Guaranty" and by amending the following definitions to read in their entirety as follows: "EXISTING CREDIT AGREEMENTS" means collectively (i) the Long-term Credit Agreement, dated September 15, 1994, as amended through December 23, 1996 (and with the consent of the Required Lenders, as further amended or modified from time to time), among the Company, various lenders from time to time party thereto and certain agents listed on the signature pages thereof (the "Long Term Credit Agreement"), (ii) the Short Term Credit Agreement, dated September 15, 1994, as amended through December 23, 1996 (and, with the consent of the Required Lenders, as further amended and modified from time to time PROVIDED, THAT any increase in the aggregate commitments thereunder which is provided for therein shall not be deemed an amendment or modification) among the Company, various lenders from time to time party thereto and certain agents listed on the signature pages thereof (the "Short Term Credit Agreement"). "GUARANTOR" means Lechmere, Inc. "GUARANTY" means the guaranty substantially in the form of EXHIBIT F. "TERMINATION DATE" means, with respect to each Lender, the earlier to occur of (i) August 29, 1997, or (ii) such other date on which the Aggregate Commitments shall terminate pursuant to SECTION 5 or 13.2 or be reduced to zero pursuant to SECTION 2.6 and, if in any case such day is not a Business Day, the next preceding Business Day. 1.2 SECTION 11 of the Credit Agreement is hereby amended by replacing in SUBSECTION (i) the phrase "the Effective Date" with "December 23, 1996". 1.3 EVENTS OF DEFAULT. SECTION 13.1(e) of the Credit Agreement is amended to read in its entirety as follows: (e) SPECIFIED NON-COMPLIANCE WITH THIS AGREEMENT. Failure by the Company to comply with or to perform its obligations under SECTIONS 11.3, 11.4, 11.5, 11.6, 11.17, 11.18, 11.20 or 11.21 of the Existing Credit Agreements as incorporated herein pursuant to SECTION 11. 1.4 SECTION 13.1 of the Credit Agreement is further amended by adding thereto SECTION 13.1(l) as follows: (l) GUARANTOR DEFAULTS. Guarantor fails in any material respect to perform or observe any term, covenant or agreement in its Guaranty; or the Guaranty of Guarantor is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases to be in full force and effect, or Guarantor or any other Person contests in any manner the validity or enforceability thereof or denies that it has any further liability or obligation thereunder. 1.5 The Credit Agreement is further amended by adding EXHIBIT F in the form attached hereto. ARTICLE II REPRESENTATIONS AND WARRANTIES The Company hereby represents and warrants to the Agents and the Lenders as follows: 2.1 NO DEFAULT. No Event of Default or Unmatured Event of Default has occurred and is continuing or will exist after giving effect to this Amendment. 2.2 DUE EXECUTION. The execution, delivery and performance of this Agreement, (i) are within the Company's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not require any governmental approval which has not been previously obtained (and each such governmental approval that has been previously obtained remains effective), (iv) do not and will not contravene or conflict with any provision of law, or of any judgment, decree or order, or of the Company's charter or by-laws, and (v) do not and will not contravene or conflict with, or cause any Lien to arise under, any provision of any agreement binding upon the Company, any Subsidiary or any of their respective properties. 2.3 VALIDITY. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset. 2.4 CREDIT AGREEMENT. All representations and warranties of the Company contained in SECTIONS 10.1, 10.2, 10.3, 10.4(a), 10.7, 10.10, 10.11, 10.12, 10.15 and 10.18 of the Credit Agreement are true and correct as of the date hereof with the same effect as though made on the date hereof. ARTICLE III GENERAL 3.1 EXPENSES. The Company agrees to pay all fees and expenses of McDermott, Will & Emery as counsel to the Documentation Agent and the Administrative Agent in connection with the preparation, execution and delivery of this Amendment. 3.2 EFFECTIVENESS. Article I of this Amendment shall become effective as of the date on which, the Documentation Agent shall have received the following in form and substance reasonably satisfactory to the Documentation Agent: (a) AMENDMENT. Counterparts of this Amendment, whether on the same or different counterparts, executed by the Company and the Required Lenders (or in the case of any Lender as to which an executed counterpart shall not have been so received, telegraphic, telefax, telex or other written confirmation of execution of a counterpart hereof by such Lender). (b) GUARANTY. The Guaranty executed by the Guarantor; (c) RESOLUTIONS. Copies of the resolutions of the board of directors of each of the Company and the Guarantor authorizing the transactions contemplated by this Amendment and the Guaranty, certified by the Secretary or an Assistant Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk) of the Company and the Guarantor; (d) INCUMBENCY. A certificate of the Secretary or Assistant Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk) of each of the Company and the Guarantor certifying the names and true signatures of the officers of the Company or the Guarantor authorized to execute, deliver and perform, as applicable, this Amendment and the Guaranty; and (e) OPINION OF COUNSEL FOR THE COMPANY AND THE GUARANTOR. A letter from Altheimer & Gray, counsel for the Company and the Guarantor, addressed to the Agents and the Banks substantially in the form attached hereto. 3.3 DEFINITIONS. Except as otherwise herein specifically defined, all the capitalized terms contained herein shall have the meaning ascribed to such terms in the Credit Agreement. 3.4 REAFFIRMATION. Except as hereinabove expressly provided, all the terms and provisions of the Credit Agreement shall remain in full force and effect and all references therein and in any related documents to the Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. 3.5 SUCCESSORS. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 3.6 GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Illinois. 3.7 COUNTERPARTS. This Amendment 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. Delivered at Chicago, Illinois as of the day, month and year first above written. MONTGOMERY WARD & CO., INCORPORATED By: /s/ Douglas V. Gathany ---------------------------------- Name: Douglas V. Gathany ACCEPTED AND APPROVED: THE BANK OF NEW YORK, in its individual capacity and in its capacity as Documentation Agent By: /s/ Michael Flannery ------------------------------------- Name: Michael Flannery THE BANK OF NOVA SCOTIA, in its individual capacity and in its capacity as Administrative Agent By: /s/ J.H. Youssef ------------------------------------- Name: J.H. Youssef Title: Senior Manager Finance & Administration GENERAL ELECTRIC CAPITAL CORPORATION, in its individual capacity By: /s/ J. S. Werner ------------------------------------- Name: J. S. Werner Title: Senior V.P. EX-10.(I)(M)(2) 9 SECOND AMENDMENT TO CREDIT AGREEMENT SECOND AMENDMENT TO CREDIT AGREEMENT THIS AMENDMENT (the "Amendment") dated as of December 23, 1996 (the "Second Amendment Effective Date"), is made and entered into among MONTGOMERY WARD & CO., INCORPORATED (the "Company") and the banks listed on the signature pages hereof (herein, together with their respective successors and assigns, collectively called the "Lenders" and individually called a "Lender"). WHEREAS the Lenders are parties to that certain Credit Agreement dated as of October 4, 1996, as amended as of December 23, 1996 (the "Credit Agreement"), among Montgomery Ward & Co., Incorporated, various Lenders, The Bank of New York as Documentation Agent, and The Bank of Nova Scotia, as Administrative Agent; and WHEREAS the Company and the Lenders desire to amend the Credit Agreement in certain respects; NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I AMENDMENTS 1.1 SECTION 1.1 of the Credit Agreement is hereby amended by adding the following definition to read in its entirety as follows: "APPLICABLE MARGIN" means as to any Type of Loan, for any period set forth below, a rate per annum, as follows: EURODOLLAR BASE RATE PERIOD LOAN LOAN ------ ---------- --------- Prior to December 23, 1.50% 0.00% 1996 December 23, 1996 1.50% 0.25% through March 31, 1997 April 1, 1997 2.00% 0.75% through June 30, 1997 EURODOLLAR BASE RATE PERIOD LOAN LOAN ------ ---------- --------- After June 30, 1997 2.50% 1.25% 1.2 SECTION 6.1 of the Credit Agreement is hereby amended so that SECTION 6.1 shall read in its entirety as follows: 6.1 INTEREST RATES. The Company hereby promises to pay interest on the unpaid principal amount of each Loan for the period commencing on the Funding Date of such Loan until such Loan is paid in full, as follows: (a) if such Loan is a Base Rate Loan, at a rate per annum equal to the Base Rate from time to time in effect, plus the Applicable Margin; (b) if such Loan is a Eurodollar Loan, at a rate per annum during each Interest Period equal to the Eurodollar Rate applicable to such Interest Period, plus the Applicable Margin; PROVIDED, HOWEVER, that after maturity of any Loan (whether by acceleration or otherwise), such Loan shall bear interest on the unpaid principal amount thereof at a rate per annum equal to the Base Rate from time to time in effect (but not less than the applicable interest rate in effect at maturity) plus 2% per annum. The Company hereby further promises to pay any additional interest on the unpaid principal amount of each applicable Eurodollar Loan, whether before or after the maturity thereof, as may be required in accordance with SECTION 9. ARTICLE II REPRESENTATIONS AND WARRANTIES The Company hereby represents and warrants to the Agents and the Lenders as follows: 2.1 NO DEFAULT. No Event of Default or Unmatured Event of Default has occurred and is continuing or will exist after giving effect to this Amendment. 2.2 DUE EXECUTION. The execution, delivery and performance of this Agreement, (i) are within the Company's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not require any governmental approval 2 which has not been previously obtained (and each such governmental approval that has been previously obtained remains effective), (iv) do not and will not contravene or conflict with any provision of law, or of any judgment, decree or order, or of the Company's charter or by-laws, and (v) do not and will not contravene or conflict with, or cause any Lien to arise under, any provision of any agreement binding upon the Company, any Subsidiary or any of their respective properties. 2.3 VALIDITY. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset. 2.4 CREDIT AGREEMENT. All representations and warranties of the Company contained in SECTIONS 10.1, 10.2, 10.3, 10.4(a), 10.7, 10.10, 10.11, 10.12, 10.15 and 10.18 of the Credit Agreement are true and correct as of the date hereof with the same effect as though made on the date hereof. ARTICLE III GENERAL 3.1 EXPENSES. The Company agrees to pay all fees and expenses of McDermott, Will & Emery as counsel to the Documentation Agent and the Administrative Agent in connection with the preparation, execution and delivery of this Amendment. 3.2 EFFECTIVENESS. (a) Article I of this Amendment shall become effective as of the Second Amendment Effective Date, subject, however, to receipt by the Documentation Agent of counterparts of this Amendment, whether on the same or different counterparts, executed by the Company and the Required Lenders (or in the case of any Lender as to which an executed counterpart shall not have been so received, telegraphic, telefax, telex or other written confirmation of execution of a counterpart hereof by such Lender) in form and substance reasonably satisfactory to the Documentation Agent. (b) Concurrent with the effectiveness of this Amendment pursuant to SECTION 3.2(a), the Company hereby agrees that it will cause the following documents to be furnished to the Documentation Agent in form and substance reasonably satisfactory to the Documentation Agent. (i) RESOLUTIONS. Copies of the resolutions of the board of directors of each of the Company and the Guarantor authorizing the transactions contemplated by this Amendment and the Guaranty, certified by the Secretary or an Assistant Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk) of the Company and the Guarantor; 3 (ii) INCUMBENCY. A certificate of the Secretary or Assistant Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk) of each of the Company and the Guarantor certifying the names and true signatures of the officers of the Company or the Guarantor authorized to execute, deliver and perform, as applicable, this Amendment and the Guaranty; and (iii) OPINION OF COUNSEL FOR THE COMPANY AND THE GUARANTOR. A letter from Altheimer & Gray, counsel for the Company and the Guarantor, addressed to the Agents and the Banks substantially in the form attached hereto. 3.3 DEFINITIONS. Except as otherwise herein specifically defined, all the capitalized terms contained herein shall have the meaning ascribed to such terms in the Credit Agreement. 3.4 REAFFIRMATION. Except as hereinabove expressly provided, all the terms and provisions of the Credit Agreement shall remain in full force and effect and all references therein and in any related documents to the Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. 3.5 SUCCESSORS. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 3.6 GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Illinois. 3.7 COUNTERPARTS. This Amendment 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. 4 Delivered at Chicago, Illinois as of the day, month and year first above written. MONTGOMERY WARD & CO., INCORPORATED By: /s/ Douglas V. Gathany ------------------------------- Name: Douglas V. Gathany ACCEPTED AND APPROVED: THE BANK OF NEW YORK, in its individual capacity and in its capacity as Documentation Agent By: ------------------------------ Name: THE BANK OF NOVA SCOTIA, in its individual capacity and in its capacity as Administrative Agent By: ------------------------------ Name: GENERAL ELECTRIC CAPITAL CORPORATION, in its individual capacity By: ------------------------------ Name: GUARANTY REAFFIRMED: LECHMERE, INC. By: /s/ Carol J. Harms ------------------------------ Name: Carol J. Harms EX-10.(II)(A) 10 CONFIDENTIAL BANK CREDIT CARD PROGRAM CONFIDENTIAL INTERIM CONSUMER CREDIT CARD PROGRAM Dated as of April 1, 1996, As Amended, Restated and Renamed the BANK CREDIT CARD PROGRAM AGREEMENT Dated as of April 1, 1996 by and between MONOGRAM CREDIT CARD BANK OF GEORGIA and MONTGOMERY WARD & CO., INCORPORATED TABLE OF CONTENTS Page ---- 1. DEFINED TERMS.............................................................2 2. DEFINITIONAL MATTERS.....................................................25 3. ESTABLISHING ACCOUNTS AND ADDING INDEBTEDNESS............................25 3.1. Payment in Respect of Accounts and Indebtedness On and After the Conversion Date...............................................25 3.2. Payment Amount....................................................26 3.3. Support Fees......................................................29 3.4. Ineligible Indebtedness...........................................33 3.5. Finance Charges...................................................36 3.6. Fees Relating to Overlimit Approvals and Temporary Limit Increase Approvals................................................39 3.7. Starter Card Accounts and Marginal Card Accounts..................40 3.8. Monthly Statements................................................41 4. [ARTICLE INTENTIONALLY OMITTED]..........................................42 5. RELATIONSHIP OF PARTIES; SERVICING.......................................42 5.1. Ownership of Accounts.............................................42 5.2. Monogram's Responsibilities.......................................42 5.3. Monogram's Liabilities............................................46 5.4. MW's Responsibilities.............................................47 5.5. Promotions and Solicitations......................................54 5.6. [Section Intentionally Omitted.]..................................56 5.7. Use of Customer List..............................................56 5.8. Monogram's Records................................................58 5.9. Representatives...................................................58 5.10. Preferred Customer Services.......................................58 5.11. Right to Contract.................................................58 5.12. Limitation on Monogram............................................59 5.13. Right of First Refusal in Respect of Other Credit, Debit or Charge Programs...................................................59 5.14. Acquisitions/Divestitures/Store Closings..........................61 5.15. The Licensed Marks................................................71 5.16. MW Coordinator; Marketing Committee...............................76 5.17. Customer Moves....................................................78 6. CONDITIONS PRECEDENT.....................................................78 6.1. Conditions to Monogram's Obligations..............................78 6.2. Conditions to MW's Obligations....................................80 6.3. Conditions to Advances on Accounts by Monogram....................80 6.4. Conditions to MW's Obligation to Submit Charge Slips and Credit Slips.............................................................82 i Page ---- 7. SECURITY AND ACCESS TO DATA..............................................82 7.1. Nature of Program; Security Interest..............................82 7.2. Returns of Merchandise............................................84 7.3. Notices to Monogram...............................................85 7.4. Further Assurances................................................85 7.5. Attorney-in-Fact..................................................85 7.6. Continued Liability...............................................86 7.7. Other Party May Perform...........................................86 7.8. Receipt of Payments...............................................86 7.9. Access to Data by Monogram........................................87 7.10. Access to Data by MW..............................................87 7.11. Audit of Information..............................................88 7.12. Right of Setoff...................................................88 8. REPRESENTATIONS AND WARRANTIES OF MW.....................................88 8.1. Corporate Existence...............................................89 8.2. Executive Offices and Stores......................................89 8.3. Corporate Power; Authorization; Enforceable Obligations...........90 8.4. Solvency..........................................................90 8.5. Financials........................................................90 8.6. No Default........................................................91 8.7. Margin Regulations................................................91 8.8. No Litigation.....................................................91 8.9. Accounts..........................................................91 8.10. [Section Intentionally Omitted.]..................................92 8.11. The Licensed Marks................................................92 9. REPRESENTATIONS AND WARRANTIES OF MONOGRAM...............................92 9.1. Corporate Existence...............................................92 9.2. Corporate Power; Authorization; Enforceable Obligations...........93 9.3. Solvency..........................................................94 10. FINANCIAL STATEMENTS AND INFORMATION.....................................94 10.1. MW's Reports and Notices..........................................94 10.2. [Section Intentionally Omitted.]..................................94 11. INDEMNIFICATION..........................................................95 11.1. Indemnification by MW.............................................95 11.2. Indemnification by Monogram.......................................96 11.3. Defense of Third Party Claims.....................................97 11.4. Payment of Indemnified Amounts....................................98 11.5. Insurance and Mitigation..........................................98 12. AFFIRMATIVE COVENANTS OF MW..............................................98 12.1. Monogram's Forms..................................................98 12.2. Compliance with Law...............................................99 12.3. MW's Affiliates and Authorized Licensees..........................99 12.4. Protection Contracts.............................................100 ii Page ---- 13. AFFIRMATIVE COVENANTS OF MONOGRAM.......................................102 13.1. Compliance with Law..............................................102 13.2. Securitization, Assignment and Sale Compliance...................103 13.3. Sales of Accounts and Indebtedness...............................103 14. NEGATIVE COVENANTS OF MW................................................104 14.1. Liens............................................................104 14.2. [Section Intentionally Omitted.].................................104 14.3. Payments In Respect of Sales on Authorized Affiliates' Credit Cards............................................................104 14.4. Submission of Charge Transaction Data by Stores Only.............104 15. TERM....................................................................104 15.1. Term and Termination.............................................104 15.2. Effect of Termination and Reaching the Maximum Aggregate Cardholders' Balance.............................................105 15.3. Securitization/Participation.....................................124 16. EVENTS OF DEFAULT; RIGHTS AND REMEDIES..................................124 16.1. MW Defaults......................................................124 16.2. Monogram Defaults................................................126 16.3. Monogram Remedies................................................128 16.4. MW Remedies......................................................128 17. MISCELLANEOUS...........................................................128 17.1. Termination of Interim Agreement; Complete Agreement; Modification of Agreement; Assignment and Sale of Interest.......128 17.2. [Section Intentionally Omitted.].................................130 17.3. [Section Intentionally Omitted.].................................130 17.4. [Section Intentionally Omitted.].................................130 17.5. No Waiver........................................................130 17.6. Remedies.........................................................130 17.7. Severability.....................................................130 17.8. Parties..........................................................130 17.9. Authorized Signature.............................................130 17.10. Governing Law....................................................131 17.11. Notices..........................................................131 17.12. Confidentiality..................................................132 17.13. Payments.........................................................133 17.14. [Section Intentionally Omitted.].................................133 17.15. Section Titles...................................................133 17.16. Counterparts.....................................................133 17.17. Disclosure.......................................................134 17.18. Estoppel Certificates............................................134 17.19. Foreign Stores...................................................134 17.20. [Section Intentionally Omitted.].................................134 iii Page ---- 17.21. Third Party Beneficiaries........................................134 17.22. Force Majeure....................................................134 17.23. Closing..........................................................134 iv INTERIM CONSUMER CREDIT CARD PROGRAM AGREEMENT, dated as of April 1, 1996, as Amended, Restated and Renamed as the BANK CREDIT CARD PROGRAM AGREEMENT, dated as of April 1, 1996, by and between MONTGOMERY WARD & CO., INCORPORATED ("MW"), an Illinois corporation with its chief executive offices located at 619 West Chicago Avenue, Chicago, Illinois 60671, and MONOGRAM CREDIT CARD BANK OF GEORGIA ("Monogram"), a Georgia banking corporation with its principal place of business located at 7840 Roswell Road, Atlanta, Georgia 30350. W I T N E S S E T H: WHEREAS, Monogram has established programs to extend bankcard credit to qualified customers for the purchase of goods and services for personal, family or household uses; and WHEREAS, MW and certain Authorized Affiliates and Authorized Licensees (both as hereinafter defined) are engaged in the business of selling Merchandise (as hereinafter defined) and serving customers; and WHEREAS, MW, together with Montgomery Ward Credit Corporation ("MWCC") entered into that certain Account Purchase Agreement, dated as of June 24, 1988, as amended (the "Original Account Purchase Agreement"), pursuant to which MWCC purchased certain accounts of, and operated a private label program in conjunction with, MW; and WHEREAS, MW and MWCC have decided to terminate certain of their obligations under the Original Account Purchase Agreement; and WHEREAS, as a result of a contribution of capital from General Electric Capital Corporation ("GE Capital"), Monogram now owns certain accounts, indebtedness and related items previously owned by MWCC under the Original Account Purchase Agreement; and WHEREAS, MW and Monogram have entered into that certain Interim Consumer Credit Card Program Agreement, dated as of April 1, 1996 (the "Interim Agreement") pursuant to which Monogram has (i) issued Credit Cards (as hereinafter defined) and (ii) directly extended credit to individuals buying Merchandise at Stores (as hereinafter defined) pursuant to Accounts (including Old Accounts) (both capitalized terms as hereinafter defined); and WHEREAS, MW and Monogram previously have executed an agreement, also dated as of April 1, 1996 (the "Noneffective Agreement"), that amended and restated the Interim Agreement, which Noneffective Agreement required, as a condition to its effectiveness, that the transactions contemplated in such Noneffective Agreement be approved by Monogram's shareholder; and 1 WHEREAS, GE Capital, Monogram's sole shareholder, has determined not to approve the transactions contemplated by the Noneffective Agreement without certain modifications; and WHEREAS, because the Noneffective Agreement shall not become effective, both MW and Monogram desire to enter into this Agreement (as hereinafter defined) amending, restating and renaming the Interim Agreement as provided herein (if the conditions precedent hereto are satisfied or waived on or prior to the Closing Date), under which Agreement Monogram will continue to issue Credit Cards and extend credit directly to individuals buying Merchandise at Stores pursuant to Accounts (including Old Accounts) under the terms and conditions set forth herein; and WHEREAS, the Interim Agreement will terminate if this Agreement becomes effective, the conditions precedent having been met or waived, as of the date hereof or such other date as may be agreed to by the parties; and WHEREAS, MW has requested GE Capital, and GE Capital has agreed, to guaranty the obligations of Monogram hereunder. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: 1. DEFINED TERMS As used in this Agreement, the following terms shall have the respective meanings set forth below: "Account" shall mean the following: (a) a Credit Card-accessed open-end consumer credit account established by Monogram for use in connection with the Program (including, without limitation, an Old Account which was obtained by Monogram and an account arising under the Interim Agreement) by a Cardholder, where the Credit Card bears one of the Licensed Marks and pursuant to which such Cardholder may finance, for personal, family or household purposes only, the purchase of Merchandise at Stores, subject to the terms of a Credit Card Agreement; (b) any and all Account Documentation; (c) accounts, accounts receivable, other receivables, indebtedness, contract rights, choses in action, 2 general intangibles, chattel paper, instruments, documents, notes, obligations and all proceeds of the foregoing (as each of those terms which is defined in the Code is so defined) arising in connection with the Credit Card-accessed open-end credit account referred to in subsection (a) of this definition; (d) any and all rights and remedies as to stoppage-in-transit, reclamation, return and repossession of Merchandise financed pursuant thereto; (e) to the extent assignable, any and all goods or other property, contracts of indemnity, guaranties or sureties standing as security for payment of an Account; (f) any and all proceeds of insurance and other proceeds at any time standing as security for payment of an Account; and (g) any and all other rights, remedies, benefits, interests and titles, both legal and equitable, in respect of the foregoing. "Accounts" shall not include (a) those generated pursuant to layaway plans and (b) those excluded pursuant to Section 5.14 hereof. Except as otherwise expressly provided herein, reference in this Agreement to Accounts only shall include all Accounts (including, without limitation, Old Accounts, Starter Card Accounts, Marginal Card Accounts and accounts created under the Interim Agreement), portions thereof and participations therein then owned or held by Monogram or any direct or indirect assignee or secured party of, or purchaser from, Monogram (collectively, "Assignees"), provided that "Assignees" in no event shall include: (1) MW or an MW Designee, (2) any Person other than an Affiliate of Monogram who has purchased Monogram Defaulted Indebtedness, or (3) with respect to Accounts and Indebtedness purchased by MWCC from Monogram under the Delinquent Account Purchase Agreement, MWCC. With respect to SECTIONS 15.2(2)(i)(B) AND (iii), 15.2(3) AND 15.2(4) (and unless otherwise provided therein), to the extent any Indebtedness relating to Accounts is not owned by Monogram or Assignees, the reference to Accounts shall only include the Indebtedness owned by Monogram and/or Assignees. Except as otherwise expressly provided, references in this Agreement to Accounts shall include written-off Accounts. "Account Documentation" shall mean any and all documentation relating to Accounts, including, without limitation, Credit Card Documentation, Charge Transaction Data, checks 3 or other forms of payment with respect to an Account, credit bureau reports (to the extent not prohibited from transfer by contract with the credit bureau to the extent such prohibition has not been waived), adverse action notices, change of terms notices, other notices, correspondence, memoranda, documents, stubs, instruments, certificates, agreements, invoices, sales or shipping slips, delivery and other receipts, magnetic tapes, disks, hard copy formats or other computer-readable data transmissions, any microfilm, electronic or other copy of any of the foregoing, and any other written, electronic or other records or materials of whatever form or nature, including, without limitation, tangible and intangible information, arising from or relating or pertaining to any of the foregoing. "Account-Related Agreement" shall mean that certain Account Purchase Agreement, dated as of June 24, 1988, as amended, restated and renamed the Account-Related Agreement, dated as of April 1, 1996 and executed and effective simultaneously herewith, between MW and MWCC. "Acquiree" shall mean either (i) an existing retail operation (E.G., stores, mail order and home television shopping) or (ii) to the extent of its retail operation, a Person that operates a retail operation, which operation or Person is acquired by, or becomes an Affiliate of, MW. "Acquiree Credit Program" shall mean an open-end consumer credit program pursuant to which consumers may finance or otherwise obtain credit for retail purchases of goods and/or services from an Acquiree to the extent such program: (i) is operated by such Acquiree (whether in-house or in connection with an outside Person) and (ii) involves the use of the Acquiree's trademarks, trade names, service marks, logos and/or other proprietary designations. "Acquiror Credit Program" shall mean an open-end consumer credit program pursuant to which consumers may finance or otherwise obtain credit for retail purchases of goods and/or services from (as appropriate) a Section 2 Acquiror or Post-Control Loss Acquiror to the extent such program: (i) is operated by such Section 2 Acquiror or Post-Control Loss Acquiror (whether in-house or in connection with an outside Person) and (ii) involves the use of such Section 2 Acquiror's or Post-Control Loss Acquiror's trademarks, trade names, service marks, logos and/or other proprietary designations. "Acquisition Notice" shall have the meaning assigned to such term in SECTION 5.14(1)(b)(i) hereof. 4 "Affiliate" shall mean, with respect to any Person, each Person that controls, is controlled by, or is under common control with, such Person, provided, however, that (a) the term "Affiliate" shall not include any individual, and no individuals shall be taken into account in any determinations under this definition, and (b) neither any direct or indirect owner of equity securities of MW, including General Electric Company and GE Capital, other than Montgomery Ward Holding Corp. so long as it owns all of the outstanding common equity securities of MW ("Holding"), nor any of said Person's Subsidiaries (except that MW, Holding and their respective Subsidiaries may be considered Affiliates of each other), shall be considered to be an Affiliate of MW based solely on its ownership of such equity securities, nor shall MW, Holding and/or their respective Subsidiaries be considered Affiliate(s) of any such owner (including General Electric Company and GE Capital) or such owner's Subsidiaries (except that MW, Holding and their respective Subsidiaries may be considered Affiliates of each other). For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract, or otherwise. "AFF Promotion" shall have the meaning assigned to it in SECTION 3.5(2) hereof. "Aggregate Extra Risk Dollar Amount of Monthly Credit Sales" shall mean, for each Fiscal Month, the sum of the Extra Risk Dollar Amount of Monthly Credit Sales for such Fiscal Month. "Aggregate Cardholders' Balance" shall mean, at any time, the aggregate of all Indebtedness, but exclusive of any Monogram Defaulted Indebtedness. "Aggregate Layer Balance" shall have the meaning assigned to it in SECTION 3.3(2)(v) hereof. "Agreement" shall mean this Bank Credit Card Program Agreement, including all amendments, restatements, replacements, modifications, supplements, exhibits and schedules hereto, and shall refer to this Agreement as the same may be in effect at the time such reference is operative. "Anticipated Credit Promotion Amount" shall have the meaning set forth in SECTION 3.5(3)(i) hereof. "Assignees" shall have the meaning assigned to it in the definition of "Account" in SECTION 1 hereof. 5 "Authorized Affiliate" shall mean any Affiliate of MW who (a) is listed on EXHIBIT A or (b)(i) Monogram, in response to a request by MW, has agreed in writing (such agreement not to be unreasonably withheld or delayed) may accept Credit Cards in connection with said Affiliate's sale of consumer goods and/or services and (ii) has executed an agreement containing, among other provisions, those contained in EXHIBIT B hereto. Unless otherwise agreed by the parties, EXHIBIT A shall be deemed amended to delete reference to any Person identified thereon on the first date such Person no longer is an Affiliate of MW and such Person shall not be an Authorized Affiliate for or during any time periods thereafter. "Authorized Charges" shall have the meaning assigned to it in SECTION 3.5(1) hereof. "Authorized Licensee" shall mean (a) the Signature Companies, if they no longer are Authorized Affiliates and (b) any Person who (i) is listed on EXHIBIT C, (ii)(x) Monogram, in response to a request by MW, has agreed in writing (such agreement not to be unreasonably withheld or delayed) may accept Credit Cards in connection with said Person's sale of consumer goods and/or services in the manner and scope approved and (y) has executed an agreement in substantially the form of EXHIBIT D1 or D2 hereto, or (iii)(x) leases or licenses space in any Store operated by MW or an Authorized Affiliate of MW and (y) has executed an agreement in substantially the form of EXHIBIT D1 or D2 hereto, in each case, as to, and to the extent of, such Person's activities conducted in such Store(s); provided, however, no Person shall be an Authorized Licensee for or during any time period(s) after MW advises Monogram such Person no longer shall be an Authorized Licensee, except that the Signature Companies shall be Authorized Licensees at all times they no longer are Authorized Affiliates. "Balance Sheet" shall have the meaning assigned to it in SECTION 8.5 hereof. "Bankruptcy Code" shall mean Title 11 of the United States Code, as now constituted or as hereafter amended, or any successor law. "Billing Cycle" shall mean the time period between regular periodic Billing Dates for an Account. "Billing Date" shall mean, collectively, those dates during a Settlement Period as of which Accounts are billed. "Billing Statement" shall mean a summary of credit and/or debit transactions on an Account for a Billing Cycle, 6 including, without limitation, a descriptive statement covering purchases of Merchandise and/or a statement with past due information. "Business Day" shall mean any day except (i) Saturday, (ii) Sunday or (iii) a day on which banks are required or permitted to be closed in the State of Georgia to the extent that the bank or banks from which Monogram wires funds under this Agreement actually are closed on such day. "Cancellation Date" shall have the meaning assigned to it in SECTION 5.13(3) hereof. "Cardholder" shall mean any natural person who is or may become obligated under, with respect to, or on account of, an Account. "Cash Price" shall have the meaning assigned to it in SECTION 5.4(5)(iii) hereof. "Charge Slip" shall mean evidence of a sale of Merchandise at a Store to be charged on an Account, including, without limitation, an invoice, sales slip, memorandum of purchase or similar document or an electronic or magnetic transmission. "Charge Transaction Data" shall mean Cardholder identification and transaction information with regard to (i) each purchase of Merchandise on an Account and (ii) each return, exchange or adjustment for Merchandise purchased on an Account. "Closing Date" shall mean December 23, 1996, or such later date as may be agreed to by the parties in writing. "Code" or "UCC" shall mean the Uniform Commercial Code (or similar personal property security law) of the jurisdiction with respect to which such term is used, as now constituted or hereafter amended, or any successor law. "Competitor" shall mean those Persons (and their Affiliates) that own or control the retail operations now commonly known as Sears or J.C. Penney or any successors to such retail operations. "Contractual Method" shall mean the method of calculating Monogram Defaulted Indebtedness whereby all Indebtedness in respect of an Account shall be considered Monogram Defaulted Indebtedness in the Billing Cycle following the Billing Cycle in which the Cardholder is considered past due for one hundred fifty (150) days on one minimum payment, all in 7 accordance with Monogram's policies and practices, including, without limitation, such policies and practices with respect to extensions, recycles, partial payments (which shall require Cardholders to pay a minimum of 90% of the required periodic payment specified in their Credit Card Agreements to avoid further aging) and other adjustments, as of the date hereof. For the avoidance of doubt, by way of example: For a Cardholder who first is billed on the fifteenth of month one, the related payment is due on the fifteenth of month two. If a payment is not made by the fifteenth of month three, such payment is considered past due for thirty (30) days or more on one minimum payment. In summary, there is a two-month timing difference between the time an Account is billed and when it is considered one month past due. "Control Loss Event" shall mean an event the result of which is that GE Capital (or an Affiliate thereof) no longer possesses the rights to block or prevent all of the actions set forth in the subsections of Section 5.3 of the Stockholders' Agreement, dated as of June 17, 1988, as amended and restated as of August 1, 1994, between BFB Acquisition Corp., Bernard F. Brennan, GE Capital and certain other Persons (the "Stockholders' Agreement"), whether or not the Stockholders' Agreement remains in effect. "Conversion Date" shall mean April 1, 1996. "Credit Account" shall have the meaning assigned to it in SECTION 3.7(1) hereof. "Credit Card" shall mean a card issued by Monogram bearing the words "Montgomery Ward" and/or another of the Licensed Marks and issued to a Cardholder, which card allows said Cardholder to purchase Merchandise under an Account. "Credit Card Agreement" shall mean a credit card agreement between Monogram and a Cardholder governing the use of an Account, including an Old Account, together with any amendments, modifications, restatements, replacements or supplements which now or hereafter may be made to such Credit Card Agreement. "Credit Card Application" shall mean Monogram's credit application, which application must be completed and submitted for review to Monogram by individuals who wish to become Cardholders. "Credit Card Documentation" shall mean, with respect to Accounts, all Credit Card Applications, Credit Card Agreements, Credit Cards, Charge Slips, Credit Slips and Billing Statements relating to such Accounts. 8 "Credit Card Receivables Sale Agreement" shall mean that certain Credit Card Receivables Sale Agreement, dated as of April 1, 1996, between Monogram and MWCC, as such agreement may be amended, restated, replaced, modified and/or supplemented from time to time, provided that, unless agreed to or approved by MW, such changes shall not adversely affect MW under this Agreement or any other agreement(s) between MW and Affiliates of Monogram relating to the Program. "Credit Limit" shall mean, with respect to any Cardholder on any date, the dollar limit set by Monogram for such Cardholder to allow him/her to make purchases on his/her Account to the extent of such limit, as the same is adjusted from time to time (it being understood that such adjustments shall not include those purchase-specific or temporary adjustments made by Monogram thereto). "Credit Promotions" shall have the meaning assigned to it in SECTION 3.5(2) hereof. "Credit Promotions Account" shall have the meaning assigned to it in SECTION 3.5(3) hereof. "Credit Sales" shall mean, for any period, the total gross sales price, including sales tax, LESS returns and allowances, for such period arising from the sale of Merchandise by MW, Authorized Affiliates and Authorized Licensees pursuant to Accounts. "Credit Slip" shall mean evidence of an adjustment or credit on an Account for a return or exchange of Merchandise purchased on such Account. "Customer List" shall mean any identification (whether in hard copy, magnetic tape or other format) of (i) Cardholders and/or (ii) applicants for Accounts (both categories of Persons in their capacities as credit customers or potential credit customers with respect to purchases from Stores), on the Conversion Date or any date(s) thereafter, including, without limitation, any list identifying the name, address, telephone number and social security number of any such Person, alone or together with any other information that Monogram has in its files with respect to such Person in connection with the Program. For the avoidance of doubt, it is acknowledged and agreed that the Customer List shall not include any such identifications of cardholders obligated in respect of Accounts on and after the date sold to MWCC under the Delinquent Account Purchase Agreement. For purposes of this definition, the Customer List shall include any identification(s) of Cardholders or applicants 9 for Accounts provided to MW by Monogram and maintained by MW, whether or not Monogram has maintained such identification(s). "Decremental Layer Balance" shall have the meaning assigned to it in SECTION 3.3(2)(iv) hereof. "Delinquent Account Purchase Agreement" shall mean that certain Delinquent Account Purchase Agreement, dated as of April 1, 1996, between MWCC and Monogram, as such agreement may be amended, restated, replaced, modified and/or supplemented from time to time, provided that, unless agreed to or approved by MW, such changes shall not adversely affect MW under this Agreement or other agreement(s) between MW and Affiliates of Monogram relating to the Program. "Delivery Date" shall have the meaning assigned to it in SECTION 5.4(5)(ii) hereof. "Designated Insured Percentage" shall have the meaning assigned to such term in SECTION 12.4(1) hereof. "Divested Store" shall have the meaning assigned to it in the definition of "MW Divestiture" in SECTION 1 hereof. "Divestiture Contract Date" shall mean, for any contemplated MW Divestiture, the date of execution of the agreement(s) governing such contemplated MW Divestiture. "Divestiture Date" shall mean the date of the closing of any MW Divestiture. "Divestiture Notice" shall have the meaning assigned to such term in Section 5.14(3)(i). "Divestiture-Related Account" shall mean, as of any Divestiture Date, an Account (except to the extent of Indebtedness on such Account sold to MWCC under the Credit Card Receivables Sale Agreement, which Indebtedness shall not be included within this definition) the primary Cardholder in respect of which lives in a zip code area within fifty (50) miles of the zip code area of a Divested Store being sold or otherwise transferred for value as part of the MW Divestiture in question on such Divestiture Date, but (i) does not live within fifty (50) miles of the zip code area of a retail Store location operated by MW or an Authorized Affiliate not being sold or otherwise transferred for value on such Divestiture Date and (ii) has not made a purchase on his or her Account through a non-retail Store location operated by MW or Authorized Affiliate during the immediately preceding 12-month period. 10 "Divestiture-Related Account Purchase Price" shall mean, for any Divestiture-Related Accounts to be sold on any date, an amount equal to: (i) [ ]* as to Indebtedness on such Divestiture-Related Accounts (which, for the avoidance of doubt, shall not include Indebtedness sold to MWCC under the Credit Card Receivables Sale Agreement) on such date, [ ]* (ii) [ ]* computed in accordance with Monogram's Accounting Practices and based on the proportion of the Aggregate Cardholders' Balance of the Indebtedness described in subsection (i) of this definition to all Indebtedness (which shall not include Indebtedness sold to MWCC under the Credit Card Receivables Sale Agreement) other than Monogram Defaulted Indebtedness. "Dominant Card" shall have the meaning assigned to it in SECTION 5.14(6) hereof. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Existing Program" shall have the meaning assigned to that term in SECTION 5.13(2) hereof. "Extra Risk Dollar Amount of Monthly Credit Sales" shall mean, for each Fiscal Month for each Person (or division of each Person) for whom algorithms for Overlimit Approvals have been set by each party, a dollar amount equal to (i) the Indebtedness created by sales by such Person in such Fiscal Month which would not have been made without Overlimit Approvals, MULTIPLIED BY (ii) the percentage derived by use of such algorithms (as each such Person's algorithms may be modified by such Person from time to time). "Final Blended Rate" shall have the meaning assigned to it in SECTION 3.3(3)(v) hereof. "Fiscal Month" shall mean, during any Fiscal Year, each month as defined by Monogram on its fiscal calendar for that Fiscal Year. "Fiscal Year" shall mean a fiscal year the dates of which are specified by Monogram, provided each Fiscal Year must end on December 31 or within seven (7) days before or after December 31 of each year. "Five-Year Rate" shall have the meaning assigned to it in SECTION 3.3(2)(viii) hereof. 11 *Confidential treatment has been requested with respect to this information. "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. "GE Capital" shall have the meaning assigned to it in the RECITALS hereto. "Governmental Authority" means the United States, any State, or any other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, in each case whether national, State or local. "Guaranty" shall mean that certain Guaranty of Bank Credit Card Program Agreement, of even date herewith, the form of which is attached hereto as EXHIBIT E hereto. "Holding" shall have the meaning assigned to it in the definition of "Affiliate" in SECTION 1 hereof. "Incremental Layer Balance" shall have the meaning assigned to it in SECTION 3.3(2)(iv) hereof. "Indebtedness" shall mean, at any time, the outstanding obligation incurred by a Cardholder under an Account (including any Old Account), including, without limitation, any charges for Merchandise (which includes insurance financed pursuant to an Account), sales tax, finance charges and any other charges in respect of an Account, whether accrued or billed, inclusive of finance charges subject to possible reversal due to unexpired AFF Promotions, as all such charges are determined pursuant to Monogram's Accounting Practices. For the avoidance of doubt, reference in this Agreement to Indebtedness (i) shall include only all Indebtedness then owned or held by Monogram or Assignees and (ii) shall not include (a) Indebtedness sold to MWCC under the Delinquent Account Purchase Agreement and (b) Monogram Defaulted Indebtedness sold to any Person other than an Affiliate of Monogram. "Ineligible Indebtedness" shall mean Indebtedness which MW is required to purchase from Monogram pursuant to SECTION 3.4 hereof. "Infringements" shall have the meaning assigned to such term in SECTION 5.15(6) hereof. "Initial Term" shall have the meaning assigned to such term in SECTION 15.1(1) hereof. 12 "In-Store Payment" shall mean any payment on an Account made by a Cardholder (or any other person acting on behalf of a Cardholder) at a Store. "Insurance Lapse Date" shall have the meaning assigned to it in SECTION 12.4(2). "Interim Agreement" shall have the meaning assigned to it in the RECITALS hereto. "Interim Percentage" shall mean an amount equal to (a) the sum of (i) the amount reasonably estimated by MW to represent the potential cost to perform the outstanding obligations under the Protection and (ii) the amount reasonably estimated by Monogram to represent the potential cost to perform the outstanding obligations under the Protection, DIVIDED BY (b) 2. Each such estimate shall be based upon an actuarial estimate of the costs to Monogram and/or its Affiliates of providing the Protection. "Layer Balance" shall have the meaning assigned to it in SECTION 3.3(2)(iv) hereof. "Layer Balance Date" shall have the meaning assigned to it in SECTION 3.3(2)(iii) hereof. "Layer Blended Rate" shall have the meaning assigned to it in SECTION 3.3(2)(vi) hereof. "License Term" shall have the meaning assigned to it in SECTION 5.15(5) hereof. "Licensed Marks" shall mean the trademarks, trade names, service marks, logos and other proprietary designations of MW listed on SCHEDULE 5.15 hereto, which Schedule (as amended by MW from time to time) at all times shall contain all trademarks, trade names, service marks, logos and other proprietary designations of MW and Authorized Affiliates used in connection with their retail operations. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest (including, without limitation, any interest of a buyer of accounts or chattel paper that is subject to Article 9 of the Code), encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the fore- 13 going, and the filing of, or agreement to file, any financing statement pursuant to the Code). "Liquidation Account" shall have the meaning assigned to it in SECTION 6.3(5) hereof. "Liquidation Account Commercial Paper Rate" shall mean, as of the last Business Day of any Settlement Period, [ ]* sold by or through any Person as published in The Wall Street Journal on that day, or if not published therein, as published or made available by such other source as Monogram reasonably shall determine. "Marginal Card Account" shall mean an Account, until such time, if any, such Account has been converted to a Credit Account pursuant to SECTION 3.7 hereof, established by Monogram for an applicant who does not meet the credit requirements for a Credit Account but exceeds the credit requirements for a Starter Card Account, and includes an Old Account acquired or established by MWCC for an applicant who did not meet MWCC's credit requirements for a credit account but exceeded MWCC's credit requirements for a Starter Card Account. "Marketing Agreement" shall mean any agreement(s) between the Signature Companies and MW and/or Affiliates of MW relating to, among other things, the use by the Signature Companies of customer lists, names and trademarks of MW and/or its Affiliates in connection with the Signature Companies' sales and operations, as such agreement(s) may be amended, restated, replaced, modified and/or supplemented from time to time, but only to the extent the initial such agreement is entered into in connection with the purchase or other acquisition of the Signature Companies by an Affiliate of Monogram. "Marketing Committee" shall have the meaning assigned to it in SECTION 5.16(1) hereof. "Maximum Aggregate Cardholders' Balance" shall mean (a) the amount equal to the difference between (i) [ ]* (which is based on current credit terms) and (ii) the aggregate of indebtedness on accounts owned by an Affiliate of Monogram in connection with any agreement with MW relating to the Program excluding (i) any indebtedness written off by such Affiliate in accordance with it accounting practices and (ii) for the avoidance of doubt, Indebtedness, or (b) such higher amount as MW and Monogram may from time to time agree to as provided herein. 14 *Confidential treatment has been requested with respect to this information. "Merchandise" shall mean goods and services including, without limitation, accessories, installation, delivery services, automotive services, repair services, service contracts, warranties, insurance and club fees, as well as any other items which Monogram from time to time agrees may be sold on Accounts, for personal, family or household use. Merchandise shall include items that are new or used at the time of sale, including clearance items and items that are returned or repossessed and restored to the inventory and subsequently offered for resale. "Modified Thirty-Day Commercial Paper Rate" shall have the meaning assigned to such term in SECTION 3.3(2)(vii) hereof. "Money Cost Balance" shall have the meaning assigned to it in SECTION 3.3(2)(i) hereof. "Money Cost Model" shall have the meaning assigned to it in SECTION 3.3 hereof. "Money Cost Net Receivable Balance" shall have the meaning assigned to it in SECTION 3.3(2)(ii) hereof. "Monogram" shall have the meaning assigned to it in the INTRODUCTORY PARAGRAPH hereof. "Monogram Default" shall have the meaning assigned to it in SECTION 16.2 hereof. "Monogram Defaulted Indebtedness" shall mean any Indebtedness, including, without limitation, Old Indebtedness and Indebtedness arising pursuant to Marginal Card Accounts and Starter Card Accounts, (a) where Monogram and/or an Affiliate of Monogram has received official notice that the Cardholder in respect of such Indebtedness has filed a petition for relief under the Bankruptcy Code, made a general assignment for the benefit of creditors, had filed against it any petition or other application for relief under the Bankruptcy Code, or has suffered a receiver or trustee to be appointed for all or a significant portion of its assets, and Monogram has concluded that the relevant Indebtedness should be written off on its books, (b) where Monogram and/or an Affiliate of Monogram has received reliable notice that the Cardholder has died and the earlier occurs of (i) the receipt of information that there are no assets in the estate or that there has been a judicial determination that there are no assets in the estate, or (ii) ninety (90) days have elapsed since Monogram and/or an Affiliate of Monogram received such notification of death, (c) where the Cardholder has asserted that the Indebtedness was fraudulently incurred and the claim of fraud is not frivolous, (d) where Merchandise has been repossessed and the Cash Price of such Merchandise is a 15 substantial portion of the Indebtedness outstanding on the Account immediately prior to the time of repossession, (e) where a settlement is reached with a Cardholder as to the total amount owing in connection with an Account and such amount has been paid, to the extent of such unpaid amount, (f) where verification is obtained that the Cardholder is confined to a jail, nursing home or similar institution, (g) where the Indebtedness is deemed by Monogram to be uncollectible due to the fact that the Account of which it is a part has been chronically past due and delinquent, or (h) where any Indebtedness in respect of an Account becomes Monogram Defaulted Indebtedness based on the Contractual Method. Notwithstanding the foregoing, in no event shall Monogram Defaulted Indebtedness include (x) Indebtedness written off prior to the Conversion Date, or (y) Indebtedness that is Monogram Defaulted Indebtedness due to the fraud of Monogram, its employees, agents or representatives. Monogram Defaulted Indebtedness shall be deemed to be such after the first event set forth above which qualifies it as such occurs; provided, that with respect to subsections (b)-(g) above, Monogram Defaulted Indebtedness shall be deemed to be such within a reasonable time, not to exceed one hundred twenty (120) days, after the first event set forth above which qualifies it as such occurs. For the avoidance of doubt, it is understood and agreed that (1) all references in this Agreement to Monogram Defaulted Indebtedness includes all such Indebtedness owned by Monogram and/or owned or held by any Assignees, including an Affiliate of Monogram, and (2) notwithstanding any policies or procedures with respect to the financial reporting of finance charges, late fees, insufficient fund fees and other charges and fees assessed to a Cardholder, Monogram Defaulted Indebtedness shall include all such charges and fees billed to a Cardholder with respect to Indebtedness which are unpaid at the time such Indebtedness becomes Monogram Defaulted Indebtedness, and (3) references to an Affiliate of Monogram shall mean only such Affiliates or parts of such Affiliates that participate in the Program. "Monogram's Accounting Practices" shall mean the general accounting practices followed by Monogram on a consistent basis with respect to the manner in which it conducts its business, which practices shall be in accordance with GAAP, including, without limitation, Monogram's practices for accruing charges and calculating receivables, except that, notwithstanding any policies or procedures under GAAP or of Monogram with respect to the accounting and reporting of finance and other charges, Indebtedness shall include all finance and other charges (i) billed to Cardholders with respect to AFF Promotions where charges are subject to credit if the Cardholders make all payments under the terms of such AFF Promotions and (ii) accruing and/or billed on delinquent Accounts after the point (currently 16 90 days) at which Monogram no longer accrues such fees and charges under GAAP. "Monthly Billed Indebtedness" shall mean, for any Settlement Period, the sum of Indebtedness during such Settlement Period, as computed pursuant to Monogram's Accounting Practices, but without the deduction of any allowance for bad debts, billed to Cardholders on each Billing Cycle closing date during that Settlement Period and billed to MW during that Settlement Period in connection with Reduced Accounts. "Monthly Payment Period" shall have the meaning assigned to such term in the Account-Related Agreement. "Monthly Yield Percentage" shall mean, for any Settlement Period or part thereof, the amount (expressed as a percentage) obtained by (a) dividing (i) the total amount of finance charges billed to Cardholders or billed to MW in connection with Reduced Accounts during such period with respect to Indebtedness, less all finance charges credited in respect of such Indebtedness during such period (other than finance charges credited during such period as the result of (x) payments on such Accounts by Cardholders, (y) payments on such Accounts by MW in connection with Reduced Accounts, and (z) successful completion of AFF Promotions) by (ii) Monthly Billed Indebtedness for such period, (b) multiplying such quotient by 12 and (c) rounding the resulting product to two (2) decimal places. "MW" shall have the meaning assigned to it in the Introductory Paragraph hereto. "MW Coordinator" shall mean the employee of MW in charge of coordinating MW's responsibilities under this Agreement. "MW Default" shall have the meaning assigned to it in SECTION 16.1 hereof. "MW Designee" shall have the meaning assigned to it in SECTION 15.2(2)(i)(B) hereof. "MW Divestiture" means any sale or other transfer for value, directly or indirectly, of retail Store locations (other than (i) the sale or transfer to Monogram, an Affiliate of Monogram or an Authorized Affiliate; (ii) a sale of all or substantially all of the business of MW where this Agreement is assigned as provided in SECTION 17.1(3), and (iii) Stock or other direct or indirect transfers of equity interests in MW), by MW or a Relevant Authorized Affiliate to a Person or Persons who, after the relevant divestiture, shall continue to operate the retail 17 Store locations to be sold or transferred as retail store locations in which more than [ ]* of sales will be made utilizing open-end consumer credit programs bearing such acquiror's tradestyle (such percentage of sales will be presumed to be more than [ ]* unless demonstrated otherwise by MW and each such location to be referred to as a "Divested Store"), which sale or transfer occurs in one or more transactions or series of transactions on a cumulative basis during any rolling 18-month period where the Divested Store in question, when coupled with Divested Stores previously divested during such rolling 18-month period by MW and Relevant Authorized Affiliates, accounted for a total of [ ]* or more of Credit Sales (such percentage for each Divested Store being determined by comparing the Credit Sales for each Divested Store in question to Credit Sales for all Stores during the 12-month period prior to the date on which MW delivers (or is obligated to deliver) the Divestiture Notice, as to each Store divestiture in question) (it being understood that for purposes of allocating Credit Sales to Store(s): (a) an Account of a Cardholder whose zip code area is within fifty (50) miles of the zip code area(s) of the Divested Store or Stores being so sold or otherwise transferred for value shall be attributed to such Store or Stores unless (i) there is another retail Store location or locations operated by MW or an Authorized Affiliate not being sold or otherwise transferred for value as part of such divestiture within fifty (50) miles of such Cardholder's zip code area or (ii) the Cardholder has made a purchase on his or her Account through a non-retail Store location operated by MW or an Authorized Affiliate during the immediately preceding 12-month period; and (b) if Store(s) are sold or otherwise transferred for value at any time during the first twelve months following the date hereof, the percentage of credit sales attributable to such Stores will be determined using (as necessary) monthly credit sales figures under the program operated pursuant to the Original Account Purchase Agreement). When determining whether a MW Divestiture has occurred "on a cumulative basis during any rolling 18-month period," each new occurrence of an event shall be considered together with all prior such events that occurred during the immediately preceding rolling 18-month period such that the relevant percentage calculated with respect to a divestiture for one 12-month period is added to the relevant percentage(s) calculated with respect to divestiture(s) (within the rolling 18-month period) for other 12-month periods. Example: On Day 1, MW sells Stores operated by MW which accounted for [ ]* of Credit Sales during the 12 months immediately preceding delivery of the related Divestiture Notice. There has been no MW Divestiture. On Day 400, a Relevant Authorized Affiliate sells Stores which accounted for [ ]* of Credit Sales during the 12 months immediately preceding delivery 18 *Confidential treatment has been requested with respect to this information. of the related Divestiture Notice. Since MW and Relevant Authorized Affiliates have sold Stores as to which [ ]* of Credit Sales were attributable during a rolling 18-month period (albeit calculated on different bases), an MW Divestiture has occurred. "MWCC" shall have the meaning assigned to it in the RECITALS hereto. "Net Layer Balance Product" shall have the meaning assigned to it in SECTION 3.3(3)(ii) hereof. "Net Receivable Balance" shall mean, for the day in question, the amount by which (a) the Aggregate Cardholders' Balance (other than the portion thereof comprising Indebtedness sold to MWCC under the Credit Card Receivables Sale Agreement) as of the opening of business of such day, as computed pursuant to Monogram's Accounting Practices, exceeds (b) the amount of any allowance for bad debts on the books of Monogram or Assignees other than MWCC with respect to the Indebtedness comprising the Aggregate Cardholders' Balance (again other than the portion thereof comprising Indebtedness sold to MWCC under the Credit Card Receivables Sale Agreement), as of the opening of business on such day, also as computed pursuant to Monogram's Accounting Practices. "New Indebtedness" shall mean any Indebtedness arising on or after the Conversion Date. "New Mark" shall have the meaning assigned to it in SECTION 5.15(1)(b) hereof. "Non-Converted Accounts" shall mean any account, account receivable, other receivable, indebtedness, contract right, chose in action, general intangible, chattel paper, instrument, document, note, or obligation and all proceeds of the foregoing to the extent purchased and/or established by MWCC prior to April 1, 1996, owned by MWCC or MW on such date, and not sold by MWCC to GE Capital on such date, wherever located, purchased or established under the Original Account Purchase Agreement arising out of the sale of Merchandise to any MWCC Cardholder (as defined in the Account-Related Agreement), including those owned by MWCC Assignees (as defined in the Account-Related Agreement). Non-Converted Accounts shall include the foregoing items, whether or not written off. "Obligations" shall mean, on any day, any and all liabilities or obligations owing by MW to Monogram or any of Monogram's Affiliates pursuant to this Agreement or the Account-Related Agreement, including those obligations incurred prior to the date hereof. The term includes, without limitation, any fee, 19 *Confidential treatment has been requested with respect to this information. charge, expense, attorney's fee or other sum chargeable to MW pursuant to this Agreement or the Account-Related Agreement. "Old Account" shall mean any account arising prior to the Conversion Date under the Original Account Purchase Agreement, the terms of which were governed by either (i) a credit agreement between a consumer and MW and assigned to MWCC or (ii) an agreement between a consumer and MWCC with respect to the State of Washington, both if and to the extent Monogram acquires such account and converts it to an Account. "Old Indebtedness" shall mean any Indebtedness arising on an Old Account prior to the Conversion Date. "Original Account Purchase Agreement" shall have the meaning assigned to it in the RECITALS hereto. "Overlimit Approval" shall mean any decision by Monogram, granted at MW's request, to allow a Cardholder to make a purchase on his/her Account in excess of such Cardholder's Credit Limit. "Payment Amount" shall have the meaning assigned to it in SECTION 3.2(1) hereof. "Permitted Businesses" shall have the meaning assigned to it in SECTION 5.15(2) hereof. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Post-Control Loss Acquiror" shall mean any Person (other than Monogram, Affiliates of Monogram or an Affiliate of MW) who: (i) operates, or after the relevant divestiture by MW or an Authorized Affiliate will operate, a Divested Store, and (ii) makes an acquisition which would constitute a MW Divestiture at any time on or after a Control Loss Event. "Primary Card" shall mean, for any Cardholder, either (i) the Credit Card or (ii) a credit card issued under any other agreement between an Affiliate of MW and Monogram, which Monogram and MW reasonably project will generate the greatest amount of private label credit purchases at Stores on such Credit Card or credit card by residents living in that Cardholder's or card- 20 holder's zip code during the twelve month period following such determination. "Prime Rate" shall mean, on any day, [ ]* (or, if such publication or index is discontinued, such other publication or index of similar type mutually agreed to by MW and Monogram), regardless of whether such rate is ever applied. "Program" shall mean the program established by Monogram with MW under this Agreement and made available to qualified applicants for the purchase of Merchandise, which program shall include, without limitation, the extension of credit to qualified applicants, billings, collections and customer services by Monogram, accounting between the parties, and all other aspects of the customized credit plan specified herein and in Credit Card Agreements. "Protection" shall have the meaning assigned to it in SECTION 12.4(1). "Protection Account" shall have the meaning assigned to such term in SECTION 12.4(2) hereof. "Provisions" shall have the meaning assigned to such term in SECTION 15.2(1). "Purchased Monogram Account" shall mean any Account (as defined in the Account-Related Agreement), including any Indebtedness thereon, purchased by MWCC from Monogram under the Delinquent Account Purchase Agreement, including those owned by MWCC Assignees (as defined in the Account-Related Agreement). Purchased Monogram Accounts shall include such Accounts that are written off. For the avoidance of doubt, it is acknowledged that Purchased Monogram Accounts do not include those written-off accounts and/or indebtedness sold to third parties. "Purchaser" shall have the meaning assigned to it in SECTION 17.1(4) hereof. "Reduced Accounts" shall have the meaning assigned to it in SECTION 3.5(1) hereof. Reduced Accounts shall not include Accounts to the extent subject to Skip Free Promotions or AFF Promotions. "Reduced Charges" shall have the meaning assigned to it in SECTION 3.5(1) hereof. 21 *Confidential treatment has been requested with respect to this information. "Relevant Authorized Affiliate" shall mean any Authorized Affiliate, to the extent such Authorized Affiliate is not a party to an agreement with Monogram or an Affiliate of Monogram providing for the operation by Monogram or such Affiliate of a credit card program relating to such Authorized Affiliate. "Remade Monogram Representations and Warranties" shall have the meaning assigned to it in SECTION 9 hereof. "Remade MW Representations and Warranties" shall have the meaning assigned to it in SECTION 8 hereof. "Response Date" shall have the meaning assigned to it in SECTION 15.2(3)(i) hereof. "Retailer Department" shall have the meaning assigned to it in SECTION 17.1(4) hereof. "Section 2 Acquiror" shall have the meaning assigned to such term in SECTION 5.14(2) hereof. "Settlement Period" shall mean a Fiscal Month. Each Fiscal Year shall contain twelve (12) Settlement Periods. "Signature Companies" shall mean those companies owned by MW prior to the Conversion Date and operating as part of the group of companies known as Signature, whether or not the word Signature is used in the names of such companies, and any successors thereto or assignees thereof. "Signature License" shall mean any agreement between Monogram and the Signature Companies in substantially the form attached as EXHIBIT F hereto, which EXHIBIT F may be amended only with MW's consent. "Skip Free Promotions" shall have the meaning assigned to it in SECTION 3.5(2) hereof. "Solvent" shall mean, when used with respect to any Person, that (a) the present fair salable value of such Person's assets as a going concern is in excess of the total amount of its liabilities as would be reflected on a balance sheet for a going concern determined in accordance with GAAP, and (b) such Person is presently generally able to pay its debts as they become due, excluding any debts that are subject to a bona fide dispute. The phrase "present fair salable value" of a Person's assets is intended to mean that value which can be obtained if the assets are sold within a reasonable time in arm's-length transactions in an existing and not theoretical market. 22 "Starter Card Account" shall mean an Account, until such time, if any, such Account has been converted to a Credit Account pursuant to SECTION 3.7 hereof, established by Monogram for an applicant who does not meet Monogram's credit requirements for a Credit Account or the requirements for a Marginal Card Account, and includes an Old Account acquired or established by MWCC for an applicant who did not meet MWCC's credit requirements for a credit account or the credit requirements for a Marginal Card Account. "State" shall mean a State of the United States of America or the District of Columbia. "Stock" shall mean all shares, options, interests, participations or other equivalents (regardless of how designated) of or in a corporation or other entity, whether voting or nonvoting, including, without limitation, common stock preferred stock, or warrants or options for any of the foregoing. "Stockholders' Agreement" shall have the meaning assigned to such term in the definition of "Control Loss Event" in SECTION 1 hereof. "Stores" shall mean retail establishments and other means to conduct retail businesses (E.G., mail order or home television shopping) operated by MW, Authorized Affiliates or Authorized Licensees. "Store Closing" shall mean (i) a permanent closing of a retail Store location or locations by MW or a Relevant Authorized Affiliate, (ii) the sale or other transfer for value (other than (x) the sale or transfer to Monogram, an Affiliate of Monogram or an Authorized Affiliate, (y) a sale of all or substantially all of the business of MW where this Agreement is assigned as provided in SECTION 17.1(3) or (z) Stock or other direct or indirect transfers of equity interests in MW) of a retail Store location or locations by MW or a Relevant Authorized Affiliate to a Person or Persons who shall not operate such store as a retail store in which more than [ ]* of sales will be made utilizing open-end consumer credit programs bearing such acquiror's tradestyle (such percentage of sales will be presumed to be greater than [ ]* unless otherwise demonstrated by MW), or (iii) the sale or other transfer for value (other than (a) the sale or transfer of the Signature Companies to Monogram or an Affiliate of Monogram or a sale or transfer to an Authorized Affiliate, (b) a sale of all or substantially all of the business of MW where this Agreement is assigned as provided in SECTION 17.1(3) or (c) Stock or other direct or indirect transfers of equity interests in MW) or permanent closing by MW or a Relevant Authorized Affiliate of a 23 *Confidential treatment has been requested with respect to this information. Store or Stores that does not involve the sale or closing of a retail Store location or locations (E.G., the sale or permanent closing of all or a portion of the operations of Montgomery Ward Direct, Inc. occurring during such time as it is a Relevant Authorized Affiliate), provided an event specified in (iii) shall not constitute a Store Closing if the acquiror's involvement is transparent to consumers and the acquiror is authorized to and does accept the Credit Card. For the avoidance of doubt, it is acknowledged that an event constituting an MW Divestiture shall not constitute a Store Closing. "Store Closing Date" shall mean the date of any Store Closing. "Store Closing-Related Account" shall mean, as of any Store Closing Date, an Account, the primary Cardholder in respect of which: (i) (x) lives in a zip code area within fifty (50) miles of the zip code area of a retail Store location operated by MW or a Relevant Authorized Affiliate and being closed or sold as part of a Store Closing, but not within fifty (50) miles of the zip code area of a retail Store location or locations operated by MW or an Authorized Affiliate not being closed or sold on the Store Closing Date and (y) has not made a purchase at a non-retail Store location during the immediately preceding 12-month period; or (ii) in the event that the relevant Store Closing does not involve the closing of a retail Store location, has not made a purchase on his or her Account at a Store other than the Store(s) that are closing or being sold as part of the Store Closing in question within the immediately preceding 12-month period. "Subsidiary" shall mean, with respect to any Person, any corporation of which an aggregate of more than fifty percent (50%) of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person. 24 "Temporary Limit Increase Approval" shall mean any decision by Monogram, granted at MW's request, to raise a Cardholder's Credit Limit for a specified period of time. "Termination Date" shall have the meaning assigned to it in SECTION 15.2(3)(ii) hereof. "Three-Year Rate" shall have the meaning assigned to it in SECTION 3.3(2)(viii) hereof. "Transparent Servicing" shall have the meaning assigned to it in SECTION 5.2(1)(i) hereof. "Triggering Signature Acquisition" shall mean the first date upon which both of the following events have occurred: (i) an acquisition or other transfer of all or substantially all of the Stock or assets of the Signature Companies to an Affiliate of Monogram, and (ii) the effectiveness of a Marketing Agreement. 2. DEFINITIONAL MATTERS Any accounting term used herein shall have, unless otherwise specifically provided herein, the meaning customarily given in accordance with GAAP, and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP. That certain terms or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. All other undefined terms contained herein shall, unless the context indicates otherwise, have the meanings provided for by the Code in the State of Illinois to the extent the same are used or defined therein. The words "herein," "hereof," "hereunder," and other words of similar import refer to this Agreement as a whole, including the exhibits and schedules hereto, as the same may from time to time be amended or supplemented, and not to any particular section, subsection or clause contained in this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. 3. ESTABLISHING ACCOUNTS AND ADDING INDEBTEDNESS 3.1. PAYMENT IN RESPECT OF ACCOUNTS AND INDEBTEDNESS ON AND AFTER THE CONVERSION DATE. (1) Subject to the provisions hereof (including, but not limited to, SECTION 5 hereof), during the term of this Agreement, MW shall hold (and shall (i) cause Authorized 25 Affiliates and (ii) use best efforts to cause Authorized Licensees to hold) for Monogram all Charge Slips arising in connection with Accounts and Monogram shall pay MW with respect to such Charge Slips as provided in SECTION 3.2 (subject to the approval by Monogram of the Credit Limits relating thereto and the acceptance by Monogram of new Cardholders pursuant to SECTION 5.2 hereof). (2) Notwithstanding any other provision contained herein, Monogram may, but shall not be obligated to, extend credit to Cardholders in connection with the Program at any time such extension would cause the Aggregate Cardholders' Balance (excluding for this purpose the portion of the Aggregate Cardholders' Balance owned by any Person other than MWCC, who has purchased such portion of the Aggregate Cardholders' Balances from Monogram on what is, effectively, a non-recourse basis (such non-recourse determination to be made by Monogram in its reasonable judgment)) to exceed the Maximum Aggregate Cardholders' Balance. (3) Monogram agrees (a) annually at any time during each Fiscal Year, and (b) at such other time as there may be proposed a change in credit terms, policies or procedures pursuant to this Agreement that could increase the amount of Indebtedness incurred by Cardholders, to review any request by MW to increase the Maximum Aggregate Cardholders' Balance for the ensuing two (2) year period. In making such request, MW may furnish to Monogram the then current five-year plan of MW, which plan will be based on reasonable estimates and projections. Monogram will act reasonably within the context of this Agreement in responding to any request by MW to increase the amount of the Maximum Aggregate Cardholders' Balance. 3.2. PAYMENT AMOUNT. (1) The amount that Monogram shall pay to MW (or, at Monogram's option where appropriate, to the Signature Companies if they become Affiliates of Monogram) with respect to each item of New Indebtedness, which amount shall constitute an advance by Monogram to the relevant Cardholder, shall be [ ]* (the "Payment Amount"). A computer-readable medium, or information in such form as is mutually approved by the parties hereto, concerning such Indebtedness, shall be transmitted to Monogram at the office or office(s) Monogram designates, as such office(s) may from time to time be changed upon not less than fifteen (15) Business Days' advance notice to MW, provided such new offices contain the necessary computer and telecommunications capabilities. Monogram shall pay MW (or the Signature Companies if appropriate) the Payment Amount for all New Indebtedness on or 26 *Confidential treatment has been requested with respect to this information. before 2:00 P.M. Eastern Time of each Business Day during the term of this Agreement for which said information has been received at such office or offices by Monogram on or before 11:00 A.M. Eastern Time on the prior Business Day. Monogram shall tender any payments to MW by wire transfer of immediately available same day federal funds into one bank account from time to time designated by MW, as such bank account may from time to time be changed upon not less than fifteen (15) Business Days' advance notice to Monogram. For example, if such information on Indebtedness which arose on Friday, Saturday and Sunday is provided to Monogram by 11:00 A.M. Eastern Time on the following Monday (assuming that Monday is a Business Day), a payment for those three (3) days shall be wired to MW on or before 2:00 P.M. Eastern Time on that Tuesday (assuming that Tuesday is a Business Day). If, after taking reasonable precautions, as a result of a circumstance beyond the reasonable control (E.G., computer or telecommunications breakdown) of MW, such information with respect to any day has not been received by 11:00 A.M. Eastern Time on a Business Day, and provided MW thereafter takes all reasonable steps to deliver such information to Monogram by alternate means, Monogram shall pay MW on or before 2:00 P.M. Eastern Time the next Business Day thereafter an estimated amount equal to the amount payable to MW for the same day during the preceding calendar week for which information was provided (after taking into account appropriate differences in such days, such as one being a holiday), and such estimated payment shall be adjusted on the first Business Day after the actual information is available by 11:00 A.M. Eastern Time on such Business Day by a payment on or before 2:00 P.M. Eastern Time on the following Business Day by wire transfer of immediately available same day federal funds from MW to Monogram, or Monogram to MW, as the case may be. Any such adjusting payment made by MW to Monogram shall include interest on the adjustment amount at the Prime Rate from the time the estimated payment was made until the adjusting payment is made. In the event an estimated payment is made, MW shall provide such information as soon as possible and shall pay Monogram within thirty (30) days after billing for any lost finance or other charges on Accounts accruing until such information is provided, but only to the extent such finance or other charges were lost due to the failure to provide such information. For example, if on a Monday (assuming that Monday is a Business Day) the information is not transmitted by 11:00 A.M. Eastern Time for the immediately preceding Friday, Saturday and Sunday, an estimated payment in the circumstances described above will be made on or before 2:00 P.M. Eastern Time on that Tuesday (assuming that Tuesday is a Business Day) equal to the amount that was payable for the immediately preceding Friday, Saturday and Sunday for which the information was provided (after taking into account appropriate differences in such days, such as one being a holiday). Assuming the actual information for such 27 Friday, Saturday and Sunday is first available by 11:00 A.M. Eastern Time the following Thursday (assuming that Thursday is a Business Day and MW shall have made the information available as soon as possible), the adjusting payment, together with interest thereon at the Prime Rate if provided for above, shall be made on or before 2:00 P.M. Eastern Time on the following Friday (assuming the following Friday is a Business Day). Notwithstanding the above, the parties identified on SCHEDULE 3.2(1) hereto shall submit their own computer-readable medium concerning their items of New Indebtedness to Monogram in conformity with the practice in effect prior to the date of this Agreement. (2) Payments by Monogram pursuant to this SECTION 3.2 shall be reduced by the amount of Credit Slips submitted by MW, Authorized Affiliates or Authorized Licensees from time to time to Monogram (which Credit Slips shall include sufficient information to credit the proper Account), and by the amount of any other adjustments that are not generated through a Store as may be agreed to by the parties hereto. (3) MW shall allocate as appropriate all payments made by Monogram hereunder among itself, Authorized Affiliates and Authorized Licensees in accordance with their respective interests and Monogram shall not be responsible or liable for or in connection with MW's failure to do so; provided, however, that MW hereby acknowledges that (i) Monogram, in its sole discretion, may pay the Signature Companies, if they become Affiliates of Monogram, directly for advances made by Monogram to Cardholders in connection with purchases by Cardholders from the Signature Companies and (ii) if Authorized Affiliates have agreements with Monogram establishing separate credit programs, Monogram may pay such Authorized Affiliates directly for advances to cardholders using credit cards issued under such other credit programs. MW releases Monogram from any liability to MW in connection with any payments by Monogram as authorized pursuant to subsections (i) and (ii). (4) Notwithstanding any other provision of this Agreement, it is understood and agreed that, in the event that the Signature Companies become Affiliates of Monogram, Monogram shall enter into an agreement with the Signature Companies pursuant to which Monogram shall (i) directly pay the Signature Companies in respect of advances made to Cardholders under the Program and (ii) charge back to the Signature Companies directly any Ineligible Indebtedness resulting from sales by the Signature Companies. 28 3.3. SUPPORT FEES. (1) To reflect changes in money costs with respect to advances that Monogram makes to Cardholders, MW shall pay a monthly fee to Monogram to the extent provided in subsection (3) below. For the purposes of calculating such servicing support fee, the model described below (the "Money Cost Model") shall be used, irrespective of whether Monogram's actual money costs are more or less than those calculated by use of the Money Cost Model. (2) For the purposes of the Money Cost Model: (i) The "Money Cost Balance" for a Settlement Period shall be [ ]* as of the last calendar day of that Settlement Period. (ii) "Money Cost Net Receivable Balance" means, for the day in question, the amount by which (A) the Aggregate Cardholders' Balance as of the close of business of such day, as computed pursuant to Monogram's Accounting Practices, exceeds (B) the sum of (x) the amount of any allowance for bad debts with respect to the Aggregate Cardholders' Balance recorded by Monogram, as of the close of business on such day, as computed pursuant to Monogram's Accounting Practices, and (y) the amount of any allowance for bad debt with respect to the Aggregate Cardholders' Balance that would have been recorded by MWCC and/or other Assignees as of the close of business on such day if such Persons computed their allowance for bad debts according to Monogram's Accounting Practices. (iii) The initial "Layer Balance Date" shall mean May 27, 1988. The last day of the equivalent Settlement Period (in which the first Layer Balance Date occurs) during each subsequent year shall also be a "Layer Balance Date" (it being understood such subsequent years shall include 1988 and all years thereafter prior to effectiveness of 29 *Confidential treatment has been requested with respect to this information. this Agreement and calculations for such years shall be made in accordance with the Original Account Purchase Agreement). (iv) A "Layer Balance" shall mean, with respect to the first Layer Balance Date, an amount equal to [ ]*, and with respect to each subsequent Layer Balance Date, an amount equal to the difference (whether the difference is an excess or deficiency), if any, between the Money Cost Balance for the Settlement Period during which such subsequent Layer Balance Date occurs and the Money Cost Balance for the Settlement Period during which the immediately preceding Layer Balance Date occurs (subject to the foregoing proviso in this subsection). A Layer Balance with respect to each Layer Balance Date after the first Layer Balance Date shall be called an "Incremental Layer Balance" if the later Money Cost Balance exceeds the earlier Money Cost Balance and a "Decremental Layer Balance" if the later Money Cost Balance is less than the earlier Money Cost Balance. (v) The "Aggregate Layer Balance" shall mean, with respect to the twelve (12) consecutive Settlement Periods following each Layer Balance Date, the amount by which (A) the sum of the initial Layer Balance plus all Incremental Layer Balances, exceeds (B) the sum of all Decremental Layer Balances. (vi) A "Layer Blended Rate" shall mean, with respect to each Layer Balance (whether the initial Layer Balance or an Incremental Layer Balance or a Decremental Layer Balance), the percentage equal to the sum of the following percentages: (A) [ ]* of the Modified Thirty- 30 *Confidential treatment has been requested with respect to this information. Day Commercial Paper Rate, (B) [ ]* of the sum of the rate for three-year U.S. Treasury Notes described in (viii) below plus [ ]* (the "Three-Year Rate"), and (C) [ ]* of the sum of the rate for five-year U.S. Treasury Notes described in (viii) below plus [ ]* (the "Five-Year Rate"). The Layer Blended Rate shall be calculated separately for each Layer Balance. (vii) "Modified Thirty-Day Commercial Paper Rate" shall mean, as of the last Business Day of each Settlement Period, [ ]* as published in The Wall Street Journal on that day or, if not published therein, as published or made available by such other source as Monogram reasonably shall determine. The Modified Thirty-Day Commercial Paper Rate shall be determined separately for each Settlement Period. (viii) The Three-Year Rate and the Five-Year Rate shall be equal to the rates shown in [ ]* for the month designated in any given report for their respective maturities or, if such publication or index is discontinued, such other publication or index of similar type mutually agreed to by MW and Monogram. The Three-Year Rate and the Five-Year Rate shall be set for the first Layer Balance as of the first Layer Balance Date (or if such day is not a Business Day, the immediately preceding Business Day) and shall be reset to such rates in effect as of each third and each fifth Layer Balance Date thereafter (or if such day is not a Business Day, the immediately 31 *Confidential treatment has been requested with respect to this information. preceding Business Day), as the case may be, plus the spreads of sixty (60) basis points and seventy (70) basis points, respectively, on three-year and five-year treasury notes, as specified in (vi) above. (ix) The Three-Year Rate and the Five-Year Rate shall initially be set for each subsequent Layer Balance in the same manner as the rates shown on the first Layer Balance Date for such subsequent Layer Balance (or if such day is not a Business Day, the immediately preceding Business Day) and reset for such subsequent Layer Balance as of each third and each fifth Layer Balance Date thereafter (or if such day is not a Business Day, the immediately preceding Business Day), as the case may be, following the first Layer Balance Date for such subsequent Layer Balance. Thus, the Three-Year Rate with respect to each Layer Balance gets reset every three (3) years and the Five-Year Rate with respect to such Layer Balance gets reset every five (5) years. (3) The Money Cost Model shall be computed for each Settlement Period as follows: (i) Multiply each Layer Balance by the Layer Blended Rate for such Layer Balance. Inasmuch as the Modified Thirty-Day Commercial Paper Rate component of the Layer Blended Rate is computed separately for each Settlement Period (as described in (2)(vii) above) and the Three Year Rate and Five Year Rate may change each three and five years (as described in (2)(viii) and (ix) above), respectively, the Layer Blended Rate shall be calculated separately for each Settlement Period and for each Layer Balance. (ii) For each Settlement Period, determine the amount by which (A) the sum of the 32 products resulting from the calculations in (i) above with respect to the initial Layer Balance and each of the Incremental Layer Balances, exceeds (B) the sum of the products resulting from the calculations in (i) above with respect to each of the Decremental Layer Balances. Such excess shall be the "Net Layer Balance Product" for such Settlement Period. (iii) If the Money Cost Balance for a Settlement Period shall be more or less than the Aggregate Layer Balance for such Settlement Period, multiply the excess or deficiency, as the case may be, by the Modified Thirty-Day Commercial Paper Rate for such Settlement Period. (iv) Add (if the Money Cost Balance exceeds the Aggregate Layer Balance) or subtract (if the Money Cost Balance is less than the Aggregate Layer Balance), the product calculated pursuant to (iii) above for a Settlement Period to or from, as the case may be, the Net Layer Balance Product for such Settlement Period. (v) Divide the sum or difference, as the case may be, calculated pursuant to (iv) above for a Settlement Period by the Money Cost Balance for such Settlement Period. The resulting percentage shall be the "Final Blended Rate" for such Settlement Period. (4) To the extent that the Final Blended Rate for a Settlement Period exceeds [ ]* per annum, MW shall pay to Monogram, as a fee for such Settlement Period, [ ]* (or PRO RATA portion thereof if this Agreement is in effect during only a portion of such Settlement Period). Such payment shall be made as provided in SECTION 3.8. The calculation of such fee is illustrated in EXHIBIT 3.3 annexed hereto. 3.4. INELIGIBLE INDEBTEDNESS. When any (i) New Indebtedness on Accounts held by Monogram and established or 33 *Confidential treatment has been requested with respect to this information. added pursuant to this Agreement (including, without limitation, New Indebtedness pursuant to Old Accounts and New Indebtedness that is Monogram Defaulted Indebtedness) becomes Ineligible Indebtedness or (ii) Old Indebtedness becomes Ineligible Indebtedness and MW has not made and shall not be obligated to make payment to MWCC in connection with MWCC's chargeback thereof, Monogram shall have the right, subject to the terms hereof, during the term and after the expiration of this Agreement as provided in SECTION 15.2 to require MW to purchase such Ineligible Indebtedness for [ ]*. Until such time as Monogram, in its sole discretion, exercises its right to require MW to purchase Ineligible Indebtedness, Monogram shall use its best efforts to collect such Ineligible Indebtedness from the relevant Cardholder to the extent such Indebtedness is the valid obligation of the Cardholder. The purchase price for such Ineligible Indebtedness shall be paid directly by MW to Monogram or, at Monogram's option, offset by Monogram against amounts owed by Monogram to MW provided that MW may dispute any amounts so offset. Upon any such purchase, Monogram and its Assignees hereby assigns MW all of their right, title and interest in and to such Indebtedness, free and clear of any and all Liens created by Monogram or its Affiliates, but without any other warranty, and any ownership interest of Monogram and/or Assignees in such Indebtedness shall be terminated. After MW has purchased such Ineligible Indebtedness (a) the obligation of Monogram to service such Ineligible Indebtedness, as set forth in SECTION 5.2 hereof, shall be terminated, (b) all payments in respect of such Ineligible Indebtedness shall be promptly forwarded by Monogram to MW, and (c) upon MW's request, Monogram shall deliver to MW all available Account Documentation received by Monogram with respect to such Ineligible Indebtedness, provided if MW is unable to enforce or collect any Ineligible Indebtedness due to Monogram's failure to deliver such Account Documentation that it previously received, Monogram shall purchase such Ineligible Indebtedness from MW. The following items qualify to the extent set forth herein for chargeback as Ineligible Indebtedness in respect of Indebtedness: (a) unidentifiable media, (b) unauthorized charges, (c) failure to obtain proper identification, (d) merchandise adjustments, and (e) missing media. It is the responsibility of Monogram to provide MW with the following information, if available, with respect to all chargebacks by Monogram hereunder: account name, account number, address, Merchandise description, Store at which the sale was made, amount and reason for chargeback. Following are guidelines for the issuing of chargebacks which must be complied with. 34 *Confidential treatment has been requested with respect to this information. (1) UNIDENTIFIABLE MEDIA. Unidentifiable media is media that does not have a valid account number, or media with an account number that is illegibly imprinted or written in. Monogram will directly request the media from the Store at which the sale was made. The Store at which the sale was made is responsible for providing a legible copy of the media with correct account number to Monogram within ten (10) days after notice to such Store. Monogram has the right to chargeback to MW if (a) the Store has not responded to the request for media before expiration of the ten (10) day period, and (b) Monogram after reasonable efforts is unable to identify the Indebtedness represented by the media with a valid account number. Notwithstanding the foregoing, all chargebacks by Monogram for unidentifiable media must occur within sixty (60) days after the retail sale date to the Cardholder. MW has sixty (60) days after the date of the chargeback to complete additional research and, if successful, reverse the chargeback, whereupon such Ineligible Indebtedness shall again become Indebtedness with respect to which Monogram shall make payment to MW. (2) UNAUTHORIZED CHARGES. An unauthorized charge is a sale that has been abstracted without approval. (These charges will lack an approval code from the P.O.S. system, have an invalid authorization code, lack an approval code from the credit center, or lack an approval code for amounts over the floor limit when floor limits are in effect. It is understood that charges that are equal to or less than the floor limit when it is in effect will be deemed authorized.) Monogram and MW shall work closely to continue the charge authorization control mechanisms in place in Stores prior to the Conversion Date and to develop new mechanisms to minimize violations of the authorization system. Monogram may immediately chargeback to MW unauthorized charges that are made on a stolen plate or a fraudulent account, provided that Monogram has notified MW and, if the Store is not operated by the Signature Companies or MW, the Store at which the sale was made, of the unauthorized charges within thirty (30) days after receipt by Monogram and/or Assignees of a complaint from a Cardholder. In addition, Monogram may chargeback to MW other unauthorized charges to an Account that is or becomes delinquent, provided that Monogram has notified MW and, if the Store is not operated by the Signature Companies or MW, the Store at which the sale was made, of the unauthorized charges within thirty (30) days after Monogram's discovery of the unauthorized charges. (3) FAILURE TO OBTAIN PROPER IDENTIFICATION. Failure to obtain proper identification refers to all credit purchases made by a customer shopping without a Credit Card or a priority credit pass where a Store fails to require (to the extent permitted by law) the customer to identify himself with a 35 valid permanent driver's license for his state of residence or a state-issued identification card. Tickets or temporary licenses are not acceptable. The name, address and signature on the driver's license must correspond with the name, address and signature on the Charge Slip. If the customer does not have a valid driver's license, the credit center supervisor on duty will instruct the salesperson to ask for other appropriate identification. In any instance where positive identification is required, the document used for identification must be noted on the Charge Slip. If in the process of investigating a customer dispute it is determined that the Store at which the sale was made failed to obtain proper identification in the manner required pursuant to these provisions and a fraudulent charge resulted, Monogram may chargeback to MW. Notwithstanding the foregoing, in no event may Monogram chargeback to MW any items described in this subsection later than sixty (60) days after Monogram discovers the failure. (4) MERCHANDISE ADJUSTMENTS. Requests received by Monogram and/or Assignees from customers for Merchandise adjustments will be promptly communicated by Monogram directly to the Store at which the sale was made. Merchandise adjustment requests that are not frivolous and that are not resolved by MW within eighteen (18) days after notification to MW and, if the Store is not operated by the Signature Companies or MW, the Store at which the sale was made, may be charged back by Monogram to MW. Notwithstanding the foregoing, in no event may Monogram chargeback to MW any adjustments described in this subsection later than thirty (30) days after receipt of the request for adjustment from the customer. (5) MISSING MEDIA. Requests received by Monogram and/or Assignees from customers for supporting sales media will be promptly communicated by Monogram directly to the issuing location. MW is responsible for providing Monogram with the requested media within ten (10) days of receipt of the request. Indebtedness represented by media not provided within such ten (10) day period may be charged back by Monogram to MW. MW has thirty (30) days after the chargeback to locate the media and reverse the chargeback, whereupon such Ineligible Indebtedness shall become Indebtedness to be purchased by Monogram. Notwithstanding the foregoing, in no event may Monogram chargeback to MW any items described in this subsection later than thirty (30) days after the receipt of the request for adjustment from the customer. 3.5. FINANCE CHARGES. (1) If during the term of this Agreement, MW from time to time requests that Monogram impose lower finance charges ("Reduced Charges") on Indebtedness incurred pursuant to any 36 group of Accounts ("Reduced Accounts") than the finance charges in effect on the Conversion Date as such Conversion Date finance charges may from time to time be adjusted and set by Monogram (the "Authorized Charges"), and Monogram approves such request (such approval not to be unreasonably withheld), Monogram shall charge such Reduced Charges on the Reduced Accounts for such period as MW designates, and MW shall pay Monogram, for each Settlement Period of this Agreement, a fee equal to [ ]* Such request and approval, as set forth above, shall include, without limitation, the imposition by Monogram of different Reduced Charges to different groups of Reduced Accounts, provided Monogram is given sufficient prior notice, and provided Monogram (or its servicer) has the capability of charging such Reduced Charges. In no event shall MW designate a period for Reduced Charges to be in effect which is of a shorter duration than is reasonably needed by Monogram to give any notices which might be required by law to Cardholders of the changes in finance charge rates. MW shall reimburse Monogram for any incremental costs incurred in connection with Reduced Accounts on account of the Reduced Charges, including, without limitation, in preparing and mailing any such notices as may be required by law. This subsection shall not apply to (i) the reduction in the nominal annual percentage rate in Arkansas in July 1996 with respect to extended terms transactions and (ii) the promotions under (2) below. (2) From time to time Monogram shall make available to MW during the term of this Agreement, to encourage Account acquisition and usage, certain credit promotions pursuant to which (a) Cardholders are not required to make any finance charge or other payments for or in connection with new purchases under the Credit Promotion on Accounts for stated periods after the dates of such purchases ("Skip Free Promotions") or (b) Cardholders can obtain credits for the payment of finance charges by paying amounts due for or in connection with new purchases on Accounts by specified dates ("AFF Promotions"). Skip Free Promotions, AFF Promotions and any other credit promotions approved by Monogram and conducted under the Program are collectively referred to herein as "Credit Promotions." MW shall pay to Monogram monthly (during such time as the related Indebtedness is not Monogram Defaulted Indebtedness), the following amounts (plus amounts owed under subsection (1) above): (i) with respect to Skip Free Promotions, a dollar amount equal to (x) [ ]* 37 *Confidential treatment has been requested with respect to this information. [ ]* of Charge Slips subject to the terms of Skip Free Promotions during Billing Cycles ending in the preceding Settlement Period and shall include Charge Slips not correctly coded as Skip Free Promotions during preceding Settlement Periods, MULTIPLIED BY (y) [ ]* (it being understood that, with respect to any Charge Slip, the number of Settlement Periods during which an amount will be billed shall not exceed the number of months of the relevant Skip Free Promotion); (ii) with respect to AFF Promotions, a dollar amount equal to (x) [ ]* in connection with AFF Promotions during the preceding Settlement Period and shall include sales not correctly coded as AFF Promotions during preceding Settlement Periods, DIVIDED BY [ ]* for such Settlement Period, MULTIPLIED BY (y) [ ]* per annum; and (iii) any amounts owed by MW with respect to Credit Promotions other than AFF Promotions and Skip Free Promotions. (3) Monogram shall establish on its books an account known as the "Credit Promotions Account." This Credit Promotions Account shall be non-interest bearing, shall not represent segregated funds and may be commingled by Monogram with other funds. The Credit Promotions Account shall be maintained as follows: (i) On the Conversion Date, MW shall pay Monogram an amount equal to what Monogram reasonably estimates to be [ ]* (the "Anticipated Credit Promotion Amount"). The amount of such payment shall be credited to the Credit Promotions Account. On October 1, 1996 and on each April 1 and 38 *Confidential treatment has been requested with respect to this information. October 1 thereafter, MW shall pay Monogram an amount equal to the difference, if positive, between the Anticipated Credit Promotion Amount and the balance of the Credit Promotions Account and such amount when paid shall be credited to the Credit Promotions Account. In addition, if Monogram debits the Credit Promotions Account (as specified in the first sentence of subparagraph (ii) below), MW shall immediately pay Monogram such amount and such amount when paid shall be credited to the Credit Promotions Account. (ii) Monogram may debit the Credit Promotions Account where MW fails to pay Monogram when due the amount MW has been billed by Monogram with respect to Credit Promotions. In addition, on October 1, 1996 and on each April 1 and October 1 thereafter, Monogram will calculate and pay MW an amount equal to the difference, if positive, between the balance of the Credit Promotions Account and the Anticipated Credit Promotions Amount and the Credit Promotions Account shall be debited for such amount when so paid. (iii) After termination of this Agreement and at such time MW no longer is obligated to make payments with respect to Credit Promotions hereunder, Monogram shall debit the Credit Promotions Account for the balance thereof and pay such amount to MW. 3.6. FEES RELATING TO OVERLIMIT APPROVALS AND TEMPORARY LIMIT INCREASE APPROVALS. (1) MW shall pay to Monogram monthly with respect to Overlimit Approvals made during the immediately preceding Fiscal Month a dollar amount equal to the product of (i) the Aggregate Extra Risk Dollar Amount of Monthly Credit Sales made during the immediately preceding Fiscal Month, MULTIPLIED BY (ii) twenty-five percent (25%). 39 (2) MW shall pay to Monogram monthly with respect to Temporary Limit Increase Approvals made during the immediately preceding Fiscal Month a dollar amount equal to (i) [ ]*, MULTIPLIED BY (ii) the product of (x) the sum of Indebtedness created by advances on behalf of Cardholders during the immediately preceding Fiscal Month which would not have been made without such Temporary Limit Increase Approvals, MULTIPLIED BY (y) a percentage agreed to by the parties as applicable with respect to Temporary Limit Increase Approvals at that time. (3) On December 23, 1996, to the extent not deducted by Monogram from amounts owed to MW by Monogram under SECTION 5.5(5) hereof on such date, MW shall pay to Monogram in cash (a) the amount of fees which would have accrued or been payable under SECTIONS 3.6(1) AND 3.6(2) commencing on the Conversion Date through and including the last day of the Fiscal Month of November 1996 and (b) the amount of fees that are estimated to accrue and be payable under Section 3.6(1) for the Fiscal Month of December 1996. 3.7. STARTER CARD ACCOUNTS AND MARGINAL CARD ACCOUNTS. (1) During the term of this Agreement, Monogram shall establish Starter Card Accounts and Marginal Card Accounts meeting its credit criteria established from time to time in its discretion. Monogram will evaluate the performance of each Starter Card Account and Marginal Card Account within two years after the date said Account was established (and from time to time thereafter if such Account remains a Starter Card Account or Marginal Card Account) and if Monogram at any time determines that said Starter Card Account or Marginal Card Account meets acceptable performance standards set by Monogram in its sole discretion, will change the terms of such Starter Card Account or Marginal Card Account to the terms then applicable to its regular Accounts known as "Credit Accounts" (or any successors thereto), the terms of which, on the date hereof, are as set out on SCHEDULE 3.7 hereto. (2) In lieu of a discount on advances on behalf of Cardholders of Starter Card Accounts with respect to the creation of Indebtedness on Starter Card Accounts, MW shall pay Monogram monthly a dollar amount equal to (i) the sum of Charge Slips arising during the preceding Settlement Period in connection with Starter Card Accounts with respect to which the annual finance charge rate being assessed is less than 24%, MULTIPLIED BY (ii) [ ]*. (3) On December 23, 1996, to the extent not deducted by Monogram from amounts owed to MW by Monogram under SECTION 5.5(5) hereof on such date, MW shall pay to Monogram in 40 *Confidential treatment has been requested with respect to this information. cash (a) the amount of fees which would have accrued or been payable under SECTION 3.7(2) commencing on the Conversion Date through and including the last day of the Fiscal Month of November 1996 and (b) the amount of fees that are estimated to accrue and be payable under Section 3.7(2) for the Fiscal Month of December 1996. 3.8. MONTHLY STATEMENTS. (1) Except as otherwise expressly provided in respect of certain amounts owed for Fiscal Year 1996, Monogram shall provide to MW a monthly statement showing sufficient detail as reasonably requested by MW of the calculations for the immediately preceding Settlement Period of the fees and other amounts owed by each party to the other including, without limitation, those set forth in SECTIONS 3.5, 3.6, 3.7, AND 5.5 hereof. With respect to the amounts estimated pursuant to SECTIONS 3.6(3)(b), 3.7(3)(b) AND 5.5(5)(b) for the Fiscal Month of December 1996, any adjustments to the estimated payments shall be calculated and paid by the appropriate party on January 31, 1997, subject to the provisions of this Section. Notwithstanding any other provision of this Agreement, all obligations due one party by the other shall be netted or otherwise offset against each other except as provided in the next sentence. After giving effect to such netting or offset calculation, the resulting net amount shall be paid by the party responsible therefor, provided that, during the Monthly Payment Period, MW shall have no right (and Monogram shall have no obligation), on any date, to net from any amounts owed to Monogram by MW hereunder any amounts owed to MW by Monogram on that date under Section 5.5 hereof, and Monogram shall pay to MWCC, if not otherwise netted, any amounts owed to MW under Section 5.5. Except as otherwise expressly provided, payment shall be due within thirty days after Monogram provides said monthly statement. The parties expressly understand, acknowledge and agree that neither party hereto shall be obligated at any point in time to make any payment until a netting or offset calculation as described above is given effect such that only the net amount shall be due and payable except as provided in the second preceding sentence. It is understood and agreed that, if at any time MW owes Monogram for or in connection with Credit Promotions or Reduced Accounts, more than the amount of the balance of the Credit Promotions Account, MW shall pay the difference to Monogram immediately upon notice from Monogram. (2) It is understood and agreed that, for purposes of this Section 3.8, (a) amounts owed by MW to Monogram on any date shall be deemed for purposes of netting and other offset to include amounts owed by MW to MWCC on that date and (b) Monogram shall pay MWCC any amounts due MWCC by MW from amounts 41 Monogram would otherwise owe MW but has not paid because of such netting and other offset. 4. [ARTICLE INTENTIONALLY OMITTED] 5. RELATIONSHIP OF PARTIES; SERVICING 5.1. OWNERSHIP OF ACCOUNTS. (1) Until such time as Monogram sells and/or assigns its interest therein: (i) Monogram shall be the sole and exclusive owner of all Accounts, Indebtedness and Account Documentation and, except as otherwise specifically provided herein, shall have all rights, powers, and privileges with respect thereto as such owner, including, without limitation, the right, power and privilege to review periodically the creditworthiness of Cardholders to determine the range of credit limits to be made available to individual Cardholders, whether to suspend or terminate credit privileges of any Cardholder, and whether to sell all or part of its interest in Accounts and/or Indebtedness and (ii) any purchase of Merchandise in connection with an Account, unless sold by Monogram, shall create the relationship of debtor and creditor between the purchasing Cardholder and Monogram, respectively. MW acknowledges and agrees that: (a) it has no right, title or interest in or to (w) any of the Accounts, Indebtedness, or Account Documentation, (x) the Customer List (except to the extent otherwise expressly provided herein), (y) deposits, credit balances and reserves on the books of Monogram and/or Assignees relative to any Accounts (except to the extent otherwise expressly provided herein) or (z) any proceeds of the foregoing; and (b) until such time as Monogram sells and/or assigns its interest in an Account, Monogram extends credit directly to the Cardholder. (2) Except as otherwise provided in SECTION 15 of this Agreement (in the event that MW exercises the right described in SECTION 15.2(2)(i)(b)) or as otherwise agreed by Monogram, Monogram shall be entitled to (i) receive all payments made by Cardholders on Accounts, and (ii) retain for its account all finance and other charges on Accounts. 5.2. MONOGRAM'S RESPONSIBILITIES. During the term of this Agreement, Monogram shall operate (except as may otherwise be explicitly provided herein), at its sole cost and expense, credit operations and facilities relating to the Program in a high quality, ethical manner, in such a way as not to disparage or embarrass MW or its name, and, without limiting the generality of the foregoing, with a level of service to Cardholders and MW that is not less than the level of service provided by MWCC to similarly situated persons and MW prior to the Conversion Date 42 (it being understood that the collection of Accounts in accordance with applicable debt collections laws, the sending of adverse action letters, and the legally required or MW approved (both the substance and the language) changes of Account terms to the extent approved by MW pursuant to Section 5.2(8), do not disparage or embarrass MW or its name); PROVIDED, HOWEVER, that all of Monogram's future obligations under this SECTION 5.2 with respect to any Account shall cease on the date upon which Monogram sells all of its interest in such Account to MWCC. Monogram's responsibilities shall include, without limitation, the following, all of which shall be performed by or on behalf of Monogram at its sole cost and expense (it being understood that Monogram's future obligations under this section with respect to any Account shall cease upon Monogram's sale of all of its interest therein to MWCC: (1) In connection with its establishment and servicing of Accounts and Indebtedness other than Monogram Defaulted Indebtedness, Monogram shall: (i) in performing its duties under this Agreement which require contact with Cardholders and prospective Cardholders, make the involvement of Monogram, its Affiliates or any other Person acting on Monogram's behalf transparent to Cardholders to the extent that Monogram reasonably determines that it may properly do so, but it is understood that (x) Credit Card Agreements shall be between Monogram (or one of its Affiliates) and Cardholders and (y) Cardholders shall be informed that Monogram (or one of its Affiliates) is the party extending credit to them ("Transparent Servicing"); (ii) review all applications for credit by or on behalf of prospective Cardholders, determine the creditworthiness of prospective Cardholders and approve creditworthy applicants; (iii) establish and revise credit limits for particular Cardholders; (iv) establish Accounts and add Indebtedness meeting Monogram's standards; 43 (v) promptly prepare and mail Billing Statements to Cardholders, receive and promptly post payments, and prepare billing and collection forms and such other forms as are required to carry out Monogram's responsibilities pursuant to this Agreement; and (vi) issue Credit Cards using such Licensed Marks and designs as are from time to time designated by MW, it being understood that Credit Cards may be issued under more than one of the Licensed Marks at any given time, and the Licensed Marks used on Credit Cards may not necessarily include the tradename Montgomery Ward. (2) Monogram shall take reasonable efforts to collect, or cause to be collected, the Indebtedness, and, in connection therewith, Monogram shall conduct, or cause to be conducted, collection activities in such a manner and use, or cause to be used, such technology as is consistent with the consumer credit collection industry. (3) Monogram shall provide all necessary and proper (a) promotional materials and signs in a format acceptable to MW, or reimburse MW for such promotional materials and signs that MW provides with Monogram's approval, (b) Credit Card Application forms, (c) Credit Card Agreements, and (d) legally required credit disclosure forms and customer payment receipt forms that are compatible with MW's point-of-sale registers, or reimburse MW for such customer payment receipt forms as MW provides. Notwithstanding the foregoing, MW shall bear the expense for the foregoing items in this subsection (3) that are used in and/or distributed from Stores, unless Monogram changes the form thereof, in which case Monogram shall at its expense replace those then held in Stores. (4) Other than with respect to Monogram Defaulted Indebtedness, Monogram shall use its best efforts to design systems to achieve, employ qualified personnel to meet, and otherwise satisfy on average the following standards for credit customer service: (i) limited information applications transmitted electronically or telephoned to Monogram shall, within fifteen (15) minutes, be approved or 44 rejected and the decision transmitted to MW; (ii) full information or promotional applications received by mail shall, within ten (10) days of receipt, be approved or rejected and decision sent to the potential Cardholder; (iii) credit authorization referral requests shall be approved or denied within one (1) minute of receipt; (iv) adjustment requests shall be handled within one hundred-fifty (150) seconds of the customer's initial telephone contact; (v) to the extent practicable, remittances received by Monogram shall be processed on the same day; (vi) Billing Statements shall be mailed within four (4) days after the Billing Date; (vii) credit balances shall be mailed within three (3) days of a customer's request; (viii) credit cards approved for issuance shall be mailed within two (2) days of approval; and (ix) point-of-sale authorizations shall be determined electronically, and shall be operative during all times Stores are open. Monogram and MW mutually agree to survey a random sample of Cardholders and prospective Cardholders to assess compliance with these standards, and to share equally the cost of such assessment. Monogram periodically shall provide to MW, upon MW's reasonable request and within a reasonable time period thereafter, a written report concerning its level of performance against these standards, including a list of complaints received from governmental officials, complaints of illegal debt collection practices, complaints of employee rudeness, and complaints asserting that prior complaints relating to Monogram's responsibilities hereunder have not been corrected. If, ignoring 45 isolated occurrences, a standard set forth in this SECTION 5.2(4) is not being achieved, Monogram will report to MW on the steps being taken to correct the problem and take all reasonable required steps in order to meet the standard. (5) Monogram shall provide at its expense a telecommunication link between MW's mainframe computer system and (a) Monogram's credit approval, adjustment and collection locations, and (b) Monogram's mainframe computer, which computer shall provide access to Monogram's credit master file. (6) Monogram shall communicate electronically to MW, Authorized Affiliates and Authorized Licensees in the manner used by MWCC prior to the Conversion Date so as to attempt to minimize the circumstances under which direct oral communication is necessary in connection with the approval of the use of credit by a Cardholder, although there are instances in which such oral communication is necessary. Monogram shall provide at its expense a toll-free telephone number for use by MW, Authorized Affiliates and Authorized Licensees to obtain credit authorization for Indebtedness if the electronic telecommunication link is inoperable, or when Monogram directs Store personnel to contact it concerning a credit transaction. Monogram shall also provide at its expense another toll-free telephone number for use by Cardholders in Stores owned by MW. (7) Monogram shall promptly advise MW of any Cardholder's complaint or inquiry concerning Merchandise or the service, promotion or delivery thereof if Monogram determines such complaint or inquiry is material. Monogram shall promptly advise MW of any governmental investigation or governmental legal action concerning Monogram's responsibilities under this Agreement. (8) Monogram shall provide MW with change-in-term notices prior to mailing such notices, which notices MW shall have the right to review and approve, but such approval shall not be unreasonably withheld or delayed; it being understood that approval is not required for legally required language and further understood that an inadvertent failure to comply with this provision by Monogram shall not give rise to a breach of contract by Monogram unless such failure has a material adverse effect on MW. 5.3. MONOGRAM'S LIABILITIES. Provided Monogram complies with the provisions of this Agreement, the rejection for credit of any applicant, or any number of applicants, shall not give rise to any claim, liability, demand, offset, defense or counterclaim by MW against Monogram. Monogram may furnish credit information concerning creditworthiness with respect to any 46 Cardholder or prospective Cardholder to any credit bureau, credit interchange or any other Person to whom such information may lawfully be sent for credit evaluation or collection purposes, it being understood that Monogram shall in no event transfer lists of Cardholders for promotional or other use except (a) as specified in SECTION 5.7 and (b) for the determination of creditworthiness and to perform merge-purge functions against a list of prospective Cardholders in connection with such determination, and (except as specified in SECTION 5.7) any such Person to whom information is so provided must execute an agreement providing for confidentiality (including reasonable liquidated damage provisions, which provisions shall initially be based on SCHEDULE 5.3 annexed hereto, which schedule shall be reviewed, and if necessary revised, at each fifth (5th) year anniversary of the date hereof) in which such Person agrees it will not use, or permit any other Person to obtain or use, such information for any use (including promotion) except the determination of creditworthiness, provided any such agreement with a credit bureau need not provide for liquidated damages. Upon request of MW, Monogram shall seed its list of Cardholders with such names and addresses as MW may reasonably request. 5.4. MW'S RESPONSIBILITIES. (1) During the term of this Agreement, MW, at its expense, shall (i) perform, (ii) cause each Authorized Affiliate to perform and (iii) use its best efforts to cause each Authorized Licensee to perform, all in-store services of the type provided by MW or any such Person for or to MWCC during the two-year period immediately prior to the date of this Agreement, to the extent, and in the manner, that MW has done so during said period, in order to encourage the creation of Accounts and facilitate the use of Accounts by Cardholders. The services to be performed by MW, Authorized Affiliates and Authorized Licensees shall include the following in-store activities: (i) Promoting, as specified in SECTION 5.5, and accepting applications for, Accounts, communicating credit information about prospective Cardholders through electronic means to Monogram and, in certain exceptional circumstances, if electronic means are not available, telephoning such credit information to the designated Monogram office, and upon decision by Monogram, either issuing a temporary credit pass or communicating an oral rejection to applicant. 47 (ii) Preparing changes of address for Cardholders, taking requests for adjustments from Cardholders and promptly forwarding all such information to the designated Monogram office. (iii) Obtaining authorization for additional Indebtedness on Accounts, which authorization shall be obtained prior to sales on Accounts; PROVIDED, HOWEVER, that in the event of a breakdown of the electronic authorization system, MW and each Authorized Affiliate and Authorized Licensee may (A) permit any Cardholder to incur Indebtedness below the floor limit established by Monogram from time to time, provided the floor limit shall in no event be less than Seventy-Five Dollars ($75), or such higher amount as is agreed to by the parties hereto on an emergency basis in the event of a prolonged breakdown, and (B) permit any Cardholder to incur Indebtedness in excess of such floor limit upon (i) receipt of telephonic approval from Monogram, (ii) obtaining new addresses when requested by Monogram, and (iii) verifying identification. (iv) Assisting Cardholders in communicating with Monogram through toll-free telephone number facilities maintained in the Stores operated by MW, which shall include providing and maintaining existing types of telecommunication equipment (but not the toll-free number) in the Stores at their expense. (v) Except as otherwise directed by Monogram in accordance with SECTION 7.8 hereof or as otherwise agreed by MW and Monogram, accepting during the term of this Agreement In-Store Payments at Stores designated by MW (if any Stores are so designated), processing such payments, providing receipts to or for Cardholders relat- 48 ing to such payments (it being understood that upon request of Monogram said receipts shall indicate that such payments are accepted as a convenience for Cardholders by MW as agent for the Cardholder and are not deemed to be paid until received by Monogram) and transferring said payments to Monogram as provided herein. The foregoing acceptance of payments will initially be processed in the following manner, all of which may be revised by mutual agreement of the parties from time to time: Stores will each Business Day gather all In-Store Payments made that Business Day (including In-Store Payments made at unmanned areas designated by Stores as areas where such payments can be made (I.E., lockboxes)). Cash and checks which represent payments on Accounts may be commingled with normal Store receipts, delivered and deposited into MW's local bank account according to current practices, and thereafter concentrated daily on each Business Day into MW's bank accounts. Any checks returned by a bank ("returned items") will automatically be presented for a second deposit. Checks which are returned by the depository bank to MW or any Store will be batched by MW or the Store and mailed to MW's accounting office. MW's accounting office will maintain a log of the number of returned items and forward those checks each Business Day to Monogram. MW will report the number of In-Store Payments deposited and the dollar amount of all such payments to Monogram each Business Day. Unless the amounts of In-Store Payments are applied by Monogram to reduce amounts payable by Monogram to MW, MW will wire transfer immediately available federal funds to Monogram on the Business Day following the deposit in its concentration account the amount of In-Store Payments so deposited, reduced by the sum of the 49 amount of returned items and the bank fees for returned items. Payments shall not be deemed to be made to Monogram or credited to Accounts until they either are delivered to Monogram or applied by Monogram to reduce amounts payable by Monogram to MW. MW shall promptly furnish to Monogram any documentation relating to In-Store Payments and bank fees for returned items as may be from time to time requested by Monogram. Notwithstanding the foregoing, it is understood and agreed that MW shall not solicit Cardholders (or other Persons acting on behalf of Cardholders) to make In-Store Payments. It is acknowledged and agreed that each of MW, Authorized Affiliates and Authorized Licensees shall have no right, title or interest in any In-Store Payments and shall take possession of such payments solely as agent on behalf of Cardholders for transfer to Monogram. (vi) Promoting and distributing premiums provided by Monogram to consumers responding to pre-approved new account acquisition programs. (vii) Managing in-store host and hostess programs. (viii) Providing special services such as free gift wrapping to preferred card customers. (ix) Training and employing sufficient personnel to promote the creation and use of Accounts and perform the duties specified in this SECTION 5.4(1). (x) Continuing to offer assistance to customers requesting Credit Card Applications and resolution of credit-related problems. (xi) Displaying promotional material related to Accounts prominently in appropriate areas of Stores attractive 50 to, and frequented by, customers as determined in the sole discretion of MW and each Authorized Affiliate and Authorized Licensee (as appropriate). (2) MW, at its expense, shall provide all necessary and proper forms of Charge Slips and/or microfilm copies thereof, imprinters and forms of Credit Slips. In addition, MW shall keep (and shall cause Authorized Affiliates and use its best efforts to cause Authorized Licensees to keep), at no expense to Monogram, completed Credit Card Applications, Charge Slips, Credit Slips and/or copies thereof for seven (7) years (two (2) years at Stores and five (5) subsequent years in a central storage location), any or all of which shall be provided to Monogram or its designee at Monogram's request. (3) MW shall (and shall cause Authorized Affiliates and use its best efforts to cause Authorized Licensees to) communicate electronically with Monogram at the point-of-sale in the manner that MW communicated with MWCC prior to the Conversion Date so as to attempt to minimize the circumstances under which direct oral communication is necessary in connection with the approval of the use of credit by a Cardholder, although there are instances in which such oral communication is necessary. (4) MW, Authorized Affiliates, Authorized Licensees and Monogram each may replace or modify their respective equipment and methodology for processing credit sales utilized on the Conversion Date, including, without limitation, existing point-of-sale registers and other communication devices, provided that (a) either the replacement equipment or methodology is compatible at no additional expense with equipment and methodology then being used by the recipient of the communication, or the party so replacing or modifying obtains or pays the cost of obtaining compatible equipment, or making the necessary adjustment to the existing equipment, for the other(s), and (b) such replacement equipment and methodology will be no less effective than the existing equipment and methodology in handling credit sales and avoiding the necessity of oral communications regarding credit approvals. (5) In no event shall MW be required (except to the extent explicitly provided for below) to repossess or dispose of Merchandise in connection with the collection of Indebtedness on Accounts held by Monogram. Upon request, MW shall pay (or shall cause the appropriate Authorized Affiliate or Authorized Licensee to pay) for Merchandise which is tangible personal property purchased through Indebtedness on Accounts and which was obtained by or at the direction of Monogram or its Affiliate at 51 its sole expense, provided such Merchandise will be limited to those sold in connection with Accounts which are three (3) or more months past due or where the Cardholder has filed a petition for relief under any law relating to bankruptcy, insolvency or reorganization or relief of debtors. Such payment shall be applied to reduce the Indebtedness in question. Monogram or its Affiliate shall, at its sole expense, deliver such Merchandise to locations as from time to time specified by MW. (i) Upon the Delivery Date, Monogram or its Affiliate shall assign, with any required documentation, title to such Merchandise, free and clear of all Liens, to MW, the Authorized Affiliate or the Authorized Licensee (as indicated by MW) and MW shall (or shall cause the Appropriate Authorized Affiliate or Authorized Licensee to) make the required payment to Monogram within thirty (30) days after the Delivery Date (defined below). (ii) Merchandise shall be paid for as follows: Payment Delivery Date Due Monogram ------------------- ----------------- (Months After Sale) (% of Cash Price) 0 - 30 months [ ]* 31 months or more [ ]* The "Delivery Date" is the date Merchandise is delivered to MW after repossession or retaking. (iii) For purposes of this Agreement, the "Cash Price" for any Merchandise shall mean the cash price of such Merchandise when sold to the Cardholder, including tax and transportation charges on the original purchase, but excluding any service contracts. Monogram shall be responsible for any taxes imposed on the sale by Monogram to MW or Authorized Affiliates or Authorized Licensees under this paragraph. 52 *Confidential treatment has been requested with respect to this information. (iv) If the balance of the entire Indebtedness in respect of the Account is less than the payment due Monogram or its Affiliate as described in (ii) above, such balance rather than such payment amount, shall be paid by MW or the Authorized Affiliate or Authorized Licensee. (v) MW, Authorized Affiliates and Authorized Licensees shall have no obligation to accept such Merchandise if the amount to be paid to Monogram in (ii) of this subsection (or to its Assignees under any similar provision in an agreement with MW) is equal to or exceeds [ ]* during the preceding twelve (12) Settlement Periods, provided that during the first twelve Settlement Periods after the date of this Agreement net credit sales under the Original Account Purchase Agreement may be used for measurement purposes. (vi) Upon request, MW shall and shall cause its Authorized Affiliates and use best efforts to cause its Authorized Licensees, as applicable, to inform Monogram of the price it obtains for such Merchandise and the cost, if any, of storage and sale. (vii) Upon request MW may, if it elects, assist in repossessing or retaking Merchandise. In such event, Monogram shall pay MW [ ]* if the Merchandise is picked up from the Cardholder and shipped as directed by Monogram and [ ]* if the Merchandise is delivered to a Store and shipped as directed by Monogram. In repossessing Merchandise, Monogram agrees to abide by, and cause others acting with respect thereto to abide by, all applicable laws and regulations and to act in a reasonable and ethical manner. All provisions of this SECTION 5.4(5) will, at the request of MW or Monogram, be reviewed and revised to the 53 extent agreed, on each two (2) year anniversary of the date hereof. (6) MW shall promptly advise Monogram of any governmental investigation or governmental legal action (a) concerning MW's responsibilities under this Agreement, or (b) which reasonably may be expected to affect Monogram, the Program and/or the Accounts and Indebtedness. (7) MW shall ensure that Credit Cards are accepted at all Stores operated by MW or an Authorized Affiliate. (8) MW shall ensure that credit cards issued by Monogram and/or Affiliates of Monogram and bearing the name of any Authorized Affiliate(s) shall be accepted at all retail stores operated by MW or Authorized Affiliates. 5.5. PROMOTIONS AND SOLICITATIONS. (1) During the term of this Agreement, MW shall make available to Persons currently approved Credit Card Applications, including Credit Card Agreements. In addition, MW shall promote the sale of Merchandise through the creation and use of Accounts in accordance with its practices prior to the Conversion Date to the extent permitted by law. Any material change from such past practices shall be mutually agreed upon by MW and Monogram, provided that advertising by MW (including, without limitation, all print and/or television advertising) shall refer to the availability of Accounts in accordance with past practices to the extent permitted by law. (2) During the term of this Agreement, Monogram monthly shall pay MW for expenses for Credit Promotions incurred by MW in connection with specific promotional programs mutually approved by the parties in writing during each Fiscal Year during the term of this Agreement an amount equal to [ ]* of the preceding Settlement Period's Credit Sales, less any amounts incurred by Monogram and/or its designee during that Settlement Period and qualified under subsection (3) below, provided that, in the event that MW exercises its rights under Section 15.2(2)(iii), no amounts will be due under this subsection (2) for periods thereafter. If Monogram expends funds pursuant to this subsection it shall provide to the other party reasonable detail of such expenditures. Programs shall be mutually approved if they reasonably meet the criteria set forth below. Each such program is subject to the following criteria: (i) The primary purpose of each such program shall be to increase Credit Sales and/or open 54 *Confidential treatment has been requested with respect to this information. new Accounts. Programs will also be permitted which will encourage Cardholders to increase their existing Indebtedness on such Accounts if such programs are coupled with an extra value or incentive offer to Cardholders provided by MW at its own expense. (ii) There shall be sufficient lead time for each such program to receive reasonably adequate planning, support and integration to achieve its desired objectives. If this Agreement terminates in the middle of a Settlement Period, the payment shall be proportionalized. (3) In determining amounts otherwise payable to MW under subsection (2) above, Monogram may deduct the amount of expenses incurred by Monogram and/or its designee in connection with Credit Promotions in connection with store openings and conversions to specialty stores; postage; promotional credit card reissuance; credit bureau fees; reasonable salaries and other expense for employees of Monogram and/or its designee who work virtually full-time on development of promotional programs, provided the portion of promotional expenses attributable to such employees shall not exceed for any calendar year, calculated on a year-to-date basis after the Conversion Date, the lesser of (a) the amount actually expended by Monogram and/or its designee, and (b) [ ]* premiums (except premiums given in connection with programs to induce existing Cardholders to increase their Indebtedness); data processing fees for merging and purging new lists and existing lists; creative agency costs; co-op mailings; letter shop costs; outside telemarketing services; outside host and hostess services; supplies (including envelopes); list fees; advertising; and employee incentives to promote credit sales, such as in-store host and hostess programs. Any computations for calendar years which are not full calendar years shall be proportionalized by the number of full Settlement Periods in such partial calendar year. (4) During the term of this Agreement, Monogram shall pay to MW monthly the amount of [ ]* in connection with Credit Promotions offered by MW and Monogram under this Agreement; provided that, if MW shall incur, pay to Monogram (by deductions of amounts otherwise owed to MW hereunder) or spend less than [ ]* for Credit Promotions during any such Fiscal Year, the difference shall be repaid by MW to Monogram and provided that, in the event that MW exercises its rights under Section 15.2(2)(iii), no amounts will be due under this subsection (4) for periods thereafter. 55 *Confidential treatment has been requested with respect to this information. (5) MW hereby directs Monogram to pay, and Monogram shall pay to MWCC on December 23, 1996, (a) the amounts which would have accrued or been payable under subsection (2) above (after deducting the amount specified in subsection (3) above) and subsection (4) above commencing on the Conversion Date through and including the last day of the Fiscal Month of November 1996, less any amounts owed to Monogram on such date pursuant to SECTIONS 3.6(3) OR 3.7(3) hereof and (b) the amounts which are estimated to accrue and be payable under subsection (2) above (after deducting the amount specified in subsection (3) above) and subsection (4) above for the Fiscal Month of December 1996. Commencing with the Fiscal Month of January 1997 and thereafter during the Monthly Payment Period, the amounts owed under subsections (2) and (4) will be paid to MWCC as provided in SECTION 3.8 hereof. 5.6. [SECTION INTENTIONALLY OMITTED.] 5.7. USE OF CUSTOMER LIST. (1) MW acknowledges and agrees that Monogram is the sole and exclusive owner of the Customer List. Monogram hereby grants to MW for the term of this Agreement an exclusive and royalty-free license to use (or sublicense or assign the right to use) the Customer List for all purposes, including for advertisement, solicitations or other marketing efforts, regardless of the manner or media through which the marketing effort is made, and regardless of whether the product or service has previously been marketed by MW, except that Monogram shall have the exclusive right (even as to MW) to use the Customer List: (i) to operate the Program in accordance with this Agreement and any related agreement entered into by MW and Monogram and/or an Affiliate of Monogram; (ii) to exercise its rights to use the Customer List upon termination of this Agreement to the extent specifically provided in this Agreement; and (iii) upon the occurrence of a Triggering Signature Acquisition and thereafter, to grant to the Signature Companies the exclusive rights specified in the Signature License during the term of the Signature License. In connection with MW's exercise of the rights granted under the preceding sentence, MW shall: (a) fulfill its obligations under SECTION 17.12 hereof; (b) sell (or cause the sales of) credit insurance on Accounts to the extent legally permissible and customary in the retail industry; 56 (c) with respect to credit insurance and any other insurance marketed by MW or its designee(s) and charged on or offered in connection with Accounts, ensure that (i) any insurer selected by MW and/or its designee after the Conversion Date is reasonably acceptable to Monogram with regard to service and financial soundness (it being understood that the Signature Companies shall be presumed to be reasonably acceptable to Monogram at all time such companies are Affiliates of MW or Monogram), (ii) any fees for servicing paid to Monogram in connection with insurance are reasonably acceptable to Monogram, and (iii) any changes in the type of credit insurance products offered after the Conversion Date are reasonably acceptable to Monogram (except that widely sold credit insurance products shall be deemed acceptable to Monogram); and (d) not use, or allow any other Person to use, the Customer List directly or indirectly to provide any consumer or commercial financing programs for the retail sale of goods and/or services at Stores (including credit, debit or charge card programs), whether operated in-house by MW or in connection with an outside Person, provided that, subject to the Signature License and Monogram's rights under SECTION 5.13, (i) MW may use that portion of the Customer List comprising Persons who applied for Accounts and were rejected by Monogram to provide any closed end consumer or commercial financing programs for the retail sale of goods and/or services at Stores; and (ii) MW may use the Customer List in connection with the Existing Programs described in SECTION 5.13(2)(b) AND (c) and, with the consent of Monogram or its Affiliate (as appropriate), SECTION 5.13(2)(a). 57 (2) Monogram will maintain, update and provide to MW a 3% Test File along with other files necessary to provide MW with reasonable access to data required for MW's marketing, advertising research and real estate purposes approximating the degree of access to data that was available to MW prior to the Conversion Date. Upon mutual agreement of the parties, any incremental (over historical) cost of a new venture that is not in the current normal course of MW's business will be reimbursed by MW to Monogram within thirty (30) days after billing. (3) Monogram shall provide the Customer List to MW hereunder in the same manner, and to the same extent, as lists of cardholders were provided to MW by Monogram or its Affiliates prior to the Conversion Date. (4) Monogram shall enforce its rights under the Signature License at all times such license is in effect. 5.8. MONOGRAM'S RECORDS. As part of Monogram's servicing activities, Monogram and its Assignees may store Account Documentation forwarded to Monogram on microfilm or other media and Monogram and its Assignees may, in the normal course of its business, destroy Account Documentation in the form forwarded to Monogram once such Account Documentation has been microfilmed or otherwise recorded. 5.9. REPRESENTATIVES. During the term of this Agreement, senior management officers of MW shall have the right to make inspections of credit facilities used by Monogram to service Accounts during normal business hours with reasonable advance notice to Monogram. 5.10. PREFERRED CUSTOMER SERVICES. Monogram shall continue throughout the term of the Agreement to provide, at its expense, a toll-free number or its equivalent to so-called preferred customers, together with the additional services provided to such customers (other than those in-store services to be provided by MW as provided for in SECTION 5.4), in substantially the same manner as they have been provided by MWCC prior to the Conversion Date. 5.11. RIGHT TO CONTRACT. In addition to the rights of assignment as set forth in SECTION 17.1, and subject to the limitations set forth in SECTION 17.1, Monogram may delegate its obligations under this SECTION 5 to any Affiliate of Monogram, provided (a) such delegation shall in no way release or affect the liability and obligation of Monogram and the guarantor to perform Monogram's obligations under this Agreement, (b) such delegation preserves Transparent Servicing to the public, and (c) the delegatee shall assume Monogram's obligations under this 58 Agreement so delegated, and shall be jointly and severally liable with Monogram for such obligations, which assumption shall occur automatically upon such delegation. Notwithstanding the foregoing, in no event shall Monogram delegate any of its obligations under this Agreement to, or permit such obligations to be performed by, a Competitor, except to the extent permitted by SECTION 15.2(6) or 17.1(4). 5.12. LIMITATION ON MONOGRAM. Monogram shall not, and shall not permit any other Person (including pursuant to SECTION 5.11) to, directly or indirectly utilize for any purpose other than the servicing of Accounts and Cardholders (a) personnel that handle incoming Cardholder inquiries (other than mail inquiries) directly with Cardholders (unless Monogram maintains other means for achieving Transparent Servicing) provided that this obligation shall be limited to the term of this Agreement, or (b) the Credit Card Agreements, Accounts and Credit Cards that may be issued pursuant thereto, provided, however, that Monogram may use such Accounts for financing purposes, including, without limitation, securitizing Indebtedness or selling participations in Indebtedness or selling Indebtedness and/or Accounts. It is understood that the Credit Cards to be issued in connection with the Accounts and Credit Card Agreements may not be directly or indirectly utilized to extend credit, make sales of products or services, or for any other purpose by anyone other than MW, its Authorized Affiliates and Authorized Licensees or as permitted by this Agreement (including in connection with the issuance of replacement or substitute cards under SECTION 5.14 hereof). 5.13. RIGHT OF FIRST REFUSAL IN RESPECT OF OTHER CREDIT, DEBIT OR CHARGE PROGRAMS. (1) Except as authorized in subsection (2) hereof, MW shall not during the term of this Agreement (a) directly or through an Affiliate or other Person advertise, promote, sponsor, solicit, permit solicitation of or make available to its customers or otherwise provide at any Store operated by MW or an Authorized Affiliate any program (whether operated in-house by MW or in connection with an outside Person) which is similar in purpose or effect to the Program or (b) use or authorize any other Person to use the Licensed Marks in connection with any program which is similar in purpose or effect to the Program (except that, notwithstanding the foregoing, MW may accept credit cards in Stores as specifically provided in SECTION 5.14). For the avoidance of doubt, closed-end credit programs to Persons to whom Monogram has denied an Account or Cardholders with respect to whom Monogram has not approved an advance shall not be considered covered by this subsection but shall be subject to subsection (3). 59 (2) MW and Affiliates of MW may advertise, promote, sponsor, solicit, permit solicitation of, or make available to their customers or otherwise provide at any Store, the following financing programs, each, as to (b) and (c) below, in the form in which it exists on the date hereof, and whether or not it otherwise would be deemed or considered similar in purpose or effect to the Program (collectively, the "Existing Programs"): (a) any credit, debit or charge card program or facility provided under any agreement with Monogram or one of its Affiliates, including the Program; (b) the program involving the issuance of co-branded secured cards by Orchard Savings & Loan; (c) the program available to MW's employees in connection with Bridgestone tire and other automotive sales where such employees receive certain benefits based upon Bridgestone tire and other automotive sales; and (d) subject to subsection (4) below, general purpose credit cards widely accepted in the market in question, whether or not taken on the date hereof, provided (i) such cards do not involve the use of the Licensed Marks and/or any other tradename under which MW or any of its Affiliates conduct retail operations from time to time or any variation thereof, and/or (ii) such cards are not "sponsored" or "co-sponsored" by MW or any of its Affiliates (E.G., co-branded cards). (3) This subsection will apply to programs not covered by subsection (1), will apply to programs covered by subsection (2) to the extent provided below, and is subject to the provisions of SECTION 5.14. Monogram shall have a right of first refusal (which right can be assigned by Monogram to one of its Affiliates) with respect to any determination by MW to implement (i) any consumer or commercial financing programs for the retail sale of goods and/or services at Stores (including credit, debit or charge card programs) other than the Existing Programs (whether operated in-house by MW or in connection with an outside Person), and/or (ii) any substantially modified version of the Existing Programs (whether operated in-house by MW or in connection with an outside Person) described in Section 5.13(2)(b) or (c). MW shall notify Monogram in writing of any such determination and provide a proposal therefor and Monogram shall have sixty (60) days thereafter in which to exercise its right of first refusal by notice to MW, whereupon the parties will enter into a written agreement on the terms at least as favorable to Monogram as those contained in the proposal to be negotiated. If Monogram determines not to exercise its right of first refusal and MW proposes to provide the new or modified program in connection with a third party, MW (i) may enter into an agreement with such third party only on terms no more favorable to the third party overall than those offered to Monogram or MW may operate the program in-house. In such event, Monogram shall have no further rights in connection therewith at 60 any time thereafter, except as specified in the next sentence, and such program shall not be subject to the terms of this Agreement, except that such program shall not be featured more prominently in advertising or in-store marketing efforts than the Program. If the aggregate amount of sales on those programs as to which Monogram did not exercise its right of first refusal are greater than [ ]* during any Fiscal Year preceding a Fiscal Year in which MW may cancel (without cost) or not be legally bound to continue the largest of the programs with respect to which Monogram did not exercise its right of first refusal, at least one hundred eighty (180) days prior to the date upon which it first is legally and contractually permissible for Monogram or Monogram's designee to take over such program at no cost to MW (the "Cancellation Date"), MW shall provide Monogram or Monogram's Affiliate with a term sheet indicating financial and other significant terms that MW reasonably anticipates reflects those upon which such program could be continued after the Cancellation Date. Monogram or Monogram's Affiliate shall have ninety (90) days thereafter in which to exercise a right to take over the program on the Cancellation Date. If Monogram or Monogram's Affiliate exercises such right, the parties shall enter into a written agreement on terms at least as favorable to Monogram or Monogram's Affiliate as those contained in the term sheet. If Monogram or Monogram's Affiliate determines not to exercise its right and MW determines to continue the program with a third party, MW may (i) enter into an agreement with such third party only on terms no more favorable to the third party overall than those offered to Monogram or Monogram's Affiliate, (ii) operate the program in-house or (iii) present a revised term sheet to Monogram in which case these provisions shall apply to any revised term sheet as they did to the original term sheet. In such event, Monogram and Monogram's Affiliate shall have no further rights in connection therewith at any time thereafter and such program shall not be subject to the terms of this Agreement, except that such program shall not be featured more prominently in advertising or in-store marketing efforts than the Program. (4) With Marketing Committee approval, MW may display applications and in-store solicitation for cards and facilities permitted hereunder other than the Program, provided Marketing Committee approval is not required in connection with the American Express card or any other card or facility that is permitted to be used pursuant to this Agreement if the issuer thereof will not permit the utilization thereof unless the store displays applications or otherwise solicits holders thereof. 5.14. ACQUISITIONS/DIVESTITURES/STORE CLOSINGS. The parties shall have the following rights in connection with 61 *Confidential treatment has been requested with respect to this information. certain acquisition, divestiture or closing of Stores during the term of this Agreement. (1) ACQUISITIONS (a) If MW or an Affiliate of MW acquires an Acquiree that operates a retail operation that has an Acquiree Credit Program with outstanding credit card receivables of less than [ ]*, Monogram shall purchase for cash all such receivables at the face value thereof if Monogram, in its reasonable discretion, determines the creditworthiness of the account debtors, the account servicing requirements and the account documentation relating to such accounts to be satisfactory. In the event of such purchase, such credit card receivables will be serviced in the same manner as provided in this Agreement, and such receivables will be deemed Accounts and Indebtedness. (b) If MW or an Affiliate of MW determines to acquire an Acquiree that has an Acquiree Credit Program with outstanding credit card receivables equal to or greater than [ ]*, or with outstanding credit card receivables of less than [ ]* if Monogram does not acquire the receivables as provided in (a) above: (i) At least forty-five (45) days prior to consummation of such acquisition, MW shall deliver to Monogram a written notice setting forth, in reasonable detail, the circumstances of the impending acquisition including, without limitation, the identity of each Acquiree (the "Acquisition Notice"). (ii) Within twenty (20) days after delivery of the Acquisition Notice, MW shall provide Monogram with a written proposal setting forth terms under which Monogram may take over any existing Acquiree Credit Program as soon as it is contractually or legally possible to do so, or if there is no existing Acquiree Credit Program, extend the Program to the Acquiree. The parties thereafter shall work earnestly together in good faith to agree on the proposal or other terms acceptable to both 62 *Confidential treatment has been requested with respect to this information. parties with regard to the credit quality and economic implications of such acquisition under which Monogram may take over any existing Acquiree Credit Program as soon as it is contractually or legally possible to do so, or if there is no existing Acquiree Credit Program, extend the Program to the Acquiree. (iii) If the parties are unable to agree upon the proposal or other terms pursuant to (ii) above, MW may: (A) finance, either through its own resources or with third parties, the existing Acquiree Credit Program, or develop and so finance a new credit card program for the Acquiree if one does not then exist, provided that in either such instance, MW shall not enter into an agreement with a third party relating thereto until MW has advised Monogram of the terms of such proposed agreement, and (B) use the credit card of the Acquiree Credit Program, or the newly developed program, in the Acquiree's stores, in which event the credit agreements and indebtedness generated in the Acquiree's stores pursuant to such Acquiree Credit Program shall not be deemed to be indebtedness or accounts subject to this Agreement. In addition, MW and its Affiliates may, if not otherwise permitted pursuant to this Agreement, use the credit card of the Acquiree Credit Program, or the newly developed program, in Stores, provided that the Credit Card remains the Dominant Card. (iv) If, following a period of operation described in (iii) above, MW determines that any or all of an Acquiree's stores are to be operated as "Montgomery Ward" stores, or under such other trade name as MW or its other Affiliates are then conducting any of their retail operations (e.g., Electric Avenue), Monogram and MW 63 shall work earnestly together in good faith to agree on terms acceptable to both parties to enable Monogram to take over the Acquiree Credit Program, or any newly developed program as may have been developed by MW as provided above. If the parties are unable to agree upon such terms, MW and its Affiliates may use the Credit Card in such stores, and shall also continue to have the same rights as set forth in (iii) above. The Credit Card shall remain the Dominant Card in such event. (2) CERTAIN DIVESTITURES; STOCK TRANSFERS. Without limiting the generality of SECTION 17.1(3) hereof, if at any time before, at the time of, or after the occurrence of a Control Loss Event all or substantially all of the business of MW, or Stock of MW having fifty percent (50%) or more of the ordinary voting power in the election of directors or other Persons with comparable decision-making authority is, in either case directly or indirectly, acquired during the term of this Agreement by a Person (other than Monogram, Affiliates of Monogram, or an Affiliate of MW on the Conversion Date) ("Section 2 Acquiror"), regardless of the form of the transaction, the following shall apply: (i) The parties shall work earnestly together in good faith to agree on terms acceptable to both parties with regard to the credit quality and economic implications of such acquisition, such that Monogram may take over the Acquiror Credit Program, if one exists, on the first date upon which it is legally and contractually permissible to do so without cost to MW or said Acquiror, or to extend the Program into the Section 2 Acquiror's stores if no Acquiror Credit Program exists. Notwithstanding the foregoing, the Section 2 Acquiror shall not be obligated to either permit the Acquiror Credit Program to be taken over by Monogram, permit Monogram to extend the Program into the Section 2 Acquiror's stores or, except as 64 specified in SECTION 17.1(3) hereof, enter into any other contract with Monogram. (ii) If the parties are unable to agree on terms under (2)(i) above: (A) the Section 2 Acquiror may use the Credit Card in the Section 2 Acquiror's stores, provided that the credit and servicing economics of such use are consistent with those in Stores in Monogram's reasonable judgment, and (B) if not otherwise permitted pursuant to this Agreement, the credit card of the Acquiror Credit Program may be used in Stores, provided that under this subsection the Credit Card remains the Dominant Card. If the Credit Card is used in the Section 2 Acquiror's stores, any accounts and indebtedness generated in connection therewith shall be deemed Accounts and Indebtedness. Any accounts or indebtedness otherwise generated in the Section 2 Acquiror's stores shall not be deemed to be accounts or indebtedness subject to this Agreement. (3) DIVESTITURES OCCURRING AFTER A CONTROL LOSS EVENT. Without limiting the generality of SECTION 17.1(3) hereof, if at any time after the occurrence of a Control Loss Event there is a MW Divestiture, the parties' rights and obligations shall be as follows: (i) At least forty-five (45) days prior to any Divestiture Contract Date, MW shall deliver to Monogram a written notice setting forth, in reasonable detail, the circumstances of the impending MW Divestiture including, without limitation, the identity of each Post-Control Loss Acquiror and the assets which are to be divested (the "Divestiture Notice"). (ii) Within thirty (30) days after its receipt of a Divestiture Notice, at 65 Monogram's request, MW shall use its best efforts to cause the Acquiror to negotiate with Monogram the terms under which Monogram may take over the Acquiror Credit Program, if one exists, on the first date upon which it is legally and contractually permissible to do so without cost to MW or said Acquiror, or to extend the Program into the Post-Control Loss Acquiror's stores if no Acquiror Credit Program exists. (iii) If Monogram and the Post-Control Loss Acquiror do not reach agreement as specified in subsection (ii) above: (x) Monogram may by notice to MW given at least fifteen (15) days prior to the Divestiture Date require MW to purchase (directly or through a designee), on the Divestiture Date, (1) all Divestiture-Related Accounts, but only such Accounts relating to Divested Stores that are divested on or after the time at which sufficient divestitures have occurred to satisfy the test of a MW Divestiture, and (2) subject to the Signature License, such portion of the Customer List relating to such Divestiture-Related Accounts, all for the Divestiture-Related Account Purchase Price on the opening of business on the purchase date, and, upon such purchase MW or its designee shall thereupon own all such Divestiture-Related Accounts and, subject to all rights granted to the Signature Companies under the Signature License, such related portion of the Customer List, provided that MW shall have no obligation to purchase such Accounts and such portion of the Customer List if the Post-Control Loss Acquiror agrees, in writing in a form reasonably acceptable to Monogram, not to operate or sponsor any Acquiror Credit Program for a period of four (4) years after the Divestiture Date (it being understood 66 that Monogram or its Affiliate under such circumstances may issue replacement and/or substitute credit cards to cardholders obligated in respect of such Divestiture-Related Accounts as if such Divestiture-Related Accounts were Store Closing-Related Accounts under subsection (4)(ii) below) or (y) if on the day after the Divestiture Date, the Aggregate Cardholders' Balance is less than [ ]* Monogram may at its option terminate this Agreement upon one hundred and fifty (150) days' notice to MW (which notice must be given within one hundred and fifty (150) days after the Divestiture Date, in which event MW shall purchase within one hundred and fifty (150) days thereafter: (i) subject to all rights granted to the Signature Companies under the Signature License, the Customer List, (ii) all Divestiture-Related Accounts that it would be required to purchase under SUBSECTION 3(iii)(x) for the Divestiture-Related Account Purchase Price, and (iii) all other Accounts for the [ ]* therefor, in which case Monogram shall sell such items. Upon purchase under SUBSECTION (3)(iii)(y), MW or its designee shall thereupon own all such Divestiture-Related Accounts, other Accounts and, subject to all rights of the Signature Companies under the Signature License, the Customer List and MW shall have the rights it would have under SECTION 15.2(2)(ii) (which rights shall be exercised in accordance with procedures reasonably agreed to by the parties), and upon such purchase under SUBSECTION (3)(iii)(x) or (y), the transfers shall occur subject to the rights set forth in the first sentence of the last paragraph of SECTION 15.2(2)(i). In the event that MW fails to purchase said Customer List, Accounts and 67 *Confidential treatment has been requested with respect to this information. Indebtedness when required by Monogram pursuant to SUBSECTION (3)(iii)(x) OR (y), Monogram (at its option exercised in its sole discretion) may, in addition to any other rights Monogram may have hereunder or at law or in equity at any time issue, or authorize another Person to issue, to some or all Cardholders a replacement or substitute widely-accepted general purpose card, whether or not co-branded, and market (or authorize the issuer to market) to the holders of such replacement or substitute cards in manners consistent with the practices with respect to such replacement or substitute cards subject to the terms of SECTION 5.14(4)(ii) relating to the issuance of replacement or substitute cards. (iv) Unless Monogram exercises its rights and MW purchases Accounts under (3)(iii), (A) the Post-Control Loss Acquiror may use the Credit Card in the Post-Control Loss Acquiror's stores, provided that the credit and servicing economics of such use are consistent with those in Stores in Monogram's reasonable judgment, and (B) if not otherwise permitted pursuant to this Agreement, the credit card of the Acquiror Credit Program may be used in Stores, provided that under this subsection (B) the Credit Card remains the Dominant Card. If the Credit Card is used in the Post-Control Loss Acquiror's stores any accounts and indebtedness generated in connection therewith shall be deemed Accounts and Indebtedness. Any accounts or indebtedness otherwise generated in the Post-Control Loss Acquiror's stores shall not be deemed to be accounts or indebtedness subject to the Agreement. 68 (4) STORE CLOSINGS. At any time there is a Store Closing: (i) At least ninety (90) days prior to any Store Closing Date, MW shall deliver to Monogram a written notice identifying the retail Store location or locations that will be closed or sold on such Store Closing Date. (ii) Monogram and/or an Affiliate of Monogram (at their option exercised in their sole discretion) at any time that Monogram owns Store Closing-Related Accounts in connection with such Store Closing may issue to some or all Cardholders obligated in respect thereof a replacement or substitute widely-accepted general purpose credit card, whether or not co-branded (provided that in no event shall such replacement or substitute card bear on its face a trademark, service mark or name of a competitor of MW or an Authorized Affiliate) and market (or authorize the issuer to market) to the holders of such replacement or substitute cards in manners consistent with the practices with respect to such replacement or substitute cards; and provided further that, subject to the Signature License and Monogram's rights under SECTION 5.13, MW may use the names of persons obligated in respect of such Store Closing-Related Accounts after the replacement and/or substitute cards are issued, except that, for a period ending four (4) years after the effective date of termination, MW shall not use, or allow any other Person to use such portion of the Customer List directly or indirectly to provide any consumer or commercial financing programs for the retail sale of goods and/or services at Stores (including credit, debit or charge card programs), whether operated in-house by MW or in connection with an outside Person, provided that, subject to the 69 Signature License, (i) MW may use such portion of the Customer List to the extent comprised of Persons who applied for Accounts and were rejected by Monogram to provide any closed end consumer or commercial financing programs for the retail sale of goods and/or services in Stores and (ii) MW may use the Customer List in connection with the Existing Programs described in SECTION 5.13(2)(b) and (c) and, with the consent of Monogram or its Affiliate (as appropriate) the Existing Program described in SECTION 5.13(2)(a). For the avoidance of doubt, it is acknowledged and agreed that, in the event that Monogram and/or its Affiliate exercises its rights under this subsection (ii), accounts and indebtedness generated using such replacement or substitute cards shall not be deemed Accounts and Indebtedness. (5) Nothing in this SECTION 5.14 is intended to limit the right to use the Credit Card in any Stores if such Stores were not acquired as part of the acquisition of an ongoing retail operation. (6) "Dominant Card" shall mean the credit card that is featured more prominently in advertising and in-store marketing efforts, and the aggregate annual credit sales of which for the period in question are at least [ ]* the annual aggregate credit sales through all other cards used. (7) MW and Monogram each shall, subject to the provisions of this SECTION 5.14, use reasonable efforts to accommodate all reasonable requests of the other in connection with implementing this SECTION 5.14. 70 *Confidential treatment has been requested with respect to this information. 5.15. THE LICENSED MARKS. (1) GRANT. During the License Term (as defined in subsection (5) below): (a) MW hereby grants to Monogram, and Monogram accepts, the non-exclusive, non-royalty bearing right and license to use the Licensed Marks in the United States of America and elsewhere as provided in this Agreement, upon the terms and conditions hereinafter set forth. Such license includes the rights to sublicense, subcontract and/or assign to the extent provided herein and/or with MW's prior written consent. (b) If MW adopts a trademark, trade name, service mark, logo or other proprietary mark which is used by MW or an Authorized Affiliate in connection with the operation of, or retail sales at, Stores but which is not listed on SCHEDULE 5.15 hereto (a "New Mark") and Monogram requests that such New Mark be added to SCHEDULE 5.15 and licensed hereunder, MW shall not unreasonably fail to do so, and such New Mark shall be added to SCHEDULE 5.15 by amendment of this Agreement. (2) PERMITTED USES. Monogram and its permitted sublicensees, subcontractors and assignees may use the Licensed Marks solely in connection with the creation, establishment, marketing and administration of, and the provision of services related to, the Program, Accounts and/or Indebtedness, all as provided herein and, to the extent Monogram has rights therein in connection with the Program, including with respect to both Old Indebtedness and New Indebtedness (collectively, the "Permitted Businesses"). The Permitted Businesses shall include, without limitation, the solicitation of Cardholders and potential Cardholders, acceptance of Credit Card Applications, the issuance and reissuance of Credit Cards, the provision of accounting services to Cardholders, the provision of Billing Statements and other correspondence relating to Accounts to Cardholders, the extension of credit to Cardholders, and the advertisement and/or promotion of the Program. (3) RESTRICTIONS AND QUALITY CONTROLS. Monogram's right to use the Licensed Marks shall be subject to the following conditions and restrictions: (a) All displays of the Licensed Marks shall conform to standards set by MW from time to time for its own displays of the Licensed Marks. MW shall have the unilateral right, at its sole discretion, to amend SCHEDULE 5.15 by substituting a modified logo if such 71 modified logo is adopted by MW for all or a substantial portion of its own business. If this occurs, MW shall have the right to require Monogram to substitute the amended logo form for the prior logo form effective on a date at least 180 days after the date MW notifies Monogram of the change, provided that Monogram's out-of-pocket costs shall be borne as agreed by the parties. (b) Monogram shall include all notices and legends with respect to the Licensed Marks as are or may be required by applicable federal, state and local trademark laws which may be reasonably requested by MW. (c) Monogram shall at no time adopt or use, without MW's prior written consent, any variation of the Licensed Marks or any word or mark similar to or likely to be confused with the Licensed Marks. (d) To the extent that Monogram and its permitted sublicensees, subcontractors and assigns are permitted to originate their own advertising and promotional materials hereunder, and if any of them do so, the originator shall prior to first publication of each such piece submit same to MW for approval as to form of Licensed Mark usage. Such approval shall not be unreasonably withheld and shall be deemed to have been given unless written notice of disapproval shall be given by MW to Monogram within thirty (30) business days of receipt of such submission. (e) Monogram shall conduct the Permitted Businesses in accordance with this Agreement. MW shall have inspection rights, and compliance deficiencies shall be remedied, as provided herein. (f) Monogram shall conduct the Permitted Businesses in a dignified manner, consistent with and enhancing the general reputation of the Licensed Marks and MW, and in accordance with good trademark practice. (g) Monogram shall not do anything or commit any act which might materially prejudice or adversely affect the validity of the Licensed Marks or MW's ownership thereof (it being understood that the collection of Accounts in accordance with applicable debt collection laws, the sending of adverse action letters, and the legally required or MW approved (both substance and the language) changing of terms of Accounts do not prejudice or adversely 72 affect the validity of the Licensed Marks or MW's ownership thereof). (h) Monogram shall, during the term of this Agreement and after termination hereof, execute such documents as MW may request from time to time to ensure that all right, title and interest in and to the Licensed Marks reside in MW. (i) Notwithstanding any other provision in this Agreement to the contrary, Monogram shall not be required to obtain MW's approval of billing and collection forms, notices, letters, telephone routines, or other communications in which the only use of the Licensed Marks is the use thereof in text to identify the Program and/or the Credit Card, to identify the names of Stores that accept Credit Cards, and/or to describe transactions financed under the Credit Cards, provided that Monogram in no event shall use the Licensed Marks in a manner which adversely affects the goodwill associated with the Licensed Marks (it again being understood that communications in accordance with applicable debt collection laws, adverse action letters, and the legally required (both substance and the language) or MW approved changes in the terms of Accounts do not adversely affect goodwill). (j) Except as otherwise provided herein, once materials bearing the Licensed Marks have been approved (or deemed approved) by MW, Monogram may use its existing stock of such materials, except that MW may require that Monogram cease use of such existing stock if MW pays for the replacement thereof. (4) OWNERSHIP. Monogram hereby acknowledges MW's exclusive right, title and interest in and to the Licensed Marks and MW's exclusive right to use and license the use of the Licensed Marks. Any and all goodwill arising from use of the Licensed Marks under this Agreement shall inure solely to the benefit of MW. Monogram agrees not to claim any title to the Licensed Marks or any right to use the Licensed Marks except as permitted by this Agreement. In particular, Monogram agrees that it will not assert that any failure of MW to set standards for, or police Monogram's use of, the Licensed Marks results in an abandonment of MW's rights in the Licensed Marks. Monogram shall not directly or indirectly question, attack, contest or, in any other manner, impugn the validity of the Licensed Marks or MW's rights in and to the Licensed Marks, or the license herein granted, including, without limitation thereto, in any action in which enforcement of any provision of this Agreement is sought; nor shall Monogram willingly become a party adverse to MW in 73 litigation in which a third party is contesting the validity of the Licensed Marks or MW's rights in and to the Licensed Marks. (5) LICENSE TERM. (a) The license granted in this Section 5.15 shall terminate upon the later of (i) the termination of this Agreement, or (ii) the date on which the Aggregate Cardholders' Balance is zero (the time from the date hereof to the later such date being referred to as the "License Term"). Upon expiration of the License Term, (a) all rights of Monogram with respect to the Licensed Marks shall terminate and revert to MW, and (b) Monogram shall immediately discontinue use of the Licensed Marks. The foregoing notwithstanding, it is understood that in no event shall the termination of this Agreement affect the rights of Monogram (or any authorized purchaser of Accounts and/or Indebtedness) to utilize the Licensed Marks in connection with the collection of Indebtedness. (6) INFRINGEMENT. (a) Monogram shall notify MW promptly of any infringements, imitations or unauthorized use of the Licensed Marks by any credit provider(s) (collectively, "Infringements") of which Monogram becomes aware. MW shall take such steps as it deems reasonable in the circumstances to abate any such Infringements. Except as provided below, MW shall have the sole right, at its expense, to bring any action on account of any infringements, and Monogram shall cooperate with MW as MW may request (and at MW's expense), in connection with any such action reasonably brought by MW. MW may settle infringements at its sole discretion (but shall use best efforts not to settle in a manner that conflicts with Monogram's rights hereunder), and may retain any and all resulting damages and/or other compensation paid by the infringer(s). If MW does not undertake appropriate steps to abate an Infringement within ninety (90) calendar days after notice thereof from Monogram, Monogram may prosecute the same, at its expense, provided that no settlement shall be made without the prior written approval of MW. Monogram shall advise MW periodically of the status of such action and promptly of any material developments. MW reserves the right to participate at any time in such proceedings. In the event that any damage, settlement and/or compensation are paid in connection with any such action brought by Monogram, Monogram shall first retain an amount reimbursing its expenses, any remaining amount shall be divided equally between MW and Monogram. (b) MW shall have the sole right, at its expense, to defend and settle any action that may be commenced against MW or Monogram alleging that use of the Licensed Marks infringe any rights of others. In such event, Monogram shall, at the reasonable direction of MW, promptly discontinue its use of the Licensed Marks alleged to infringe 74 rights of others. If MW does not give notice to Monogram of its intent to defend or settle such action against Monogram or affecting Monogram's use of the Licensed Marks within ninety (90) calendar days after notice thereof from Monogram, Monogram may defend the same, at its expense, provided that no settlement shall be made without the prior written approval of MW. Monogram shall advise MW periodically of the status of such action and promptly of any material developments. MW reserves the right to participate at any time in such proceedings. It is understood that nothing in this Section 5.15(6)(b) is intended to limit or otherwise modify MW's indemnification obligation under SECTION 5.15(7)(a)) hereof. (7) INDEMNIFICATION. In addition to and without limiting any indemnifications specified under Section 11 hereof: (a) MW, at its expense, shall defend and indemnify and save and hold harmless Monogram, Monogram's Assignees and Affiliates, the employees, officers, directors, shareholders, partners, attorneys and agents of Monogram and Monogram's Assignees and Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing from and against any and all liabilities, claims, causes of action, suits, damages and expenses, including reasonable attorneys' fees and expenses, which Monogram, Monogram's Assignees or Affiliates or each of the above described Persons becomes liable for, or may incur or be compelled to pay by reason of claims that Monogram's, Monogram's Assignees or Affiliates' or each of the above described Persons' use of the Licensed Marks in accordance with this Agreement violates any rights of the claimant except claims subject to Section 11.2 hereof. (b) Monogram, at its expense, shall defend and indemnify and save and hold harmless MW, MW's Affiliates and Authorized Licensees, the employees, officers, directors, shareholders, partners, attorneys and agents of MW and MW's Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing from and against any and all liabilities, claims, causes of action, suits, damages and expenses, including reasonable attorneys' fees and expenses, which such Persons become liable for, or may incur or be compelled to pay by reason of claims arising from any use of the Licensed Marks, whether by Monogram or its permitted subcontractors and sublicensees, except claims subject to subsection (a) above or SECTION 11.1 hereof. 75 (8) MATERIAL FURNISHED BY MW. MW shall cooperate with Monogram in furnishing art work, photographs, drawings, samples, graphics requirements and other such materials relating to the Licensed Marks which may reasonably be requested by Monogram, the cost of which shall be borne as agreed by the parties. 5.16. MW COORDINATOR; MARKETING COMMITTEE. (1) As promptly as practicable after the date hereof, MW shall designate a MW Coordinator. In addition, as promptly as practicable after the date hereof, MW and Monogram shall organize a marketing committee (the "Marketing Committee"), which shall consist of six members. Three members of the Marketing Committee shall be designated by Monogram, and three members of the Marketing Committee shall be designated by MW. (2) The approval of at least a majority of the six members of the Marketing Committee shall constitute the act of the Marketing Committee. (3) Each member of the Marketing Committee shall serve until his or her successor is appointed by the party that appointed him or her or his or her earlier resignation or inability to serve. Upon the resignation or inability to serve of any member of the Marketing Committee, the party that originally appointed such member shall appoint a successor. (4) During the term of this Agreement, the Marketing Committee shall attempt to meet quarterly, but in all events shall meet at least three times each year. At each quarterly meeting of the Marketing Committee, Monogram's representative shall provide MW with a report on the Program, including a reasonable description of changes effected to the Program during the prior quarter without Marketing Committee approval. (5) The parties acknowledge that Monogram, as the sole owner of the Accounts and Indebtedness and operator of the Program may make changes to the Program from time to time, subject to subsection (6) below. (6) The parties acknowledge that, notwithstanding the fact that the Accounts and Indebtedness are solely Monogram's Accounts and Indebtedness and that the Program is conducted by Monogram, there may be certain changes over time to the Program which could have an adverse competitive, economic or other impact on MW, and that to protect MW's interests as a seller of Merchandise and its interest in the continuing goodwill of the Cardholders and its reputation (and subject to 76 the provisions of Section 5.16(7)), Monogram shall not effect any change to the Program during the term of this Agreement, which could have such adverse impact on MW without the approval of the MW Coordinator or the Marketing Committee, which approval shall be withheld only if the MW Coordinator or Marketing Committee (as appropriate) reasonably determines that the proposed change, if implemented, would have such adverse impact on MW. If Monogram, in its discretion, first seeks approval of a proposed change from the MW Coordinator and the MW Coordinator does not approve such change (or does not approve such change within a reasonable time after Monogram's request (which reasonable time shall not exceed ten (10) days)), Monogram may seek approval of such change from the Marketing Committee. If the Marketing Committee does not approve such change (or does not approve such change within a reasonable time after Monogram's request (which reasonable time shall not exceed sixty (60) days)), any party hereto may, within thirty (30) days thereafter, institute an arbitration proceeding to resolve such determination. Any such arbitration shall be conducted in accordance with the rules of the American Arbitration Association (or any successor thereto) then in effect or the rules of a similar association chosen by the Marketing Committee if the American Arbitration Association (or a successor thereto) is not then in existence. There shall be three (3) arbitrators, one selected by MW, one selected by Monogram and a third selected by the first two, each of whom is experienced in complex financial transactions. Monogram and MW each shall bear their own costs to arbitrate. The parties shall equally split the costs, if any, of the American Arbitration Association and the arbitrators' fee. The arbitration shall be conducted at a place in New York, New York to be selected by the arbitrators. The law of the State of New York shall govern any arbitration hereunder. The decision of the arbitrators shall be final and binding on the parties, and any party may have such award entered as a judgment in a court of competent jurisdiction and enforce it like any other judgment. In reaching any decisions, the arbitrators shall be governed by the terms and conditions of this Agreement and shall not modify the terms and conditions hereof. Where a dispute is not covered by a term or condition, the arbitrators shall seek to resolve the dispute expeditiously and in a manner giving regard to Monogram's interests as the owner of Accounts and Indebtedness and MW's interests as a seller of Merchandise and its interest in the continuing goodwill of the Cardholders and its reputation. Whenever this Agreement refers to a matter approved by the Marketing Committee, such reference shall be deemed to be the conclusion of the arbitrators if such matter was decided through arbitration. (7) In reaching its decisions, the Marketing Committee and any arbitrators shall be governed by the basic principle that the purpose of this Agreement is to provide 77 ongoing strong support to the retail and marketing efforts of MW, its Authorized Affiliates and Authorized Licensees so that they can remain competitive and responsive to customers' needs in all relevant markets, while recognizing the need for Monogram and its Affiliates with respect to their participation in the Program to maintain a fair and reasonable profit and to provide ongoing strong support to credit quality and business development efforts of Monogram in connection with Accounts. In approving any suggested changes, the Marketing Committee and the arbitrators may consider whether the then Aggregate Cardholders' Balance is adequate to cover any reasonably anticipated increase in the amount of Indebtedness incurred by Cardholders arising out of the change. (8) Notwithstanding any other provision of this Agreement to the contrary, each of Monogram and MW may take any actions without prior Marketing Committee approval that Monogram or MW, as the case may be, believes in good faith, after consultation with counsel and reasonable notice to the other party, are required by Law or by demand of any Governmental Authority. 5.17. CUSTOMER MOVES. During the term of this Agreement, Monogram and MW will adopt and implement mutually agreed upon procedures reasonably designed to direct the issuance of Credit Cards or credit cards issued by Monogram under agreements with MW or Affiliates of MW in each situation where a Cardholder's or cardholder's address changes to the knowledge of Monogram and the Cardholder's Credit Card or cardholder's credit card is not the Primary Card for the new address. Monogram will issue Primary Cards in accordance with such agreed-upon procedures. 6. CONDITIONS PRECEDENT 6.1. CONDITIONS TO MONOGRAM'S OBLIGATIONS. Notwithstanding any other provision of this Agreement, Monogram shall have no obligation or liability hereunder unless and until Monogram shall have waived or received (which Monogram shall acknowledge in writing to MW if so waived or received), in form and substance reasonably satisfactory to Monogram, on or before the Closing Date: (1) Evidence that, Monogram has filed financing statements (form UCC-1 or others) with all filing officers desired by Monogram. (2) Evidence that all actions necessary to perfect the first priority of Monogram's Lien in and to Indebtedness and Accounts and, to insure that Monogram has good 78 title in and to such Indebtedness and Accounts, have been taken, including, without limitation, the filing of duly signed and executed termination statements or assignments to Monogram pursuant to the Code with respect to any and all Liens (other than Monogram's Lien) in and to such Indebtedness and Accounts, provided that this condition shall not be deemed not satisfied if the interest of Monogram in Accounts and Indebtedness has been encumbered by Liens created or caused by Monogram or its Affiliates. (3) A favorable opinion of counsel to MW, dated as of the Closing Date, substantially in the form annexed hereto as SCHEDULE 6.1(3). (4) [Section Intentionally Omitted.] (5) Resolutions of MW's board of directors, certified by the secretary or assistant secretary of MW, as of the Closing Date, to be duly adopted and in full force and effect on such date, authorizing (i) the execution, delivery and performance of this Agreement and all documents executed and to be executed pursuant hereto, (ii) the establishment of Accounts by Monogram and the granting of the Liens herein provided for, and (iii) specific officers to execute and deliver this Agreement and all other related documents and instruments. (6) [Section Intentionally Omitted.] (7) The Financials referred to in SECTION 8.5 hereof. (8) [Section Intentionally Omitted.] (9) Certificate of the secretary or assistant secretary of MW as to incumbency and signatures of the officers of MW, together with evidence of the incumbency of such secretary or assistant secretary. (10) [Section Intentionally Omitted.] (11) Evidence that, commencing as of April 1, 1996, Monogram is listed as an additional named insured with an assignment of benefit only to Monogram under credit insurance and credit property insurance sold on Accounts. (12) Evidence that the Account-Related Agreement has been executed by MW and is, or upon the effectiveness of this Agreement shall be, effective. 79 6.2. CONDITIONS TO MW'S OBLIGATIONS. Notwithstanding any other provision of this Agreement, MW shall have no obligation or liability hereunder unless and until MW shall have waived or received (which MW shall acknowledge in writing to Monogram if so waived or received), in form and substance reasonably satisfactory to MW, on or before the Closing Date: (1) A favorable opinion of counsel to Monogram opining as to Monogram, dated as of the Closing Date, substantially in the form annexed hereto as EXHIBIT 6.2(1). (2) Resolutions of Monogram's Board of Directors, certified by the secretary or assistant secretary of Monogram as of the Closing Date, to be duly adopted and in full force and effect on such date, authorizing (i) the execution, delivery and performance of this Agreement and all other documents executed and to be executed pursuant hereto, (ii) the establishment of the Program, and (iii) specific officers to execute and deliver this Agreement and all other related documents and instruments. (3) Resolutions generally authorizing the execution, delivery and performance of guaranties, as contained in minutes certified by an attesting secretary of GE Capital, and evidence that the Person executing and delivering the Guaranty on behalf of GE Capital is authorized under such resolutions to do so. (4) Certificates of the secretary or assistant secretary of Monogram and GE Capital, respectively, dated as of the Closing Date, as to the incumbency and signatures of the officers of Monogram and GE Capital, together with evidence of the incumbency of such secretary or assistant secretary. 6.3. CONDITIONS TO ADVANCES ON ACCOUNTS BY MONOGRAM. It will be a condition precedent to the obligation of Monogram to make advances on Accounts on behalf of Cardholders (which condition may be waived by Monogram, but any such waiver shall not apply to future advances as to which there is no waiver) that the following statements shall be true and correct as of the date of each such advance by Monogram: (1) All of the representations and warranties of MW contained in SECTION 8 of this Agreement which (a) if not true and correct would constitute a MW Default pursuant to SECTION 16.1 and (b) are Remade MW Representations and Warranties as provided in SECTION 8, shall be correct in all material respects on and as of the date of any such advance as though made on and as of such date. 80 (2) No event shall have occurred and be continuing, or would result from such advance, which constitutes a MW Default. (3) MW shall have caused the last certificate as required by SECTION 10.1 to be delivered to Monogram. (4) No outstanding Lien shall have been placed against the Accounts or Indebtedness owned by, or Charge Slips or Credit Slips to be tendered to, Monogram, taken as a whole (other than Liens created or caused by Monogram or Assignees); PROVIDED, HOWEVER, that, if at any time, an outstanding Lien or Liens in an aggregate amount less than [ ]* shall have been placed against the Accounts or Indebtedness owned by, or Charge Slips or Credit Slips to be tendered to, Monogram, taken as a whole (other than Liens created or caused by Monogram or Assignees), Monogram shall continue to make advances on Accounts on behalf of Cardholders unless (i) MW fails to promptly commence action to remove such Lien(s), or (ii) such Lien(s) have not been removed thirty (30) days after MW has had knowledge of the existence thereof; and PROVIDED FURTHER that, if at any time, an outstanding Lien or Liens resulting from a judgment or tax assessment against MW shall have been placed against the Accounts or Indebtedness owned by, or Charge Slips or Credit Slips to be tendered to, Monogram, taken as a whole (other than Liens created or caused by Monogram or Assignees), Monogram shall continue to make advances on Accounts on behalf of Cardholders unless MW fails to (i) promptly commence action to remove such Lien(s) and (ii) provide, or cause to be provided, security reasonably acceptable to Monogram. (5) No event shall have occurred and be continuing which is described in SECTION 16.1(5), except that if a petition has been filed under the bankruptcy laws by a Person other than MW, until the earlier of sixty (60) days after an involuntary petition has been filed under the bankruptcy laws or an adjudication that MW is a bankrupt under such laws, upon request of MW, Monogram shall pay the Payment Amount in respect of Charge Slips and Credit Slips at [ ]* of the face amount of the Indebtedness to be advanced on behalf of the Cardholder and Monogram shall credit to a non-segregated reserve account established by Monogram on its books (the "Liquidation Account") [ ]* of such face amount, provided that Monogram shall not be obligated to pay such Payment Amount(s) during such period after the earliest to occur of (a) fifteen (15) days after the event described in SECTION 16.1(5) shall first occur, (b) a trustee shall be appointed in any proceeding described therein, or (c) an order for relief shall be entered in such proceeding, unless an order in such form as shall be 81 *Confidential treatment has been requested with respect to this information. reasonably acceptable to Monogram approving such payment pursuant to the terms of this Agreement (including the Liquidation Account) shall have been entered for the benefit of Monogram by a court of competent jurisdiction. MW shall have no right, title or interest in or to the Liquidation Account, except that such balance of the Liquidation Account shall be paid to MW upon the earlier of the time(s) when (a) an event under SECTION 16.1(5) is no longer continuing, or (b) the later of (i) the date on which all Accounts have been liquidated or (ii) all of MW's Obligations have been paid or otherwise satisfied in full. Such Liquidation Account shall bear interest at a daily rate equivalent to 1/365th of the Liquidation Account Commercial Paper Rate, calculated on a simple basis, in effect from time to time as of the last Business Days of the Settlement Periods during which there is a balance outstanding in the Liquidation Account, and such interest shall be added to the balance of the Liquidation Account. The acceptance by MW of each payment for Indebtedness shall be deemed to constitute representations and warranties by MW that the conditions in this SECTION 6.3 have been satisfied. 6.4. CONDITIONS TO MW'S OBLIGATION TO SUBMIT CHARGE SLIPS AND CREDIT SLIPS. It will be a condition precedent to the obligation of MW to submit Charge Slips and Credit Slips to Monogram (which condition may be waived by MW, but any such waiver shall not apply to future submissions as to which there is no waiver) that the following statements shall be true and correct as of the date of each submission: (1) All of the representations and warranties of Monogram contained in SECTION 9 of this Agreement which (a) if not true and correct would constitute a Monogram Default pursuant to SECTION 16.2, and (b) are Remade Monogram Representations and Warranties as provided in SECTION 9 shall be correct in all material respects on and as of the date of each such submission as though made on and as of such date. (2) No event shall have occurred and be continuing, or would result from such submission, which constitutes a Monogram Default. 7. SECURITY AND ACCESS TO DATA 7.1. NATURE OF PROGRAM; SECURITY INTEREST. (i) The parties hereto intend and agree that the transactions contemplated herein shall constitute a program for the extension of consumer credit and service by Monogram to individuals who wish to obtain financing from Monogram to purchase Merchandise at Stores and that MW shall have no right, 82 title or interest in or to Accounts, Indebtedness and/or Account Documentation and/or any of the proceeds of any of the foregoing. Against the possibility that, despite such agreement and intentions of the parties, MW is found to have some right, title or interest in or to Accounts, Indebtedness or Account Documentation or any of the proceeds of any of the foregoing, and to provide Monogram with further assurance, secure Monogram's rights under the Program (including its right to collect Accounts and Indebtedness hereunder), and secure payment and/or performance of all of MW's Obligations, MW hereby grants, and continues, to Monogram a present and continuing security interest (subject to no other Liens caused by or arising from the acts or omissions, whether direct or indirect, of MW, its Affiliates and/or Authorized Licensees) in and to the following property or interests in property of MW, whether now existing or hereafter created or acquired: (a) all Accounts and Indebtedness; (b) all Account Documentation; (c) all Purchased Monogram Accounts; (d) all Non-Converted Accounts; (e) all MWCC Account Documentation; and (f) all proceeds of any of the foregoing. (ii) The parties hereto intend and agree that MW shall have no title to, or ownership of, deposits, credit balances and/or reserves on the books of Monogram, MWCC or any of their respective Affiliates relative to the Program, this Agreement or the Account-Related Agreement (whether such reserves are held by such Person on its own behalf or for the benefit of an Affiliate) and/or any of the proceeds of any of the foregoing, except such right and interest in or to any of the foregoing as expressly provided herein or in the Account-Related Agreement. Against the possibility that, despite such agreement and intentions of the parties, MW is found to have an ownership interest in or to such deposits, credit balances and/or reserves or any of the proceeds of any of the foregoing, and to provide Monogram with further assurance, secure Monogram's rights against MW and its Affiliates under the Program (including its right to collect Accounts and Indebtedness hereunder), and secure payment and/or performance of all of MW's Obligations, MW hereby grants, and continues, to Monogram a present and continuing security interest (subject to no other Liens caused by or arising from the acts or omissions, whether direct or indirect, of MW, its Affiliates and/or Authorized Licensees) in and to the following property or interests in property of MW, whether now existing or hereafter created or acquired: (a) all deposits, credit balances and/or reserves on the books of Monogram, MWCC or any of their respective Affiliates relative to the Program, this Agreement or the Account-Related Agreement (whether such reserves are held by such Person on its own behalf or for the benefit of an Affiliate) including, without limitation, the Credit Promotions Account, Liquidation Account and Protection Account described in SECTIONS 3.5, 6.3 AND 12.4, respectively, the MWCC Payment Reserve Account 83 (as defined in the Account-Related Agreement) and any amounts held by Monogram for transmission to MWCC; and (b) all proceeds of any of the foregoing. (iii) The parties hereto intend and agree that MW shall have no right, title or interest in or to returned and/or repossessed Merchandise, to the extent such Merchandise was purchased on an Account, a Purchased Monogram Account and/or a Non-Converted Account and Monogram, MWCC, Assignees and/or MWCC Assignees (as defined in the Account-Related Agreement) have not been paid by MW with respect thereto, or any of the proceeds of any of the foregoing. Against the possibility that, despite such agreement and intentions of the parties, MW is found to have some right, title or interest in or to such returned and/or repossessed Merchandise or any of the proceeds of any of the foregoing, and to provide Monogram with further assurance, secure Monogram's rights under the Program (including its right to collect Accounts and Indebtedness hereunder), and secure payment and/or performance of all of MW's Obligations, MW hereby grants, and continues, to Monogram a present and continuing security interest (subject to no other Liens caused by or arising from the acts or omissions, whether direct or indirect, of MW, its Affiliates and/or Authorized Licensees) in and to the following property or interests in property of MW, whether now existing or hereafter created or acquired: (a) all returned and/or repossessed Merchandise, to the extent such Merchandise was purchased on an Account, a Purchased Monogram Account and/or a Non-Converted Account and Monogram, MWCC, Assignees and/or MWCC Assignees (as defined in the Account-Related Agreement) have not been paid by MW with respect thereto; and (b) all proceeds of any of the foregoing. (iv) MW agrees to cooperate fully with Monogram in order to give effect to the security interest granted in this SECTION 7.1 including, without limitation, the filing of UCC-1s or comparable statements in order to perfect and continue such security interest, notifying Monogram as to its knowledge of any Liens or purported Liens held or asserted by Persons other than Monogram or its Assignees and the obtaining of such releases and agreements from its creditors as Monogram may require. 7.2. RETURNS OF MERCHANDISE. MW shall, and shall cause its Authorized Affiliates and Authorized Licensees to, notify Monogram, as soon as reasonably practical (and with sufficient detail to credit the applicable amounts), of all credits granted to Cardholders with respect to returned Merchandise that was purchased pursuant to Accounts creating Indebtedness. To the extent Monogram does not receive an offset pursuant to SECTION 3.2 hereof for such credit, MW will pay (or will cause the appropriate Authorized Affiliate or Authorized 84 Licensee to pay) the amount of such credit to Monogram within thirty (30) days after the issuance of such credit. 7.3. NOTICES TO MONOGRAM. MW shall and shall (i) cause Authorized Affiliates to, and (ii) use best efforts to cause Authorized Licensees to, use best efforts to promptly furnish to, or inform Monogram of, all material information known to any of them relating to the collectability of an Account, any changes of address of Cardholders, and notices of filings under the Bankruptcy Code with respect to Cardholders. 7.4. FURTHER ASSURANCES. In addition to the undertakings specifically provided for in this Agreement, MW and Monogram shall each do all other things and sign and deliver all other documents and instruments reasonably requested by the other to perfect, protect, maintain and help enforce the Liens of Monogram and the priority of such Liens, and all other rights granted pursuant to this Agreement. Such acts shall include, without limitation, indicating on the books and records of MW that Accounts and Indebtedness are the property of Monogram and/or its Assignees and are subject to a Lien pursuant to this Agreement; the filing of financing statements, amendments, and termination statements under the Code relating to the Accounts and Indebtedness; and the delivery of any Account Documentation (including, without limitation, computer tapes) the physical possession of which Monogram requires in connection with the ownership, collection and enforcement of Accounts and Indebtedness. If MW fails to do so within ten (10) Business Days after request, MW irrevocably authorizes Monogram to execute alone any financing statement or any other document or instrument which may be required to perfect or protect any Lien granted to Monogram pursuant to this Agreement, and authorizes Monogram to sign MW's name on the same. 7.5. ATTORNEY-IN-FACT. MW appoints (and shall (i) cause each Authorized Affiliate to appoint and (ii) use best efforts to cause Authorized Licensees to appoint) Monogram or Monogram's designee as their attorney-in-fact (a) to endorse its name on any checks, notes, acceptances, money orders, drafts, or other forms of payment of or security for any Account or Indebtedness, (b) to sign its name(s) on any notices to any Cardholder in connection with the collection of Indebtedness, (c) to send requests for verification of any Account or Indebtedness to Cardholders, (d) to sue Cardholders for the collection of Indebtedness and (e) to do all things necessary to carry out or enforce the obligations of Cardholders and to preserve Monogram's Lien in and to Accounts and Indebtedness. This power, being coupled with an interest, is irrevocable until there shall no longer be any Indebtedness. Monogram shall, in exercising such power of attorney-in-fact, comply with all governmental laws, 85 rules and regulations, act so as not to injure or adversely affect the business or reputation of MW, Authorized Affiliates and/or Authorized Licensees (it being understood that the collection of Accounts in accordance with applicable debt collections laws, the sending of adverse action letters, and the legally required or MW approved changes of Account terms do not injure or adversely affect such businesses or reputations), and be responsible for all obligations and liabilities arising out of the actions so taken. 7.6. CONTINUED LIABILITY. MW shall (and shall cause Authorized Affiliates and use best efforts to cause Authorized Licensees to) perform all of their respective duties and obligations under any contracts or agreements between them and any Cardholders that relate to Merchandise sold on Accounts (as opposed to the Credit Card Agreement, Account or Indebtedness). Anything herein to the contrary notwithstanding, (a) MW, its Authorized Affiliates and the Authorized Licensees shall remain liable under any contracts and agreements with any Cardholder that relate to the Merchandise sold (as opposed to the Credit Card Agreement, Account, or Indebtedness), and to the extent set forth therein to perform all of their duties and obligations pursuant thereto to the same extent as if this Agreement had not been executed; (b) the exercise by Monogram of any rights pursuant to this Agreement shall not release MW, its Authorized Affiliates or Authorized Licensees from any of such duties or obligations under the contracts and agreements; and (c) except to the extent specifically set forth herein, Monogram shall not have any obligation or liability with respect to any Merchandise by reason of this Agreement, be obligated to perform any of the obligations or duties of MW pursuant to this Agreement, or be obligated to perform any of the obligations or duties of Authorized Affiliates or Authorized Licensees. 7.7. OTHER PARTY MAY PERFORM. If either MW or Monogram fails to perform any of its duties or obligations contained herein and such failure has remained unremedied for a period of fifteen (15) days after notice to it from the other party, or if such failure is not reasonably susceptible of being cured within such fifteen (15) day period, if it fails to commence to cure such failure within such fifteen (15) day period and diligently proceed to cure thereafter, the other party may itself perform, or cause performance of, such duties or obligations, and the reasonably incurred expenses of the performing party incurred in connection therewith shall be payable by the other party on demand. 7.8. RECEIPT OF PAYMENTS. The primary and exclusive right to effect collection of Indebtedness shall be vested in Monogram and Monogram may, at any time, in its sole discretion, 86 subject to the proviso below, notify Cardholders to make payments directly to it in accordance with its instructions, provided that Monogram shall permit during the term of this Agreement, Cardholders to make In-Store Payments at all times prior to the earliest of (a) occurrence of a MW Default, (b) such time as Monogram has a reasonable basis for believing a MW Default is likely to occur or (c) Monogram reasonably concludes that continued acceptance of In-Store Payments raises concerns regarding Monogram's safety and soundness or other legal concerns. 7.9. ACCESS TO DATA BY MONOGRAM. In addition to the other rights set forth in this Agreement, Monogram (by any of its officers, employees, designees and/or agents) shall have the right, during normal business hours, in such a manner as to minimize interference with MW's normal business operations, to examine, audit, inspect, and make extracts from all of the data, records, files, and books of account including, without limitation, non-financial information under the control of MW relating to the Accounts, Cardholders and Indebtedness, and MW shall use its best efforts to facilitate Monogram's exercise of such right, including the assignment of such personnel of MW for the assistance of Monogram as Monogram shall reasonably request. MW shall deliver any document or instrument necessary for Monogram to obtain such information from any Person maintaining records for MW. Except as otherwise specifically provided in this Agreement, the party reviewing or copying such information shall do so at its own expense. 7.10. ACCESS TO DATA BY MW. In addition to the other rights set forth in this Agreement (E.G., MW's rights pursuant to SECTION 5.7), MW (by any of its officers, employees, designees, and/or agents) shall have the right, during normal business hours, in such a manner as to minimize interference with Monogram's normal business operations, to examine, audit, inspect, copy and make extracts from all of the data, records, files and books of account under the control of Monogram relating to Accounts, Cardholders and Indebtedness, including, without limitation, non-financial information under the control of Monogram relating to the Accounts, Cardholders and Indebtedness, and Monogram shall use its best efforts to facilitate MW's exercise of such rights, including the assignment of such personnel of Monogram for the assistance of MW as MW shall reasonably request. Monogram shall deliver any document or instrument necessary for MW to obtain such information from any Person maintaining records for Monogram. Except as otherwise specifically provided in this Agreement (E.G., MW's access to information pursuant to SECTION 5.7 at no expense to MW), the party reviewing or copying such information shall do so at its own expense. 87 7.11. AUDIT OF INFORMATION. MW's and Monogram's right to audit information as provided in Section 7.9 and 7.10 shall include the right to audit information necessary to determine if payments, credits, calculations or allocations made by either of them pursuant to this Agreement were accurate. If a party does not object in writing to the other party respecting any calculation or with respect to the amount of any payment, credit or allocation made under such sections within twenty-four (24) months after the date of such payment, credit, calculation or allocation, the calculation or the amount of such payment, credit or allocation shall be final. Each party shall maintain for a period of at least three (3) years, or any longer period as provided herein or during which an item is being contested, information reasonably sufficient for the other to perform such audits. 7.12. RIGHT OF SETOFF. Except as specifically provided in this Agreement, and except during the period that the other party has committed an unremedied MW Default or Monogram Default, as the case may be, or an unremedied act has occurred or event is continuing which with the giving of notice or the passage of time or both, would be a MW Default or Monogram Default, as the case may be, neither MW nor Monogram shall have, and they each hereby waive, the right to setoff, and to appropriate and apply to the payment of amounts owing to it in connection with this Agreement, any and all money or property of the other then held by it. 8. REPRESENTATIONS AND WARRANTIES OF MW MW makes the following representations and warranties to Monogram as set forth below in this SECTION 8 as of the date hereof. Each and all of such representations and warranties shall survive the execution and delivery of this Agreement as long as a claim may be made, except for those set forth in SECTION 8.5 which shall only survive to the extent Monogram gives MW written notice of any misrepresentation or breach of warranty (specifying in reasonable detail the basis thereof) on or before fifteen (15) months after the date hereof. Each and all of such representations and warranties which are set forth in SECTIONS 8.1(a), 8.1(b), 8.1(c), 8.1(d), 8.2(b), 8.2(c), 8.2(d), 8.4, 8.6, 8.7, 8.9, and 8.11 shall be deemed to be restated and remade ("Remade MW Representations and Warranties") on each date on which Monogram is required to make advances on Accounts on behalf of Cardholders. Notwithstanding anything to the contrary contained in this Agreement, except for the representations and warranties set forth in SECTION 8.9, in no event shall MW be liable (by way of indemnification or otherwise) for any misrepresentation or breach of warranty, to be read without limitation as to materiality for the purposes of this sentence, 88 until the aggregate amount recoverable under this Agreement on account thereof exceeds [ ]*, and then only to the extent of the excess of such aggregate amount recoverable over [ ]*. 8.1. CORPORATE EXISTENCE. MW (a) is a corporation duly organized, validly existing, and in good standing under the laws of the State of Illinois, or such other state in which it may be incorporated, (b) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where failure to be so qualified will not have a material adverse effect on the business, operations, property, or financial condition of MW, the Accounts or the Indebtedness (such Accounts and Indebtedness taken as a whole), Monogram's Lien in and to the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), or the priority of such Lien, (c) has the requisite corporate power and authority to own, pledge, mortgage, or otherwise encumber and operate its properties, to lease the properties it operates under lease, and to conduct its business as now, heretofore, and proposed to be conducted, (d) has all material licenses, permits, consents, or approvals from or by, and has made all necessary filings with, and has given all necessary notices to, all governmental authorities having jurisdiction, to the extent required for such ownership, operation, and conduct, except where failure to obtain such licenses, permits, consents, or approvals, or to make such filings or give such notices, does not have a material adverse effect on the business, operations, property, or financial condition of MW, or the Accounts or Indebtedness (such Accounts and Indebtedness taken as a whole), and (e) is in compliance with its certificate of incorporation and by-laws. 8.2. EXECUTIVE OFFICES AND STORES. (a) The chief executive office of MW is at 619 West Chicago Avenue, Chicago, Illinois 60671, (b) the chief executive office of MW will during the term of this Agreement be located at such location or at such other location as MW shall, from time to time, specify upon at least forty-five (45) days prior written notice to Monogram, (c) all records relating to Accounts and Indebtedness and maintained by MW are maintained at Stores, or at such other locations as are set forth on SCHEDULE 8.2 annexed hereto, as such schedule may be amended by MW from time to time upon forty-five (45) days prior written notice to Monogram, and (d) SCHEDULE 8.2 contains a complete and correct listing of the addresses of all Stores operated by MW and/or an Authorized Affiliate, as such schedule may be amended by MW from time to time at least sixty (60) days prior to the commencement, or ten (10) days prior to a termination, of a retail store's operations. 89 *Confidential treatment has been requested with respect to this information. 8.3. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The execution, delivery, and performance of this Agreement by MW and all instruments and documents to be executed by MW on the date hereof pursuant to this Agreement, and the creation of all Liens to be granted by MW as provided for herein: (a) are within MW's power; (b) have been duly authorized by all necessary or proper corporate action, including the consent of shareholders where required; (c) are not in contravention of any provision of MW's certificate of incorporation or by-laws; (d) will not violate any law or regulation applicable to MW or any order or decree applicable to MW of any court or governmental instrumentality; (e) except as set forth on SCHEDULE 8.3 annexed hereto, will not conflict with or result in the breach or termination of, constitute a default under, or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement, or other instrument to which MW is a party or by which MW or any of its property is bound, which conflicts, breaches, or defaults, either individually, or in the aggregate will have a material adverse effect on the business, operations, property, or financial condition of MW, the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), Monogram's Lien in and to the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), or the priority of such Lien; and (f) do not require any filing (other than the filings contemplated hereby) or registration by MW with, or the consent or approval of, any governmental body, agency, authority, or any other Person which has not been made or obtained previously where such failure to file, register or obtain consent or approval either individually, or in the aggregate, will have a material adverse effect on the business, operations, property or financial condition of MW, the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), Monogram's Lien in and to the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), or the priority of such Lien. This Agreement has been duly executed and delivered by MW and constitutes the legal, valid, and binding obligation of MW, enforceable against MW in accordance with its terms except as such enforcement may be limited by applicable bankruptcy, moratorium, reorganization, or other laws or legal principles affecting the rights of creditors generally or by general principles of equity (whether or not a proceeding is brought in a court of law or equity). 8.4. SOLVENCY. MW is Solvent. 8.5. FINANCIALS. The consolidated balance sheet of MW as of December 30, 1995 (the "Balance Sheet"), and the related statements of income, shareholders' equity, and changes in financial position for the fiscal year then ended, certified by Arthur Andersen & Company, independent public accountants, were 90 prepared in accordance with GAAP applied on a consistent basis (except as disclosed therein), and present fairly the consolidated financial position of MW as at such date and the results of its operations and changes in financial position for the fiscal year then ended. 8.6. NO DEFAULT. MW is not in default pursuant to or in respect of any contract, agreement, lease, or other instrument to which it is a party, nor has MW received any notice of default pursuant to any such contract, agreement, lease, or other instrument, in either case where such default would have a material adverse effect on the business, operations, property, or financial condition of MW, the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), Monogram's Lien in and to the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), or the priority of such Lien. No MW Default or event which, with the giving of notice, the lapse of time, or both, would be a MW Default, has occurred and is continuing. 8.7. MARGIN REGULATIONS. This Agreement and the transactions contemplated hereby are not considered a "purpose credit" within the meaning of regulations G, T, U or X of the Federal Reserve Board and do not violate such regulations. MW has neither taken, nor permitted any agent acting on its behalf to take, any action which might cause this Agreement or any document or instrument delivered pursuant hereto to violate any regulation of the Federal Reserve Board. 8.8. NO LITIGATION. Except as set forth on SCHEDULE 8.8 annexed hereto (which schedule specifies those claims involving consumer credit), no action, claim, or proceeding not covered by insurance which reasonably may be expected to result in a liability of MW in an amount in excess of, for each such action, claim or liability, [ ]* is now pending or, to the knowledge of MW, threatened against MW, at law, in equity, or otherwise, before any court, board, commission, agency, or instrumentality of any federal, state, or local government or of any agency or subdivision thereof or before any arbitrator or panel of arbitrators, nor to the knowledge of MW does a state of facts exist which might give rise to any such proceedings. None of such matters set forth on SCHEDULE 8.8 questions the validity of this Agreement or any action taken or to be taken pursuant hereto or any of the conditions precedent thereto. 8.9. ACCOUNTS. With respect to each item of Indebtedness established and/or added by Monogram (and, to the extent applicable, each Account (including each Old Account)) at the time of establishment/addition: (a) MW has not purported to 91 *Confidential treatment has been requested with respect to this information. create Liens with respect thereto, in favor of any Person other than Monogram or an Affiliate; (b) arises or arose in connection with a bona fide sale and delivery of Merchandise by MW, Affiliates of MW or licensees, or the predecessors of any of the foregoing, to a Cardholder; and (c) is for a liquidated amount as stated in the Account Documentation relating thereto, subject to returns, allowances and other adjustments in the ordinary course of business. 8.10. [SECTION INTENTIONALLY OMITTED.] 8.11. THE LICENSED MARKS. MW is the owner of the Licensed Marks and has the right, power and authority to license Monogram and authorized designees to use the Licensed Marks as set forth in SECTION 5.15 hereof and the use of the Licensed Marks by Monogram or said designees in a manner approved (or deemed approved) by MW shall not (i) violate any applicable Federal, state or local law, rule or regulation or (ii) infringe upon the right(s) of any third party. MW shall execute such documents as Monogram reasonably may request from time to time to ensure that right, title and interest in the Licensed Marks resides in MW. 9. REPRESENTATIONS AND WARRANTIES OF MONOGRAM Monogram makes the following representations and warranties to MW as set forth below in this SECTION 9 as of the date hereof. Each and all of such representations and warranties shall survive the execution and delivery of this Agreement as long as a claim may be made. Each and all of such representations and warranties which are set forth in SECTIONS 9.1(a), 9.1(b), 9.1 (last sentence) and 9.3 shall be deemed to be restated and remade ("Remade Monogram Representations and Warranties"), on each date on which Monogram is required to make advances on Accounts on behalf of Cardholders. Notwithstanding anything to the contrary contained in this Agreement, in no event shall Monogram be liable (by way of indemnification or otherwise) for any misrepresentation or breach of warranty, to be read without limitations as to materiality for purposes of this sentence, until the aggregate amount recoverable under this Agreement on account thereof exceeds [ ]*, and then only to the extent of the excess of such aggregate amount recoverable over [ ]*. 9.1. CORPORATE EXISTENCE. Monogram (as to all periods on and after the Conversion Date) (a) is a banking corporation duly chartered or organized (as appropriate), validly existing, and in good standing under the laws of the State of Georgia, (b) has the requisite power and authority to own, pledge, mortgage, 92 *Confidential treatment has been requested with respect to this information. or otherwise encumber and operate its properties, to lease the properties it operates under lease, and to conduct its business as now, heretofore, and proposed to be conducted, and (c) is in compliance with its charter and by-laws. Monogram has all material licenses, permits, consents, or approvals from or by, and has made all necessary filings with, and has given all necessary notices to, all governmental authorities having jurisdiction, to the extent required for such ownership, operation, and conduct, except where failure to obtain such licenses, permits, consents, or approvals, or to make such filings or give such notices, does not have a material adverse effect on its business, operations, property, or financial condition. 9.2. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The execution, delivery, and performance of this Agreement by Monogram, and all instruments and documents to be executed by Monogram on the date hereof pursuant to this Agreement (a) are within Monogram's powers; (b) have been duly authorized by all necessary or proper action, including the consent of shareholders where required; (c) are not in contravention of any provision of Monogram's charter or by-laws; (d) will not violate any law or regulation applicable to Monogram or any order or decree against Monogram of any court or governmental instrumentality; (e) except as set forth on SCHEDULE 9.2 annexed hereto, will not conflict with or result in the breach or termination of, constitute a default under, or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement, or other instrument to which Monogram is a party or by which Monogram or any of its property is bound, which conflicts, breaches, or defaults, either individually, or in the aggregate, will have a material adverse effect on Monogram's business, operations, property, or financial condition; and (f) do not require any filing or registration by Monogram with or the consent or approval of any governmental body, agency, authority, or, as to consents and approvals needed by Monogram, any other Person which has not been made or obtained previously where such failure to file, register or obtain consent or approval either individually, or in the aggregate, will have a material adverse effect on its businesses, operations, property or financial condition, the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), Monogram's Lien in and to the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), or the priority of such Lien. Upon approval of the transactions herein by its shareholder(s), this Agreement has been duly executed and delivered by Monogram and constitutes Monogram's legal, valid, and binding obligation, enforceable against it in accordance with its terms except as such enforcement may be limited by applicable bankruptcy, moratorium, reorganization, or other laws or legal principles affecting the rights of creditors generally or by general 93 principles of equity (whether or not a proceeding is brought in a court of law or equity). 9.3. SOLVENCY. Monogram is Solvent. 10. FINANCIAL STATEMENTS AND INFORMATION 10.1. MW'S REPORTS AND NOTICES. Until the end of the term of this Agreement, MW shall deliver to Monogram: (1) Within sixty (60) days after the end of each fiscal quarter of MW (except the last), MW's unaudited consolidated balance sheets as of the close of such quarter and the related statements of income, shareholder's equity, and changes in cash flow for such fiscal quarter, accompanied by the certification on behalf of MW by MW's chief executive or operating officer or chief financial officer that such financial statements were prepared in accordance with GAAP applied on a consistent basis (except as disclosed therein), and present fairly the consolidated financial position of MW as of the end of such fiscal quarter and the results of its operations and changes in cash flow, subject to non-recurring and year-end adjustments, provided the foregoing financial statements are read in the context of the audited financial statements for the preceding fiscal year, and any notes thereto, and that, except as noted therein, to the actual knowledge of such officer of MW there are no MW Defaults or events which, with the passage of time or giving of notice or both, would constitute a MW Default. (2) Within one hundred twenty (120) days after the close of each fiscal year, a copy of the consolidated annual financial statements of MW, consisting of a consolidated balance sheet and related statements of income, shareholder's equity, and changes in cash flow, all prepared in accordance with GAAP on a consistent basis (except as disclosed therein), certified by the independent public accountants regularly retained by MW, and accompanied by a certification on behalf of MW by MW's chief executive or operating officer or chief financial officer that, except as noted therein, to the actual knowledge of such officer, there are no MW Defaults or events which, with the passage of time or giving of notice or both, would constitute a MW Default. (3) Such other information respecting the Accounts and Indebtedness or MW's business or financial condition with respect to such Accounts and Indebtedness, as Monogram may, from time to time, reasonably request. 10.2. [SECTION INTENTIONALLY OMITTED.] 94 11. INDEMNIFICATION 11.1. INDEMNIFICATION BY MW. MW agrees to protect, indemnify, and hold harmless Monogram, its Assignees and Affiliates, the employees, officers, directors, shareholders, partners, attorneys and agents of Monogram and its Assignees and Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing against any and all liabilities, costs, and expenses (including reasonable attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions, or proceedings, by whomsoever asserted, including, without limitation, Cardholders with respect to Accounts, and any Person who prosecutes or defends any actions or proceedings, whether as representative of or on behalf of a class or interested group or otherwise, arising out of, connected with, or resulting from (a) any breach by MW of any of its covenants, representations, or warranties contained in this Agreement, (b) any changes or failure (unless such failure is a result of a circumstance beyond MW's reasonable control) in computer systems or programs provided, or caused to be provided, by MW that have an adverse impact on Monogram's ability to obtain and utilize the services, information and data to be provided by MW to Monogram pursuant to this Agreement, which adverse impact is not remedied within ten (10) days after the occurrence thereof if it materially adversely affects Monogram's business, or within thirty (30) days in all other events, provided Monogram promptly advises MW of such matter after becoming aware thereof (it being understood that this indemnity shall not apply to periods prior to the expiration of the applicable cure period), (c) any product liability claim arising out of the use by any Person of any Merchandise the purchase of which was financed by an Account including, without limitation, an Old Account, (d) any misrepresentation by employees of MW, an Affiliate of MW or an Authorized Licensee relating to credit terms, (e) failure of MW, any Affiliate of MW or any Authorized Licensee to have all material licenses, permits, consents, or approvals from or by, and make all necessary filings with, and give all necessary notices to, all governmental authorities having jurisdiction, to the extent required for the ownership or operation of its properties, the conduct of its business, or the creation of Accounts or Indebtedness, (f) an assertion, demand, claim, suit, counterclaim or other proceeding by a Person other than an indemnified party that an Account or Accounts is or are unlawful or otherwise actionable because the balance thereon does not decrease at least partially each month because the sum of the insurance premiums and finance charges posted to the Account or Accounts is in excess of the minimum monthly payment, provided further that MW's indemnification obligation shall not apply to any assertion, demand, claim, suit, counterclaim or other 95 proceeding to the extent arising from, and based solely upon, new sale activity (renewals shall not be deemed for this purpose to be new sales if they occur within sixty (60) days after MW or an Affiliate thereof no longer owns all or substantially all of the Stock or assets of the Signature Companies) occurring on any date on which MW does not directly own all or substantially all the Stock or assets of the Signature Companies, (g) the reporting of credit losses and/or sales taxes to federal, state or local governments or governmental units and payments made or due to or from MW to such governments or governmental units involving, relating to, or based in whole or in part on credit losses and/or sales taxes, or (h) any act or failure to act by a Person involved in selling or facilitating the sale of Merchandise on Accounts, including such Persons as Valuevision International, Inc., to the extent such act or failure to act arises out of, occurs, is connected with, or results from a sale or attempt to sell Merchandise on an Account or a solicitation or application for an Account, including failure of such a Person (i) to act in accordance with instructions given by Monogram to the extent permitted or contemplated by this Agreement or (ii) to perform MW's obligations under this Agreement, PROVIDED, HOWEVER, MW shall have no liability under this subpart (i), if the act or failure to act is the result of Monogram's failure to comply with this Agreement. 11.2. INDEMNIFICATION BY MONOGRAM. Monogram agrees to protect, indemnify, and hold harmless MW, its Affiliates, the employees, officers, directors, shareholders, partners, attorneys and agents of MW and its Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing against any and all liabilities, costs, and expenses (including reasonable attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions, or proceedings, by whomsoever asserted, including, without limitation, Cardholders with respect to Accounts, and any Person who prosecutes or defends any actions or proceedings, whether as representative of or on behalf of a class or interested group or otherwise, arising out of, connected with, or resulting from (a) any breach by Monogram of any of its covenants, representations, or warranties contained in this Agreement, (b) any changes or failure (unless such failure is a result of a circumstance beyond Monogram's reasonable control) in computer systems or programs provided, or caused to be provided, by Monogram that have an adverse impact on MW's ability to obtain and utilize the services, information and data to be provided by Monogram to MW pursuant to this Agreement, which adverse impact is not remedied within ten (10) days after the occurrence thereof if it materially adversely affects MW's business, or within thirty (30) days in all other events, provided MW promptly advises Monogram of such matter after becoming aware thereof (it 96 being understood that this indemnity shall not apply to periods prior to the expiration of the applicable cure period), (c) any claim asserted as a result of the exercise of the power-of-attorney granted to Monogram herein or any collection efforts by, or at the direction of, Monogram, including the repossession of Merchandise, (d) any misrepresentation by employees of Monogram or its Affiliates relating to credit terms, or (e) failure of Monogram to have all material licenses, permits, consents or approvals from or by, and make all necessary filings with, and give all necessary notices to, all governmental authorities having jurisdiction, to the extent required for the ownership or operation of its properties, or the conduct of its business or the ownership or servicing of Accounts or Indebtedness. 11.3. DEFENSE OF THIRD PARTY CLAIMS. In the event that any legal proceeding shall be instituted, or that any claim or demand shall be asserted by any Person in respect of which one party hereto is entitled to receive payment from the other party hereto pursuant to SECTIONS 11.1 and 11.2, the party seeking indemnification shall promptly cause written notice of the assertion of any claim of which it has knowledge which is covered by this indemnity to be forwarded to the other party, which other party shall, to the extent of its indemnification, and at its own expense, by counsel of its choice, which must be reasonably satisfactory to the party seeking indemnification, defend the party seeking indemnification against, and negotiate, settle, or otherwise deal with any proceeding, claim, or demand which is related to any matter indemnified against by the indemnifying party hereunder; PROVIDED, HOWEVER, that no settlement shall be made without the prior written consent of the party seeking indemnification, which consent shall not be unreasonably withheld; and PROVIDED FURTHER that the indemnifying party shall keep the party seeking indemnification advised as to the status of the matter. The party seeking indemnification may participate in any such proceeding with counsel of its choice at its expense. If the party seeking indemnification refuses to approve a proposed settlement that is acceptable to the claimant, the indemnifying party may, at its option, deposit the proposed settlement with the party seeking indemnification and thereupon be relieved of any further indemnity obligation in connection with such claim, including, but not limited to, attorneys' fees and expenses thereafter incurred. If upon the resolution of any such claim or proceeding which is the subject of the aggregate dollar limitations on claims set forth in SECTIONS 8 and 9 the aggregate amount of claims and related expenses which are subject to such limitation for which the indemnifying party is then liable is less than its limitation, any reasonable attorneys' fees and expenses incurred by the indemnifying party in defending against such claim shall within thirty (30) days after demand be paid by the indemnified party to the indemnifying party. The 97 parties hereto agree to cooperate fully with the defense, negotiation, or settlement of any such legal proceeding, claim or demand, but without expense to the party seeking indemnification. 11.4. PAYMENT OF INDEMNIFIED AMOUNTS. After any final judgment or award shall have been rendered by a court, arbitration board or administrative agency of competent jurisdiction, and the expiration of the time in which to appeal therefrom, or a settlement shall have been consummated, or the parties shall have arrived at a mutually binding agreement with respect to each separate matter indemnified hereunder, the party seeking indemnification shall forward to the other party notice of any sums due and owing by the other party with respect to such matter and such other party shall be required to pay all of the sums so owing to the party seeking indemnification by check (or at the option of the recipient by wire transfer constituting immediately available federal funds) within thirty (30) days after the date of such notice. 11.5. INSURANCE AND MITIGATION. The indemnified party shall use its best efforts to minimize the indemnifying party's obligation to indemnify by recovering, to the maximum extent possible without incurring any material expense, reimbursement from insurance carriers under effective insurance policies covering such liability. An indemnified party shall not be able to recover from an indemnifying party hereunder for any damages to the extent that the indemnified party shall have recovered under its insurance. The indemnifications provided for in this Agreement shall be net of tax benefits, if any. The indemnified party shall, at all times, use its reasonable efforts to minimize the indemnity obligation of the indemnifying party through remedial action which it has reason to know may minimize such obligations, provided that the indemnifying party shall have first agreed to reimburse the indemnified party for its cost, if any, in taking such remedial action. 12. AFFIRMATIVE COVENANTS OF MW MW covenants and agrees that, unless Monogram shall consent in writing, from and after the Conversion Date until the end of the term of this Agreement: 12.1. MONOGRAM'S FORMS. MW shall use only forms and contracts evidencing the Credit Card Agreement and comprising Account Documentation approved by Monogram to the extent of, and in connection with, the legal content thereof, E.G., in connection with compliance with truth-in-lending laws and regulations. 98 12.2. COMPLIANCE WITH LAW. MW's own actions, and the actions of Authorized Affiliates and Authorized Licensees in connection with the Agreement, and the actions of Persons on MW's behalf (or failures to act where any of the foregoing has a duty to act under this Agreement) shall comply with all federal, state, and local laws, statutes, ordinances, rules, regulations, orders and rulings, including, without limitation, court and FTC orders, ERISA, those regarding the collection, payment and deposit of employees' income, unemployment, and social security taxes, and those relating to environmental matters. Without limiting the generality of the foregoing, MW shall additionally be obligated to cause all forms utilized by MW, Authorized Affiliates and/or Authorized Licensees, other than those forms to be provided by Monogram as provided in this Agreement, to comply with those laws, statutes, ordinances, rules, regulation, orders and rulings during the term of this Agreement, which obligation shall include from time to time providing revisions of such forms so that they so comply. MW shall not be responsible for noncompliance pursuant to this SECTION 12.2 where noncompliance is a result of Monogram's failure to comply with any such matters, to the extent Monogram is required by this Agreement to so comply. In addition, MW shall take all reasonable measures as conveyed by Monogram to comply with the provisions of 12 U.S.C. Section 1972(1)(B). 12.3. MW'S AFFILIATES AND AUTHORIZED LICENSEES. MW shall (a) forward to Monogram an executed copy of any now existing or future contract(s) with Authorized Affiliates pertaining to Accounts and Indebtedness; (b) upon the request of Monogram, forward to Monogram an executed copy of any now existing or future contract(s) with Authorized Licensees pertaining to Accounts and Indebtedness; (c) use best efforts to revise such agreements to acknowledge that, on and after the Conversion Date, (i) any payment to any such Person in respect of a Charge Slip submitted under the Program shall constitute an advance by Monogram to the relevant Cardholder, (ii) Monogram is the creditor with respect to, and owner of, all Accounts and (iii) in the event an Authorized Affiliate and/or Authorized Licensee fails to revise its agreement as specified in subsections (i) and (ii), provide a notice of termination or nonrenewal of its agreement with such Person on the earliest legally permissible date; and (d) use best efforts to obtain from each Authorized Licensee identified on EXHIBIT C an agreement in substantially the form attached as EXHIBIT D1 OR D2 hereto (as appropriate). In the event that an Authorized Licensee no longer has a department in any Store operated by MW or an Authorized Affiliate or should no longer be considered an Authorized Licensee, MW shall so notify Monogram and such Person no longer shall be an Authorized Licensee (and, if necessary, EXHIBIT C shall be modified accordingly). 99 12.4. PROTECTION CONTRACTS. (1) Subject to SUBSECTION (2) below, at all times after the Closing Date, MW shall, in connection with all future sales on Accounts by MW, its Affiliates or designees (other than Affiliates or designees that are licensed insurance companies) of protection for Merchandise (provided MW, its Affiliates or designees receive consideration for such sale of protection in addition to the consideration paid for the Merchandise), including, without limitation, the sale of extended warranties and service contracts (collectively, "Protection"), ensure that Protection shall be backed by insurance so that, if the party obligated on the Protection does not perform, an insurance company at all times reasonably acceptable to Monogram shall be obligated to pay, and/or perform under, a percentage of such Protection (based on the dollar amount of the sale price relating to the Protection) for all calendar quarters and portions thereof beginning after the Closing Date equal to at least [ ]* of the aggregate dollar amount of the sale price relating to such Protection sold during each such calendar quarter, it being understood that some Protection will be wholly insured and other Protection will not be insured to any extent. MW shall insure all other Protection at Monogram's request (made by Monogram in its sole discretion) and at Monogram's expense. (2) Anything in subsection (1) to the contrary notwithstanding, if on any date after execution hereof MW no longer is able to fulfill all or any portion of its obligation under the first sentence of subsection (1) at a cost to MW to obtain the insurance coverage comparable to the cost to MW of obtaining such coverage on the day immediately preceding such date, MW: (i) promptly (and in all events at least ninety (90) days prior to any lapse or termination of such insurance coverage with respect to Protection) shall so advise Monogram, and (ii) negotiate in good faith with an Affiliate of Monogram designated by Monogram during such period the terms under which that Affiliate is willing to provide (at MW's expense) the insurance coverage necessary to fulfill MW's obligation. If MW and said Affiliate agree on such terms, the Affiliate shall provide such coverage commencing upon the date that MW's prior coverage lapses or terminates (the "Insurance Lapse Date"). If MW and said Affiliate do not agree on such terms, MW and Monogram shall negotiate a deduction from Charge Slips relating to Protection so as to meet MW's obligation and in connection therewith MW shall furnish Monogram with information relating to its prior experience with Protection, including the terms of insurance coverage. Beginning on the Insurance Lapse Date, Monogram may deduct from the Payment Amount otherwise to be paid to MW in respect of Charge Slips relating to sales of Protection a percentage of the amount of such Charge Slips, which percentage 100 *Confidential treatment has been requested with respect to this information. shall be an amount from time to time actuarially estimated by the parties to represent the cost to Monogram and/or its Affiliates to perform the outstanding obligations under the Protection that MW was otherwise to insure at its cost. Monogram shall credit any amounts so deducted to a non-segregated reserve account established by Monogram on its books (the "Protection Account"). Monogram annually shall determine whether the balance of the Protection Account exceeds the amount then actuarially estimated to represent the cost to Monogram and/or its Affiliates to perform the outstanding obligations under the Protection. If the balance exceeds such amount, Monogram shall debit the Protection Account for the difference and pay such amount to MW. If the balance is less than such amount, MW promptly shall pay to Monogram the shortfall, which amount shall be credited to the Protection Account by Monogram. In all other respects, the Protection Account shall be credited, debited and/or terminated in a manner agreed upon by the parties, it being agreed that such Protection Account shall be utilized, during such time as MW is performing or causing to be performed the obligations under the Protection, to reimburse MW or its designee upon demand for the costs incurred by MW or its designee in performing obligations under the Protection. Except as provided herein or as may otherwise be agreed by the parties in writing, MW shall have no right, title or interest in or to the Protection Account. Such Protection Account shall bear interest at a rate agreed to by the parties and such interest shall be added to the balance of the Protection Account. (3) If an Affiliate of Monogram does not provide required insurance coverage as provided in (2) above and the parties are unable to agree from time to time on a percentage to be deducted from such Charge Slips, the matter shall be referred to the Marketing Committee (and, if necessary, arbitration as provided in SECTION 5.16 hereof) for determination of the appropriate percentage to be deducted from such Charge Slips. Unless the Marketing Committee or arbitrator (as appropriate) have agreed upon a percentage prior to the Insurance Lapse Date, beginning on the Insurance Lapse Date until the date upon which the Marketing Committee or arbitrator makes its decision, Monogram may deduct from Charge Slips relating to sales of Protection a percentage of the amounts thereof equal to the Interim Percentage as to the Protection in question. In the event that the percentage thereafter determined by the Marketing Committee or arbitrator is less than the amount of the Interim Percentage, Monogram shall pay promptly to MW an amount equal to the difference between (i) the balance of the Protection Account and (ii) the amount that would have been in the Protection Account on such date if such percentage had been in effect at all times on and after the Insurance Lapse Date. In the event that the percentage thereafter determined by the Marketing Committee 101 or arbitrator is greater than the amount of the Interim Percentage, MW immediately shall pay to Monogram for credit to the Protection Account an amount equal to the difference between (i) the amount that would have been in the Protection Account if such percentage had been in effect at all times on and after the Insurance Lapse Date and (ii) the balance of the Protection Account. Thereafter, Monogram may deduct from Charge Slips the percentage determined by the Marketing Committee or arbitrator as to the Protection in question until such time as a new percentage is agreed to (or determined by the Marketing Committee or arbitrator), or until such time as MW maintains the Designated Insured Percentage as to the Protection in question, at which time appropriate adjustments will be made. (4) MW shall submit to Monogram for Monogram's prior approval all policies relating to Protection entered after the Closing Date. If Monogram at any time determines that an insurance company insuring any portion of the Designated Percentage of the Protection no longer is reasonably acceptable to Monogram and MW at such time is unable to terminate its relationship with such company or companies without penalty, the parties shall negotiate in good faith an arrangement providing Monogram with the level of protection that Monogram would have had if such insurance company had remained acceptable (which arrangement may include, without limitation, deduction by Monogram of an agreed-to percentage from Charge Slips relating to Protection and/or purchase by MW or Monogram of supplementary insurance). (5) MW shall not, in connection with the selling of Protection, offer to return to Cardholders some or all of the purchase price paid by them therefor. (6) MW shall ensure that Monogram is listed as an additional named insured, with an assignment of benefit only to Monogram, as to Accounts under any new credit insurance and credit property insurance policies in effect with respect to insurance sold by MW or its Authorized Affiliates for Accounts on or after the Closing Date. 13. AFFIRMATIVE COVENANTS OF MONOGRAM Monogram covenants and agrees that, unless MW shall consent in writing, from and after the Conversion Date until the end of the term of this Agreement: 13.1. COMPLIANCE WITH LAW. Monogram's own actions and the actions of Persons on its behalf (or failures to act where any of the foregoing has a duty to act under this Agreement), shall comply with all federal, state, and local laws, statutes, 102 ordinances, rules, regulations, orders and rulings, including, without limitation, court orders and orders of the Federal Trade Commission, ERISA, those regarding the collection, payment and deposit of employees' income, unemployment and social security taxes, and those relating to environmental matters. Without limiting the generality of the foregoing, Monogram shall additionally be obligated to cause all Accounts and Indebtedness thereon, as well as Credit Card Agreements, Billing Statements, other Account Documentation provided by Monogram under this Agreement, or explicitly approved by Monogram in writing as provided in SECTION 12.1, any other documents utilized by Monogram, insurance (to the extent of limitations on finance charges thereon), finance charges, and credit procedures relating to such Accounts and Indebtedness, to comply with those laws, statutes, ordinances, rules, regulations, orders and rulings during the term of this Agreement, including, but not limited to, so-called truth-in-lending or usury laws that may from time to time be in effect, which obligation shall include from time to time providing MW with revisions to credit procedures, Credit Card Agreements, periodic billing statements, other Account Documentation provided by Monogram under this Agreement, and any other documents utilized by Monogram, including those previously prepared by or on behalf of MW, so that they so comply, provided, however, that Monogram shall not be responsible for the compliance of (i) any disclosure requested by MW of an alternative credit source (i.e., a grantor of closed-end credit) on Credit Card Applications or Credit Card Agreements or (ii) the manner in which, if requested by MW, consent is obtained from applicant(s) seeking Accounts for submission of information or other materials to an alternative credit source, whether by such applicant's completion of a Credit Application or Credit Card Agreement or otherwise. Monogram shall not be responsible for noncompliance pursuant to this SECTION 13.1 where noncompliance is a result of MW's failure to comply with any such matters, to the extent MW is required by this Agreement to so comply. 13.2. SECURITIZATION, ASSIGNMENT AND SALE COMPLIANCE. Monogram shall comply with the terms of all agreements relating to the securitization, assignment or sale of Accounts. 13.3. SALES OF ACCOUNTS AND INDEBTEDNESS. In the event that Monogram sells Accounts and Indebtedness under circumstances where neither Monogram nor a servicer designated by Monogram provides servicing for such Accounts and Indebtedness once sold, Monogram shall ensure that the purchaser(s) thereof shall agree to (i) comply with applicable laws and (ii) indemnify Monogram and MW for damages resulting from any failure to so comply. 103 14. NEGATIVE COVENANTS OF MW 14.1. LIENS. MW shall not (except as provided herein) intentionally cause a Lien to be placed against the Accounts or Indebtedness. 14.2. [Section Intentionally Omitted.] 14.3. PAYMENTS IN RESPECT OF SALES ON AUTHORIZED AFFILIATES' CREDIT CARDS. In the event that (i) MW accepts credit cards issued by Monogram or its Affiliates and bearing the name(s) of Authorized Affiliate(s) and (ii) Monogram and/or its Affiliates pays such Authorized Affiliate(s) with respect thereto, MW shall not seek payment from Monogram or otherwise attempt to hold Monogram liable therefor. 14.4. SUBMISSION OF CHARGE TRANSACTION DATA BY STORES ONLY. MW shall not submit to Monogram (and shall prohibit other Persons from submitting to Monogram) any Charge Transaction Data arising other than in connection with a sale of Merchandise to a Cardholder by MW, an Authorized Affiliate or an Authorized Licensee. 15. TERM 15.1. TERM AND TERMINATION. (1) Except as otherwise provided herein, the term of this Agreement shall commence on the date hereof and shall continue (unless terminated pursuant to another provision of this SECTION 15.1) until December 31, 2011 (the "Initial Term") and from year to year thereafter, unless terminated by either party hereto effective on the last day of the Initial Term or any December 31 thereafter upon giving written notice to the other of the election to terminate effective on the last day of the Initial Term or any December 31 thereafter, which notice in either event shall be given not less than ten (10) years prior to the effective date of termination. (2) The term of the Agreement may also terminate at the election of MW in the event that Monogram fails to increase, upon the reasonable request of MW from time to time as provided in SECTION 3.1, the Maximum Aggregate Cardholders' Balance to an amount requested to finance Cardholders with respect to all Accounts and Indebtedness that may arise during the next two (2) year period based on MW's then current five-year plan. This right is in addition to other rights that MW has as provided in SECTION 15.2(4). (3) The term of this Agreement may also terminate at the election of the non-defaulting party in the 104 event of a MW Default or Monogram Default as set forth in SECTION 16. (4) The term of this Agreement may also terminate at the election of MW as set forth in SECTION 17.1(4). (5) The term of this Agreement may also terminate at the election of either party in the event that the Account-Related Agreement between MW and MWCC terminates other than as a result of the occurrence of an event of default thereunder. (6) The term of this Agreement may also terminate as provided in SECTION 5.14(3)(iii). (7) This Agreement shall automatically terminate if any of the conditions to closing set forth in Article 6 shall not have been satisfied or waived by the appropriate party on or prior to the Closing Date. 15.2. EFFECT OF TERMINATION AND REACHING THE MAXIMUM AGGREGATE CARDHOLDERS' BALANCE. (1) No termination (regardless of cause or procedure) of this Agreement shall in any way affect or impair the powers, obligations, duties, rights, indemnities, liabilities, undertakings, covenants, warranties and/or representations (individually and collectively, "Provisions") of MW or Monogram with respect to times and/or events occurring prior to such termination, including the obligation to make payments in respect of obligations (including indemnification obligations) arising prior to the termination date. No Provision with respect to times and/or events occurring after termination shall survive termination except (i) those set forth in the previous sentence or as otherwise stated in this Agreement to survive termination, (ii) those Provisions contained in SECTIONS 5.1, 5.2(7), 5.4(2), 5.4(6), 5.7 (to the extent consistent with any express provisions of this Section 15), 5.15 (to the extent provided therein), 7.4, 7.6, 7.7, 11, 15.2, 17.11, 17.12, 17.13, 17.21, 17.22 and, unless MW or MW Designee has purchased all Accounts and Indebtedness, to the extent they relate to Accounts and Indebtedness owned or held by Monogram and/or Assignees, 3.4 (for twelve months after the effective date of termination), 5.4(1)(ii), 5.4(5) (for twelve months after the effective date of termination), 5.12 (EXCEPT (a)), 7.1, 7.2, 7.3, 7.5, 7.8 and 14.1, shall also survive subject to any express limitations on such survival set forth in this Agreement (together with those Provisions stated to survive in (i) above, the "Surviving Provisions"), (iii) any other Provision that should reasonably survive to accomplish a reasonable separation of the parties, 105 taking into account the pattern of the Surviving Provisions and the Provisions that are expressly stated not to survive; provided that the burden of proof in the event of dispute as to whether a Provision other than a Surviving Provision survives is on the party contending for survival, and (iv) MW and Monogram shall be liable for any damages suffered by the other in the event of a termination due to a MW Default or Monogram Default, respectively. Except as specifically provided herein to the contrary, upon such termination (i) Monogram and Assignees shall continue to own Accounts and Indebtedness which they owned prior to such termination and (ii) provided that MW or MW Designee has purchased all Accounts and Indebtedness, MW shall, subject to the rights granted to the Signature Companies under the Signature License, be given full ownership of and all rights to the Customer List. In the event of termination, during but before the end of a Fiscal Year, any payment due with respect to part of a Fiscal Year shall be made sixty (60) days after termination. (2) With regard to a termination of this Agreement pursuant to SECTIONS 15.1(1) or, if not appropriately governed by the other sections of this SECTION 15.2, 15.1(5): (i) MW (or a third party designated by MW) may at MW's option: (A) purchase (or authorize a third party to purchase), as of the opening of business on the date of termination and subject to the restriction contained in SECTION 15.3 below, (x) all existing Accounts and Indebtedness (other than Indebtedness sold to MWCC under the Credit Card Receivables Sale Agreement, it being understood that MWCC shall have the sale obligation with respect thereto); and (y) subject to all rights granted to the Signature Companies under the Signature License, the Customer List, all for a price equal to the Net Receivable Balance on the opening of business on such date, in which case the provisions of (ii) below shall apply, and MW or such third party shall thereupon own all 106 of the Accounts and Indebtedness (other than Indebtedness sold to MWCC under the Credit Card Receivables Agreement) and, subject to all rights granted to the Signature Companies under the Signature License, the Customer List; (B) (x) require Monogram to participate to MW or a third party designated by MW (a "MW Designee") all new Indebtedness on existing Accounts created after the date MW notifies Monogram of the option it has chosen (in which case the provisions of (iii) below shall apply, and MW or MW Designee, as the case may be, at no additional cost thereto, shall be transferred ownership of (i) each Account at such time as there is no longer Indebtedness outstanding on such Account other than that participated to MW or MW Designee and (ii) subject to all rights granted to the Signature Companies under the Signature License, all rights in that portion of the Customer List comprising Accounts so transferred; provided that, in the event that counsel to Monogram reasonably determines that participation, or any level of participation (e.g., participation of more than [ ]* of Monogram's interest in Indebtedness), is not legally advisable, Monogram shall not be required to allow the participation described in this subsection (B) and the parties shall use best efforts to agree upon a comparable procedure designed to 107 accomplish the objectives underlying this subsection (B)), and (y) establish new accounts for, and extend credit to, Persons who apply for Accounts at or after this option is selected; or (C) not purchase existing Accounts or Indebtedness, and not create new accounts or participate in new indebtedness on existing Accounts pursuant to (A) or (B) above but, subject to all rights granted to the Signature Companies under the Signature License and the rights granted to Monogram in the provisions of subsection (iv) below, have the exclusive right (without any fee being payable to Monogram and with all revenue and income derived therefrom belonging to MW) to use (or sublicense or assign the right to use) the Customer List for all purposes, including for advertisement, solicitations or other marketing efforts, regardless of the manner or media through which the marketing effort is made, regardless of whether the product or service was previously marketed by MW, provided that for a period ending four (4) years after the effective date of termination, MW shall not use, or allow any other Person to use, the Customer List directly or indirectly to provide any consumer or commercial financing programs for the retail sale of goods and/or services at Stores (including credit, debit or charge card programs), whether operated in-house by MW or in 108 connection with an outside Person, provided that, subject to the Signature License: (i) MW may use that portion of the Customer List comprising Persons who applied for Accounts and were rejected by Monogram to provide any closed end consumer or commercial financing programs for the retail sale of goods and/or services at Stores; and (ii) MW may use the Customer List in connection with the Existing Programs described in SECTION 5.13(2)(b) and (c) and, with the consent of Monogram or its Affiliate (as appropriate), the Existing Program described in Section 5.13(2)(a). If option (C) is selected, the provisions of (iv) below shall apply. The transfer of ownership to MW or a MW Designee of Accounts under options (A) or (B) and indebtedness under option (B) shall include the right to receive all such Accounts, indebtedness and the Account Documentation related thereto free and clear of all Liens created or caused by Monogram and/or its Affiliates and Monogram and/or its Affiliates shall execute, and cooperate in the filing by MW of all Code statements and other documents needed to so transfer the Accounts and Indebtedness to MW. In the event MW selects option (A) or (B) above, Monogram shall use its best efforts for twenty-four (24) months prior to the effective date of termination to assist MW in MW's developing financing and servicing capabilities for the 109 Accounts and Indebtedness. MW shall notify Monogram of the option it has chosen pursuant to this SECTION 15.2(2)(i) not later than twenty-four (24) months prior to the effective date of termination or, if this Agreement has terminated pursuant to SECTION 15.1(5), not later than such lesser time as is reasonable and fair to both parties under the circumstances. (ii) If MW chooses option (A) above, to the extent Monogram maintains, or causes to be maintained, equipment, facilities and/or employees substantially dedicated to servicing Accounts and Indebtedness prior to the effective date of termination, upon the effective date of termination, Monogram shall offer to MW (and MW shall purchase) such equipment, [ ]*; assign, or if not assignable, sublease, such facilities (to the extent Monogram's leases to such facilities are assignable or permit subleasing, and Monogram shall in negotiating such leases use its best efforts to obtain assignable leases)[ ]* and employ such personnel on terms comparable to the terms under which they were employed. In the event MW purchases such equipment, leases such facilities and/or employs such personnel, Monogram shall concurrently therewith license (on a royalty-free basis) to MW, for its exclusive internal use, the software necessary for MW to service the Accounts and Indebtedness 110 *Confidential treatment has been requested with respect to this information. in a manner similar to that in which Monogram serviced such Accounts and Indebtedness prior to the effective date of termination. MW shall pay all costs associated with converting such software to MW's system, including the reasonable costs of Monogram's assistance in such conversion, and shall incur all further costs of maintaining such software. MW shall also be so entitled to such license if such equipment, facilities and/or personnel are not substantially dedicated to servicing Accounts and Indebtedness prior to the effective date of termination. Such software is confidential trade secret information that is proprietary to Monogram, and MW shall not disclose such software to any other Person or in any other instance (except those listed in SECTION 17.12(1)(a) with prior notice thereof and SECTION 17.12(1)(e), provided the consent pursuant to such SECTION 17.12(1)(e) will not be unreasonably withheld with regard to a consultant who shall execute a confidentiality agreement reasonably acceptable to Monogram). In addition, Monogram shall use its best efforts to cooperate with and assist any Person designated by MW to service Accounts and Indebtedness in a manner similar to Monogram's servicing of Accounts and Indebtedness, and MW shall pay Monogram's reasonable out-of-pocket costs incurred in such cooperation. (iii) If MW chooses option (B) above, Monogram shall continue to collect on each Account and Indebtedness and each account and indebtedness owned by MW or an MW Designee until the balance thereon owned by Monogram and/or its Assignee(s) is paid. At MW's request, Monogram shall continue to service (including collection) Accounts and Indebtedness and 111 accounts and indebtedness owned by MW or an MW Designee until the effective date of termination, which servicing shall be done in the same manner and with the same degree of care with which Monogram serviced Accounts and Indebtedness prior to Monogram's receipt of notice of election pursuant to SECTION 15.2(2). Until the effective date of termination, MW shall pay Monogram a fee for servicing equal to the sum of (a) [ ]* Such costs shall be computed in accordance with Monogram's Accounting Practices or the accounting practices of its servicer (as appropriate). Neither Monogram nor its servicer shall change the components of such costs in anticipation of the effectiveness of these provisions, or immediately prior to or during the period described in this subsection (iii), but such costs shall include additional out-of-pocket expenses to Monogram or its servicer required for the servicing of accounts and indebtedness, other than transition costs including, without limitation, accounts and indebtedness owned by MW. Anything in SECTION 5.5 to the contrary notwithstanding, during the period that this subsection (iii) is operative, the provisions of SECTION 112 *Confidential treatment has been requested with respect to this information. 5.5 shall not apply, including, without limitation, any obligation of Monogram to pay any amounts accruing thereunder during such period. Upon the effective date of termination, MW shall have the same obligation to purchase (and Monogram shall have the same obligation to sell) such equipment, lease such facilities, and employ such personnel, and the same right to obtain a royalty-free license, as is set forth in (ii) above. Payments on Accounts as to which MW or MW Designee owns Indebtedness (the definition of Indebtedness being expanded to include that owned by MW or MW Designee for purposes of the following portion of this subsection) shall be applied and, to the extent specified below, remitted to MW or MW Designee after receipt as quickly as the parties mutually determine to be reasonable in the following order to the extent practicable (and if not practicable, in such other manner reasonably agreed to by the parties): first in respect of charges for insurance, next to finance charges on Indebtedness which finance charges shall be paid to each party proportionately based on the amount of Indebtedness and indebtedness owned by Monogram, MWCC and Assignees on the one hand and MW or MW Designee on the other hand, next to the principal portion of the Indebtedness and indebtedness owned by Monogram, MWCC and Assignees and finally to the principal portion of the Indebtedness owned by MW or MW Designee. Payments on accounts entirely owned by MW or MW Designee received by Monogram shall be remitted to MW or MW Designee after receipt as quickly as the parties mutually determine to be reasonable. MW or MW Designee shall have the right to issue substitute credit cards for its own private label credit card program, or 113 otherwise, on or after the effective date of termination or, prior to the effective date of termination, on accounts not owned by Monogram or any Assignee, provided, however, MW shall permit Cardholders obligated in respect of Indebtedness and indebtedness owned by Monogram, MWCC and Assignees (other than Monogram Defaulted Indebtedness) to utilize Credit Cards. At any time before or at the effective date of termination, MW or MW Designee shall have the option to purchase (x) all Accounts and Indebtedness (other than Indebtedness sold to MWCC under the Credit Card Receivables Sale Agreement, it being understood that MWCC shall have the sale obligation with respect thereto) and (y) subject to all rights granted to the Signature Companies under the Signature License, the Customer List, all upon three (3) months prior written notice to Monogram for a price equal to [ ]* on the opening of business on such date, it being understood that the [ ]* does not include for this purpose the Indebtedness that has been participated to MW or MW Designee and it being further understood that, if this Agreement has terminated pursuant to SECTION 15.1(5), such notice period and purchase date may be shortened in a manner reasonable and fair to both parties under the circumstances. For the period subsequent to the period described in this subsection (iii), the parties shall mutually approve and agree to procedures to facilitate collection on Accounts and Indebtedness. In carrying out this subsection, MW or MW Designee shall bear all costs of complying with, and shall comply with, the laws applicable to Monogram because of their relationship with 114 *Confidential treatment has been requested with respect to this information. Monogram, including but not limited to 12 U.S.C. Section 371c. (iv) If MW chooses option (C) above, MW shall have no rights in the Accounts and Indebtedness after the effective date of termination, except to the extent set forth in (C) above. In addition: (i) Monogram shall have the right (in addition to and retaining all other rights it may have under the terms of the Agreement or applicable law) to (x) liquidate the remaining Accounts in any lawful manner which may be expeditious or economically advantageous to Monogram, including by issuing (or authorizing an Affiliate of Monogram to issue) to Cardholders a replacement or substitute widely-accepted general purpose credit card, whether or not co-branded (provided that in no event shall such replacement or substitute card bear on its face a trademark, service mark or name of a retail competitor of MW or an Authorized Affiliate) and marketing (or authorizing the issuer to market) to the holders of such replacement or substitute cards in manners consistent with the practices with respect to such replacement or substitute cards, and (y) use the Licensed Marks in accordance with the terms of this Agreement to communicate with Cardholders during the License Term in connection with its collection efforts; and (ii) MW shall be obligated to (x) fulfill its obligations under SECTION 3.4 for a period of twelve (12) months after termination, provided that the aggregate of such purchases shall not exceed the amount of such purchases for the twelve (12) months immediately prior to termination and (y) cooperate with Monogram in order to effectuate an orderly liquidation, including by accepting (at Monogram's request) for a period four (4) years 115 after the effective date of termination any permitted replacement or substitute credit cards issued by Monogram (or an Affiliate of Monogram). (3) If MW desires to elect to terminate this Agreement pursuant to SECTION 15.1(2): (i) MW shall not later than a date two hundred and seventy (270) days from the earlier of the day Monogram notifies MW in writing that Monogram has decided not to raise the Maximum Aggregate Cardholders' Balance, or the date its response to a request for an increase is due (the "Response Date"), elect whether it chooses to terminate this Agreement, and if so, choose among the options described in SECTION 15.2(2)(i) above. Monogram must respond to any request by MW to increase the Maximum Aggregate Cardholders' Balance within ninety (90) days after request or such longer period as permitted by MW. (ii) If MW chooses either option (A) or (B) in SECTION 15.2(2)(i) above: (I) this Agreement shall continue in full force and effect (without any Maximum Aggregate Cardholders' Balance limitation on Monogram's obligation to make advances on behalf of Cardholders in respect of Indebtedness) until a date twelve (12) months from the Response Date at which time this Agreement will terminate (the "Termination Date"); (II) if option (A) is chosen, MW shall purchase, as of the opening of business on the Termination Date and subject to the restriction contained in SECTION 15.3 below, (x) all existing Accounts and Indebtedness (other than Accounts and Indebtedness sold to MWCC under the Credit Card Receivables Sale Agreement, it being understood that MWCC shall have the sale obligation with respect thereto) and (y) subject 116 to all rights granted to the Signature Companies under the Signature License, the Customer List, all for a price equal to [ ]* on the opening of business on such date, and Monogram shall continue to service such accounts and indebtedness and the Indebtedness sold to MWCC under the Credit Card Receivables Sale Agreement in the same manner and with the same degree of care with which it had serviced such Accounts and Indebtedness prior to the Termination Date for a fee equal to [ ]* for a period of twelve (12) months after the Termination Date (in which case such costs shall be computed in accordance with Monogram's Accounting Practices or the accounting practices of Monogram's servicer (as appropriate)). Neither Monogram nor its servicer shall change the components of such costs in anticipation of the effectiveness of these provisions, or immediately prior to or during such twelve (12) month period after the Termination Date, but such costs shall include additional out-of-pocket expenses to Monogram or its servicer required for the servicing of accounts and indebtedness, other than transition costs, and payments received on accounts shall be remitted to MW on the next Business Day after receipt; (III) if option (B) is chosen, Monogram shall provide the services described in SECTION 15.2(2)(iii) for the fee described therein, for a period of twelve (12) months after the Termination Date, and the other provisions of such SECTION 15.2(2)(iii) shall apply as if such period were the period prior to the effective date of termination 117 *Confidential treatment has been requested with respect to this information. referred to therein; (IV) at any time during and at the end of the twelve (12) month period after the Termination Date, MW shall have the right to purchase and Monogram shall have the same obligation to sell (both subject to the restriction contained in SECTION 15.3 below) (x) all Accounts and Indebtedness (other than Accounts and Indebtedness sold to MWCC under the Credit Card Receivables Sale Agreement) and (y) subject to all rights granted to the Signature Companies under the Signature License, the Customer List, all as provided in SECTION 15.2(2)(iii) if option (B) is chosen; and (V) upon the expiration of the twelve (12) month period after the Termination Date or such earlier time during the twelve (12) month period after the Termination Date designated by MW on the Response Date or upon three (3) months prior written notice, MW shall have the same obligation to purchase such equipment, lease such facilities, employ such personnel and the same right to obtain a royalty-free license as set forth in SECTION 15.2(2)(ii) above. To the extent Monogram does not maintain, or cause to be maintained, all reasonably necessary equipment, facilities, or employees substantially dedicated to servicing such Accounts and Indebtedness as of the date of termination, Monogram shall, at the end of the twelve (12) month period following the Termination Date, if MW so requests, relocate credit facilities and arrange the acquisition and delivery to MW of additional equipment, employees and operational systems, within reasonable commuting distance of the facilities being used, to enable MW to service accounts and indebtedness, including, without limitation, accounts and indebtedness thereafter arising, with minimal 118 business disruption and in the same manner (including Transparent Servicing) that Monogram was required to service Accounts and Indebtedness under this Agreement (i.e., substantially deliver a so-called "turn-key" operation). This shall not require Monogram to incur new capital expenditures, determined in accordance with GAAP. The reasonable costs which would not be capital expenditures under GAAP incurred in such transition (if related to nondedicated equipment, facilities and employees only), including, without limitation, costs of a computer operation (as to which the parties anticipate that the vast majority of costs, as determined in accordance with GAAP, would be capital costs) and costs of hiring new employees (including, to the extent Monogram does not employ sufficient employees for a turn-key operation, reasonable agency and recruitment fees), shall be shared equally by MW and Monogram. MW shall notify Monogram in writing whether it wishes such a turn-key operation on or prior to the Termination Date. (iii) If MW chooses option (C) in SECTION 15.2(2)(i) above, this Agreement shall terminate as of the date which is ninety (90) days from the Response Date, and thereupon the provisions of SECTION 15.2(2)(i)(C) and (iv) shall apply. In addition, MW's obligations under SECTION 3.4 shall continue for a period of twelve (12) months after termination, provided that the aggregate of such purchases shall not exceed the amount of such purchases for the twelve (12) months immediately prior to termination. (4) If Monogram decides not to raise the Maximum Aggregate Cardholders' Balance and MW does not elect pursuant to SECTION 15.1(2) to terminate this Agreement as a result of such refusal (it being understood that MW shall still, 119 even if it exercises the rights set forth below, have the right at any time thereafter to so elect to terminate this Agreement if a subsequent request to increase the Maximum Aggregate Cardholders' Balance is denied), this Agreement shall remain in full force and effect, subject to the following from and after the Response Date: (i) In the event the Aggregate Cardholders' Balance (excluding for this purpose the portion of the Aggregate Cardholders' Balance owned by any Person other than MWCC, who has purchased such portion of the Aggregate Cardholders' Balances from Monogram on what is, effectively, a non-recourse basis (such non-recourse determination to be made by Monogram in its reasonable judgment)) exceeds ninety percent (90%) of the Maximum Aggregate Cardholders' Balance, at MW's option but subject to any restrictions reasonably deemed by Monogram as necessary to comply with law and/or banking regulations (A) random selections of whole Accounts (other than (x) Indebtedness sold to MWCC under the Credit Card Receivables Sale Agreement, it being understood that MWCC shall have the sale obligation with respect thereto, and (y) Monogram Defaulted Indebtedness and written off Accounts), shall be purchased or otherwise financed or disposed of by MW or MW Designee, and/or MW or MW Designee may establish new accounts for, and extend credit to, random selections of Persons who apply for Accounts such that the amount of Aggregate Cardholders' Balance is at all times no less than eighty percent (80%) of the Maximum Aggregate Cardholders' Balance, whereupon all rights to Accounts so transferred and, subject to the rights of the Signature Companies under the Signature License, related portions of the Customer List shall be transferred to MW or MW Designee and/or (B) MW may require Monogram to 120 increase the minimum monthly payments on all or specified Accounts (excluding any written off Accounts sold by Monogram), provided such higher minimum payments, if higher than those on Accounts on the Conversion Date, shall be implemented by Monogram unless such change shall cause Monogram or any Affiliate of Monogram involved in the Program to receive less than a fair and reasonable profit (the amount of which profit, if not agreed to by the parties, shall be determined by arbitration in accordance with the procedures set forth in SECTION 5.16 hereof). (ii) In the event that Monogram and/or its Affiliates own less than [ ]* of the aggregate of non-written-off Indebtedness and non-written-off indebtedness in connection with the Program owned by MW and/or MW Designee (which may result from a growth in aggregate indebtedness) when compared to the total sum of Indebtedness owned by Monogram and/or its Affiliates and indebtedness in connection with the Program owned by MW and/or MW Designee, a Person other than Monogram may at MW's election service accounts and indebtedness that were purchased and/or financed by MW pursuant to (i) above or from MWCC in connection with such Accounts. (iii) [Section intentionally omitted.] (iv) If MW purchases Credit Card Agreements and Accounts and Indebtedness relating thereto pursuant to SECTION 15.2(4)(i)(A) above, it shall pay Monogram (A) a cash purchase price therefor equal to [ ]*, and (B) the unamortized portion of the reasonable marketing costs incurred by Monogram 121 *Confidential treatment has been requested with respect to this information. and/or MWCC (or their respective servicers) in initially obtaining and opening such transferred Accounts. The amortization schedule and determination of the amount of marketing cost incurred by Monogram and/or MWCC (or their respective servicers) in obtaining and opening such transferred Accounts shall be mutually approved by the parties hereto on a reasonable basis. In such event Monogram will transfer to MW free and clear of all Liens created or caused by Monogram and/or its Affiliates the Account Documentation, Accounts and Indebtedness relating thereto in a manner similar to that in which such items were originally advanced upon by Monogram, and shall execute and cooperate in the filing by MW of all Code statements and other documents needed to so transfer such items. If MW or MW Designee establishes or holds new accounts pursuant to SECTION 15.2(4)(i)(A), and if such new accounts were generated through marketing efforts (as determined based on the source of account code) performed at the expense of Monogram or its servicer, MW shall pay to Monogram the marketing cost incurred by Monogram or its servicer allocable to each such new account. The amount of such allocable marketing cost shall be mutually approved by the parties hereto on a reasonable basis. (v) Subject to the provisions of subsection (ii) above, if MW elects the option described in SECTION 15.2(4)(i)(A) above, Monogram or its designee shall collect and service any accounts in question for MW's or MW Designee's account in the manner Monogram collects and services the Accounts and Indebtedness and MW shall pay, or cause to be paid, to Monogram or its designee a service fee equal to its pro rata share of 122 [ ]* Such costs shall be computed in accordance with Monogram's Accounting Practices. Monogram shall not change the components of such costs in anticipation of the effectiveness of these provisions, or immediately prior to or after the effective time of this provision, but such costs shall include all additional out-of-pocket expenses to Monogram required for the servicing of accounts and indebtedness. Payments received on such accounts shall be remitted to MW on the next Business Day after receipt. (5) Upon a termination of this Agreement by MW pursuant to SECTION 15.1(3) due to an Monogram Default, MW may, if it so elects, choose among the options described in SECTION 15.2(2)(i) in which case the other provisions of SECTION 15.2(2) which correspond to the option selected shall apply except that the servicing period described in SECTION 15.2(2)(iii) shall instead be deemed to be a period commencing at the effective date of termination and ending two (2) years thereafter. The exercise of the rights set forth in this SECTION 15.2(5) by MW shall in no way limit its right to exercise any other rights or remedies available to it at law or in equity as a result of such Monogram Default. (6) If MW desires to elect to terminate this Agreement pursuant to SECTION 15.1(4), MW may, if it so elects, treat such termination in the same manner as provided in SECTION 15.2(3), exercise any of the rights set forth therein, and the "Response Date" as used therein shall be the date that MW elects to terminate this Agreement pursuant to SECTION 17.1(3), which termination will be effective on the date that is twelve (12) months after the Response Date (I.E., the Termination Date described in SECTION 15.2(3)) if MW elects option (A) or (B) under SECTION 15.2(2)(i). If MW does elect to exercise such rights pursuant to SECTION 15.2(3), Monogram shall cause all services provided by Monogram thereunder to be provided by and under the control of a Person other than a Competitor, except that mainframe computer services may be provided through a 123 *Confidential treatment has been requested with respect to this information. Competitor if Monogram obtains a confidentiality agreement from the Competitor satisfactory to MW. (7) If this Agreement terminates pursuant to SECTION 15.1(7), such termination shall be without liability by one party to the other party. 15.3. SECURITIZATION/PARTICIPATION. It is recognized that Monogram and/or its Assignees shall have the right to securitize, participate or otherwise finance or refinance Accounts, Indebtedness and/or any legal or beneficial interest therein, including (without prejudice to the generality of the foregoing) the right to vest in any Person through which Monogram and/or its Assignees elects to securitize, participate, finance or refinance the Accounts and Indebtedness as aforesaid such rights and obligations in connection with the administration of the Accounts and Indebtedness as shall be customarily vested in such Persons for such purposes or as Monogram and/or its assignees shall reasonably require or deem necessary for the purpose of effecting the aforesaid securitization, participation, financing or refinancing. The parties also recognize that certain provisions in SECTION 15.2 require Monogram to sell Accounts and/or service facilities to MW. SECTION 15.2 is to be read so as to be in harmony with the rights of and obligations to third parties in connection with financings described in the first sentence hereof. Notwithstanding any of the foregoing, Monogram shall maintain MW in substantially the same financial position as though MW's rights under or as a result of SECTION 15.2 were not affected by any securitization, participation, financing or refinancing, recognizing the obligation of the parties to minimize any adverse effect on MW. 16. EVENTS OF DEFAULT; RIGHTS AND REMEDIES 16.1. MW DEFAULTS. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute a "MW Default" hereunder: (1) MW shall fail to make any payment of any amount in excess of [ ]* in the aggregate when due and payable or declared due and payable under this Agreement, and the same shall remain unremedied for a period of ten (10) Business Days after Monogram shall have made written demand therefor, or such longer period as may be required to resolve any good faith dispute as to whether any such amount is owed hereunder. (2) MW shall (a) fail or neglect to perform any of the covenants contained in SECTION 12.2 of this Agreement (provided that such failure or neglect shall occur on a repeated 124 *Confidential treatment has been requested with respect to this information. and sustained basis with a conscious disregard of MW's obligations with respect thereto, and relate to laws and regulations governing Credit Card Agreements, Accounts and Indebtedness owned by Monogram), and such failure or neglect shall remain unremedied for a period of thirty (30) days after notice thereof by Monogram to MW, or if such failure or neglect is not reasonably susceptible of being cured within such thirty (30) day period, if MW fails to commence to cure such failure or neglect during such thirty (30) day period and diligently proceed to cure thereafter, or (b) intentionally refuse to submit Charge Slips or Credit Slips to Monogram as required by this Agreement with the intent to avoid its obligations hereunder (which intent will be deemed not to exist if there is a good faith dispute as to whether MW is so obligated to make such submissions), or (c) fail or neglect to perform any of the covenants of MW (including negative covenants) contained in SECTION 5.13(1) of this Agreement (provided such failure shall have a material adverse impact upon Monogram, its Affiliates or the Program) and such failure or neglect shall remain unremedied for a period of thirty (30) days after notice thereof by Monogram to MW, or if such failure or neglect is not reasonably susceptible of being cured within such thirty (30) day period, if MW fails to commence to cure such failure or neglect during such thirty (30) day period and diligently proceed to cure thereafter. (3) Any representation or warranty made by MW to Monogram pursuant to SECTIONS 8.1(a), 8.1(c), 8.2(a), 8.3(a), 8.3(b), 8.3(c), 8.3(f), 8.3 (last sentence), 8.4, or 8.5 of this Agreement shall not be true and correct in any material respect as of the date when made or, if applicable, restated and remade, and MW fails within thirty (30) days after notice thereof by Monogram to MW, to correct the underlying basis which causes the representation or warranty to be untrue, provided that in the case of SECTION 8.4, the thirty (30) day cure period shall not apply. (4) (a) Any material portion of the Accounts or Indebtedness then owned by Monogram shall be attached, seized, levied upon or subjected to a writ by a creditor of MW and such action is not being contested by or on behalf of MW in good faith, which contest shall include providing such security as may be reasonably necessary to protect Monogram, or (b) any material portion of the Accounts or Indebtedness then owned by Monogram shall come within the possession of any receiver, trustee, custodian, or assignee for the benefit of creditors of MW and such action is not being contested by or on behalf of MW in good faith, which contest shall include providing such security as may be reasonably necessary to protect Monogram. 125 (5) MW shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against MW seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a custodian, receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceedings instituted against MW (but not instituted by it), either such proceedings shall remain undismissed or unstayed for a period of sixty (60) days or any such adjudication or relief sought occurs; or MW shall take any corporate action to authorize any of the actions set forth in this subsection. (6) [Section Intentionally Omitted.] (7) [Section Intentionally Omitted.] (8) MW assigns the Agreement in a manner not permitted by SECTION 17.1. (9) In connection with any of MW's indebtedness on money borrowed, either (a) the holder or holders of such indebtedness shall accelerate all of the outstanding balance thereof and the amount accelerated shall be greater than or equal to [ ]*, or (b) any scheduled payments of principal or interest in an aggregate amount in excess of [ ]* shall remain unpaid for a period longer than one hundred twenty (120) days beyond the date due. (10) MW shall have committed an MW Default under the Account-Related Agreement. 16.2. MONOGRAM DEFAULTS. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute a "Monogram Default" hereunder: (1) Monogram shall fail (other than a failure on an isolated and unintentional basis) to make payments in excess of [ ]* in the aggregate when required by SECTION 3 of this Agreement. (2) Monogram shall fail to make any payment (other than payments covered by (1) above) of any amount in excess of [ ]* in the aggregate when due and payable or declared due and payable under this Agreement, 126 *Confidential treatment has been requested with respect to this information. and the same shall remain unremedied for a period of ten (10) Business Days after MW shall have made written demand therefor, or such longer period as may be required to resolve any good faith dispute as to whether any such amount is owed hereunder. (3) Monogram shall fail or neglect to perform any of the covenants contained in SECTION 13.1 of this Agreement (provided that such failure or neglect shall occur on a repeated and sustained basis with a conscious disregard of Monogram's obligations with respect thereto and relate to laws and regulations governing Credit Card Agreements, Accounts and Indebtedness), and such failure or neglect shall remain unremedied for a period of thirty (30) days after notice thereof by MW to Monogram, or if such failure or neglect is not reasonably susceptible of being cured within such thirty (30) day period, if Monogram fails to commence to cure such failure, neglect or refusal during such thirty (30) day period and diligently proceed to cure thereafter. (4) Any representation or warranty made by Monogram pursuant to SECTIONS 9.1(a), 9.1(b), 9.2(a), 9.2(b), 9.2(c), 9.2(f), 9.2 (last sentence), or 9.3 of this Agreement shall not be true and correct in any material respect as of the date when made or reaffirmed, and Monogram fails within thirty (30) days after notice thereof by MW to Monogram, to correct the underlying basis which causes the representation or warranty to be untrue, provided that in the case of SECTION 9.3, the thirty (30) day cure period shall not apply. (5) (a) Any material portion of the Accounts or Indebtedness shall be attached, seized, levied upon or subjected to a writ by a creditor of Monogram and such action is not being contested by or on behalf of Monogram in good faith, which contest shall include providing such security as may be reasonably necessary to protect MW, or (b) any material portion of the Accounts or Indebtedness shall come within the possession of any receiver, trustee, custodian, or assignee for the benefit of creditors of Monogram and such action is not being contested by or on behalf of Monogram in good faith, which contest shall include providing such security as may be reasonably necessary to protect MW. (6) Monogram shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against Monogram seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or 127 seeking the entry of an order for relief or the appointment of a custodian, receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceedings instituted against Monogram (but not instituted by it), either such proceedings shall remain undismissed or unstayed for a period of sixty (60) days or any such adjudication or relief sought occurs; or Monogram shall take any corporate action to authorize any of the actions set forth in this subsection. (7) [Section Intentionally Omitted.] (8) [Section Intentionally Omitted.] (9) Monogram assigns this Agreement in a manner not permitted by SECTIONS 17.1. (10) A party other than MW shall have committed a MWCC Default under the Account-Related Agreement. 16.3. MONOGRAM REMEDIES. If any MW Default shall have occurred and be continuing: (1) Monogram, in its discretion, upon written notice to MW, may terminate this Agreement. (2) In addition to (1) above, Monogram may exercise any other rights or remedies available to it at law or in equity, subject to the terms of this Agreement. 16.4. MW REMEDIES. If any Monogram Default shall have occurred and be continuing: (1) MW, in its discretion, upon written notice to Monogram, may terminate this Agreement. (2) In addition to (1) above, MW may exercise any other rights or remedies available to it at law or in equity, subject to the terms of this Agreement. 17. MISCELLANEOUS 17.1. TERMINATION OF INTERIM AGREEMENT; COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT; ASSIGNMENT AND SALE OF INTEREST. (1) The Interim Agreement shall terminate on the Closing Date (which termination shall be effective as of the date hereof) or such other date agreed to by the parties effective as of the date agreed to by the parties. 128 (2) This Agreement constitutes the complete agreement between the parties with respect to the subject matter hereof and may not be modified, altered or amended, except by an agreement in writing signed by Monogram and MW. (3) MW may not sell, assign, or transfer any of its rights, titles, interests, remedies, duties, obligations or powers hereunder except to a successor to substantially all of its business (including, without limitation, such a successor that is an Affiliate of MW), and MW shall assign this Agreement to any successor to substantially all of its business. Monogram may not sell, assign or transfer any of its rights, titles, interests, remedies, duties, obligations or powers hereunder, except to an affiliate (including by way of merger of Monogram into GE Capital), or as provided in SECTION 5.11 or subsection (4) below, provided any transfer to an Affiliate or as set forth in such section or subsection are all subject to the limitations set forth in any such section and subsection. Neither party shall be obligated to any such assignee or transferee until it receives notice of the assignment or transfer. Any assignments or transfers hereunder shall not relieve the assigning or transferring party from its obligations under this Agreement, and shall not relieve any guarantor of its obligations, which guarantor shall as a condition of the effectiveness of the assignment acknowledge in writing the continuing validity of its guaranty. The assignee or transferee of this Agreement shall assume, by instrument reasonably acceptable to the other party to this Agreement, the assignor's obligations hereunder. (4) Upon a sale of the entire retail credit department of GE Capital ("Retailer Department"), this Agreement may be assigned to the purchaser of the Retailer Department ("Purchaser"), provided, however, that if such Purchaser is a Competitor, or if a Competitor becomes an Affiliate of Monogram or otherwise directly or indirectly controls Monogram or Monogram's rights or obligations under this Agreement, MW may at any time thereafter elect to terminate this Agreement. Furthermore, upon assignment of this Agreement to a Purchaser, the Guaranty shall continue for the unexpired term of this Agreement calculated as if a notice of termination was served at the time of assignment. The Purchaser shall assume the obligations of Monogram under this Agreement, and GE Capital shall, as a condition to the effectiveness of the assignment, confirm the continuing validity of the Guaranty hereof, all by instruments reasonably acceptable to MW. Monogram will not be relieved of its obligations hereunder in the event of such an assignment. In the event GE Capital wishes to sell the Retailer Department, it will give MW at least sixty (60) days prior written notice and allow MW to submit an offer to purchase the Retailer Department. 129 (5) After assignment or transfer by Monogram, as provided in (3) or (4) above, Transparent Servicing shall continue. 17.2. [SECTION INTENTIONALLY OMITTED.] 17.3. [SECTION INTENTIONALLY OMITTED.] 17.4. [SECTION INTENTIONALLY OMITTED.] 17.5. NO WAIVER. Either party's failure, at any time or times, to require strict performance by the other of any provision of this Agreement shall not waive, affect or diminish any right of such party thereafter to demand strict compliance and performance therewith. Any suspension or waiver by either party of a default shall not suspend, waive or affect any other default, whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of the parties contained in this Agreement and no MW Default or Monogram Default pursuant to this Agreement shall be deemed to have been suspended or waived by any party hereto, unless such suspension or waiver is by an instrument in writing signed by such party. 17.6. REMEDIES. The parties' rights and remedies pursuant to this Agreement shall, subject to the provisions hereof, be cumulative and nonexclusive of any other rights and remedies which they may have pursuant to any other agreement, by operation of law, or otherwise. 17.7. SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law; if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 17.8. PARTIES. This Agreement shall be binding upon, and inure to the benefit of, the permitted successors and permitted assigns of each party hereto. 17.9. AUTHORIZED SIGNATURE. Until notified to the contrary by the authorizing party, the signature upon any document or instrument delivered pursuant hereto of a respective officer of MW or Monogram listed in EXHIBIT 17.9 hereto shall bind such party and be deemed to be the act of such party affixed 130 pursuant to and in accordance with resolutions duly adopted by the Board of Directors of such party. 17.10. GOVERNING LAW. This Agreement and the obligations arising pursuant hereto shall, in all respects, including all matters of construction, validity, and performance, be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such state and any applicable laws of the United States of America. MW and Monogram agree to submit to personal jurisdiction and to waive any objection as to venue of the federal or state courts in the State of New York. Service of process on MW or Monogram in any action arising out of or relating to this Agreement shall be effective upon receipt thereof if sent or delivered to MW or Monogram, as the case may be, in accordance with SECTION 17.11 hereof. Nothing herein shall preclude MW or Monogram from bringing suit or taking other legal action in any other jurisdiction. 17.11. NOTICES. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by another, or whenever any of the parties desires to give or serve upon another a communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration, or other communication shall be in writing and either shall be delivered in person with receipt acknowledged or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (1) If to Monogram, at Monogram Credit Card Bank of Georgia 7840 Roswell Road Building 100, Suite 210 Atlanta, Georgia 30350 Attn: President with a copy to General Electric Capital Corporation 260 Long Ridge Road Stamford, Connecticut 06904 Attn: RFS Legal Department 131 (2) If to MW, at Montgomery Ward & Co., Incorporated 619 W. Chicago Avenue Chicago, Illinois 60671 Attn: Secretary with a copy to Montgomery Ward & Co., Incorporated 619 W. Chicago Avenue Chicago, Illinois 60671 Attn: Chief Financial Officer or at such other address or to such other addressees as may be substituted or added by notice given by the party to receive such notice as herein provided. The giving of any notice required pursuant hereto may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication pursuant hereto shall be deemed to have been duly given or served on the date on which personally delivered or three (3) Business Days after mailing. 17.12. CONFIDENTIALITY. (1) Subject to the provisions of SECTION 5.3 of this Agreement, each party hereto shall on and after the Conversion Date hold in confidence any proprietary information obtained from any other party hereto in connection with this Agreement and shall not disclose the same to any third party, except that disclosure to an Affiliate of MW or Monogram or to Valuevision International, Inc. is allowed. The parties' duty of confidentiality hereunder is specifically intended to apply to the Customer List and credit file maintained in connection with Cardholders (both of which shall be deemed proprietary information). MW agrees that the financial terms of this Agreement are considered proprietary to Monogram and will not be disclosed (except in the circumstances described in subsections (b) and (c) below) to any Person if there are practical ways, after discussion with Monogram, of avoiding such disclosure. Nothing contained herein shall limit the right of either party to disclose any information (a) as required by law or by judicial or administrative process or to appropriate regulatory authorities, (b) as such information is or becomes public knowledge, (c) to the extent that such information is disclosed to recover the Indebtedness or amounts owing hereunder from another party hereto, (d) for legitimate business purposes, including but not limited to purposes relating to any securitization, participation, securities filings or in connection with providing information to auditors, prospective purchasers and lenders (provided that, to the extent that any party determines to disclose the Customer List in a manner authorized by this Agreement, the disclosing party shall use best efforts to obtain 132 from the party to whom the information is being disclosed a written confidentiality agreement), and (e) subject to the provision of SECTION 5.3, with the prior written consent of the party whose information is proprietary, pursuant to an agreement between the Person to whom the information is being disclosed and the party whose information is proprietary, satisfactory in form and content to such latter party as to the confidentiality of such proprietary information and reasonable liquidated damages (which liquidated damages for the use of the credit file shall initially be based on SCHEDULE 5.3 annexed hereto, as such schedule may be modified as provided in SECTION 5.3) to be paid for a violation thereof, provided, however, that prior to disclosing any proprietary information of another party hereto to any Person, the party making such disclosure shall notify the appropriate party of the nature of such disclosure and of the fact that such disclosure will be made. (2) The parties acknowledge and agree that: (i) the Customer List is commercially and competitively valuable; (ii) by this SECTION 17.12, the parties are taking reasonable steps to protect legitimate interests in the Customer List; and (iii) the restrictions on the parties under this Agreement relating to the Customer List are reasonably necessary in order to protect legitimate interests in the Customer List. 17.13. PAYMENTS. All payments to be made hereunder shall be made in lawful money of the United States in immediately available federal funds to an account designated by the other party. Except as expressly provided herein, if any amount due hereunder is not paid when due and owing, the party failing to make such payment agrees to pay, on demand, a charge equal to the Prime Rate on the date due and owing, or the Business Day immediately following such date, as it from time to time changes thereafter, [ ]* on such amount until such amount is paid in full. 17.14. [SECTION INTENTIONALLY OMITTED.] 17.15. SECTION TITLES. The section titles, table of contents and list of exhibits and schedules contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 17.16. COUNTERPARTS. This Agreement may be executed in any number of separate counterparts, each of which shall, collectively and separately, constitute one agreement. 133 *Confidential treatment has been requested with respect to this information. 17.17. DISCLOSURE. Disclosure of information on any schedule or exhibit hereto shall be deemed to be a disclosure for all purposes of this Agreement. 17.18. ESTOPPEL CERTIFICATES. Each party shall furnish to the other, as requested from time to time by the other, estoppel certificates stating (or specifying exceptions thereto) that this Agreement is in full force and effect, that such party has no knowledge of any failure by either party to perform its obligations hereunder, and such other matters as may be reasonably requested by the other. 17.19. FOREIGN STORES. Accounts and Indebtedness shall not, without the prior written approval of Monogram, include Accounts or Indebtedness arising out of Merchandise sold in MW's stores outside of the United States of America. 17.20. [SECTION INTENTIONALLY OMITTED.] 17.21. THIRD PARTY BENEFICIARIES. No third party shall have any rights under this Agreement except for successors and permitted assigns. 17.22. FORCE MAJEURE. Except as otherwise expressly provided herein, except with respect to Sections 11.1(b) and 11.2(b), and except with respect to payments to be made by either party, neither party shall be responsible for any failure or delay in performance of its obligations under this Agreement because of circumstances beyond its control including, but not limited to, acts of God, flood, criminal acts, fire, riot, computer viruses, computer hackers, accident, strikes or work stoppages for any reason, embargo, war or civil disturbances; PROVIDED, HOWEVER, that such party took reasonable action to avoid such events and such party acts reasonably to mitigate the effects of such events. 17.23. CLOSING. The closing of this transaction and any related transactions involving Affiliates of Monogram shall be held on the Closing Date in the offices of Weil, Gotshal & Manges, 767 Fifth Avenue, New York, New York 10153 or such other place or places agreed to by the parties. 134 IN WITNESS WHEREOF, this Agreement has been duly executed on December 20, 1996, effective as of April 1, 1996. MONOGRAM CREDIT CARD BANK OF GEORGIA By: ----------------------------------- Name: Title: MONTGOMERY WARD & CO., INCORPORATED By: ----------------------------------- Name: Title: 135 GUARANTY OF BANK CREDIT CARD PROGRAM AGREEMENT THIS GUARANTY made as of this 1st day of April, 1996, by General Electric Capital Corporation (hereinafter referred to as "Guarantor"), in favor of Montgomery Ward & Co., Incorporated (hereinafter referred to as "MW"). RECITALS A. Monogram Credit Card Bank of Georgia (herein referred to as "Monogram"), is desirous of entering into that certain Bank Credit Card Program Agreement of even date herewith ("Agreement"). B. Guarantor owns all of the outstanding capital stock of Monogram. C. MW has declined to enter the Agreement unless Guarantor guarantees the obligations of Monogram under the Agreement. NOW, THEREFORE, to induce MW to enter the Agreement, Guarantor hereby agrees as follows: 1. UNCONDITIONAL GUARANTY. Guarantor unconditionally guarantees to MW and the successors and assigns of MW the full and punctual payment, performance and observance by Monogram, of all the terms, covenants, conditions and indemnifications in the Agreement contained on Monogram's part to be kept, performed or observed. If, at any time, default shall be made by Monogram in the performance or observance of any of the terms, covenants, conditions or indemnifications in the Agreement contained on Monogram's part to be kept, performed or observed Guarantor will keep, perform and observe the same, as the case may be, in place and stead of Monogram. 2. WAIVER OF NOTICE; NO RELEASE OF LIABILITY. Any act of MW, or the successors or assigns of MW, consisting of a waiver of any of the terms or conditions of the Agreement, or the giving of any consent to any matter or thing relating to the Agreement, or the granting of any indulgences or extensions of time to Monogram, may be done without notice to Guarantor and without releasing the obligations of Guarantor hereunder. The obligations of Guarantor hereunder shall not be released by MW's receipt, application or release of any security given for the performance and observance of covenants and conditions in the Agreement contained on Monogram's part to be performed or 1 observed, nor by any modification of the Agreement. The liability of Guarantor hereunder shall in no way be affected by (a) the release or discharge of Monogram in any creditors, receivership, bankruptcy or other proceedings, (b) the impairment, limitation or modification of liability of Monogram or the estate of Monogram in bankruptcy, or of any remedy for the enforcement of Monogram's liability under the Agreement, resulting from the operation of any present or future provision of the Federal Bankruptcy Code or other statute or from the decision in any court; (c) the rejection or disaffirmance of the Agreement in any such proceedings; (d) any disability or other defense of Monogram except as otherwise provided in the Agreement; (e) the cessation from any cause whatsoever of the liability of Monogram except or otherwise provided in the Agreement; or (f) the exercise by MW of any rights or remedies reserved to MW under the Agreement, provided or permitted by law, or by reason of any termination of the Agreement. 3. JOINDER; STATUTE OF LIMITATIONS. Guarantor agrees that it may be joined in any action against Monogram in connection with the obligations of Monogram under the Agreement as guaranteed by this Guaranty and recovery may be had against Guarantor in any such action, or MW may enforce the obligations of Guarantor hereunder without first taking any action whatsoever against Monogram or its successors and assigns, or pursue any other remedy or apply any security it may hold. 4. DE FACTO SUBSTITUTION. In the event this Guaranty shall be held ineffective or unenforceable by any court of competent jurisdiction, or in the event of any limitation of liability of Guarantor hereon other than as expressly provided herein, then Guarantor shall be deemed to be a party under the Agreement with the same force and effect as if Guarantor were expressly named as a joint and several party with Monogram therein with respect to the obligations of Monogram thereunder hereby guaranteed. 5. AMENDMENT OR ASSIGNMENT OF AGREEMENT. The provisions of the Agreement may be changed, modified, amended or waived by agreement between MW and Monogram at any time, or by course of conduct, without the consent of or without notice to Guarantor, including but not limited to, any agreement to increase the "Maximum Aggregate Cardholders' Balance" (as such quoted term is defined in the Agreement) thereunder. This Guaranty shall guarantee the performance of the Agreement as so changed, modified, amended or waived, including but not limited to, any increase in the "Maximum Aggregate Cardholders' Balance". Any assignment of the Agreement shall not affect this Guaranty and if MW disposes of its interest in the Agreement, "MW", as used in this Guaranty, shall mean MW's successors and assigns. 2 6. DEFENSE OF MONOGRAM. Guarantor waives any defense by reason of any legal disability of Monogram, and further waives any presentments, and notices of acceptance of this Guaranty as well as all notices of the existence, creation, or incurring of new or additional obligations under the Agreement. 7. NO WAIVER BY MONOGRAM. No delay on the part of MW in exercising any right hereunder or under the Agreement shall operate as a waiver of such right or of any other right of MW hereunder or under the Agreement, nor shall any delay, omission or waiver on any one occasion be deemed a waiver of the same or any other right on any other future occasion. 8. WHOLE AGREEMENT. This instrument constitutes the entire agreement between MW and Guarantor with respect to the subject matter hereof, supersedes all prior oral or written agreements or understandings with respect thereto and may not be changed, modified, discharged or terminated orally or in any manner other than by an agreement in writing signed by Guarantor and MW. 9. APPLICABLE LAW. This Guaranty shall be governed by and construed in accordance with the laws of the State of Illinois. 10. GUARANTOR'S SUCCESSORS. Guarantor's obligations under this Guaranty shall be binding on the successors, legal representatives and assigns of Guarantor. Guarantor shall not be released by any assignment or delegation by it of its obligations hereunder. 11. ATTORNEYS' FEES. If MW is required to enforce Guarantor's obligations hereunder, Guarantor shall pay to MW all costs incurred, including without limitation, reasonable attorneys' fees. 12. CAPTIONS. The paragraph headings appearing herein are for purposes of identification and reference only and shall not be used in interpreting this Guaranty. 13. INTERPRETATIONS; SEVERABILITY. It is agreed that if any provision of this Guaranty or the application of any provision to any person or any circumstance shall be determined to be invalid or unenforceable, such determination shall not affect any other provisions of this Guaranty or the application of such provision to any other person or circumstance, all of which other provisions shall remain in full force and effect. It is the intention of the parties hereto that if any provision of this Guaranty is capable of two constructions, one of which would render the provision valid, the provision shall have the meaning which renders it valid. 3 14. EXTENSION AND RENEWALS. This Guaranty shall apply to the Agreement, any extension or renewal thereof, and to any extended term following the term granted in the Agreement, or any extension or renewal thereof, subject to the provision of SECTION 17.1(3) of the Agreement which may limit the period of the Guaranty in certain circumstances where Guarantor has sold the entire retail credit department, all as more fully set forth therein. 15. NOTICES. Notices shall be given pursuant to the Guaranty in the same manner as given in the Agreement. 16. CONFIDENTIALITY. Guarantor shall comply, and shall cause all of its "Affiliates" (as such quoted term is defined in the Agreement) to comply, with the confidentiality provisions contained in the Agreement which are imposed on Monogram. ACKNOWLEDGEMENT; ENFORCEABILITY. GUARANTOR REPRESENTS AND WARRANTS TO MW THAT GUARANTOR HAS READ THIS GUARANTY AND UNDERSTANDS THE CONTENTS HEREOF AND THAT THIS GUARANTY IS ENFORCEABLE AGAINST GUARANTOR IN ACCORDANCE WITH ITS TERMS. 4 IN WITNESS WHEREOF, Guarantor has executed this Guaranty on December 20, 1996, effective as of April 1, 1996. Guarantor: GENERAL ELECTRIC CAPITAL CORPORATION By: Name: Title: 5 EX-10.(II)(B) 11 ACCOUNT RELATED AGREEMENT CONFIDENTIAL ACCOUNT PURCHASE AGREEMENT Dated as of June 24, 1988, As Amended, Restated and Renamed the ACCOUNT-RELATED AGREEMENT and Dated as of April 1, 1996 by and between MONTGOMERY WARD CREDIT CORPORATION and MONTGOMERY WARD & CO., INCORPORATED TABLE OF CONTENTS 1. DEFINED TERMS........................................................... 2 2. DEFINITIONAL MATTERS.................................................... 35 2.1. General Principles................................................. 35 3. FEES RELATING TO ACCOUNTS............................................... 35 3.1. [Section Intentionally Omitted].................................... 35 3.2. [Section Intentionally Omitted].................................... 35 3.3. Fees............................................................... 35 3.4. Ineligible MWCC Indebtedness....................................... 37 3.5. [Section Intentionally Omitted].................................... 40 3.6. Monthly Statements................................................. 40 4. DEFAULTED INDEBTEDNESS.................................................. 40 4.1. Responsibility During Fiscal Year 1997 and Thereafter.............. 40 4.2. Responsibility For Fiscal Year 1996................................ 42 4.3. When Determined; Payment........................................... 42 4.4. MW Obligation...................................................... 44 4.5. [Section Intentionally Omitted].................................... 45 4.6. Payments Related To Notes And Other Obligations.................... 45 4.7. MW Payment of Certain Amounts...................................... 47 4A. STARTER CARD ACCOUNT DEFAULTED INDEBTEDNESS............................. 48 4A.1 Responsibility.................................................... 48 4A.2 Responsibility For Fiscal Year 1996............................... 48 4A.3 When Determined; Payment.......................................... 48 5. SERVICING............................................................... 49 5.1. [Section Intentionally Omitted].................................... 49 5.2. MWCC's Responsibilities............................................ 49 5.3. MWCC's Liabilities................................................. 51 5.4. MW's Responsibilities.............................................. 51 5.5. Finance and Other Charges.......................................... 57 5.6. Use of MWCC Customer List.......................................... 70 5.7. MWCC's Records..................................................... 72 5.8. Representatives.................................................... 72 5.9. [Section Intentionally Omitted].................................... 72 5.10. Right to Contract................................................ 72 5.11. [Section Intentionally Omitted................................... 72 5.12. [Section Intentionally Omitted].................................. 72 5.13. [Section Intentionally Omitted].................................. 72 5.14. Divestiture/Store Closings....................................... 72 5.15. MW Monthly Payment Amount........................................ 74 5.16. The Licensed Marks............................................... 74 6. CONDITIONS PRECEDENT.................................................... 79 6.1. Conditions to MWCC's Obligations................................... 79 6.2. Conditions to MW's Obligations..................................... 81 6.3. [Section Intentionally Omitted].................................... 81 6.4. [Section Intentionally Omitted].................................... 81 7. SECURITY AND ACCESS TO DATA............................................. 82 7.1. Security Interest.................................................. 82 7.2. Returns of Merchandise............................................. 86 7.3. Notices to MWCC.................................................... 86 7.4. Further Assurances................................................. 86 7.5. Attorney-in-Fact................................................... 86 7.6. Continued Liability................................................ 87 7.7. Other Party May Perform............................................ 87 7.8. Receipt of Payments................................................ 88 7.9. Access to Data by MWCC............................................. 88 7.10. Access to Data by MW............................................. 88 7.11. Audit of Information............................................. 89 7.12. [Section Intentionally Omitted].................................. 89 8. REPRESENTATIONS AND WARRANTIES OF MW.................................... 89 8.1. Corporate Existence................................................ 90 8.2. Executive Offices and Stores....................................... 90 8.3. Corporate Power; Authorization; Enforceable Obligations............ 91 8.4. Solvency........................................................... 91 8.5. Financials......................................................... 92 8.6. No Default......................................................... 92 8.7. [Section Intentionally Omitted].................................... 92 8.8. No Litigation...................................................... 92 8.9. Accounts........................................................... 92 8.10. [Section Intentionally Omitted].................................. 93 8.11. [Section Intentionally Omitted].................................. 93 9. REPRESENTATIONS AND WARRANTIES OF MWCC.................................. 93 9.1. Corporate Existence................................................ 93 9.2. Corporate Power; Authorization; Enforceable Obligations............ 94 9.3. Solvency........................................................... 95 10. FINANCIAL STATEMENTS AND INFORMATION.................................... 95 10.1. MW's Reports and Notices......................................... 95 10.2. GE Capital's and MWCC's Reports and Notices...................... 96 11. INDEMNIFICATION......................................................... 97 11.1. Indemnification by MW............................................ 97 11.2. Indemnification by MWCC.......................................... 98 11.3. Defense of Third Party Claims.................................... 99 11.4. Payment of Indemnified Amounts...................................100 11.5. Insurance and Mitigation.........................................100 11.6. Exceptions.......................................................100 12. AFFIRMATIVE COVENANTS OF MW.............................................101 12.1. [Section Intentionally Omitted]..................................101 12.2. Compliance with Law..............................................101 13. AFFIRMATIVE COVENANTS OF MWCC...........................................101 13.1. Compliance with Law..............................................101 13.2. Securitization, Assignment and Sale Compliance...................102 13.3. Sales of Accounts and Indebtedness...............................102 13.4. Delinquent Account Purchase Agreement............................102 14. NEGATIVE COVENANTS OF MW................................................102 14.1. Liens............................................................102 15. TERM....................................................................102 15.1. Term and Termination.............................................102 15.2. Effect of Termination............................................103 15.3. Securitization/Participation.....................................112 16. EVENTS OF DEFAULT; RIGHTS AND REMEDIES..................................113 16.1. MW Defaults......................................................113 16.2. MWCC Defaults....................................................115 16.3. MWCC Remedies....................................................117 16.4. MW Remedies......................................................117 17. MISCELLANEOUS...........................................................118 17.1. Complete Agreement; Modification of Agreement; Assignment and Sale of Interest..................................118 17.2. [Section Intentionally Omitted]..................................119 17.3. MWCC Affiliates..................................................119 17.4. [Section Intentionally Omitted]..................................120 17.5. No Waiver........................................................120 17.6. Remedies.........................................................120 17.7. Severability.....................................................120 17.8. Parties..........................................................120 17.9. Authorized Signature.............................................120 17.10. Governing Law...................................................121 17.11. Notices.........................................................121 17.12. Confidentiality.................................................122 17.13. Payments........................................................123 17.14. [Section Intentionally Omitted].................................123 17.15. Section Titles..................................................123 17.16. Counterparts....................................................124 17.17. Disclosure......................................................124 17.18. Estoppel Certificates...........................................124 17.19. [Section Intentionally Omitted].................................124 17.20. [Section Intentionally Omitted].................................124 17.21. Third Party Beneficiaries.......................................124 17.22. Force Majeure...................................................124 17.23. Marketing Committee.............................................125 17.24. Closing.........................................................125 ACCOUNT PURCHASE AGREEMENT, dated as of June 24, 1988, as Amended, Restated and Renamed as the ACCOUNT-RELATED AGREEMENT, dated as of April 1, 1996, by and between MONTGOMERY WARD & CO., INCORPORATED ("MW"), an Illinois corporation with its chief executive offices located at 619 West Chicago Avenue, Chicago, Illinois 60671, and MONTGOMERY WARD CREDIT CORPORATION ("MWCC"), a Delaware corporation with its principal place of business located at 880 Grier Drive, Las Vegas, Nevada 89119. W I T N E S S E T H: WHEREAS, MW and certain Authorized Affiliates and Authorized Licensees (both as hereinafter defined) are engaged in the business of selling Merchandise (as hereinafter defined) and serving customers; and WHEREAS, MW and MWCC have entered into that certain Account Purchase Agreement, dated as of June 24, 1988, as amended prior to the date of this amendment, restatement and renaming thereof (the "Original Account Purchase Agreement"), pursuant to which MWCC purchased certain accounts of, and operated a private label program in conjunction with, MW; and WHEREAS, MW and Monogram Credit Card Bank of Georgia ("Monogram") have entered into the Bank Program Agreement (as defined below) pursuant to which, beginning on the Conversion Date, the program established under the Original Account Purchase Agreement was restructured to allow Monogram to (a) open Accounts and issue Credit Cards and (b) extend credit directly to individuals buying Merchandise at Stores pursuant to Accounts, including Old Accounts and Accounts arising pursuant to the Interim Agreement, without recourse to MW (all capitalized terms as hereinafter defined); and WHEREAS, MW and MWCC previously have executed an amended and restated agreement, dated as of April 1, 1996 (the "Noneffective Agreement"), which Noneffective Agreement required, as a condition to its effectiveness, that the transactions contemplated in such Noneffective Agreement be approved by MWCC's shareholder(s); WHEREAS, GE Capital (as hereinafter defined), MWCC's sole shareholder, has determined not to approve the transactions contemplated by the Noneffective Agreement without certain modifications; and WHEREAS, because the Noneffective Agreement shall not become effective, both MW and MWCC desire to enter into this agreement amending, restating and renaming the Original Account Purchase Agreement as provided in this Agreement; and WHEREAS, upon the effectiveness of this Agreement, as of the close of MW's business on the day prior to the Conversion Date (as hereinafter defined), MW and MWCC shall be deemed to have terminated certain of their obligations under the Original Account Purchase Agreement, including MW's recourse obligations (except with respect to Non-Converted Accounts and Non-Converted Indebtedness (both as hereinafter defined) for the remainder of Fiscal Year 1996 only); and WHEREAS, MWCC and Monogram have entered into that certain Credit Card Receivables Sale Agreement and that certain Delinquent Account Purchase Agreement (both as hereinafter defined), pursuant to which Monogram from time to time has sold, and in the future may sell, certain Accounts, Indebtedness and/or interests in the same to MWCC under the terms of those agreements; and WHEREAS, MW has requested GE Capital, and GE Capital has agreed, to guaranty the obligations of MWCC hereunder and of Monogram under the Bank Program Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: 1. DEFINED TERMS As used in this Agreement, capitalized terms shall have the respective meanings set forth below: "Account" shall mean (a) any Account as defined in the Bank Program Agreement; (b) any Non-Converted Account; and (c) any Purchased Monogram Account. "Account Documentation" shall mean any and all documentation relating to Accounts, including, without limitation, Credit Card Documentation, Charge Transaction Data, checks or other forms of payment with respect to an Account, credit bureau reports (to the extent not prohibited from transfer by contract with the credit bureau to the extent such prohibition has not been waived), adverse action notices, change of terms notices, other notices, correspondence, memoranda, documents, stubs, instruments, certificates, agreements, invoices, sales or shipping slips, delivery and other receipts, magnetic tapes, disks, hard copy formats or other computer-readable data transmissions, any microfilm, electronic or other copy of any of the foregoing, and any other written, electronic or other records or materials of whatever form or nature, including, without limitation, tangible and intangible information, arising from or relating or pertaining to any of the foregoing. 2 "Account-Related Agreement Guaranty" shall mean that certain Guaranty of Account-Related Agreement, of even date herewith, the form of which is attached as EXHIBIT A hereto. "Accrued Conversion Expenses" shall mean, with respect to any Fiscal Year (or part thereof), Conversion Expenses incurred during that Fiscal Year (or part thereof), plus Conversion Expenses incurred in previous Fiscal Years beginning in Fiscal Year 1996, to the extent such Conversion Expenses were not paid out of, or reimbursed from, Gross Designated Incremental Revenues. Accrued Conversion Expenses shall include interest thereon, which interest shall be calculated on a simple basis and accrue from the Payment Date for the Fiscal Year during which such expenses were incurred, at the Annual Commercial Paper Rate applicable to each Annual Interest Earning Year, [ ]*, per annum, for the period such amounts remain unpaid. "Accrued Net Litigation Expenses" shall mean, with respect to any Fiscal Year, Net Litigation Expenses incurred during that Fiscal Year (or part thereof), plus Net Litigation Expenses incurred in previous Fiscal Years beginning in Fiscal Year 1996, to the extent such Net Litigation Expenses were not paid out of, or reimbursed from, Gross Designated Incremental Revenues. Accrued Net Litigation Expenses shall include interest thereon, which interest shall be calculated on a simple basis and accrue from the Payment Date for the Fiscal Year during which such expenses were incurred, at the Annual Commercial Paper Rate applicable to each Annual Interest Earning Year, plus [ ]*, per annum, for the period such amounts remain unpaid. "Accrued Ongoing Incremental Expenses" shall mean, with respect to any Fiscal Year (or part thereof), Ongoing Incremental Expenses incurred during that Fiscal Year (or part thereof), plus Ongoing Incremental Expenses incurred in previous Fiscal Years beginning in Fiscal Year 1996 to the extent such Ongoing Incremental Expenses were not paid out of, or reimbursed from, Gross Designated Incremental Revenues. Accrued Ongoing Incremental Expenses shall include interest thereon, which interest shall be calculated on a simple basis and accrue from the Payment Date for the Fiscal Year during which such expenses were incurred, at the Annual Commercial Paper Rate applicable to each Annual Interest Earning Year, plus [ ]*, for the period such amounts remain unpaid. "Accrued MW Monthly Payment Amounts" shall mean, for any Fiscal Year (or part thereof), an amount equal to (i) the sum of the MW Monthly Payment Amount for such Fiscal Year (or part thereof), PLUS (ii) the sum of the MW Monthly Payment Amounts for previous Fiscal Years beginning in Fiscal Year 1996 to the extent such MW Monthly Payment Amounts were not paid out of, or reimbursed from, Gross Designated Incremental Revenues. Accrued *Confidential treatment has been requested with respect to this information. 3 MW Monthly Payment Amounts shall include interest thereon, which interest shall be calculated on a simple basis and accrue from the Payment Date for the Fiscal Year during which such expenses were incurred, at the Annual Commercial Paper Rate applicable to each Annual Interest Earning Year, plus [ ]*, per annum, for the period such amounts remain unpaid. "AFF Promotions" shall have the meaning assigned to such term in the Bank Program Agreement. "Affiliate" shall mean, with respect to any Person, each Person that controls, is controlled by, or is under common control with, such Person, provided, however, that (a) the term "Affiliate" shall not include any individual, and no individuals shall be taken into account in any determinations under this definition, and (b) neither any direct or indirect owner of equity securities of MW, including General Electric Company and GE Capital, other than Montgomery Ward Holding Corp. so long as it owns all of the outstanding common equity securities of MW ("Holding"), nor any of said Person's Subsidiaries (except that MW, Holding and their respective Subsidiaries may be considered Affiliates of each other), shall be considered to be an Affiliate of MW based solely on its ownership of such equity securities, nor shall MW, Holding and/or their respective Subsidiaries be considered Affiliate(s) of any such owner (including General Electric Company and GE Capital) or such owners' Subsidiaries (except that MW, Holding, and their respective Subsidiaries may be considered Affiliates of each other). For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract, or otherwise. "Aggregate Cardholders' Balance" shall have the meaning assigned to it in the Bank Program Agreement. "Aggregate Incremental Revenue Amount" shall mean the aggregate of (i) the amount owed by MWCC to MW pursuant to SECTION 5.5(2) hereof, (ii) the amount owed by MWCC to MW pursuant to SECTION 5.5(3) hereof, (iii) the amount owed by MWCC to MW pursuant to SECTION 5.5(9) hereof for that portion of Fiscal Year 1996 after the Conversion Date and for Fiscal Year 1997, and (iv) for each of (a) that portion of Fiscal Year 1996 after the Conversion Date and (b) Fiscal Year 1997, the MW Share of Remaining Amount, if there are such amounts for the time periods specified in (a) and (b) (assuming all allocations in subsections (i) through (iv) in SECTION 5.5(10)(b) have been made and funds remain), and subject to any decreases provided for in SECTION 5.5(11)(iii)(B). *Confidential treatment has been requested with respect to this information. 4 "Aggregate Late Fee Amount" shall mean, for any Fiscal Year (or part thereof) commencing May 1, 1996, a dollar amount equal to the difference between: (a) the dollar amount of late fees assessed on Accounts during such Fiscal Year (or partial Fiscal Year), minus (y) the amount of late fees on such Accounts reversed or written off by Monogram or MWCC during such Fiscal Year (or part thereof). "Agreement" shall mean this Account-Related Agreement, including all amendments, modifications, supplements, exhibits, and schedules hereto, and shall refer to this Agreement as the same may be in effect at the time such reference is operative. "Annual Commercial Paper Rate" shall mean an interest rate that shall be determined separately for each Annual Interest Earning Year. The Annual Commercial Paper Rate for each Annual Interest Earning Year shall be the quotient derived by dividing [ ]*, such result expressed as a percentage and rounded to two (2) decimal places. The average daily amount of Commercial Paper outstanding shall be calculated by adding the amount of Commercial Paper outstanding on each day during such Fiscal Year, and dividing by the number of days in such Fiscal Year. Where an amount as to which the Annual Commercial Paper Rate is to be applied is paid earlier than otherwise provided in this Agreement (including, without limitation, under SECTION 5.5(7) hereof), or such Annual Commercial Paper Rate is to be applied for a period of less than twelve (12) months, such Annual Commercial Paper Rate shall be calculated using the methodology described above, based on amounts for the time beginning on the first day of the applicable Fiscal Year and ending on the last day of the fiscal quarter immediately preceding the date of such payment; provided, that where an Annual Commercial Paper Rate is to be applied for a period ending on or prior to the last day of the first fiscal quarter of a Fiscal Year, the Annual Commercial Paper Rate shall be the Annual Commercial Paper Rate for the immediately preceding Fiscal Year. "Annual Interest Earning Year" shall mean a period commencing on a February 28 and continuing to and including February 27 of the next following calendar year. "Annual Yield Percentage" shall mean, for any Fiscal Year (or part thereof) commencing May 1, 1996, the amount (expressed as a percentage) obtained by dividing (a) the total amount of finance charges billed to Cardholders or billed to MW in connection with Reduced Accounts during such period with respect *Confidential treatment has been requested with respect to this information. 5 to Indebtedness (other than Non-Converted Indebtedness, Purchased Monogram Indebtedness and Indebtedness otherwise arising from Starter Card Accounts), less all finance charges credited to such Accounts during such period, (other than (i) finance charges credited during such period as the result of (x) payments on such Accounts by Cardholders, (y) payments on said accounts by MW in connection with Reduced Accounts, and (z) successful completion of AFF Promotions and (ii) refunds of finance charges pursuant to SECTION 5.5(11) hereof), by (b) the Average Monthly Billed Indebtedness for such period, such quotient being rounded to two (2) decimal places. "Asserted Claims" shall mean any Post-Conversion Asserted Claim(s) and/or Pre-Conversion Asserted Claim(s). "Authorized Affiliate" shall mean, on any date, any Person meeting the definition of such term contained in Section 1 of the Bank Program Agreement. "Authorized Licensee" shall mean, on any date, any Person meeting the definition of such term contained in Section 1 of the Bank Program Agreement "Average Late Fee Per Assessment" shall mean, for any Fiscal Year (or part thereof) commencing May 1, 1996, a dollar amount equal to: (a) the Aggregate Late Fee Amount for such Fiscal Year (or partial Fiscal Year), DIVIDED BY (b) the number of times late fees were assessed on Accounts during such Fiscal Year (or partial Fiscal Year). "Average Monthly Billed Indebtedness" shall mean, for any Fiscal Year (or part thereof) commencing May 1, 1996, an amount equal to: (i) the sum of Indebtedness (other than Non-Converted Indebtedness, Purchased Monogram Indebtedness, Indebtedness otherwise arising pursuant to Starter Card Accounts) during such Fiscal Year, as computed (as appropriate) pursuant to Monogram's Accounting Practices or MWCC's Accounting Practices, but in each case without the deduction of any allowance for bad debts, billed to Cardholders on each Billing Cycle closing date during that Fiscal Year or billed to MW during that Fiscal Year in connection with Reduced Accounts during that Fiscal Year, DIVIDED BY (ii) twelve (12). Notwithstanding the foregoing, if the Fiscal Year in question is a partial Fiscal Year, "Average Monthly Billed Indebtedness" shall mean the sum of Indebtedness (other than Non-Converted Indebtedness, Purchased Monogram Indebtedness and Indebtedness otherwise arising pursuant to Starter Card Accounts) during such partial Fiscal Year, as computed (as appropriate) pursuant to Monogram's Accounting Practices or MWCC's Accounting Practices, but in each case without deduction of any allowance for bad debts, billed to Cardholders on each of the Billing Dates during each complete Settlement Period within such partial Fiscal 6 Year or billed to MW in connection with Reduced Accounts during such partial Fiscal Year, divided by such number of such Settlement Periods. In the event that the number of times an Account would be billed during an entire Fiscal Year is other than twelve (12), the parties hereto shall agree to an appropriate adjustment to the calculations set forth herein. "Balance Sheet" shall have the meaning assigned to it in SECTION 8.5 hereof. "Bank Overhead Assessment" shall mean [ ]*. For Fiscal Year 1997 and each Fiscal Year thereafter, this amount shall be adjusted by the increase or decrease in the Consumer Price Index - All Urban Consumers - All Items - Atlanta, Georgia (or, if such index is discontinued, such other index of similar type mutually agreed to by the parties). In doing such adjustments, the base year shall be Fiscal Year 1996 and calendar year statistics which correspond to Fiscal Years may be used. "Bank Program Agreement" shall mean that certain Interim Consumer Credit Card Program Agreement, dated as of April 1, 1996, as Amended, Restated and Renamed the Bank Credit Card Program Agreement, of even date herewith, between Monogram and MW, as such agreement may be amended, restated, replaced, modified and/or supplemented from time to time. "Bankruptcy Code" shall mean Title 11 of the United States Code, as now constituted or as hereafter amended, or any successor law. "Base Composite Yield Percentage" shall mean [ ]*, as adjusted for each Fiscal Year commencing with Fiscal Year 1996 as stated in EXHIBIT B hereto. With respect to any partial Fiscal Year, the percentage applicable to such Fiscal Year shall be adjusted by dividing the applicable full year percentage by three hundred sixty-five (365) and multiplying the resulting quotient by the number of days in such partial Fiscal Year. "Base Starter Card Account Yield Percentage" shall mean [ ]*, as adjusted for each Fiscal Year commencing with Fiscal Year 1996 and thereafter as stated in EXHIBIT C hereto. With respect to any partial Fiscal Year, the amount of the percentage applicable to such Fiscal Year shall be adjusted by dividing the applicable full year percentage by three hundred sixty-five (365) and multiplying the resulting quotient by the number of days in such partial Fiscal Year. "Base Year 1991 Yield Percentage" shall mean: *Confidential treatment has been requested with respect to this information. 7 for the State of Florida, [ ]*; for the State of Texas [ ]*; and for the State of Washington, [ ]*. With respect to any partial Fiscal Year, and/or for the Fiscal Year(s) in which one or more payments are owed by MW pursuant to the provisions of SECTION 5.5(11) hereof as to calculations done pursuant to that Section, the amount of the percentage applicable to such Fiscal Year shall be adjusted by dividing the applicable full year percentage by three hundred sixty-five (365) and multiplying the resulting quotient by the number of days in such partial Fiscal Year. "Base Year 1995 Yield Percentage" shall mean: for the State of Florida, [ ]*; for the State of Texas [ ]*; and for the State of Washington, [ ]*. With respect to any partial Fiscal Year, and/or for the Fiscal Year(s) in which one or more payments are owed by MW pursuant to the provisions of SECTION 5.5(11) hereof as to calculations done pursuant to that Section, the amount of the percentage applicable to such Fiscal Year shall be adjusted by dividing the applicable full year percentage by three hundred sixty-five (365) and multiplying the resulting quotient by the number of days in such partial Fiscal Year. "Billing Cycle" shall mean the time period between regular periodic Billing Dates for an Account. "Billing Date" shall mean, collectively, those dates during a Settlement Period as of which Accounts are billed. "Billing Statement" shall mean a summary of credit and/or debit transactions on an Account for a Billing Cycle, including, without limitation, a descriptive statement covering purchases of Merchandise and/or a statement with past due information. "Business Day" shall mean any day except (i) Saturday, (ii) Sunday or (iii) a day on which banks are required or permitted to be closed in the State of Georgia to the extent that the bank or banks from which Monogram wires funds under the Bank Program Agreement actually are closed on such day. *Confidential treatment has been requested with respect to this information. 8 "Cardholder" shall mean any natural person who is or may become obligated under, with respect to, or on account of, an Account. "Cash Price" shall have the meaning assigned to it in the Bank Program Agreement. "Charge Slip" shall mean evidence of a sale of Merchandise at a Store to be charged on an Account, including, without limitation, an invoice, sales slip, memorandum of purchase or similar document or an electronic or magnetic transmission. "Charge Transaction Data" shall mean Cardholder identification and transaction information with regard to (i) each purchase of Merchandise on an Account and (ii) each return, exchange or adjustment for Merchandise purchased on an Account. "Closing Date" shall mean December 23, 1996, or such later date as may be agreed to by the parties in writing. "Code" or "UCC" shall mean the Uniform Commercial Code (or similar personal property security law) of the jurisdiction with respect to which such term is used, as now constituted or hereafter amended, or any successor law. "Commercial Paper" shall mean the short-term unsecured obligations, whether or not discounted and/or interest-bearing, maturing in less than two hundred seventy (270) days, issued by a bank, corporation or other entity. "Competitor" shall mean those Persons (and their Affiliates) that own or control the retail operations now commonly known as Sears or J.C. Penney or any successors to such retail operations. "Composite Recast Incremental Yield Amount" shall mean, for any Fiscal Year (or part thereof) commencing with May 1, 1996, the Composite Recast Incremental Yield Percentage for such period, MULTIPLIED BY the Average Monthly Billed Indebtedness for such period. "Composite Recast Incremental Yield Percentage" shall mean, for any Fiscal Year (or part thereof) commencing with May 1, 1996, the positive difference, if any, in (A) the Annual Yield Percentage for such Fiscal Year (or part thereof) MINUS (B) the Base Composite Yield Percentage applicable to that Fiscal Year, such positive difference being rounded to two (2) decimal places. "Contractual Method" shall have the meaning assigned to it in the Bank Program Agreement. "Conversion Date" shall mean April 1, 1996. 9 "Conversion Expenses" shall mean the sum of incremental costs and expenses of MWCC, MW, Monogram and Affiliates of Monogram associated with the implementation of 1996 increases in finance charge rates and amounts of late fees in connection with implementation of the Bank Program Agreement, including those costs and expenses incurred prior to the Conversion Date and including, without limitation, legal expenses, systems programming expenses, cardholder notification expenses, incremental staffing expenses, obsolescence costs (I.E., MWCC stationery, card carriers, etc.) and any operations-related relocation/transfer expenses, all as reasonably agreed to by the parties hereto. "Credit Agreement" shall mean (a) any Credit Card Agreement as defined in the Bank Program Agreement; and (b) any MWCC Credit Agreement. "Credit Application" shall mean (a) any Credit Card Application as defined in the Bank Program Agreement; and (b) any credit card application in connection with a Non-Converted Account and/or Purchased Monogram Account. "Credit Card" shall mean (a) any Credit Card as defined in the Bank Program Agreement; and (b) any MWCC Credit Card. "Credit Card Agreement" shall have the meaning assigned to it in the Bank Program Agreement. "Credit Card Documentation" shall mean, with respect to Accounts, all Credit Applications, Credit Agreements, Credit Cards, Charge Slips, Credit Slips and Billing Statements relating to such Accounts. "Credit Card Receivables Sale Agreement" shall mean that certain Credit Card Receivables Sale Agreement, dated as of April 1, 1996, between Monogram and MWCC, as such agreement may be amended, restated, replaced, modified and/or supplemented from time to time, provided that, unless agreed to or approved by MW, such changes shall not adversely affect MW under this Agreement or the Bank Program Agreement. "Credit Slip" shall mean evidence of an adjustment or credit on an Account for a return or exchange of Merchandise purchased on such Account. "Default Rate" shall mean the Prime Rate plus [ ]*. "Deferred Account" shall have the meaning assigned to it in SECTION 3.3(5) hereof. *Confidential treatment has been requested with respect to this information. 10 "Delinquent Account Purchase Agreement" shall mean that certain Delinquent Account Purchase Agreement, dated as of April 1, 1996, between MWCC and Monogram, as such agreement may be amended, restated, replaced, modified and/or supplemented from time to time, provided that, unless agreed to or approved by MW, such changes shall not adversely affect MW under this Agreement or the Bank Program Agreement. "Divestiture-Related Indebtedness Purchase Price" shall mean, on any date, an amount equal to: (i) [ ]* as to Indebtedness described in subsections (i) and (ii) of SECTION 5.14(1) to be sold to MW on such date pursuant to such section, [ ]* (ii) [ ]* accordance with, to the extent of Participated Monogram Indebtedness, Monogram's Accounting Practices and, in all other respects, MWCC's Accounting Practices and (in either event) based on the proportion of the MWCC Aggregate Cardholders' Balance of the Indebtedness described in subsection (i) of this definition to all Indebtedness owned by MWCC and MWCC Assignees other than Section 4 Defaulted Indebtedness and Starter Card Account Defaulted Indebtedness. "ERISA" shall have the meaning assigned to it in the Bank Program Agreement. "Existing Program" shall have the meaning assigned to it in the Bank Program Agreement. "Final Blended Rate" shall have the meaning assigned to it in the Bank Program Agreement. "Fiscal Month" shall mean, during any Fiscal Year, each month as defined by Monogram on its fiscal calendar for that Fiscal Year. "Fiscal Year" shall mean a fiscal year the dates of which are specified by Monogram, provided each Fiscal Year must end on December 31 or within seven (7) days before or after December 31 of each year. "Fiscal Year 1996 Interest Rate" shall mean an interest rate equal to the sum of (i) the product, rounded to two (2) decimal places and expressed as a percentage, of (x) [ ]* for each Fiscal Month commencing with the Fiscal Month of January 1996 through and including the Fiscal Month of November 1996, and (y) a fraction the numerator of which is [ ]* and the denominator of which is [ ]*, PLUS (ii) [ ]*. *Confidential treatment has been requested with respect to this information. 11 "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. "GE Capital" shall mean General Electric Capital Corporation. "Governmental Authority" means the United States, any State, or any other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, in each case whether national, State or local. "Gross Designated Incremental Revenues" shall mean, for any Fiscal Year (or part thereof), the sum of the Composite Recast Incremental Yield Amount, Starter Card Account Incremental Yield Amount and Remaining Late Fee Amount, each for such Fiscal Year (or part thereof). "Gross Recoveries" shall have the meaning assigned to it in the definition of "Section 4 Net Defaulted Indebtedness" in SECTION 1 hereof. "Guaranties" shall mean Exhibit A to this Agreement and Exhibit E of the Bank Program Agreement. "Holding" shall have the meaning assigned to it in the definition of "Affiliate" in SECTION 1 hereof. "Incremental State Income Tax" shall mean, for each Fiscal Year (or part thereof), the product of (i) the dollar amount of Monogram's income before taxes relating to the Program, MULTIPLIED BY (ii) the positive difference (if any) between Monogram's actual effective state income tax rate and MWCC's actual effective state income tax rate, both as determined for such Fiscal Year (or part thereof) under applicable state law. "Incremental Yield Amount" shall mean, for any Fiscal Year (or part thereof) commencing May 1, 1996, the sum of the following amounts: (a) the Incremental Yield Percentage for the State of Florida for such period, multiplied by the Average Monthly Billed Indebtedness for the State of Florida for such period; PLUS (b) the Incremental Yield Percentage for the State of Texas for such period, multiplied by the Average Monthly Billed Indebtedness for the State of Texas for such period; PLUS 12 (c) for Fiscal Years 1996 and 1997 only, the Incremental Yield Percentage for the State of Washington for such period, multiplied by the Average Monthly Billed Indebtedness for the State of Washington for such period. "Incremental Yield Percentage" shall mean, as to each of the States of Florida and Texas for any Fiscal Year (or part thereof) commencing May 1, 1996 in which there is an Annual Yield Percentage for such State which exceeds the Base Year 1991 Yield Percentage for such State, and, as to the State of Washington for Fiscal Year 1996 and Fiscal Year 1997 or parts thereof if the Annual Yield Percentage for the State of Washington exceeds the Base Year 1991 Yield Percentage for the State of Washington, the positive difference, if any, in (A) the Base Year 1995 Yield Percentage for such State, MINUS (B) the Base Year 1991 Yield Percentage for such State, such positive difference being rounded to two (2) decimal places. "Indebtedness" shall mean, at any time, (a) any Indebtedness as defined in the Bank Program Agreement; (b) Non-Converted Indebtedness; and (c) Purchased Monogram Indebtedness. "Indemnified 1996 Defaulted Indebtedness" shall have the meaning assigned to it in SCHEDULE 4.2 hereto. "Indemnified 1996 Net Defaulted Indebtedness" shall have the meaning assigned to it in SCHEDULE 4.2 hereto. "Indemnified 1996 Starter Card Defaulted Indebtedness" shall have the meaning assigned to it in SCHEDULE 4.2 hereto. "Indemnified 1996 Starter Card Net Defaulted Indebtedness" shall have the meaning assigned to it in SCHEDULE 4.2 hereto. "Ineligible Indebtedness" shall have the meaning assigned to it in the Bank Program Agreement. "Ineligible MWCC Indebtedness" shall mean Non-Converted Indebtedness and/or Purchased Monogram Indebtedness that MW is required to purchase from MWCC pursuant to SECTION 3.4 hereof. "Infringements" shall have the meaning assigned to it in SECTION 5.16(6) hereof. "Initial Term" shall have the meaning assigned to it in SECTION 15.1 hereof. "In-Store Payments" shall have the meaning assigned to it in the Bank Program Agreement. 13 "Interest Earning Month" shall mean each Fiscal Month commencing with January 1997. "Interim Agreement" shall mean that certain Interim Credit Card Program Agreement, dated as of April 1, 1996, between Monogram and MW and any amendments, modifications and/or supplementations thereto prior to the date hereof. "Letter Agreement" shall have the meaning assigned to it in SECTION 17.1(1) hereof. "Licensed Marks" shall mean the trademarks, trade names, service marks, logos and other proprietary designations of MW listed on SCHEDULE 5.16 hereto, which Schedule (as amended by MW from time to time) at all times shall contain all trademarks, trade names, service marks, logos and other proprietary designations of MW and Authorized Affiliates used in connection with its retail operations. "License Term" shall have the meaning assigned to it in SECTION 5.16(5) hereof. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest (including, without limitation, any interest of a buyer of accounts or chattel paper that is subject to Article 9 of the Code), encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to file, any financing statement pursuant to the Code). "Marginal Card Account" shall mean (a) any Marginal Card Account as defined in the Bank Program Agreement; and (b) any MWCC Marginal Card Account. "Marketing Agreement" shall mean any agreement(s) between the Signature Companies and MW and/or Affiliates of MW relating to (among other things) the use by the Signature Companies of customer lists, names and trademarks of MW and/or its Affiliates in connection with the Signature Companies' sales and operations, as such agreement(s) may be amended, restated, modified and/or supplemented from time to time, but only to the extent the initial such agreement is entered into in connection with the purchase or other acquisition of the Signature Companies by an Affiliate of MWCC. "Marketing Committee" shall mean the committee referred to in SECTION 5.16(1) of the Bank Program Agreement. 14 "Maximum Aggregate Cardholders' Balance" shall have the meaning assigned to it in the Bank Program Agreement. "Merchandise" shall mean goods and services including, without limitation, accessories, installation, delivery services, automotive services, repair services, service contracts, warranties, insurance and club fees, as well as any other items which Monogram and/or MWCC (as appropriate) from time to time agrees may be sold on Accounts, for personal, family or household use. Merchandise shall include items that are new or used at the time of sale, including clearance items and items that are returned or repossessed and restored to the inventory and subsequently offered for resale. "Money Cost Balance" shall have the meaning assigned to it in the Bank Program Agreement. "Monogram" shall have the meaning assigned to it in the RECITALS hereto. "Monogram's Accounting Practices" shall mean the general accounting practices followed by Monogram on a consistent basis with respect to the manner in which it conducts its business, which practices shall be in accordance with GAAP, including, without limitation, Monogram's practices for accruing charges and calculating receivables. "Monthly Commercial Paper Rate" shall mean an interest rate that shall be determined separately for each Interest Earning Month. The Monthly Commercial Paper Rate for each Interest Earning Month shall be the quotient derived by dividing [ ]*, such result expressed as a percentage and rounded to two (2) decimal places. The average daily amount of Commercial Paper outstanding shall be calculated by adding the amount of Commercial Paper outstanding on each day during such Measuring Month, and dividing by the number of days in such Measuring Month. Where a Seller Note, Seller Recourse Note, MW 1996 Note or MW Continuation Note is paid prior to the time due or an amount as to which the Monthly Commercial Paper Rate is to be applied is paid earlier than otherwise provided in this Agreement (including, without limitation, under SECTION 5.5(7) hereof), and such Monthly Commercial Paper Rate is to be applied for a period of less than one Fiscal Month, such Monthly Commercial Paper Rate shall be determined as though the date of payment were the last day of the Interest Earning Month and the Measuring Month is the full immediately preceding Fiscal Month. *Confidential treatment has been requested with respect to this information. 15 "Monthly Payment Obligation" shall mean, for each Fiscal Month during any Fiscal Year, the dollar amount calculated in accordance with SCHEDULE 1 for such Fiscal Year, as adjusted quarterly in accordance with SCHEDULE 1, provided that, for Fiscal Year 1997, the Monthly Payment Obligation shall be as set forth on SCHEDULE 2, as adjusted quarterly in accordance with SCHEDULE 2. "Monthly Payment Percentage" shall mean, for any Fiscal Year, [ ]*, as such percentage may be adjusted from time to time upon agreement of the parties to reflect amounts of sales tax MW would have recovered or been entitled to offset against amounts owed to applicable states in respect of written-off indebtedness under the terms of the Original Account Purchase Agreement if it had been in effect for such Fiscal Year. "Monthly Payment Period" shall mean the period commencing on the first day of Fiscal Year 1997 through and including the last day of the Fiscal Year in which (i) there no longer are amounts due in respect of the Seller Notes, Seller Recourse Notes, MW 1996 Note and/or MW Continuation Note, and (ii) application of the Section 4 Contractual Method requires that Indebtedness is considered Section 4 Defaulted Indebtedness in the Billing Cycle following the Billing Cycle in which the Cardholder obligated in connection therewith would be considered past due for thirty (30) days or more on five required minimum payments. "MW" shall have the meaning assigned to it in the INTRODUCTORY PARAGRAPH hereof. "MW Continuation Note" shall have the meaning assigned to it in SECTION 4.6(4) hereof. "MW Default" shall have the meaning assigned to it in SECTION 16.1 hereof. "MW Designee" shall have the meaning assigned to it in the Bank Program Agreement. "MW Monthly Payment Amount" shall have the meaning assigned to it in SECTION 5.15 hereof. "MW 1996 Note" shall have the meaning assigned to it in SCHEDULE 4.2 hereto. "MW Pre-Conversion Refund Amount" shall have the meaning set forth in SECTION 5.5(11)(iii)(A) hereof. "MW Share of Late Fees" shall mean, for Fiscal Year 1996 commencing May 1, 1996 and each Fiscal Year or partial Fiscal Year thereafter: *Confidential treatment has been requested with respect to this information. 16 (a) if the Average Late Fee Per Assessment for such Fiscal Year (or partial Fiscal Year) is [ ]* or more, a dollar amount equal to (i) [ ]*, MULTIPLIED BY (ii) the number of times that Accounts are one or more payments past due at the time of their Billing Dates during such Fiscal Year (or partial Fiscal Year) multiplied by (iii) [ ]*; or (b) if the Average Late Fee Per Assessment for such Fiscal Year (or partial Fiscal Year) is less than [ ]*, a dollar amount equal to (i) [ ]*, MULTIPLIED BY (ii) the Aggregate Late Fee Amount. "MW Share of Incremental Yield Amount" shall have the meaning assigned to it in SECTION 5.5(9) hereof. "MW Share of Remaining Amount" shall have the meaning assigned to it in SECTION 5.5(10) hereof. "MWCC" shall have the meaning assigned to it in the INTRODUCTORY PARAGRAPH hereof. "MWCC Account Documentation" shall mean any and all documentation relating to Non-Converted Accounts and/or Purchased Monogram Accounts owned by MWCC or under the control of MWCC. "MWCC's Accounting Practices" shall mean the general accounting practices followed by MWCC on a consistent basis with respect to the manner in which it conducts its business, which practices shall be in accordance with GAAP, including, without limitation, MWCC's practices for calculating receivables, except that, notwithstanding any policies or procedures under GAAP or of MWCC with respect to the accounting and reporting of finance and other charges, Indebtedness shall include all finance and other charges (i) billed to Cardholders with respect to AFF Promotions where such finance and other charges are subject to credit if the Cardholder makes all payments under the terms of such AFF Promotions and (ii) accruing and/or billed on delinquent Accounts after the point (currently 90 days) at which MWCC no longer accrues such fees and charges under GAAP for financial reporting purposes. These accounting principles include use of the Section 4 Contractual Method. "MWCC Aggregate Cardholders' Balance" shall mean, at any time, the aggregate of all Indebtedness owned by MWCC and MWCC Assignee exclusive of Section 4 Defaulted Indebtedness and Starter Card Account Defaulted Indebtedness (it being understood that the proviso contained in subsection (g) of those definitions shall not be applicable for purposes of this calculation). *Confidential treatment has been requested with respect to this information. 17 "MWCC Assignee" shall mean any direct or indirect assignee or secured party of, or purchases from, MWCC of or with respect to Non-Converted Accounts, Non-Converted Indebtedness, Purchased Monogram Accounts, Purchased Monogram Indebtedness and/or Participated Monogram Indebtedness, provided that "MWCC Assignees" in no event shall include: (1) MW or an MW Designee (as defined in the Bank Program Agreement) and (2) and Person who has purchased written-off Accounts and/or Indebtedness. "MWCC Billing Statement" shall mean a summary of credit and/or debit transactions on a Non-Converted Account or Purchased Monogram Account for a Billing Cycle, including, without limitation, a descriptive statement covering purchases of Merchandise and/or a statement with past due information. "MWCC Cardholder" shall mean any natural person who is or may become obligated under, with respect to, or on account of, a Non-Converted Account or a Purchased Monogram Account. "MWCC Cash Price" shall have the meaning assigned to it in SECTION 5.4(5)(iii) hereof. "MWCC Credit Card" shall mean a credit card issued to MWCC Cardholders bearing the words "Montgomery Ward" and/or other Licensed Mark(s). "MWCC Credit Agreement" shall mean (i) a credit card agreement entered into by MW and an MWCC Cardholder (or, in the State of Washington, a lender credit card agreement entered into by MWCC and a MWCC Cardholder), which agreement governs the use of a Non-Converted Account and (other than a lender credit card agreement) has been assigned to MWCC, or (ii) a credit card agreement between Monogram and a Cardholder and assigned to MWCC, which agreement governed the use of a Purchased Monogram Account, in either case together with any amendments, modifications, restatements, replacements or supplements which now or hereafter may be made to such MWCC Credit Agreement. "MWCC Customer List" shall mean any identification (whether in hard copy, magnetic tape or other format) of (i) MWCC Cardholders and (ii) applicants for Accounts (as defined in the Original Account Purchase Agreement) under the Original Account Purchase Agreement (both categories of Persons in their capacities as credit customers or potential credit customers with respect to purchases from Stores and/or any Person from whom purchases could be made under the Original Account Purchase Agreement), on the Conversion Date or any date(s) thereafter, including, without limitation, any list identifying the name, address, telephone number and social security number of any such Person, alone or together with any other information that MWCC has in its files with respect to such MWCC Cardholder in 18 connection with the Program. For the avoidance of doubt, it is acknowledged and agreed that the MWCC Customer List shall not include any such identifications of Cardholders obligated in respect of Participated Monogram Indebtedness. For purposes of this definition, the MWCC Customer List shall include any identification(s) of MWCC Cardholders or applicants for Non-Converted Accounts or Purchased Monogram Accounts provided to MW by MWCC or Monogram and maintained by MW, whether or not MWCC has maintained such identification(s). "MWCC Default" shall have the meaning assigned to it in SECTION 16.2 hereof. "MWCC Delivery Date" shall have the meaning assigned to it in SECTION 5.4(5)(ii) hereof. "MWCC In-Store Payment" shall mean any payment on a Non-Converted Account or Purchased Monogram Account made by a MWCC Cardholder (or any other Person acting on behalf of a MWCC Cardholder) at a Store. "MWCC Marginal Card Account" shall mean, on any date any Non-Converted Account and/or Purchased Monogram Account, with respect to which the MWCC Cardholder, at the time of establishment thereof, did not meet the credit requirements for a standard credit account, with respect to establishing the Account, but exceeded the credit requirements for Starter Card Accounts. "MWCC Net Receivable Balance" shall mean, for the day in question, the amount by which (a) the aggregate of Non-Converted Indebtedness, Purchased Monogram Indebtedness and Participated Monogram Indebtedness, excluding portions of all of the foregoing constituting Section 4 Defaulted Indebtedness and/or Starter Card Account Defaulted Indebtedness as of the opening of business on such day (it being understood that the proviso contained in subsection (g) of those definitions shall not be applicable for purposes of this calculation), as computed pursuant to MWCC's Accounting Practices, exceeds (b) the amount of any allowance for bad debt on the books of MWCC or MWCC Assignees with respect to such Indebtedness, as of the opening of business on such day, computed, to the extent of Participated Monogram Indebtedness, pursuant to Monogram's Accounting Practices and, in all other respects, MWCC's Accounting Practices. "MWCC Payment Reserve Account" shall have the meaning assigned to such term in SECTION 7.1A(2)(i) hereof. "MWCC Payment Reserve Amount" shall have the meaning assigned to such term in SECTION 7.1A(1) hereof. 19 "MWCC Pre-Conversion Payment Date" shall have the meaning set forth in SECTION 5.5(11)(iii)(a) hereof. "MWCC Share of Late Fees" shall mean, for Fiscal Year 1996 commencing May 1, 1996 and each Fiscal Year or partial Fiscal Year thereafter: (a) if the Average Late Fee Per Assessment for such Fiscal Year (or partial Fiscal Year) is [ ]* or more, a dollar amount equal to (i) [ ]*, MULTIPLIED BY (ii) the number of times that Accounts are one or more payments past due at the time of their Billing Dates during such Fiscal Year (or partial Fiscal Year) multiplied by (iii) [ ]*; or (b) if the Average Late Fee Per Assessment for such Fiscal Year (or partial Fiscal Year) is less than [ ]*, a dollar amount equal to (i) [ ]*, MULTIPLIED BY (ii) the Aggregate Late Fee Amount. "MWCC Signature License" shall mean an agreement between MWCC and the Signature Companies in substantially the form attached as EXHIBIT D hereto, which Exhibit may be amended only with MW's consent. "MWCC Starter Card Account" shall mean, on any date, any Non-Converted Account and/or Purchased Monogram Account with respect to which the MWCC Cardholder, at the time of establishment thereof, did not meet the credit requirements for standard credit accounts or Marginal Card Accounts with respect to establishing the Account. "Net Amount" shall have the meaning set forth in SECTION 5.5(18) hereof. "Net Designated Incremental Revenues" shall mean, for any Fiscal Year (or part thereof), the difference, if positive, between (a) the Gross Designated Incremental Revenues, LESS (b) the sum of the following amounts: (i) Accrued Conversion Expenses, if any; (ii) Accrued Ongoing Incremental Expenses, if any; (iii) Accrued MW Monthly Payment Amounts, if any; and (iv) Accrued Net Litigation Expenses, if any. "Net Litigation Expenses" shall mean, for any Fiscal Year (or part thereof) an amount equal to the sum of judgments, settlements, costs, payments, refunds and expenses, including attorneys' fees, incurred by MWCC, Monogram and/or MW (or any of their respective Affiliates) relating to any Post-Conversion Asserted Claim(s), whether or not such amounts were incurred in connection with a lawsuit and whether incurred before or after litigation, provided such amounts shall not include those wholly *Confidential treatment has been requested with respect to this information. 20 due to Monogram's negligence in connection with the manner in which finance charges or late fee amounts were increased. For purposes of this Agreement, MWCC shall be deemed to have borne amounts borne by Monogram relating to a Post-Conversion Asserted Claim. "Net 1996 Starter Card Account Loss Amount" shall mean an amount equal to the positive difference, if any, between: (i) the amounts specified in Sections B, D and F of SCHEDULE 4.2 hereto and (ii) Sections B and D of SCHEDULE 5.5(15) hereto. "New Indebtedness" shall mean any indebtedness arising on an Account after the Conversion Date. "New Mark" shall have the meaning assigned to such term in SECTION 5.16(1)(c) hereof. "Non-Converted Accounts" shall mean any account, account receivable, other receivable, indebtedness, contract right, chose in action, general intangible, chattel paper, instrument, document, note, or obligation and all proceeds of the foregoing to the extent purchased and/or established by MWCC prior to the Conversion Date and owned by MWCC and not sold to GE Capital on the Conversion Date, wherever located, arising out of the sale of Merchandise to any MWCC Cardholder pursuant to a credit agreement or lender credit card agreement, under the Original Account Purchase Agreement including, without limitation, (a) all of MWCC Account Documentation evidencing the same, the receivables therefrom and the proceeds thereof, (b) all rights of MW in any Merchandise which is security or collateral for such Non-Converted Accounts, and (c) all guarantees, claims, security interests, or other security held by or granted to MW to secure payment by any Person with respect thereto. Notwithstanding the foregoing, "Non-Converted Accounts" shall not include those generated pursuant to layaway plans. Except as otherwise provided herein, reference in this Agreement to Non-Converted Accounts shall include (i) all Non-Converted Accounts, portions thereof and participations therein then owned or held by any MWCC Assignees, and (ii) written-off Non-Converted Accounts. "Non-Converted Indebtedness" shall mean, at any time, the outstanding obligation incurred by an MWCC Cardholder under a Non-Converted Account including, without limitation, any charges for Merchandise (which includes insurance financed pursuant to an Account), sales tax, finance charges and any other charges in respect of an Account, whether accrued or billed, inclusive of finance charges and other charges subject to possible reversal due to unexpired AFF Promotions, as all such charges are determined pursuant to MWCC's Accounting Practices. Except as otherwise expressly provided in this Agreement, reference to Non-Converted Indebtedness shall include Section 4 Defaulted 21 Indebtedness and Starter Card Account Defaulted Indebtedness attributable to Non-Converted Accounts. "Note Repayment of Principal Amount" shall mean, for Fiscal Year 1996 and each Fiscal Month commencing with the Fiscal Month of January 1997 through and including the Fiscal Month of December 2002, to the extent that there is an outstanding balance on any of the Seller Notes, Seller Recourse Notes, MW 1996 Note or MW Continuation Note during such Fiscal Year, the following amount as a reduction of principal: for Fiscal Year 1996 the positive difference, if any between (i) [ ]*, LESS (ii) Net 1996 Starter Card Account Loss Amount; for each Fiscal Month of Fiscal Year 1997 [ ]*; for each Fiscal Month of Fiscal Year 1998 [ ]*; for each Fiscal Month of Fiscal Year 1999 [ ]*; for each Fiscal Month of Fiscal Year 2000 [ ]*; for each Fiscal Month of Fiscal Year 2001 [ ]*; for each Fiscal Month of Fiscal Year 2002 [ ]*. "Obligations" shall mean, on any day, any and all liabilities or obligations owing by MW to MWCC or any of MWCC's Affiliates pursuant to this Agreement or the Bank Program Agreement, including those obligations incurred prior to the date hereof. The term includes, without limitation, any fee, charge, expense, attorney's fee or other sum chargeable to MW pursuant to this Agreement or the Bank Program Agreement. "Offset Amount" shall have the meaning set forth in SECTION 4.6(2) hereof. "Old Account" shall mean any account arising prior to the Conversion Date under the Original Account Purchase Agreement, the terms of which were governed by either (i) a credit agreement between a consumer and MW and assigned to MWCC or (ii) an agreement between a consumer and MWCC with respect to the State *Confidential treatment has been requested with respect to this information. 22 of Washington, both if and to the extent Monogram acquires such account and converts it to an Account. "Old Indebtedness" shall mean any indebtedness arising on an Old Account prior to the Conversion Date. "Ongoing Incremental Expenses" shall mean, for any Fiscal Year (or part thereof), the sum of (i) any costs incurred by Monogram or its Affiliates for government-mandated insurance necessitated by the Program, (ii) any costs incurred by MW or its Affiliates at Monogram's request to comply with Section 106 of the Bank Holding Company Act, 12 U.S.C. Section 371c, (iii) the Bank Overhead Assessment, (iv) Incremental State Income Tax and (v) [ ]* for incremental staffing expenses of Monogram and/or its Affiliates. For Fiscal Year 1997 and each Fiscal Year thereafter, the amount specified in SUBSECTION (v) shall be adjusted by the increase or decrease in the Consumer Price Index. All Urban Consumers - All Items - Chicago, Illinois (or, if such index is discontinued, such other index of similar type mutually agreed to by the parties). In doing such adjustments, the base year shall be Fiscal Year 1996 and calendar year statistics which correspond to Fiscal Years may be used. "Original Account Purchase Agreement" shall have the meaning assigned to it in the RECITALS hereof. "Participated Monogram Indebtedness" shall mean Indebtedness as to which MWCC has purchased an interest under the Credit Card Receivables Sale Agreement. "Payment Date" shall have the meaning set forth in SECTION 4.3(2) hereof. "Permitted Businesses" shall have the meaning assigned to such term in SECTION 5.16(2) hereof. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Post-Conversion Asserted Claims" shall have the meaning assigned to it in SECTION 5.5(11)(i)(y) hereof. "Pre-Conversion Asserted Claims" shall have the meaning assigned to it in SECTION 5.5(11)(i)(x) hereof. "Prime Rate" shall mean, on any day, [ ]* *Confidential treatment has been requested with respect to this information. 23 [ ]* (or, if such publication or index is discontinued, such other publication or index of similar type mutually agreed to by MW and MWCC), regardless of whether such rate is ever applied. "Program" shall mean (a) the Program as defined in the Bank Program Agreement and (b) the program established by this Agreement, including all aspects of the customized credit plan specified in this Agreement. "Provisions" shall have the meaning assigned to it in SECTION 15.2(1) hereof. "Purchased Monogram Account" shall mean any Account (as defined in the Bank Program Agreement), including any Indebtedness thereon, purchased by MWCC from Monogram under the Delinquent Account Purchase Agreement. Except as otherwise expressly provided herein, reference in this Agreement to Purchased Monogram Accounts shall include (i) all Purchased Monogram Accounts, portions thereof and participations therein then owned or held by any MWCC Assignees; and (ii) written-off Purchased Monogram Accounts. For the avoidance of doubt, it is acknowledged and agreed that Purchased Monogram Accounts shall not include those written-off accounts and/or indebtedness sold to third parties. "Purchased Monogram Indebtedness" shall mean, at any time, the outstanding obligation incurred by an MWCC Cardholder under a Purchased Monogram Account, whether such obligation was incurred before or after MWCC purchased such Indebtedness, including, without limitation, any charges for Merchandise (which includes insurance financed pursuant to an Account), sales tax, finance charges and any other charges in respect of an Account, whether accrued or billed, inclusive of finance charges and other charges subject to possible reversal due to unexpired AFF Promotions, as all such charges are determined pursuant to MWCC's Accounting Practices. Except as otherwise expressly provided, reference in this Agreement to Purchased Monogram Indebtedness shall include Section 4 Defaulted Indebtedness and Starter Card Account Defaulted Indebtedness attributable to Purchased Monogram Accounts. "Purchaser" shall have the meaning assigned to it in SECTION 17.1(3) hereof. "Recoveries" shall have the meaning assigned to it in SECTION 5.4(7) hereof. "Reduced Accounts" shall have the meaning assigned to it in SECTION 1 of the Bank Program Agreement. *Confidential treatment has been requested with respect to this information. 24 "Remade MWCC Representations and Warranties" shall have the meaning assigned to it in SECTION 9 hereof. "Remade MW Representations and Warranties" shall have the meaning assigned to it in SECTION 8 hereof. "Remaining Amounts" shall have the meaning assigned to it in Section 5.5(10). "Remaining Late Fee Amount" shall mean, for any Fiscal Year (or part thereof), a dollar amount equal to: (i) the Aggregate Late Fee Amount for such Fiscal Year (or part thereof), LESS (ii) the sum of the MW Share of Late Fees and the MWCC Share of Late Fees for such Fiscal Year (or part thereof). "Response Date" shall have the meaning assigned to it in the Bank Program Agreement. "Retailer Department" shall have the meaning assigned to it in SECTION 17.1(3) hereof. "Section 4 Average Indebtedness" shall mean, for any Fiscal Year (or part thereof) commencing with Fiscal Year 1997, Indebtedness (other than SECTION 4 Defaulted Indebtedness and Indebtedness arising pursuant to Starter Card Accounts, but including Indebtedness arising pursuant to Marginal Card Accounts), as computed (as appropriate) pursuant to Monogram's Accounting Practices modified as though Monogram used the Section 4 Contractual Method in such practices or MWCC's Accounting Practices, but in either case without deduction of an allowance for bad debts, on the last day of each of the twelve (12) Settlement Periods which occur during the Fiscal Year in question, divided by twelve (12). If the Fiscal Year in question is a partial Fiscal Year, the calculation of Section 4 Average Indebtedness shall be computed based on the number of Settlement Periods within the Fiscal Year or such other manner agreed to by the parties. "Section 4 Contractual Method" shall mean the method of calculating Section 4 Defaulted Indebtedness whereby all Indebtedness (other than Indebtedness arising pursuant to Starter Card Accounts but including Indebtedness arising pursuant to Marginal Card Accounts) shall be considered Section 4 Defaulted Indebtedness in the Billing Cycle following the Billing Cycle in which the Cardholder obligated in connection therewith would be considered past due for thirty (30) days or more on: 25 Commencing: in 1996 and thereafter until the earlier of (i) the date on which there no longer is a balance outstanding relating to the Seller Notes, Seller Recourse Notes, MW 1996 Note and/or the MW Continuation Note, or (ii) a date specified by MWCC in writing to MW at least 90 days prior thereto (the "Implementation Date"), which Implementation Date shall not be earlier than December 1, 1997 (the earlier of (i) and (ii) being referred to as the "Rollback Commencement Date") 12 required minimum payments, Rollback Commencement Date 11 required minimum payments, Rollback Commencement Date + twelve (12) months 9 required minimum payments, Rollback Commencement Date + twenty-four (24) months 7 required minimum payments, Rollback Commencement Date + thirty-six (36) months 5 required minimum payments, all in accordance with Monogram's policies and practices as of the Conversion Date but modified as though Monogram used the above stated minimum payment write-off requirements in its policies and practices including, without limitation, policies and practices with respect to extensions, recycles, partial payments (which shall require Cardholders to pay a minimum of 90% of the required periodic payment specified in their Credit Agreements to avoid further aging) and other adjustments. For the avoidance of doubt, by way of example: For a Cardholder who first is BILLED on the fifteenth of month one, the related payment is DUE on the fifteenth of month two. If a payment is not made by the fifteenth of month three, such payment is considered past due for thirty (30) days or more on one minimum payment. In summary, there is a two-month timing difference between the time an Account is billed and when it is considered one month past due. 26 "Section 4 Defaulted Indebtedness" shall mean any Indebtedness excluding Indebtedness arising pursuant to Starter Card Accounts (a) where MWCC and/or an Affiliate of MWCC has received official notice that the Cardholder in respect of such Indebtedness has filed a petition for relief under the Bankruptcy Code, made a general assignment for the benefit of creditors, had filed against it any petition or other application for relief under the Bankruptcy Code, or has suffered a receiver or trustee to be appointed for all or a significant portion of its assets, and MWCC and/or an Affiliate of MWCC has concluded that the relevant Indebtedness should be written off; PROVIDED, that, for purposes of this Agreement, the total amount of Indebtedness in respect to which MWCC and/or an Affiliate of MWCC has received such official notice and not written off under this subsection (a) shall, as of the end of each Fiscal Month, (i) be no less than the amount of Indebtedness as to which MWCC and/or an Affiliate of MWCC has received such official notice during such Fiscal Month, and (ii) not exceed the amount of Indebtedness as to which MWCC and/or an Affiliate of MWCC has received such official notice during such Fiscal Month and the immediately preceding Fiscal Month (it being understood that, for purposes of the first Fiscal Month after the Conversion Date, the latter reference shall mean the amount of Indebtedness as to which MWCC and/or an Affiliate of MWCC has received such official notice during the immediately preceding Fiscal Month), (b) where MWCC and/or an Affiliate of MWCC has received reliable notice that the Cardholder has died and the earlier occurs of (i) the receipt of information that there are no assets in the estate or that there has been a judicial determination that there are no assets in the estate, or (ii) ninety (90) days have elapsed since MWCC and/or an Affiliate or MWCC received such notification of death, (c) where the Cardholder has asserted that the Indebtedness was fraudulently incurred and the claim of fraud is not frivolous, (d) where Merchandise has been repossessed and the Cash Price or MWCC Cash Price of such Merchandise is a substantial portion of the Indebtedness outstanding on the Account immediately prior to the time of repossession, (e) where a settlement is reached with a Cardholder as to the total amount owing in connection with the Account and such amount has been paid, to the extent of such unpaid amount, (f) where verification is obtained that the Cardholder is confined to a jail, nursing home or similar institution, (g) where the Indebtedness is deemed by MWCC and/or an Affiliate of MWCC to be uncollectible due to the fact that the Account of which it is a part has been chronically past due and delinquent (provided no additional Indebtedness shall become Section 4 Defaulted Indebtedness pursuant to this subsection (g) during any Fiscal Year once the sum of Section 4 Defaulted Indebtedness and Starter Card Account Defaulted Indebtedness pursuant to subsections (g) as applicable in each such definition during such Fiscal Year (prorated for partial Fiscal Years) reaches twenty-three hundredths percent (.23%) of the sum of 27 Section 4 Average Indebtedness and Starter Card Account Average Indebtedness for the prior Fiscal Year), or (h) where any Indebtedness in respect of an Account becomes Section 4 Defaulted Indebtedness based on the Section 4 Contractual Method. Notwithstanding the foregoing, in no event shall Section 4 Defaulted Indebtedness include (a) Indebtedness written off prior to the Conversion Date or (b) Indebtedness that is Section 4 Defaulted Indebtedness due to the fraud of MWCC and/or an Affiliate of MWCC or their respective employees, agents or representatives. Section 4 Defaulted Indebtedness shall be deemed to be such after the first event set forth above which qualifies it as such occurs; PROVIDED, that with respect to subsections (b)-(g) above, Section 4 Defaulted Indebtedness shall be deemed to be such within a reasonable time, not to exceed one hundred twenty (120) days, after the first event set forth above which qualifies it as such occurs. For the avoidance of doubt, it is understood and agreed that (1) all references in this Agreement to Section 4 Defaulted Indebtedness includes all such Indebtedness owned or held by MWCC or Monogram, (2) notwithstanding any policies or procedures with respect to the financial reporting of finance charges, late fees, insufficient fund fees and other charges and fees assessed to a Cardholder, Section 4 Defaulted Indebtedness shall include all such charges and fees billed to a Cardholder with respect to Indebtedness which are unpaid prior to such Indebtedness becoming Section 4 Defaulted Indebtedness and (3) references to an Affiliate of MWCC shall mean only such Affiliates or parts thereof who participate in the Program, it being expressly understood that nothing in this sentence shall be deemed to give Monogram and/or MWCC a right to assess any charge and/or fee on an Account in any State that is not currently imposed in that State (or in an amount greater than that currently imposed), other than in accordance with the terms of, respectively, the Bank Program Agreement or this Agreement. It is understood and agreed that Indebtedness arising pursuant to Starter Card Accounts shall not be considered Section 4 Defaulted Indebtedness and instead shall be subject to the provisions of SECTION 4A hereof. "Section 4 Net Aggregate Defaulted Indebtedness Amount" shall mean, prior to the application of the Offset Amount pursuant to SECTION 4.6(2) hereof, the aggregate of (i) the Eighteen Million Dollar ($18,000,000) Seller Note given by MW to MWCC with respect to Fiscal Year 1991 as provided in Section 4.4(1) of the Original Account Purchase Agreement (excluding any interest paid or payable thereon), (ii) the Seller Notes for 1992 and 1993 (excluding any interest paid or payable thereon), (iii) the Seller Recourse Notes for 1994 and 1995 (excluding any interest paid or payable thereon), (iv) the MW 1996 Note (excluding any interest paid or payable thereon), and (v) MW's share of Section 4 Net Defaulted Indebtedness for Fiscal Year 1997 (after application of SECTION 5.5(10)(b)(ii) AND (iii). 28 "Section 4 Net Defaulted Indebtedness" shall mean, for any Fiscal Year (or part thereof) after Fiscal Year 1996: (a) the amount of Section 4 Defaulted Indebtedness first becoming such for the Fiscal Year in question, LESS (b) the gross amount (without deduction for attorneys' fees or other collection costs) of cash recoveries relating to Accounts other than Starter Card Accounts, whether such Accounts were written off prior to or after the Conversion Date ("Gross Recoveries") received during the Fiscal Year in question under SECTION 5.4(5) hereof or otherwise in respect of Section 4 Defaulted Indebtedness (regardless of when such Section 4 Defaulted Indebtedness occurred), which Gross Recoveries shall include payments made (1) by MW on Section 4 Defaulted Indebtedness pursuant to SECTION 5.4(5) hereof or pursuant to SECTION 5.4(5) of the Bank Program Agreement, (2) as proceeds of credit insurance, and (3) by MW in respect of Ineligible Indebtedness or Ineligible MWCC Indebtedness (other than Ineligible Indebtedness or Ineligible MWCC Indebtedness arising in connection with Starter Card Accounts) which was Section 4 Defaulted Indebtedness previously included in the calculations pursuant to SECTION 4.1 or SCHEDULE 4.2 and LESS (c) any amounts received by MWCC from the Signature Companies in respect of their obligation to reimburse MWCC and/or Monogram for incremental losses incurred thereby as a result of continued assessment of credit insurance charges on certain Indebtedness pursuant to that certain letter agreement between the Signature Companies and MWCC, dated as of even date herewith. "Section 4 1996 Net Defaulted Indebtedness" shall have the meaning assigned to it in SCHEDULE 4.2 hereto. "Seller Notes" shall mean those certain notes in the amounts of Eighteen Million Dollars ($18,000,000) (for 1991), Sixty Three Million, Six Hundred and Twenty Thousand Dollars ($63,620,000) (for 1992) and Twenty Five Million, Five Hundred and Seven Thousand Dollars ($25,507,000) (for 1993) provided to MWCC by MW pursuant to Sections 4.4(1) and 4.4(2) of the Original Account Purchase Agreement. "Seller Recourse Notes" shall mean those certain notes in the amounts of Fifty Three Million, Six Hundred and Fifty Two Thousand Dollars ($53,652,000) (for 1994) and Sixty Six Million, Seven Hundred and Twelve Thousand Dollars ($66,712,000) (for 1995) provided to MWCC by MW pursuant to Section 4.5(2) of the Original Account Purchase Agreement. "Settlement Period" shall mean a Fiscal Month. Each Fiscal Year shall contain twelve (12) Settlement Periods. "Signature Companies" shall mean those companies owned by MW prior to the Conversion Date and operating as part of the group of companies known as Signature, whether or not the word 29 Signature is used in the names of such companies as well as any successors thereto or assignees thereof. "Solvent" shall mean, when used with respect to any Person, that (a) the present fair salable value of such Person's assets as a going concern is in excess of the total amount of its liabilities as would be reflected on a balance sheet for a going concern determined in accordance with GAAP, and (b) such Person is presently generally able to pay its debts as they become due, excluding any debts that are subject to a bona fide dispute. The phrase "present fair salable value" of a Person's assets is intended to mean that value which can be obtained if the assets are sold within a reasonable time in arm's-length transactions in an existing and not theoretical market. "Starter Card Account" shall mean (a) any Starter Card Account as defined in the Bank Program Agreement and (b) any MWCC Starter Card Account. "Starter Card Account Annual Yield Percentage" shall mean, for any Fiscal Year (or part thereof) commencing May 1, 1996, the amount (expressed as a percentage) obtained by dividing (a) the total amount of finance charges billed to Cardholders or billed to MW in connection with Reduced Accounts during such period with respect to Indebtedness arising from Starter Card Accounts (other than Indebtedness in respect of Non-Converted Accounts and/or Purchased Monogram Accounts), LESS all finance charges credited to such Accounts during such period (other than (i) finance charges credited during such period as the result of (x) payments on such Accounts by Cardholders, (y) payments on such Accounts by MW in connection with Reduced Accounts and (z) successful completion of AFF Promotions and (ii) refunds of finance charges pursuant to SECTION 5.5(11) hereof), by (b) the Starter Card Account Average Monthly Billed Indebtedness for such period, such quotient being rounded to two (2) decimal places. "Starter Card Account Average Indebtedness" shall mean, for any Fiscal Year (or part thereof) commencing with Fiscal Year 1997, Indebtedness arising pursuant to Starter Card Accounts owned by Monogram and/or MWCC (other than Starter Card Account Defaulted Indebtedness), as computed (as appropriate) pursuant to Monogram's Accounting Practices or MWCC's Accounting Practices, but in either case without deduction of an allowance for bad debts, on the last day of each of the twelve (12) Settlement Periods which occur during the Fiscal Year in question, divided by twelve (12). If the Fiscal Year in question is a partial Fiscal Year, the calculation of Starter Card Account Average Indebtedness shall be computed based on the number of Settlement Periods within the Fiscal Year or such other manner agreed to by the parties. 30 "Starter Card Account Average Monthly Billed Indebtedness" shall mean, for any Fiscal Year (or part thereof), an amount equal to: (i) the sum of Indebtedness arising pursuant to Starter Card Accounts (other than Indebtedness arising pursuant to Non-Converted Accounts and Purchased Monogram Accounts) during such Fiscal Year, as computed (as appropriate) pursuant to Monogram's Accounting Practices or MWCC's Accounting Practices, but in each case without the deduction of any allowance for bad debts, billed to Cardholders on each Billing Cycle closing date during that Fiscal Year or billed to MW during that Fiscal Year in connection with Reduced Accounts, DIVIDED BY (ii) twelve (12). Notwithstanding the foregoing, if the Fiscal Year in question is a partial Fiscal Year, "Starter Card Account Average Monthly Billed Indebtedness" shall mean the sum of Indebtedness arising pursuant to Starter Card Accounts (other than Indebtedness arising pursuant to Non-Converted Accounts and Purchased Monogram Accounts) during such partial Fiscal Year, as computed (as appropriate) pursuant to Monogram's Accounting Practices or MWCC's Accounting Practices, but in each case without deduction of any allowance for bad debts, billed to Cardholders on each of the Billing Dates during each complete Settlement Period within such partial Fiscal Year or billed to MW in connection with Reduced Accounts, divided by such number of Settlement Periods within the Fiscal Year. In the event that the number of times a Starter Card Account owned by Monogram and/or MWCC is billed during a Fiscal Year is more than twelve (12), the parties hereto shall agree to an appropriate adjustment to the calculations set forth herein. "Starter Card Account Defaulted Indebtedness" shall mean any Indebtedness arising pursuant to a Starter Card Account which, if it did not arise pursuant to a Starter Card Account, would meet the definition of Section 4 Defaulted Indebtedness, provided that with respect to Subsection (g) for each Fiscal Year, the sum of Section 4 Defaulted Indebtedness and Starter Card Account Defaulted Indebtedness shall be limited to twenty-three hundredths percent (.23%) of the sum of Section 4 Average Indebtedness and Starter Card Account Average Indebtedness for the prior Fiscal Year. "Starter Card Account Gross Recoveries" shall have the meaning assigned to it in the definition of "Starter Card Account Net Defaulted Indebtedness" in SECTION 1 hereof. "Starter Card Account Incremental Yield Amount" shall mean, for any Fiscal Year (or part thereof) commencing May 1, 1996, the Starter Card Account Incremental Yield Percentage for such period, MULTIPLIED BY the Starter Card Account Average Monthly Billed Indebtedness for such period. 31 "Starter Card Account Incremental Yield Percentage" shall mean, for any Fiscal Year (or part thereof) commencing May 1, 1996, the positive difference, if any, in (A) the Starter Card Account Annual Yield Percentage for such Fiscal Year (or part thereof), MINUS (B) the Base Starter Card Account Yield Percentage, such positive difference being rounded to two (2) decimal places. "Starter Card Account Net Defaulted Indebtedness" shall mean, for any Fiscal Year (or part thereof) after Fiscal Year 1996: (a) the amount of Starter Card Account Defaulted Indebtedness first becoming Starter Card Account Defaulted Indebtedness during the Fiscal Year in question, less (b) the gross amount (without deduction for attorneys' fees or other collection costs) of cash recoveries ("Starter Card Account Gross Recoveries") received relating to Starter Card Accounts during the Fiscal Year in question under SECTION 5.4(5) or otherwise in respect of Starter Card Account Defaulted Indebtedness (regardless of when such Starter Card Account Defaulted Indebtedness occurred), which Starter Card Account Gross Recoveries would include payments made (1) by MW on Starter Card Account Defaulted Indebtedness pursuant to SECTION 5.4(5) hereof or pursuant to SECTION 5.4(5) of the Bank Program Agreement, and (2) as proceeds of credit insurance with respect to Starter Card Accounts, and (3) by MW in respect of Ineligible Indebtedness or Ineligible MWCC Indebtedness arising in connection with Starter Card Accounts which was Starter Card Account Defaulted Indebtedness previously included in the calculations pursuant to SECTION 4A or SCHEDULE 4.2, and less (c) with respect to Starter Card Accounts, any amounts received by MWCC from the Signature Companies in respect of their obligation to reimburse MWCC for incremental losses incurred thereby as a result of continued assessment of credit insurance charges on certain Indebtedness pursuant to that certain letter agreement between the Signature Companies and MWCC of even date herewith. "Starter Card Account 1996 Net Defaulted Indebtedness" shall have the meaning assigned to it in SCHEDULE 4.2 hereto. "State" shall mean a State of the United States of America or the District of Columbia. "Stock" shall mean all shares, options, interests, participations or other equivalents (regardless of how designated) of or in a corporation or other entity, whether voting or nonvoting, including, without limitation, common stock preferred stock, or warrants or options for any of the foregoing. "Stores" shall mean retail establishments and other means to conduct retail businesses (E.G., mail order or home television 32 shopping) operated by MW, Authorized Affiliates or Authorized Licensees. "Subsidiary" shall mean, with respect to any Person, any corporation of which an aggregate of more than fifty percent (50%) of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person. "Termination Date" shall have the meaning assigned to it in the Bank Program Agreement. "Transparent Servicing" shall have the meaning assigned to it in SECTION 5.2(1)(i) hereof. "Triggering Signature Acquisition" shall have the meaning assigned to it in the Bank Program Agreement. "Triggering Year" shall have the meaning assigned to such term in SECTION 5.5(7) hereof. 2. DEFINITIONAL MATTERS 2.1. GENERAL PRINCIPLES. Any accounting term used herein shall have, unless otherwise specifically provided herein, the meaning customarily given in accordance with GAAP, and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP. That certain terms or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. All other undefined terms contained herein shall, unless the context indicates otherwise, have the meanings provided for by the Code in the State of Illinois to the extent the same are used or defined therein. The words "herein", "hereof", "hereunder", and other words of similar import refer to this Agreement as a whole, including the exhibits and schedules hereto, as the same may from time to time be amended or supplemented, and not to any particular section, subsection, or clause contained in this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine, or neuter gender shall include the masculine, the feminine, and the neuter. 3. FEES RELATING TO ACCOUNTS 3.1. [SECTION INTENTIONALLY OMITTED]. 33 3.2. [SECTION INTENTIONALLY OMITTED]. 3.3. FEES. (1) [SECTION INTENTIONALLY OMITTED]. (2) [SECTION INTENTIONALLY OMITTED]. (3) [SECTION INTENTIONALLY OMITTED]. (4) [SECTION INTENTIONALLY OMITTED]. (5) Except as provided hereafter, to the extent that the Final Blended Rate for a Settlement Period (calculated as set forth in Section 3.3 of the Bank Program Agreement) exceeds [ ]* per annum, MW may request that MWCC pay to Monogram, on MW's behalf, that portion of the support fee resulting from such excess and due to Monogram from MW under SECTION 3.3 of the Bank Program Agreement and MWCC shall do so. Any amount so paid by MWCC shall be added by MWCC to a deferred support fee liability account (the "Deferred Account"). The outstanding balance of the amounts originally added to the Deferred Account (but not interest accumulated thereon) shall earn interest, calculated monthly for each Settlement Period, at the Prime Rate in effect on the last Business Day of the preceding Settlement Period, plus [ ]*, I.E., interest shall be determined on a simple, not compounded basis. Such interest charges shall be added to the Deferred Account, and any payments to reduce the Deferred Account shall be applied first to the interest amounts thereof and then to the principal portion. Notwithstanding the foregoing, MWCC shall not pay Monogram on behalf of MW during any period during which the amount then outstanding under the Deferred Account equals or exceeds [ ]*. MW shall pay the balance, if any, in the Deferred Account as follows: (i) For any Settlement Period for which any Final Blended Rate is less than [ ]* per annum, MW shall pay the amount by which (A) [ ]* of the Money Cost Balance for such Settlement Period, exceeds (B) the support fee payment, if any, required under Section 3.3(4) of the Bank Program Agreement for such Settlement Period. Such calculation shall be prorated if the Bank Program Agreement is in effect during only a portion of such Settlement Period. *Confidential treatment has been requested with respect to this information. 34 (ii) If such payments are not sufficient to liquidate the Deferred Account prior to any primary public offering of equity securities of MW or its parent, the net proceeds to MW or its parent of such primary public offering shall be applied against the then balance of the Deferred Account. Upon the earlier of (A) fifteen (15) years after April 1, 1996, and (B) expiration or prior termination of this Agreement, including without limitation termination as a result of a MW Default, the total amount of the Deferred Account shall be paid in full at such time and MWCC no longer shall make payments to Monogram on MW's behalf relating to Section 3.3 of the Bank Program Agreement. For the purposes of this subsection (ii), the sale or other issuance by MW or its parent of stock to employees of MW or its Affiliates, pursuant to a stock option plan or otherwise, shall not be deemed a "public offering of equity securities", regardless of whether or not a registration statement is required to be filed registering the stock to be issued in connection therewith. (iii) MW may pay the balance in the Deferred Account at any time, and from time to time, without penalty. (6) [SECTION INTENTIONALLY OMITTED.] 3.4. INELIGIBLE MWCC INDEBTEDNESS. When any Purchased Monogram Indebtedness and/or Non-Converted Indebtedness becomes Ineligible MWCC Indebtedness and MW has not made and shall not be obligated to make payment to Monogram in connection with Monogram's chargeback thereof, MWCC shall have the right, subject to the terms hereof, during the term and after the expiration of this Agreement as provided in SECTION 15.2 hereof to require MW to purchase such Ineligible MWCC Indebtedness from MWCC for [ ]*. Until such time as MWCC, in its sole discretion, exercises its right to require MW to purchase Ineligible MWCC Indebtedness, MWCC shall use its best efforts to collect such Ineligible MWCC Indebtedness from the relevant Cardholder to the extent such Ineligible MWCC Indebtedness is the valid obligation of the Cardholder. The purchase price for such Ineligible MWCC Indebtedness shall be paid directly by MW to MWCC or, at MWCC's option, offset by MWCC against amounts then owed by MWCC to MW (provided that MW may dispute amounts so offset). Upon any such purchase, MWCC hereby *Confidential treatment has been requested with respect to this information. 35 assigns MW all of its right, title and interest in and to such Ineligible MWCC Indebtedness, free and clear of any and all Liens created by Monogram and/or MWCC, but without any other warranty, and any ownership interest of Monogram and/or MWCC in such Ineligible MWCC Indebtedness shall be terminated. After MW has purchased such Ineligible MWCC Indebtedness (a) MWCC's obligation with respect to the service of such Ineligible MWCC Indebtedness, as set forth in SECTION 5.2 hereof, shall be terminated, (b) all payments in respect of such Ineligible MWCC Indebtedness received by MWCC shall be promptly forwarded to MW, and (c) upon MW's request, MWCC shall deliver to MW all available Account Documentation received by MWCC with respect to such Ineligible MWCC Indebtedness, provided if MW is unable to enforce or collect any Ineligible MWCC Indebtedness due to MWCC's failure to deliver such Account Documentation that it previously received, MWCC shall purchase such Ineligible MWCC Indebtedness from MW. The following items qualify to the extent set forth herein for chargeback as Ineligible MWCC Indebtedness in respect of Purchased Monogram Indebtedness and Non-Converted Indebtedness: (a) unidentifiable media, (b) unauthorized charges, (c) failure to obtain proper identification, (d) merchandise adjustments, and (e) missing media. It is the responsibility of MWCC to provide MW with the following information, if available, with respect to all chargebacks by MWCC hereunder: account name, account number, address, Merchandise description, Store at which the sale was made, amount and reason for chargeback. Following are guidelines for the issuing of chargebacks which must be complied with. (1) UNIDENTIFIABLE MEDIA. Unidentifiable media is media that does not have a valid account number, or media with an account number that is illegibly imprinted or written in. MWCC will directly request the media from the Store at which the sale was made. The Store at which the sale was made is responsible for providing a legible copy of the media with correct account number to MWCC within ten (10) days after notice to such Store. MWCC has the right to chargeback to MW if (a) the Store has not responded to the request for media before expiration of the ten (10) day period, and (b) MWCC after reasonable efforts is unable to identify the Purchased Monogram Indebtedness or Non-Converted Indebtedness represented by the media with a valid account number. Notwithstanding the foregoing, all chargebacks by MWCC for unidentifiable media must occur within sixty (60) days after the retail sale date to the buyer. MW has sixty (60) days after the date of the chargeback to complete additional research and, if successful, reverse the chargeback, whereupon such Ineligible MWCC Indebtedness shall become Purchased Monogram Indebtedness or Non-Converted Indebtedness with respect to which MWCC shall make payment to MW. 36 (2) UNAUTHORIZED CHARGES. An unauthorized charge is a sale on a Purchased Monogram Account or Non-Converted Account that has been abstracted without approval from (respectively) Monogram or MWCC. (These charges will lack an approval code from the P.O.S. system, have an invalid authorization code, lack an approval code from the credit center, or lack an approval code for amounts over the floor limit when floor limits are in effect. It is understood that charges that are equal to or less than the floor limit when it is in effect will be deemed authorized.) MWCC may immediately chargeback to MW unauthorized charges on Purchased Monogram Accounts or Non-Converted Accounts that are made on a stolen plate or a fraudulent account, provided that MW and, if not operated by MW or the Signature Companies, the Store at which the sale was made have been notified of the unauthorized charges within thirty (30) days after receipt by Monogram or MWCC of a complaint from a Cardholder. In addition, MWCC may chargeback to MW other unauthorized charges to a Purchased Monogram Account or Non-Converted Account that is or becomes delinquent, provided that MW and, if not operated by MW or the Signature Companies, the Store at which the sale was made have been notified of the unauthorized charges within thirty (30) days after discovery by Monogram or MWCC of the unauthorized charges. (3) FAILURE TO OBTAIN PROPER IDENTIFICATION. Failure to obtain proper identification refers to all credit purchases made by a customer shopping without a Credit Card, MWCC Credit Card or a priority credit pass where a Store fails to require (to the extent permitted by law) the customer to identify himself with a valid permanent driver's license for his state of residence or a state-issued identification card. Tickets or temporary licenses are not acceptable. The name, address and signature on the driver's license must correspond with the name, address and signature on the relevant Charge Slip or other invoice. If the customer does not have a valid driver's license, the credit center supervisor on duty will instruct the salesperson to ask for other appropriate identification. In any instance where positive identification is required, the document used for identification must be noted on the Charge Slip or other invoice. If in the process of investigating a customer dispute it is determined that the Store at which the sale was made failed to obtain proper identification in the manner required pursuant to these provisions and a fraudulent charge resulted, MWCC may chargeback to MW. Notwithstanding the foregoing, in no event may MWCC chargeback to MW any items described in this subsection later than sixty (60) days after Monogram or MWCC discovers the failure. (4) MERCHANDISE ADJUSTMENTS. Requests received by MWCC from Cardholders for Merchandise adjustments will be promptly communicated directly to the Store at which the sale was made. Merchandise adjustment requests that are not frivolous and 37 that are not resolved by MW within eighteen (18) days after notification to MW and, if not operated by the Signature Companies or MW, the Store at which the sale was made may be charged back by MWCC to MW. Notwithstanding the foregoing, in no event may MWCC chargeback to MW any adjustments described in this subsection later than thirty (30) days after receipt of the request for adjustment from the Cardholder. (5) MISSING MEDIA. Requests received by MWCC from Cardholders for supporting sales media will be promptly communicated by MWCC directly to the issuing location. MW is responsible for providing MWCC with the requested media within ten (10) days of receipt of the request. Purchased Monogram Indebtedness or Non-Converted Indebtedness represented by media not provided within such ten (10) day period may be charged back by MWCC to MW. MW has thirty (30) days after the chargeback to locate the media and reverse the chargeback, whereupon such Ineligible MWCC Indebtedness shall become Purchased Monogram Indebtedness or Non-Converted Indebtedness to be purchased by MWCC. Notwithstanding the foregoing, in no event may MWCC chargeback to MW any items described in this subsection later than thirty (30) days after the receipt of the request for adjustment from the Cardholder. 3.5. [SECTION INTENTIONALLY OMITTED]. 3.6. MONTHLY STATEMENTS. Except as otherwise expressly provided in respect of amounts owed for Fiscal Year 1996, MWCC shall provide to MW a monthly statement, as applicable, showing sufficient detail as reasonably requested by MW of the calculations for the immediately preceding Settlement Period of the fees set forth in SECTION 3 hereof and the transactions with respect to the MWCC Payment Reserve Account. Subject to SECTION 5.5(18) hereof, amounts owed to MWCC shall be paid directly by MW to MWCC within thirty (30) days after receipt of notice of the amounts claimed to be due. 4. DEFAULTED INDEBTEDNESS 4.1. RESPONSIBILITY DURING FISCAL YEAR 1997 AND THEREAFTER. MWCC, Monogram and MW shall share responsibility for Section 4 Net Defaulted Indebtedness arising during Fiscal Year 1997 and each Fiscal Year thereafter during the term of this Agreement (except as provided in SECTION 15.2 hereof), including without limitation, Section 4 Net Defaulted Indebtedness arising pursuant to Old Indebtedness, as provided below: (1) MWCC and/or Monogram shall bear [ ]* of the yearly total of Section 4 Net Defaulted Indebtedness from [ ]* through [ ]* of Section 4 Average Indebtedness. *Confidential treatment has been requested with respect to this information. 38 (2) MW shall bear [ ]* of the yearly total of Section 4 Net Defaulted Indebtedness over [ ]* through [ ]* of Section 4 Average Indebtedness; PROVIDED, HOWEVER, that if amounts of Net Designated Incremental Revenues for that Fiscal Year, to the extent available, are applied to reduce amounts otherwise to be borne by MW pursuant to this subsection (as and to the extent provided in SECTION 5.5(10)(b) hereof), the amounts so applied shall be subtracted from the amount of Section 4 Net Defaulted Indebtedness in the [ ]* through [ ]* band and MW shall bear the remaining Section 4 Net Defaulted Indebtedness in this band, if any. (3) MWCC and/or Monogram shall bear [ ]* and MW shall bear [ ]* of the yearly total of Section 4 Net Defaulted Indebtedness over [ ]* and up to and including [ ]* of Section 4 Average Indebtedness; PROVIDED, HOWEVER, that if amounts of Net Designated Incremental Revenues for that Fiscal Year, to the extent available, are applied to reduce amounts otherwise to be borne by each party pursuant to this subsection (as and to the extent provided in SECTION 5.5(10)(b) hereof), the amounts so applied shall be subtracted from the amount of Section 4 Net Defaulted Indebtedness in the [ ]* through [ ]* band to be paid by MWCC and/or Monogram, on the one hand, and MW on the other hand, in this band, if any; and PROVIDED, FURTHER, commencing for Fiscal Year 2004, prior to applying the previous proviso with respect to the application of the amount specified in SECTION 5.5(10(b), the amounts specified under SECTION 5.5(9)(2) hereof shall be applied and MWCC and/or Monogram on the one hand and MW on the other hand shall each bear their remaining shares of Section 4 Net Defaulted Indebtedness after application, if any, of amounts specified under Sections 5.5(9)(2) and SECTION 5.5(10)(b) hereof. An example of this calculation is set forth in SCHEDULE 4.1(3). (4) MWCC and/or Monogram shall bear [ ]* of the yearly total of Section 4 Net Defaulted Indebtedness in excess of [ ]* of Section 4 Average Indebtedness; PROVIDED, HOWEVER, that if amounts of Net Designated Incremental Revenues for that Fiscal Year, to the extent available, are applied to reduce amounts otherwise to be borne by MWCC and/or Monogram pursuant to this subsection, (as and to the extent provided in SECTION 5.5(10)(b) hereof), the amounts so applied shall be subtracted from the amount of Section 4 Net Defaulted Indebtedness in excess of [ ]* and MWCC and/or Monogram shall bear the remaining Section 4 Net Defaulted Indebtedness in this band, if any; PROVIDED, HOWEVER, commencing for Fiscal Year 2004, prior to applying the previous proviso with respect to the application of the amount specified in SECTION 5.5(10)(b), the amounts specified under SECTION 5.5(9)(2) hereof shall be applied. *Confidential treatment has been requested with respect to this information. 39 (5) For the avoidance of doubt, the parties hereby acknowledge that, in applying the provisions hereof: (a) the same Indebtedness may not become Section 4 Net Defaulted Indebtedness more than one time, and (b) any Indebtedness relating to sales by the Signature Companies that meets the definition of Section 4 Net Defaulted Indebtedness shall be included within that definition, whether or not subject to an agreement between (i) the Signature Companies and (ii) MWCC and/or Monogram (unless otherwise provided in that agreement). (6) [SECTION INTENTIONALLY OMITTED]. (7) For the avoidance of doubt, the parties hereby acknowledge that MWCC and MW shall share responsibility for Net Defaulted Indebtedness as defined and specified in the Original Account Purchase Agreement for Fiscal Years through and including Fiscal Year 1995 and, to the extent such amounts with respect to Fiscal Years 1992 through 1995 are part of the Section 4 Net Aggregate Defaulted Indebtedness Amount, such amount will be paid to MWCC in the manner specified in SECTION 4.6 hereof notwithstanding anything to the contrary in the Original Account Purchase Agreement. 4.2. RESPONSIBILITY FOR FISCAL YEAR 1996. For Fiscal Year 1996, MWCC and/or Monogram and MW shall share responsibility for Section 4 Net Defaulted Indebtedness and certain other defaulted indebtedness as set forth on SCHEDULE 4.2 hereto. 4.3. WHEN DETERMINED; PAYMENT. (1) A State-by-State report of the amount of Section 4 Net Defaulted Indebtedness for each Fiscal Year during the term of this Agreement shall be provided by MWCC to MW in writing no later than February 28th of the next Fiscal Year, provided, that for Fiscal Year 1996, MWCC shall provide MW monthly with a State-by-State report of the total amount of Indemnified 1996 Net Defaulted Indebtedness, Indemnified 1996 Starter Card Net Defaulted Indebtedness, Section 4 1996 Net Defaulted Indebtedness and Starter Card Account 1996 Net Defaulted Indebtedness and defaulted indebtedness for the period from January 1, 1996 through the Conversion Date (as calculated under the Original Account Purchase Agreement). An estimate of the total amount of Section 4 Net Defaulted Indebtedness and Section 4 Average Indebtedness for each Fiscal Year shall be provided by MWCC to MW in writing no later than the last day of MW's fiscal year coinciding with such Fiscal Year, provided, that for Fiscal Year 1996, MWCC shall provide MW with an estimate of the total amount of Indemnified 1996 Net Defaulted Indebtedness, Indemnified 1996 Starter Card Net Defaulted Indebtedness, Section 4 1996 Net Defaulted Indebtedness and Starter Card Account 1996 Net Defaulted Indebtedness and defaulted indebtedness for the period 40 from January 1, 1996 through the Conversion Date (as calculated under the Original Account Purchase Agreement), as well as the Total Average Indebtedness, Total Starter Card Accounts Average Indebtedness and average indebtedness for the period from January 1, 1996 through the Conversion Date (as calculated under the Original Account Purchase Agreement). In addition, upon request of MW which may be made once for each Fiscal Year, MWCC shall provide a list by specific Account of each Account comprising the Section 4 Net Defaulted Indebtedness for such Fiscal Year by the January 31st after the close of each Fiscal Year, provided, that, for Fiscal Year 1996, at MW's request made once as to that year, MWCC shall provide by January 31, 1997 a list by specific Account of each Account comprising Indemnified 1996 Net Defaulted Indebtedness, Indemnified 1996 Starter Card Net Defaulted Indebtedness, Section 4 1996 Net Defaulted Indebtedness and Starter Card Account 1996 Net Defaulted Indebtedness and defaulted indebtedness for the period from January 1, 1996 through the Conversion Date (as calculated under the Original Account Purchase Agreement). The amount of Section 4 Net Defaulted Indebtedness and Section 4 Average Indebtedness shall be calculated by MWCC not later than January 31 following the end of the Fiscal Year in question (and the amounts described on SCHEDULE 4.2 shall be calculated no later than January 31, 1997). In connection with each such report and such statement, MWCC shall provide, as reasonably requested by MW, information to MW to assist MW in estimating the amount of Section 4 Net Defaulted Indebtedness (or, for Fiscal Year 1996, the amount of Indemnified 1996 Net Defaulted Indebtedness, Indemnified 1996 Starter Card Net Defaulted Indebtedness, Section 4 1996 Net Defaulted Indebtedness and Starter Card Account 1996 Net Defaulted Indebtedness and defaulted indebtedness for the period from January 1, 1996 through the Conversion Date (as calculated under the Original Account Purchase Agreement) constituting finance charges, insurance charges and other credit charges; provided, that it is understood that MWCC, its Affiliates, the employees, officers, directors, shareholders, partners, attorneys and agents of MWCC and its Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing shall have no liability to MW arising in connection with such information, and MW shall protect, indemnify, and hold harmless MWCC, its Affiliates, the employees, officers, directors, shareholders, partners, attorneys and agents of MWCC and its Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing against any and all liabilities, costs and expenses (including reasonable attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions, or proceedings, by whomsoever asserted, including, without limitation, Cardholders with respect to Accounts, and any Person who prosecutes or defends any actions or proceedings, whether as representative of or on behalf of a class or 41 interested group or otherwise, arising out of, connected with, or resulting from MWCC's provision of such information to MW and/or MW's use thereof in accordance with the provisions of SECTION 11 hereof. (2) Except as otherwise provided, any payment due to MWCC from MW under Section 4 shall be paid by MW, subject to the provisions of SECTION 4.4 and, for Fiscal Year 1996 only, SCHEDULE 4.2 hereto, on the next following February 28 after the delivery of a statement ("Payment Date"). If the final Fiscal Year to which this SECTION 4 applies is a partial Fiscal Year, the calculations hereunder shall not be done for the entire Fiscal Year in question but shall be done for the short stub year utilizing a calculation of Section 4 Average Indebtedness and Section 4 Net Defaulted Indebtedness only for the stub period, and the percentages used in SECTION 4.1 hereof other than [ ]* and [ ]* shall be prorated based on the number of days in the stub period divided by three hundred sixty-five (365). 4.4. MW OBLIGATION. Notwithstanding the foregoing, with respect to obligations of the parties hereto under this SECTION 4 and SCHEDULE 4.2 for Fiscal Year 1996 and Fiscal Year 1997: (1) [SECTION INTENTIONALLY OMITTED]. (2) In the event that MW owes any amounts to MWCC for Fiscal Year 1996 as calculated under SCHEDULE 4.2 hereto, MW may give MWCC the MW 1996 Note. The MW 1996 Note shall be due on February 28, 1998 and shall bear interest from February 28, 1997, at the Monthly Commercial Paper Rate applicable to each Interest Earning Month, plus [ ]*, for the period such note remains unpaid prior to maturity. Accrued interest for each Fiscal Month that such MW 1996 Note is outstanding shall be due on the last day of such Fiscal Month. (3) Except as otherwise permitted in SECTION 4.6, on February 28, 1998, MW shall pay to MWCC the Section 4 Net Aggregate Defaulted Indebtedness Amount, less (i) any amounts, exclusive of interest, previously paid on the Seller Notes, Seller Recourse Notes and MW 1996 Note (the face amounts of the Seller Notes and Seller Recourse Notes are included in such definition), and (ii) the amounts that would be allocated to MW's share of defaulted indebtedness, less starter card defaulted indebtedness if SECTION 5.5(10)(b)(ii) AND (iii) had applied to reduce such defaulted indebtedness during Fiscal Year 1996. (4) Any provisions contained in the Seller Notes and Seller Recourse Notes notwithstanding, for the period commencing with the Interest Earning Month of January 1997, such Seller Notes and Seller Recourse Notes shall bear interest at the *Confidential treatment has been requested with respect to this information. 42 Monthly Commercial Paper Rate applicable to each Interest Earning Month, plus [ ]*, for each month any such note remains unpaid prior to maturity. Accrued interest for each Fiscal Month that such Seller Notes and Seller Recourse Notes are outstanding shall be paid by MW on the last day of each Interest Earning Month, except that the interest accrued in respect of Seller Notes and Seller Recourse Notes commencing on December 24, 1996 through and including January 31, 1997, shall be paid by MW on January 31, 1997. Such payments shall be made by MWCC debiting the MWCC Payment Reserve Account as provided in SECTION 7.1A hereof. MW authorizes MWCC to attach a rider to each Seller Note and Seller Recourse Note stating that the interest terms thereof have been amended as provided in this subsection, which rider MW shall acknowledge in writing at MWCC's request. 4.5. [Section Intentionally Omitted.] 4.6. PAYMENTS RELATED TO NOTES AND OTHER OBLIGATIONS. (1) Except as otherwise permitted in SECTION 4.6(4) below, in the event a payment (whether principal or interest) is not made under one or more of the Seller Notes, Seller Recourse Notes, MW 1996 Note, MW Continuation Note or as otherwise required under SECTIONS 4A, 4.3(2), 4.4(3) AND 4.7 or SCHEDULE 4.2 when due, whether before or after maturity, each such Seller Note, Seller Recourse Note, MW 1996 Note, MW Continuation Note or other unpaid amount shall bear interest at the Default Rate, and the aggregate principal amount of each such Seller Note, Seller Recourse Note, MW 1996 Note, MW Continuation Note or other unpaid amount shall be deemed to be increased monthly by an amount equal to the unpaid interest thereon. (2) With respect to amounts to be paid by MW pursuant to SECTION 4.4(3) hereof, MW shall be entitled to an offset in an amount equal to the Offset Amount. The "Offset Amount" shall be defined as [ ]* (i) increased by the excess of (a) the Aggregate Incremental Revenue Amount over (b) [ ]* or (ii) decreased by the excess of (a) [ ]* over (b) the Aggregate Incremental Revenue Amount. MW shall not be entitled under this SECTION 4.6(2) to any payment from MWCC if the Offset Amount is greater than the amount to be paid by MW to MWCC pursuant to SECTION 4.4(3) hereof, but may be entitled to a payment by MWCC if the condition set forth in SECTION 5.5(4) has been met. An example of payments pursuant to this SECTION 4.6(2) is attached as SCHEDULE 4.6(2) hereto. (3) Notwithstanding the foregoing provisions of SECTION 4.4(3) hereof, to the extent the aggregate outstanding *Confidential treatment has been requested with respect to this information. 43 principal amount of the sum of Seller Notes, Seller Recourse Notes and the MW 1996 Note with respect to any, some or all of Fiscal Years 1991, 1992, 1993, 1994, 1995, and 1996, less the Aggregate Incremental Revenue Amount and less the deduction provided for in SECTION 4.4(3)(ii), would exceed [ ]*, MW shall pay such excess to MWCC in cash on the Payment Date with respect to any such applicable Fiscal Year, and the amount of the MW 1996 Note which would otherwise be required to be given with respect to the Fiscal Year shall be reduced by such amount paid in cash. (4) In lieu of paying some or all amounts due on February 28, 1998, as provided in SECTION 4.4(3) hereof and subject to the offset in SECTION 4.6(2), MW may give, if this Agreement is in effect, MWCC a note (such note being referred to hereinafter as the "MW Continuation Note"), for up to some or all of the amount due but not paid by MW to MWCC in cash, provided, in no event shall the amount of such MW Continuation Note exceed [ ]*. Upon MWCC's receipt of such note and/or cash, in the amount to be paid in SECTION 4.4(3) hereof, subject to the offset in SECTION 4.6(2) hereof, all Seller Notes, Seller Recourse Notes and the MW 1996 Note shall be cancelled. Such MW Continuation Note, as reduced periodically by payments thereon, including those provided for in SECTIONS 4.7(2), 5.5(9) and 5.5(10) hereof, plus accrued but unpaid interest, shall be due in full on February 28, 2003, and shall be in the form attached as SCHEDULE 4.6(4) hereto. The outstanding balance of the MW Continuation Note shall bear interest from February 28, 1998, at the Monthly Commercial Paper Rate applicable to each Interest Earning Month, plus [ ]*, for the period such note remains unpaid prior to maturity. Accrued interest for each Interest Earning Month that such MW Continuation Note is outstanding shall be paid on the last day of each Interest Earning Month. 4.7. MW PAYMENT OF CERTAIN AMOUNTS. (1) On December 23, 1996, MW shall pay to MWCC an amount equal to the difference between (i) the sum of (a) [ ]*, PLUS (b) notwithstanding any provisions of Seller Notes and Seller Recourse Notes to the contrary, accrued interest from and including February 29, 1996 through and including December 23, 1996 in respect of Seller Notes and Seller Recourse Notes and computed at the Fiscal Year 1996 Interest Rate, PLUS (c) interest from and including October 3, 1995 through and including December 23, 1996 on the sum specified in the Letter Agreement, LESS (ii) the sum of (a) the net amount directed to be paid to MWCC in Section 5.5(5) of the Bank Program Agreement, PLUS (b) accrued interest from and including February 29, 1996 through and including December 23, 1996 owed by MWCC in respect of amounts specified in SECTIONS *Confidential treatment has been requested with respect to this information. 44 5.5(2) AND 5.5(3), calculated as provided in SECTION 5.5(7) to the extent applicable to amounts owing prior to December 23, 1996 and computed at the Fiscal Year 1996 Interest Rate, PLUS (c) the amount specified in SECTION 5.5(19)(ii) hereof, PLUS (d) the amount specified in SECTION 5.15(a) AND (b) hereof, PLUS (d) any amounts owed to MW under that certain letter, dated March 29, 1996, from Daniel W. Porter to Bernard F. Brennan. On February 28, 1997, MWCC shall allocate on its books the [ ]* amount specified in subsection (1)(i)(a) of this subsection between the Net 1996 Starter Card Account Loss Amount and Note Repayment of Principal Amount for Fiscal Year 1996 in accordance with the definition of Note Repayment of Principal Amount and the other provisions of this Agreement. The December 23, 1996 payment provided for in this SECTION 4.7(1), when made, shall satisfy (i) MW's interest obligation in respect of Seller Notes and Seller Recourse Notes for Fiscal Year 1996 through December 23, 1996, and (ii) MW's obligation, if any, to make a principal payment in respect of Seller Notes and Seller Recourse Notes for Fiscal Year 1996. (2) Commencing with the end of the Fiscal Month of January, 1997 and the last day of each Fiscal Month thereafter until (i) there is no outstanding balance on the MW Continuation Note or (ii) the last day of the Fiscal Month of December, 2002, MW shall pay to MWCC the Note Repayment of Principal Amount for such Fiscal Month, which payments shall be applied to the applicable notes. During such period as the MWCC Payment Reserve Account is in effect, such payment shall be made by MWCC debiting the MWCC Payment Reserve Account as provided in SECTION 7.1A hereof. 4A. STARTER CARD ACCOUNT DEFAULTED INDEBTEDNESS 4A.1 RESPONSIBILITY. MWCC, Monogram and MW shall share responsibility for Starter Card Account Net Defaulted Indebtedness arising during Fiscal Year 1997 and each Fiscal Year thereafter during the term of this Agreement (except as provided in SECTION 15.2) as follows: (1) The percentage of writeoffs of Indebtedness on Accounts other than Starter Card Accounts for any Fiscal Year (or part thereof), shall be determined by dividing Section 4 Average Indebtedness for that Fiscal Year into the Section 4 Net Defaulted Indebtedness for that Fiscal Year. The percentage of writeoffs of Indebtedness on Starter Card Accounts, for any Fiscal Year (or part thereof), shall be determined by dividing Starter Card Account Average Indebtedness for that Fiscal Year into the Starter Card Account Net Defaulted Indebtedness for that Fiscal Year. 45 (2) If, in any Fiscal Year, [ ]* (3) If, in any Fiscal Year, the percentage of writeoffs of Indebtedness on Starter Card Accounts [ ]*, MW shall bear [ ]* of the following amount: (a) the difference between the [ ]*, each for that Fiscal Year, MULTIPLIED BY Starter Card Account Average Indebtedness for that Fiscal Year. 4A.2 RESPONSIBILITY FOR FISCAL YEAR 1996. For Fiscal Year 1996, MWCC and/or Monogram and MW shall share responsibility for certain losses and defaulted indebtedness relating to Starter Card Accounts as set forth in SCHEDULE 4.2 hereto. 4A.3 WHEN DETERMINED; PAYMENT. MWCC and/or Monogram shall calculate the amounts referred to in SECTION 4A.1 above for each Fiscal Year in the calendar month immediately following the last day of each Fiscal Year. In the event that MW is required to make any payment under SECTION 4A.1(3) for any Fiscal Year, said amount shall be paid within thirty (30) days after MW is notified of the result of the calculations performed by MWCC pursuant to this subsection. During such period as the MWCC Payment Reserve Account is in effect, such payment shall be made by MWCC debiting the MWCC Payment Reserve Account as provided in SECTION 7.1A hereof. 5. SERVICING 5.1. [SECTION INTENTIONALLY OMITTED]. 5.2. MWCC'S RESPONSIBILITIES. During the term of this Agreement, MWCC shall operate (except as may otherwise be explicitly provided herein) credit operations and facilities relating to Non-Converted Accounts and Purchased Monogram Accounts at its sole cost and expense and in a high quality, ethical manner, in such a way as not to disparage or embarrass MW or its name, and, without limiting the generality of the foregoing, with a level of service to both MWCC Cardholders and MW with respect to such Accounts and Indebtedness that is not less than the level of service provided by MWCC to similarly situated Persons and MW prior to the Conversion Date (it being understood that the collection of such Accounts and Indebtedness in accordance with applicable debt collections laws, the sending of adverse action letters, and the legally required or MW *Confidential treatment has been requested with respect to this information. 46 approved (both the substance and the language) changes of terms on such Accounts and Indebtedness to the extent approved by MW pursuant to SECTION 5.2(7) do not disparage or embarrass MW or its name). MWCC's responsibilities with respect to such Accounts and Indebtedness shall include, without limitation, the following, all of which shall be performed by or on behalf of MWCC at its sole cost and expense: (1) In connection with its establishment and servicing of Non-Converted Accounts and Purchased Monogram Accounts other than Section 4 Defaulted Indebtedness, MWCC shall: (i) in performing its duties under this Agreement which require contact with MWCC Cardholders, make the involvement of MWCC, its Affiliates or any other Person acting on MWCC's behalf transparent to MWCC Cardholders to the extent that MWCC reasonably determines that it may properly do so ("Transparent Servicing"); (ii) [Section intentionally omitted]. (iii) [Section intentionally omitted]. (iv) [Section intentionally omitted]. (v) promptly prepare and mail MWCC Billing Statements to MWCC Cardholders in respect of such Accounts and Indebtedness, receive and promptly post payments, and prepare billing and collection forms and such other forms as are required to carry out MWCC's responsibilities pursuant to this Agreement (it being understood and agreed that no finance or other charges, except charges for credit insurance, will accrue on or be posted to, Non-Converted Accounts or Purchased Monogram Accounts). (vi) [Section intentionally omitted]. (2) MWCC shall take reasonable efforts to collect, or cause to be collected, the Non-Converted Indebtedness and Purchased Monogram Indebtedness, including (for the avoidance of doubt) any such Indebtedness written-off by MWCC and, for Fiscal Year 1996 and earlier years, Section 4 Defaulted Indebtedness purchased or to be purchased by MW pursuant to SECTION 4.5 of the Original Account Purchase Agreement or Indemnified 1996 Defaulted Indebtedness or Indemnified 1996 Starter Card Defaulted Indebtedness purchased or to be purchased pursuant to SCHEDULE 4.2 hereto, and in connection therewith, MWCC shall conduct, or 47 cause to be conducted, collection activities in such a manner and use, or cause to be used, such technology as is consistent with the consumer credit collection industry. (3) MWCC shall use its best efforts to design systems to achieve, employ qualified personnel to meet, and otherwise satisfy on average the following standards for credit customer service: (i) adjustment requests shall be handled within one hundred-fifty (150) seconds of the customer's initial telephone contact; (ii) to the extent practicable, remittances received by MWCC shall be processed on the same day; (iii) MWCC Billing Statements shall be mailed within four (4) days after the Billing Date; (iv) credit balances, if any, shall be mailed within three (3) days of a customer's request; (4) [SECTION INTENTIONALLY OMITTED.] (5) [SECTION INTENTIONALLY OMITTED.] (6) MWCC shall promptly advise MW of any complaint or inquiry made by a Cardholder obligated in respect of a Non-Converted Account or a Purchased Monogram Account concerning Merchandise or the service, promotion or delivery thereof if MWCC determines such complaint or inquiry is material. MWCC shall promptly advise MW of any governmental investigation or governmental legal action concerning MWCC's responsibilities under this Agreement. (7) MWCC shall provide MW with change-in-term notices prior to mailing such notices, which notices MW shall have the right to review and approve, but such approval shall not be unreasonably withheld or delayed; it being understood that approval is not required for legally required language and further understood that an inadvertent failure to comply with this provision shall not give rise to a breach of contract by MWCC unless such failure has a material adverse effect on MW. 5.3. MWCC'S LIABILITIES. MWCC may furnish credit information concerning creditworthiness with respect to any Cardholder to any credit bureau, credit interchange or any other Person to whom such information may lawfully be sent for credit evaluation or collection purposes, it being understood that MWCC 48 shall in no event transfer lists of Cardholders for promotional or other use except (a) as specified in SECTION 5.6 hereof and/or (b) for the determination of creditworthiness and to perform merge-purge functions against a list of prospective Cardholders in connection with such determination, and (except as specified in SECTION 5.6 hereof) any such Person to whom information is so provided must execute an agreement providing for confidentiality (including reasonable liquidated damage provisions, which provisions shall initially be based on SCHEDULE 5.3 annexed hereto, which schedule shall be reviewed, and if necessary revised, at each fifth (5th) year anniversary of the date hereof) in which such Person agrees it will not use, or permit any other Person to obtain or use, such information for any use (including promotion) except the determination of creditworthiness, provided any such agreement with a credit bureau need not provide for liquidated damages. Upon request of MW, MWCC shall seed its list of Cardholders with such names and addresses as MW may reasonably request. 5.4. MW'S RESPONSIBILITIES. (1) During the term of this Agreement, MW, at its expense, shall (i) perform, (ii) cause each Authorized Affiliate to perform and (iii) use its best efforts to cause each Authorized Licensee to perform, the following in-store activities: (i) Preparing changes of address for MWCC Cardholders taking requests for adjustments from such Cardholders and promptly forwarding all such information as designated by MWCC. (ii) Assisting MWCC Cardholders in communicating with MWCC through toll-free telephone number facilities maintained in the Stores operated by MW, which shall include providing and maintaining existing types of telecommunication equipment (but not the toll-free number) in the Stores at their expense. Such number may be the same as provided by Monogram pursuant to the Bank Program Agreement. (iii) Except as otherwise directed by MWCC in accordance with SECTION 7.8 hereof or as otherwise agreed to by MW and MWCC, accepting, during the term of this Agreement, MWCC In-Store Payments at Stores designated by MW (if any Stores are so designated), processing such payments, providing receipts to or for such MWCC Cardholders relating to 49 such payments (it being understood that upon request of MWCC said receipts shall indicate that such payments are accepted as a convenience for such MWCC Cardholders by MW as agent for the MWCC Cardholder and are not deemed to be paid until received by MWCC) and transferring said payments to MWCC as provided herein. The foregoing acceptance of payments will initially be processed in the following manner, all of which may be revised by mutual agreement of the parties from time to time: Stores will each Business Day gather all MWCC In-Store Payments made that Business Day (including MWCC In-Store Payments made at unmanned areas designated by Stores as areas where such payments can be made (I.E., lockboxes)). Cash and checks which represent payments on Accounts owned by MWCC may be commingled with normal Store receipts, delivered and deposited into MW's local bank account according to current practices, and thereafter concentrated daily on each Business Day into MW's bank accounts. Any checks returned by a bank ("returned items") will automatically be presented for a second deposit. Checks which are returned by the depository bank to MW or any Store will be batched by MW or the Store and mailed to MW's accounting office. MW's accounting office will maintain a log of the number of returned items and forward those checks each Business Day to MWCC. MW will report the number of MWCC In-Store Payments deposited and the dollar amount of all such payments to MWCC each Business Day. Unless the amounts of MWCC In-Store Payments are applied by MWCC to reduce amounts payable by MWCC to MW, MW will wire transfer immediately available federal funds to MWCC on the Business Day following the deposit in its concentration account the amount of MWCC In-Store Payments so deposited, reduced by the sum of the amount of returned items and the bank fees for returned items. Payments shall not be deemed to be made to MWCC or credited to Accounts until they either are delivered to MWCC or applied by MWCC to reduce amounts payable by MWCC to MW. MW shall promptly furnish to MWCC any documentation relating to MWCC In-Store Payments and bank fees for returned items as from time to time may be 50 requested by MWCC. Notwithstanding the foregoing, it is understood and agreed that MW shall not solicit MWCC Cardholders (or other Persons acting on behalf of MWCC Cardholders) to make MWCC In-Store Payments. It is acknowledged and agreed that each of MW, Authorized Affiliates and Authorized Licensees shall have no right, title or interest in any MWCC In-Store Payments and shall take possession of such payments solely as agent on behalf of MWCC Cardholders for transfer to MWCC. (iv) Continuing to offer assistance to customers requesting assistance resolving credit related problems. (2) MW shall keep (and shall cause Authorized Affiliates and use its best efforts to cause Authorized Licensees to keep), at no expense to MWCC, Charge Slips, Credit Slips and/or copies thereof relating to Non-Converted Accounts or Purchased Monogram Accounts for seven (7) years (two (2) years at Stores and five (5) subsequent years in a central storage location), any or all of which shall be provided to MWCC or its designee at MWCC's request. (3) [Section intentionally omitted]. (4) [Section intentionally omitted]. (5) In no event shall MW be required to repossess or (except to the extent explicitly provided for below) dispose of Merchandise in connection with the collection of Non-Converted Indebtedness or Purchased Monogram Indebtedness (including, without limitation, that in respect of Starter Card Accounts or Marginal Card Accounts). Upon request, MW shall pay (or shall cause the appropriate Authorized Affiliate or Authorized Licensee to pay) MWCC for Merchandise which is tangible personal property which gave rise to Non-Converted Indebtedness or Purchased Monogram Indebtedness, and which was obtained by or at the direction of MWCC and not at the expense of MW, provided such Merchandise shall be limited to those sold in connection with Accounts which are three (3) or more months past due or where the MWCC Cardholder has filed a petition for relief under any law relating to bankruptcy, insolvency or reorganization or relief of debtors. Such payment shall be applied to reduce the Indebtedness in question or shall be deemed to be a Recovery if such Indebtedness was (i) Indemnified 1996 Net Defaulted Indebtedness, (ii) Indemnified 1996 Starter Card Net Defaulted Indebtedness or (iii) Section 4 Net Defaulted Indebtedness purchased by MW under the Original Account Purchase Agreement (as 51 defined therein). MWCC shall, at its sole expense, deliver such Merchandise to locations as from time to time specified by MW. MWCC shall, at its sole expense, deliver such Merchandise to locations as from time to time specified by MW. (i) Upon the MWCC Delivery Date (as defined below), MWCC shall assign, with any required documentation, title to such Merchandise, free and clear of all Liens, to MW, the Authorized Affiliate or the Authorized Licensee (as indicated by MW) unless the Indebtedness was previously purchased by MW, and MW shall (or shall cause the appropriate Authorized Affiliate or Authorized Licensee to) make the required payment to MWCC within thirty (30) days after the MWCC Delivery Date. (ii) Merchandise shall be paid for as follows: MWCC Delivery Date Payment Due MWCC ------------- ---------------------- (Months After Sale) (% of MWCC Cash Price) 0-30 months [ ]* 31 months or more [ ]* The "MWCC Delivery Date" is the date the Merchandise is delivered to MW after repossession or retaking. (iii) For the purposes of this Agreement, "MWCC Cash Price" shall mean the cash price to Cardholders of such Merchandise when sold to the Cardholder, including tax and transportation charges on the original purchase, but excluding any service contracts. Monogram and/or MWCC shall be responsible for any taxes imposed on the sale by MWCC to MW or Authorized Affiliates or Authorized Licensees under this paragraph. (iv) If the balance of the entire Indebtedness in respect of the Account is less than the payment due Monogram or its Affiliate as described in (ii) above, such balance rather than such payment amount, shall be paid by MW or the Authorized Affiliate or Authorized Licensee. 52 (v) MW, Authorized Affiliates and Authorized Licensees shall have no obligation to accept such Merchandise if the amount to be paid to MWCC in (ii) of this subsection, plus any amount paid to Monogram under SECTION 5.4(5) of the Bank Program Agreement during the preceding twelve (12) settlement periods is equal to or exceeds [ ]* of credit sales (net of returns and adjustments) on Accounts during the preceding twelve (12) Settlement Periods, provided that during the first twelve Settlement Periods after the date of this Agreement credit sales (net of returns and adjustments) under the Interim Agreement and Original Account Purchase Agreement may be used for measurement purposes. (vi) Upon request, MW shall, and shall cause its Authorized Affiliates and use best efforts to cause its Authorized Licensees, as applicable, to inform MWCC of the price obtained for such Merchandise and the cost, if any, of storage and sale. (vii) Upon request MW may, if it elects, assist in repossessing or retaking Merchandise. In such event, MWCC shall pay MW [ ]* if the Merchandise is picked up from the MWCC Cardholder and shipped as directed by MWCC and [ ]* if the Merchandise is delivered to a Store and shipped as directed by MWCC. In repossessing Merchandise, MWCC agrees to abide by, and cause others acting for it to abide by, all applicable laws and regulations and to act in a reasonable and ethical manner. All provisions of this SECTION 5.4(5) will at the request of MW or MWCC be reviewed, and revised to the extent agreed, on each two (2) year anniversary of the date hereof. (6) MW shall promptly advise MWCC of any governmental investigation or governmental legal action (a) concerning MW's responsibilities under this Agreement, or (b) which reasonably may affect MWCC, the Program and/or the Accounts and Indebtedness. (7) MW hereby grants to MWCC the exclusive right to collect any Indebtedness purchased by MW under Section 4.5 of the Original Account Purchase Agreement or SCHEDULE 4.2 hereto. Any funds collected from or with respect to Cardholders with respect *Confidential treatment has been requested with respect to this information. 53 to such Indebtedness, without deduction for attorneys fees or other collection costs, shall be deemed "Recoveries". MW shall be obligated to pay any funds it directly receives with respect to Recoveries to MWCC. Recoveries shall be accounted for as specified in SCHEDULE 4.2 hereto and after the term of this Agreement shall be kept by MWCC and MWCC shall continue to have the right to collect with respect to such Indebtedness and keep Recoveries. 5.5. FINANCE AND OTHER CHARGES. (1) Monogram shall be entitled to all finance and other charges on Accounts and Indebtedness owned by Monogram. MWCC shall be entitled to all finance and other charges on Non-Converted Accounts and Purchased Monogram Accounts. MW shall receive no benefit from revenue from finance charge assessments against Cardholders on Indebtedness owned by Monogram and/or MWCC, but MW shall receive from MWCC the benefits otherwise provided for in this SECTION 5.5 hereof during the term of this Agreement or as may otherwise be provided in SECTION 15.2 hereof. It is understood and agreed that, notwithstanding any provisions to the contrary contained herein or in the Bank Program Agreement, no finance and/or other charges, except charges for credit insurance, should be assessed on or posted to Purchased Monogram Accounts or Non-Converted Accounts. If charges for credit insurance are assessed on or posted to Non-Converted Accounts or Purchased Monogram Accounts and the amounts thereof are paid to the Signature Companies, the Signature Companies shall reimburse MWCC for such amounts if not paid by the date such Non-Converted Accounts or Purchased Monogram Accounts are written off by MWCC under MWCC's Accounting Practices in conformity with the letter agreement between the Signature Companies and MWCC of even date herewith. (2) With respect to each of the Fiscal Years 1992, 1993, 1994 and 1995 with respect to the States of Florida, Texas and Washington, MWCC shall owe MW, on February 28, 1998 (I) [ ]* of (II) the amount calculated under Section 5.5(5)(II) of the Original Account Purchase Agreement; PROVIDED, HOWEVER, that in the event there still is a balance owed by MW in respect of the Seller Notes, Seller Recourse Notes or MW 1996 Note, the amount owed to MW under this subsection shall be applied against said notes before determining the amount of the MW Continuation Note (or, if MW determines to make a cash payment, the amount of such cash payment). The amounts to be applied to the Seller Notes and/or Seller Recourse Notes for Fiscal Years 1992, 1993, 1994 and 1995 were (subject to certain off-sets in 1994 and 1995) calculated pursuant to the Original Account Purchase Agreement and are set forth on SCHEDULE 5.5(2) hereto. *Confidential treatment has been requested with respect to this information. 54 (3) On February 28, 1998, MWCC shall pay to MW an amount equal to the sum of: (i) (a) incremental late fees with respect to the increase in late fees in October 1995 owed to MW for Fiscal Year 1995 and (b) for Fiscal Year 1996 prior to May 1, 1996 incremental late fees with respect to the increase in late fees in February 1995 and October 1995, (ii) incremental revenues owed to MW relating to increased finance charges in specified states for Fiscal Year 1996 prior to May 1, 1996, and (iii) the [ ]* owed to MW with respect to contemplated nominal finance charge rate increases for Fiscal Year 1995; PROVIDED, HOWEVER, that in the event there still is a balance owed by MW in respect of the Seller Notes, Seller Recourse Notes or MW 1996 Note, said amount shall be applied against said notes before determining the amount of the MW Continuation Note (or, if MW determines to make a cash payment, the amount of such cash payment). Such amount to be applied to the Seller Notes, Seller Recourse Notes and/or MW 1996 Note for Fiscal Year 1995 and Fiscal Year 1996 prior to May 1, 1996 shall be calculated pursuant to the Original Account Purchase Agreement. (4) If the Aggregate Incremental Revenue Amount exceeds the Section 4 Net Aggregate Defaulted Indebtedness Amount (after deducting the amounts provided for in SECTION 4.4(3)), MWCC shall pay such excess to MW on February 28, 1998. Except with respect to the provisions of SECTION 5.5(7), MW shall not otherwise be entitled to any payments or credits from MWCC with respect to the Aggregate Incremental Revenue Amount. MW shall not be entitled to any payments or credits from MWCC with respect to the Aggregate Participation in Finance Charge Amount (as specified in the Original Account Purchase Agreement), since such applicable year's Aggregate Participation in Finance Charge Amount was netted in determining the Seller Recourse Notes for 1994 and 1995. (5) [Section Intentionally Omitted.] (6) With respect to Fiscal Year 1996 commencing May 1, 1996, MWCC shall calculate, on or before February 28 of Fiscal Year 1997 (or, if this Agreement terminates during 1996, within two (2) months after termination), the following amounts, if any: (a) the Incremental Yield Amount for Fiscal Year 1996; (b) Gross Designated Incremental Revenues for Fiscal Year 1996; and (c) MW's Share of Late Fees for Fiscal Year 1996. *Confidential treatment has been requested with respect to this information. 55 (7) Amounts specified or calculated under SECTIONS 5.5(2), 5.5(3), and 5.5(9) hereto for one or more of Fiscal Years 1992, 1993, 1994, 1995 and 1996, and the MW Share of Remaining Amount for Fiscal Year 1996 (each such specified year being referred to as a "Triggering Year") shall bear interest from the February 28 following the Trigger Year (E.G., amounts for Fiscal Year 1992 shall bear interest from February 28, 1993) at the Annual Commercial Paper Rate applicable to each Annual Interest Earning Year, [ ]* per annum, for the period such amount remains unpaid prior to the date when due, provided that for the period from December 24, 1996 through February 28, 1998, interest shall be calculated each calendar month at the Monthly Commercial Paper Rate applicable to each Interest Earning Month, [ ]*, for the period such amount remains unpaid prior to the date when due. Notwithstanding the foregoing, the principal amount on which interest shall accrue shall be decreased on the occurrence of any MWCC Pre-Conversion Payment Date by an amount equal to the amount of any MW Pre-Conversion Refund Amount arising in connection with such MWCC Pre-Conversion Payment Date. Accrued interest through February 28, 1996 has been paid by MWCC and accrued interest shall be paid by MWCC on December 23, 1996 pursuant to Section 4.7(1)(ii)(b) for the period from February 28, 1996 through December 23, 1996. On January 31, 1997, MWCC shall pay accrued interest from December 24, 1996 through January 31, 1997. Thereafter through February 28, 1998, MWCC shall pay accrued interest on the last day of each Interest Earning Month. (8) With respect to Fiscal Year 1997 and each Fiscal Year thereafter, MWCC shall calculate, on or before February 28 of the following Fiscal Year (or, if this Agreement terminates in any such Fiscal Year, within two (2) months after termination), the following amounts, if any: (a) the Incremental Yield Amount for the Fiscal Year in question; (b) the Gross Designated Incremental Revenues for the Fiscal Year in question; and (c) MW's Share of Late Fees for the Fiscal Year in question. (9) On February 28, 1998 and each February 28 thereafter (or, if this Agreement terminates, within two (2) months after termination), MWCC shall pay to MW (i) [ ]* of the Incremental Yield Amount for the immediately preceding Fiscal Year or partial Fiscal Year (the "MW Share of Incremental Yield Amount") and (ii) the MW Share of Late Fees for the immediately preceding Fiscal Year or partial Fiscal Year; PROVIDED, HOWEVER, that on February 28, 1998, MWCC shall *Confidential treatment has been requested with respect to this information. 56 calculate such sums for that portion of Fiscal Year 1996 commencing with May 1, 1996 in the same manner specified in the preceding portion of this subsection and full Fiscal Year 1997 and pay such sums by applying such sums to the Seller Notes, Seller Recourse Notes and MW 1996 Note before determining the amount of the MW Continuation Note (or, if MW determines to make a cash payment, the amount of such cash payment); and PROVIDED FURTHER that (1) in the event that there still is a balance owed by MW in respect of the MW Continuation Note in any Fiscal Year beginning with Fiscal Year 1998, the MW Share of Incremental Yield Amount and the MW Share of Late Fees instead shall be applied against said balance until such time that said balance has been paid in full and (2) commencing Fiscal Year 2004, in the event that Section 4 Net Defaulted Indebtedness is over [ ]* of Section 4 Average Indebtedness (before applying any amounts under Section 5.5(10)(b)), the amount owed to MW for any such Fiscal Year shall be reduced by an amount equal to the sum of (x) [ ]* of the amount by which Section 4 Net Defaulted Indebtedness exceeds [ ]* of Section 4 Average Indebtedness but is less than or equal to [ ]* of Section 4 Average Indebtedness, PLUS (y) the amount by which Section 4 Net Defaulted Indebtedness exceeds [ ]* of Section 4 Average Indebtedness (it being understood that the amount of any such reduction shall not exceed amounts otherwise to be received by MW under this SECTION 5.5(9) during the relevant Fiscal Year). In respect of a partial Fiscal Year, the calculation of Section 4 Average Indebtedness and Section 4 Net Defaulted Indebtedness shall be only for the partial Fiscal Year, and the [ ]* and the [ ]* referred to in Section 5.5(9)(2) above shall be prorated based on the number of days in the partial Fiscal Years, divided by three hundred sixty-five (365). (10) On February 28, 1998 and each February 28 thereafter (or, if this Agreement terminates, within two (2) months after termination), MWCC shall: (a) determine the Net Designated Incremental Revenues for the immediately preceding Fiscal Year by deducting amounts from Gross Designated Incremental Revenues and reimbursing the parties in the following manner (provided that, on February 28, 1998, MWCC shall determine such sum by making such deductions and reimbursements for Fiscal Year 1996 commencing May 1, 1996, and full Fiscal Year 1997): (i) in the event that Gross Designated Incremental Revenues equal or exceed the sum of Accrued Conversion Expenses, Accrued Ongoing Incremental Expenses, Accrued MW Monthly Payment Amounts and Accrued Net Litigation Expenses, such expenses shall be deducted and *Confidential treatment has been requested with respect to this information. 57 reimbursed to the appropriate party and the Net Designated Incremental Revenues shall be applied as set forth in (b) below; (ii) in the event that Gross Designated Incremental Revenues are less than the sum of Accrued Conversion Expenses, Accrued Ongoing Incremental Expenses, Accrued MW Monthly Payment Amounts and Accrued Net Litigation Expenses, such expenses shall be deducted and reimbursed, to the extent possible, in the following order to the extent available: (1) MWCC and MW each shall receive reimbursement for Accrued Conversion Expenses, if any, in proportion to the amount each of MWCC and MW is owed on such date (I.E., if MWCC is then owed 85% of outstanding Accrued Conversion Expenses, it would receive 85% of any application under this subsection); (2) MWCC and MW each shall receive reimbursement for Accrued Ongoing Incremental Expenses, if any, in proportion to the amount each of MWCC and MW is owed on such date (I.E., if MWCC is then owed 65% of, outstanding Accrued Ongoing Incremental Expenses, it would receive 65% of any application under this subsection); (3) MWCC shall receive reimbursement for Accrued MW Monthly Payment Amounts, if any; and (4) MWCC and MW each shall receive reimbursement for Accrued Net Litigation Expenses, if any, in proportion to the amount each of MWCC and MW is owed on such date (I.E., if MWCC is then owed 85% of outstanding Accrued Net Litigation Expenses, it would receive 85% of any application under this subsection); (b) allocate and apply such Net Designated Incremental Revenues for the immediately preceding Fiscal Year in the following order (provided that, on February 28, 1998, MWCC 58 shall allocate and apply such sum for the entire Fiscal Year 1996(1) and full Fiscal Year 1997 in the following order): (i) to amounts for which MWCC and/or Monogram is responsible under SECTION 4.1(4) for said Fiscal Year, if any (it being understood that any amounts not covered by said application shall be borne entirely by MWCC and/or Monogram after application, if any, of amounts specified under SECTION 5.5(9)(2) hereof); (ii) pro rata to amounts for which MWCC and/or Monogram, on the one hand, and MW, on the other hand, are responsible under SECTION 4.1(3) for said Fiscal Year, if any, after application, if any, of amounts specified under SECTION 5.5(9)(2) hereof); (iii) to amounts for which MW is responsible under SECTION 4.1(2) for said Fiscal Year, if any (it being understood that any amounts not covered by said allocation shall be borne entirely by MW); and (iv) to the outstanding balance of the MW Continuation Note, if any, after deduction of any other amounts to be applied to such MW Continuation Note under this Agreement for such Fiscal Year. In the event that, if for any Fiscal Year, any amounts remain after the aforestated application of Net Designated Incremental Revenues (the "Remaining Amounts"), MWCC shall pay to MW on February 28 of the following year an amount equal to the product of (x) the Remaining Amounts, MULTIPLIED BY (y) [ ]* ("MW Share of Remaining Amount"). Any Remaining Amounts other than the MW Share of Remaining Amount shall be retained by and be the property of MWCC. - - - ----------------------- 1. In applying this subsection (b), adjustments will be made such that the Net Designated Incremental Revenues during Fiscal Year 1996 shall be applied to reduce defaulted indebtedness during that entire year, other than Starter Card defaulted indebtedness. *Confidential treatment has been requested with respect to this information. 59 (11)(i) In the event that any legal proceeding shall be instituted, or any claim or demand shall be made by any Person asserting that (x) one or more increases in nominal finance charge rates on accounts made by MWCC pursuant to the Fifth Amendment to the Original Account Purchase Agreement, dated May 23, 1992 (including the increase in October of 1995), or the manner in which such increases were applied to accounts thereunder are not in compliance with applicable law (each a "Pre-Conversion Asserted Claim"), or (y) (i) any increase(s) by Monogram and/or MWCC in nominal finance charge rates or late fee amounts on Accounts (including Old Accounts) from the nominal finance charge rates or the late fee amounts in effect immediately prior to the Conversion Date and (ii) late fee increases by MWCC in October, 1995 or the manner in which either such increases were applied by Monogram to Accounts (including Old Accounts) are not in compliance with applicable law (each a "Post-Conversion Asserted Claim"), Monogram and/or MWCC shall, at its own expense, by counsel of its choice, defend against, negotiate, settle, and/or otherwise deal with, such Asserted Claims. MW shall promptly notify Monogram and MWCC in writing of any Asserted Claims of which it has knowledge. MWCC agrees to protect, indemnify, and hold harmless MW, its Affiliates, the employees, officers, directors, shareholders, partners, attorneys and agents of MW and its Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing against any and all liabilities, costs and expenses (including reasonable attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions, or proceedings, by whomsoever asserted, including, without limitation, Cardholders with respect to Accounts, and any Person who prosecutes or defends any actions or proceedings, whether as representative of or on behalf of a class or interested group or otherwise, arising out of, connected with, or resulting from, such Asserted Claims; PROVIDED, that MWCC's obligations to so protect, indemnify and hold harmless shall be decreased by the amount of MW Pre-Conversion Refund Amounts payable by or allocable to MW pursuant to this SECTION 5.5(11); and PROVIDED, FURTHER, that in no event shall MWCC's obligation to so protect, indemnify and/or hold harmless include consequential damages to MW arising out of, connected with, or resulting from, such Asserted Claims. Consequential damages shall include, but not be limited to, damages to MW's reputation, lost sales and expenses resulting from time spent dealing with the Asserted Claims. Nothing in this SECTION 5.5(11)(i) shall be deemed to prevent MW from retaining counsel of its choice, at its own expense, in order to monitor proceedings taking place in connection with Asserted Claims. MWCC shall keep MW advised as to the status of the matter after such notification or if such Asserted Claim has otherwise come to the attention of MWCC's legal department. The parties hereto shall cooperate fully with the defense, negotiation and/or settlement of such Asserted 60 Claim. It is understood that, for purposes of the rest of this subsection (11), reference to actions by "Monogram and/or MWCC" shall be deemed to be references to MWCC, to the extent the Asserted Claim at issue is described in subsection (x) above, and to Monogram, to the extent the Asserted Claim at issue is described in subsection (y) above. (ii (a) Monogram and/or MWCC shall have the sole right to determine the advisability of and to implement any refunds, other payments, decreases in nominal finance charge rates and late fee amounts, and/or other corrective action with respect to Accounts for claims under subsection (i) PROVIDED, that Monogram and/or MWCC shall exercise such right only if Monogram and/or MWCC reasonably believes such action is necessary or advisable to cause nominal finance charge rates or late fee amounts to comply with applicable law or to settle, avoid, minimize or mitigate any actual or potential Asserted Claim. Monogram and/or MWCC shall also have the sole right to determine the advisability of and to implement settlements, irrespective of whether litigation has been instituted, and/or appeals with respect to Asserted Claims. (b) Prior to the implementation of any such refund, other payment, decrease, settlement, corrective action and/or decision not to appeal (and consequently to pay any judgment) with respect to which the actual and potential financial cost to MW pursuant to this SECTION 5.5(11) is reasonably calculated by Monogram and/or MWCC to exceed [ ]*, Monogram and/or MWCC shall consult with, at MW's option, the Marketing Committee or the Board of Directors of MW (or successor thereof), which applicable body shall meet with MWCC regarding such matter on an emergency basis; PROVIDED, that such meeting shall be scheduled at such time so as to not potentially jeopardize the benefit which Monogram and/or MWCC wishes to gain by implementing the action Monogram and/or MWCC has decided to take. At such meeting, Monogram and/or MWCC shall inform MW of (I) the estimated financial impact of such refund, other payment, decrease, settlement, corrective action and/or decision not to appeal on MW, (II) the factors, options and reasons Monogram and/or MWCC considered (including the estimated financial impact on MW), and (III) the identity of the attorneys whose advice Monogram and/or MWCC relied upon in reaching its conclusions. Monogram and/or MWCC shall cooperate with MW in order that MW may receive advice on the matter from such attorneys. (c) After the meeting described in SECTION 5.5(11)(ii)(b) above, MW shall have a reasonable period of time, based on the circumstances, to consider and propose to Monogram and/or MWCC for its/their consideration options other than the action that Monogram and/or MWCC has decided to take; PROVIDED, *Confidential treatment has been requested with respect to this information. 61 that such period shall be limited to a period of time which would not potentially jeopardize the benefit which Monogram and/or MWCC wishes to gain by implementing the action which Monogram and/or MWCC has decided to take. (iii)(a) In the event that MWCC takes any action pursuant to the provisions of Section 5.5(11)(i) and/or (ii) above, and as a result refunds, pays amounts or incurs expenses with respect to a State as to a Pre-Conversion Asserted Claim (other than refunds, payments or expenses wholly due to MWCC's negligence in connection with the manner in which any such increases were implemented), MW shall, subject to the terms of this SECTION 5.5(11), be allocated a portion ("MW Pre-Conversion Refund Amount") of such amounts equal to any such amounts paid or refunded by MWCC, multiplied by: (x) the sum of amounts calculated under Sections 5.5(2), 5.5(3)(ii), and 5.5(9)(i) for such State, for all or part of the Fiscal Years prior to the time when such refund or payment is paid by MWCC ("MWCC Pre-Conversion Payment Date"),(2) divided by (y) the sum of (i) [ ]* for the State of Texas, [ ]*, [ ]* for the State of Florida, and [ ]*, [ ]* for the State of Washington, PLUS (ii) for each Fiscal Year commencing with that portion of Fiscal Year 1996 aFter May 1, 1996, the Incremental Yield Amount for such State for all or part of such Fiscal Years prior to the MWCC Pre-Conversion Payment Date. (b) With respect to MW Pre-Conversion Refund Amounts as to which an MWCC Pre-Conversion Payment Date occurs on or prior to February 28, 1998, MWCC shall decrease the Aggregate - - - --------------------- 2. With respect to Fiscal Years beginning in Fiscal Year 2004, in computing amounts for a particular State in respect of Section 5.5(9)(i) under subsection (x) above, and Section 5.5(11)(d) below, the amount to be subtracted pursuant to Section 5.5(9)(2) shall be (i) the total amount subtracted pursuant to Section 5.5(9)(2) for such Fiscal Year, multiplied by (ii) a fraction, the numerator of which is [ ]* of the Incremental Yield Amount for the State in question for the Fiscal Year in question, and the denominator of which is [ ]* of the Incremental Yield Amount for all States for the Fiscal Year in question. *Confidential treatment has been requested with respect to this information. 62 Incremental Revenue Amount by an amount equal to the MW Pre-Conversion Refund Amounts in question, and the interest owed by MWCC pursuant to SECTION 5.5(7) hereof shall be adjusted at such time as provided in such Section, and upon such decreases in the Aggregate Incremental Revenue Amount, MW shall be deemed to have satisfied such MW Pre-Conversion Refund Amounts to the extent subtracted from the Aggregate Incremental Revenue Amount. With respect to MW Pre-Conversion Refund Amounts as to which a MWCC Pre-Conversion Payment Date occurs thereafter, MW shall pay to MWCC such MW Pre-Conversion Refund Amounts; PROVIDED, that in the event that MWCC owes any amounts to MW at the time of such MWCC Pre-Conversion Payment Date pursuant to SECTIONS 5.5(2), (3)(ii) AND/OR (9)(i) hereof, MWCC shall reduce the amount so owed by the amounts of the MW Pre-Conversion Refund Amounts in question, and to the extent MW Pre-Conversion Refund Amounts are owed to MWCC in excess of such unpaid amounts, MW shall pay such additional MW Pre-Conversion Refund Amounts to MWCC in cash; PROVIDED, FURTHER, that to the extent MW does not pay any one or more MW Pre-Conversion Refund Amounts, MWCC may deduct amounts equal to such unpaid MW Pre-Conversion Refund Amounts from amounts due to MW pursuant to SECTIONS 5.5(2), (3)(ii) AND/OR (9)(i) hereof; and PROVIDED, FURTHER, that with respect to the Fiscal Year in which the MWCC Pre-Conversion Payment Date occurs, the MW Pre-Conversion Refund Amount for the expired portion of such Fiscal Year shall be deducted from amounts owing from MWCC to MW pursuant to SECTIONS 5.5(2), (3)(ii) AND/OR (9)(i) hereof, as applicable, for such Fiscal Year. Wherever there is a reference in this subsection to MW Pre-Conversion Refund Amounts such reference will mean such amount subject to the limit on MW's liability therefor as provided in Section 5.5(11)(iii)(d). (c) In the event and to the extent that payments to be made by MW or deductions to be taken from the Aggregate Incremental Revenue Amount pursuant to this SECTION 5.5(11) are in connection with Accounts constituting Section 4 Net Defaulted Indebtedness or Starter Card Account Net Defaulted Indebtedness, appropriate adjustments, if any, shall be made to the calculation of such payments and deductions such that MW shall not be required to pay or incur liability in connection with such amounts twice. (d) In no event shall MW's liability under this Section 5.5(11) for a State with respect to which an increase was made in respect of Pre-Conversion Asserted Claims exceed the aggregate amounts owed, paid or payable for such Fiscal Years or a portion thereof occurring prior to the MWCC Pre-Conversion Payment Date in question for such State by MWCC to MW pursuant to Sections 5.5(2), (3)(ii) and/or (9)(i), less the amount of all prior MW Pre-Conversion Refund Amounts for such State. 63 (e) Notwithstanding any other provision of this SECTION 5.5(11), MW agrees to protect, indemnify, and hold harmless Monogram, MWCC and their Affiliates, the employees, officers, directors, shareholders, partners, attorneys and agents of Monogram, MWCC and their Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing against any and all liabilities, costs and expenses (including reasonable attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions, or proceedings, by whomsoever asserted, including, without limitation, Cardholders with respect to Accounts, and any Person who prosecutes or defends any actions or proceedings, whether as representative of or on behalf of a class or interested group or otherwise, arising out of, connected with, or resulting from, a claim relating to increases in late fees made by MWCC in February of 1995; PROVIDED, that in no event shall MW's obligation to so protect, indemnify and/or hold harmless include consequential damages to MWCC arising out of, connected with, or resulting from, such claims. Consequential damages shall include, but not be limited to, damages to MWCC's reputation, lost sales and expenses resulting from time spent dealing with the Asserted Claims. Nothing in this subsection shall be deemed to prevent MWCC from retaining counsel of its choice, at its own expense, in order to monitor proceedings taking place in connection with such claims. MW shall keep MWCC advised as to the status of the matter after such notification or if such claims have otherwise come to the attention of MWCC's legal department. The parties hereto shall cooperate fully with the defense, negotiation and/or settlement of such claim. The procedure relating to this indemnification shall be similar to those set forth in Section 5.5(11)(ii) taking into account the fact that MW is the indemnitor. (iv) In the event that Monogram takes any action pursuant to the provisions of SECTION 5.5(11)(i) AND/OR (ii) above, and as a result refunds, pays amounts or incurs expenses with respect to a Post-Conversion Asserted Claim, MWCC shall be reimbursed for amounts paid in respect of Post-Conversion Asserted Claims as provided in SECTION 5.5(10)(a). (v) [SECTION INTENTIONALLY OMITTED]. (vi) [SECTION INTENTIONALLY OMITTED]. (vii) [SECTION INTENTIONALLY OMITTED]. (viii) [SECTION INTENTIONALLY OMITTED]. (ix) The provisions of this SECTION 5.5(11) shall survive the expiration or prior termination of this Agreement 64 with respect to all Pre-Conversion Asserted Claims that may be filed after termination. (12) [SECTION INTENTIONALLY OMITTED]. (13) In the event a payment is not made of any amount due pursuant to SECTIONS 5.5(2), (3), (4), (7), (9), (10) and/or (11) hereof when due, such amount shall bear annual interest at the Default Rate, and the aggregate principal amount shall be deemed to be increased monthly by an amount equal to the unpaid interest. (14) An example of payments pursuant to this SECTION 5.5(1) through 5.5(13) is attached as SCHEDULE 5.5(14) hereto. (15) MWCC shall owe MW on February 28, 1998 for Fiscal Year 1996 the amounts specified on SCHEDULE 5.5(15) hereto. The amounts owed by MWCC under SCHEDULE 5.5(15) will be satisfied by applying such amount in determining the amount of the MW 1996 Note pursuant to SCHEDULE 4.2 hereto. (16) [Section intentionally omitted.] (17) [Section intentionally omitted.] (18) Notwithstanding anything otherwise provided in this Agreement, all obligations due one party by another on the same day shall be netted or otherwise offset against each other, provided however that such netting is not intended to affect the accrual of interest with respect to obligations of the parties hereto. After giving effect to such netting or offset calculation, the resulting net amount (the "Net Amount") shall be paid by the party responsible therefor when due. The parties expressly understand, acknowledge and agree that neither party hereto shall be obligated at any point in time (whether on a Payment Date, upon an acceleration or any other date on which a payment is due) to make any payment in respect of any such Sections until a netting or offset calculation as described above is given effect such that only the Net Amount shall be due and payable. (19) (i) MWCC and MW each shall pay its own Conversion Expenses when incurred, provided that, if this Agreement terminates and MW exercises its options under Section 15.2(2)(i)(A) or (B) of the Bank Program Agreement, the parties shall share equally the total amount of Accrued Conversion Expenses not deducted from positive amounts of Gross Designated Incremental Revenues prior to termination by making appropriate payments to each other. (ii) MWCC shall pay MW, on December 23, 1996, the amount of Conversion Expenses incurred by MW on or before December 23, 1996 by netting such amount from obligations 65 owed by MW in accordance with SECTION 4.7 hereof. (iii) On January 31, 1997, MWCC shall pay to MW the amount of Conversion Expenses incurred by MW from December 24, 1996 through and including December 31, 1996. It is understood and agreed that, for purposes of this Agreement, MWCC shall be deemed to have borne (a) its Conversion Expenses, (b) the Conversion Expenses borne by Monogram and/or its servicer, (c) any amounts paid to MW on December 23, 1996 as specified in this subsection in accordance with SECTION 4.7 hereof, and (d) any amounts paid to MW on January 31, 1997 under this subsection. (20) (i) MWCC and MW each shall pay its own Ongoing Incremental Expenses when incurred, provided that, if this Agreement terminates and MW exercises its rights under Section 15.2(2)(i)(A) or (B) of the Bank Program Agreement, the parties shall share equally the total amount of Accrued Ongoing Incremental Expenses not deducted from positive amounts of Gross Designated Incremental Revenues prior to termination by making appropriate payments to each other. (ii) MWCC shall pay MW on February 28, 1997 the Ongoing Incremental Expenses incurred by MW in Fiscal Year 1996. It is understood and agreed that, for purposes of this Agreement, MWCC shall be deemed to have borne (i) its Ongoing Incremental Expenses, (ii) the Ongoing Incremental Expenses borne by Monogram and/or its servicer, and (iii) any amounts paid to MW on February 28, 1997 as specified in this subsection. (21) MW shall pay to MWCC upon termination of this Agreement the Accrued MW Monthly Payment Amounts to the extent not deducted from positive amounts of Gross Designated Incremental Revenues for the Fiscal Year in which termination occurred or prior Fiscal Years. (22) Unless expressly provided to the contrary herein, the provisions of this Section 5.5 shall apply only during the term of this Agreement. 5.6. USE OF MWCC CUSTOMER LIST. (1) MW acknowledges and agrees that MWCC is the sole and exclusive owner of the MWCC Customer List. MWCC hereby grants to MW for the term of this Agreement an exclusive and royalty-free license to use (or sublicense or assign the right to use) the MWCC Customer List for all purposes, including, for advertisement, solicitations or other marketing efforts, regardless of the manner or media through which the marketing effort is made, and regardless of whether the product or service has previously been marketed by MW, except that MWCC shall have the exclusive right (even as to MW) to use the MWCC Customer List: (i) to operate the Program in accordance with this Agreement and any related agreement entered into by MW and MWCC 66 or an Affiliate of MWCC; (ii) to exercise its rights to use the MWCC Customer List upon termination of this Agreement to the extent specifically provided in this Agreement; and (iii) upon the occurrence of a Triggering Signature Acquisition and thereafter, to grant to the Signature Companies the exclusive rights specified in the MWCC Signature License during the term of the MWCC Signature License. In connection with MW's exercise of the rights granted under the preceding sentence, MW shall: (a) fulfill its obligations under SECTION 17.12 hereof; (b) sell (or cause the sales of) credit insurance on Accounts to the extent legally permissible and customary in the retail industry; (c) with respect to credit insurance and any other insurance marketed by MW or its designee(s) and charged on or offered in connection with Accounts, ensure that (i) any insurer selected by MW and/or its designee after the Conversion Date is reasonably acceptable to MWCC with regard to service and financial soundness (it being understood that the Signature Companies shall be presumed to be reasonably acceptable to MWCC at all time such companies are Affiliates of MW or MWCC), (ii) any fees for servicing paid to MWCC in connection with insurance are reasonably acceptable to MWCC, and (iii) any changes in the type of credit insurance products offered after the Conversion Date are reasonably acceptable to MWCC (except that widely sold credit insurance products shall be deemed acceptable to MWCC); and (d) not use, or allow any other Person to use, the MWCC Customer List directly or indirectly to provide any consumer or commercial financing programs for the retail sale of goods and/or services at Stores (including credit, debit or charge card programs), whether operated in-house by MW or in connection with an outside Person, provided that, subject to the MWCC Signature License and Monogram's rights under SECTION 5.13 of the Bank Program Agreement, (i) MW may 67 use that portion of the MWCC Customer List comprising Persons who applied for Accounts and were rejected to provide any closed end consumer or commercial financing programs for the retail sale of goods and/or services at Stores; and (ii) MW may use the MWCC Customer List in connection with the Existing Programs defined and described in SECTION 5.13(2)(b) AND (c) of the Bank Program Agreement and, with the consent of MWCC or its Affiliate (as appropriate), SECTION 5.13(2)(a) of the Bank Program Agreement. (2) [Section intentionally omitted.] (3) MWCC shall provide the MWCC Customer List to MW hereunder in the same manner, and to the same extent, as lists of cardholders were provided to MW by MWCC prior to the Conversion Date. (4) MWCC shall enforce its rights under the MWCC Signature License at all times such license is in effect. 5.7. MWCC'S RECORDS. As part of Monogram's servicing activities, MWCC and its assignees may store MWCC Account Documentation on microfilm or other media and MWCC and its assignees may, in the normal course of its business, destroy MWCC Account Documentation once such MWCC Account Documentation has been microfilmed or otherwise recorded. 5.8. REPRESENTATIVES. During the term of this Agreement, senior management officers of MW shall have the right to make inspections of credit facilities used by MWCC to service Non-Converted Accounts and/or Purchased Monogram Accounts during normal business hours with reasonable advance notice to MWCC. 5.9. [SECTION INTENTIONALLY OMITTED]. 5.10. RIGHT TO CONTRACT. In addition to the rights of assignment as set forth in SECTION 17.1, and subject to the limitations set forth in SECTION 17.1, MWCC may delegate its obligations under this SECTION 5 to any Affiliate of MWCC, provided (a) such delegation shall in no way release or affect the liability and obligation of MWCC and the guarantor to perform MWCC's obligations under this Agreement, (b) such delegation preserves Transparent Servicing to the public, and (c) the delegatee shall assume MWCC's obligations under this Agreement so delegated, and shall be jointly and severally liable with MWCC for such obligations, which assumption shall occur automatically 68 upon such delegation. Notwithstanding the foregoing, in no event shall MWCC delegate any of its obligations under this Agreement to, or permit such obligations to be performed by, a Competitor, except to the extent permitted by SECTION 15.2(6) or 17.1(3). 5.11. [SECTION INTENTIONALLY OMITTED]. 5.12. [SECTION INTENTIONALLY OMITTED]. 5.13. [SECTION INTENTIONALLY OMITTED]. 5.14. DIVESTITURE/STORE CLOSINGS. (1) Without limiting the generality of Section 17.1(2), it is agreed that in the event that Monogram exercises its rights under SECTION 5.14(3)(iii) of the Bank Program Agreement and requires MW to purchase certain Accounts and related Indebtedness thereunder (but does not terminate the Bank Program Agreement), MW (or its designee) simultaneously shall purchase from MWCC, and MWCC shall sell, (i) any Participated Monogram Indebtedness related to such Accounts, (ii) Non-Converted Accounts, Non-Converted Indebtedness, Purchased Monogram Accounts, and Purchased Monogram Indebtedness that would have qualified as Divestiture-Related Accounts and Indebtedness thereon to be so purchased if they were owned by Monogram (as defined in and determined with respect to geographic limitations and use at retail Store locations in accordance with the Bank Program Agreement and as though Monogram followed MWCC's Accounting Practices), and (iii) subject to the MWCC Signature License, such portion of the MWCC Customer List relating to the Accounts and Indebtedness so purchased, all for the Divesture-Related Indebtedness Purchase Price. (2) If the Bank Program Agreement terminates pursuant to SECTION 5.14(3)(iii) thereof because the Aggregate Cardholders' Balance is less than $250,000,000, this Agreement shall terminate simultaneously and, if MW purchases certain Accounts and Indebtedness from Monogram pursuant to Section 5.14(3)(iii) of the Bank Program Agreement, MW simultaneously shall purchase from MWCC: (x) all Accounts and Indebtedness that MW would be required to purchase under SUBSECTION (1) above in connection with said divestiture for the Divestiture-Related Indebtedness Purchase Price, (y) subject to all rights granted to the Signature Companies under the MWCC Signature License, the MWCC Customer List, and (z) all other Accounts and Indebtedness owned by MWCC or MWCC Assignees on such date for the MWCC Net Receivable Balance therefor. Upon purchase under this subsection, MW or its designee shall thereupon own all Accounts and Indebtedness so purchased and, subject to all rights of the Signature Companies under the MWCC Signature License, the MWCC Customer List and MW shall have the rights it would have under 69 SECTION 15.2(2)(ii) (which rights shall be exercised in accordance with procedures reasonably agreed to by the parties). (3) Any transfer under subsections (1) or (2) above shall occur subject to the rights set forth in the first sentence of the last paragraph of SECTION 15.2(2)(i). (4) It is agreed that in the event that Monogram exercises its rights to issue replacement and/or substitute credit cards pursuant to SECTION 5.14(3)(iii) or SECTION 5.14(4)(ii) of the Bank Program Agreement to Cardholders obligated in respect of Participated Monogram Indebtedness, such Indebtedness shall become indebtedness on the accounts accessed by such replacement and/or substitute credit cards and no longer shall constitute Indebtedness hereunder. 5.15. MW MONTHLY PAYMENT AMOUNT. On the last day of each Fiscal Month during the term of this Agreement, MWCC shall pay to MW, for the preceding Fiscal Month, an amount equal to the product of (i) the Monthly Payment Percentage, MULTIPLIED BY (ii) the amount of Indebtedness on Accounts (other than Non-Converted Accounts) that, for Fiscal 1996 only, become Section 4 1996 Net Defaulted Indebtedness and Starter Card Account 1996 Net Defaulted Indebtedness and, for Fiscal Year 1997 and thereafter, Section 4 Net Defaulted Indebtedness and Starter Card Account Net Defaulted Indebtedness during the preceding Fiscal Month (each such amount being referred to as the "MW Monthly Payment Amount"); provided, however, that, on December 23, 1996, MWCC shall pay MW (a) the MW Monthly Payment Amounts for the period from the effective date of this Agreement through and including the last date of the Fiscal Month of November 1996, and (b) an estimate of the Monthly Payment Amount for the Fiscal Month of December 1996. The payments specified in the preceding proviso shall be made by MWCC on December 23, 1996 by netting such amounts from obligations owed by MW in accordance with SECTION 4.7 hereof. With respect to the estimated amount for the Fiscal Month of December 1996, the actual amount shall be calculated in January 1997 and any adjusting payment shall be made on January 31, 1997. 5.16. THE LICENSED MARKS. (1) GRANT. During the License Term (as defined in subsection (5) below): (a) MW hereby grants to MWCC, and MWCC accepts, the non-exclusive, non-royalty bearing right and license to use the Licensed Marks in the United States of America and elsewhere as provided in this Agreement, upon the terms and conditions hereinafter set forth. Such license includes the rights to sublicense, subcontract and/or assign to the 70 extent provided herein and/or with MW's prior written consent. (b) MW hereby reaffirms its grant to MWCC of the right to use Montgomery Ward Credit Corporation as its corporate name provided MWCC engages solely in the Permitted Businesses. (c) If MW adopts a trademark, trade name, service mark, logo or other proprietary mark which is used by MW or an Authorized Affiliate in connection with the operation of, or retail sales at, Stores but which is not listed on SCHEDULE 5.16 hereto (a "New Mark") and MWCC requests that such New Mark be added to SCHEDULE 5.16 and licensed hereunder, MW shall not unreasonably fail to do so, and such New Mark shall be added to SCHEDULE 5.16 by amendment of this Agreement. (2) PERMITTED USES. MWCC and its permitted sublicensees, subcontractors and assignees may use the Licensed Marks solely in connection with the creation, establishment, marketing and administration of, and the provision of services related to, the Program, Accounts and/or Indebtedness, all as provided herein and, to the extent MWCC has rights therein in connection with the Program, including with respect to both Old Indebtedness and New Indebtedness (collectively, the "Permitted Businesses"). The Permitted Businesses shall include, without limitation, the solicitation of Cardholders and potential Cardholders, acceptance of Credit Applications, the issuance and reissuance of Credit Cards, the provision of accounting services to Cardholders, the provision of Billing Statements and other correspondence relating to Accounts to Cardholders, the extension of credit to Cardholders, and the advertisement and/or promotion of the Program. (3) RESTRICTIONS AND QUALITY CONTROLS. MWCC's right to use the Licensed Marks shall be subject to the following conditions and restrictions: (a) All displays of the Licensed Marks shall conform to standards set by MW from time to time for its own displays of the Licensed Marks. MW shall have the unilateral right, at its sole discretion, to amend SCHEDULE 5.16 by substituting a modified logo if such modified logo is adopted by MW for all or a substantial portion of its own business. If this occurs, MW shall have the right to require MWCC to substitute the amended logo form for the prior logo form effective on a date at least 180 days after the date MW notifies MWCC of the change, provided that MWCC's out-of-pocket costs shall be borne as agreed by the parties. 71 (b) MWCC shall include all notices and legends with respect to the Licensed Marks as are or may be required by applicable federal, state and local trademark laws which may be reasonably requested by MW. (c) MWCC shall at no time adopt or use, without MW's prior written consent, any variation of the Licensed Marks or any word or mark similar to or likely to be confused with the Licensed Marks. (d) To the extent that MWCC and its permitted sublicensees, subcontractors and assigns are permitted to originate their own advertising and promotional materials hereunder, and if any of them do so, the originator shall prior to first publication of each such piece submit same to MW for approval as to form of Licensed Mark usage. Such approval shall not be unreasonably withheld and shall be deemed to have been given unless written notice of disapproval shall be given by MW to MWCC within thirty (30) business days of receipt of such submission. (e) MWCC shall conduct the Permitted Businesses in accordance with this Agreement. MW shall have inspection rights, and compliance deficiencies shall be remedied, as provided herein. (f) MWCC shall conduct the Permitted Businesses in a dignified manner, consistent with and enhancing the general reputation of the Licensed Marks and MW, and in accordance with good trademark practice. (g) MWCC shall not do anything or commit any act which might materially prejudice or adversely affect the validity of the Licensed Marks or MW's ownership thereof (it being understood that the collection of Accounts in accordance with applicable debt collection laws, the sending of adverse action letters, and the legally required or MW approved (both substance and the language) changing of terms of Accounts do not prejudice or adversely affect the validity of the Licensed Marks or MW's ownership thereof). (h) MWCC shall, during the term of this Agreement and after termination hereof, execute such documents as MW may request from time to time to ensure that all right, title and interest in and to the Licensed Marks reside in MW. (i) Notwithstanding any other provision in this Agreement to the contrary, MWCC shall not be required to obtain MW's approval of billing and collection forms, notices, letters, telephone routines, or other communica- 72 tions in which the only use of the Licensed Marks is the use thereof in text to identify the Program and/or the Credit Card, to identify the names of Stores that accept Credit Cards, and/or to describe transactions financed under the Credit Cards, provided that MWCC in no event shall use the Licensed Marks in a manner which adversely affects the goodwill associated with the Licensed Marks (it again being understood that communications in accordance with applicable debt collection laws, adverse action letters, and the legally required (both substance and the language) or MW approved changes in the terms of Accounts do not adversely affect goodwill). (j) Except as otherwise provided herein, once materials bearing the Licensed Marks have been approved (or deemed approved) by MW, MWCC may use its existing stock of such materials, except that MW may require that MWCC cease use of such existing stock if MW pays for the replacement thereof. (4) OWNERSHIP. MWCC hereby acknowledges MW's exclusive right, title and interest in and to the Licensed Marks and MW's exclusive right to use and license the use of the Licensed Marks. Any and all goodwill arising from use of the Licensed Marks under this Agreement shall inure solely to the benefit of MW. MWCC agrees not to claim any title to the Licensed Marks or any right to use the Licensed Marks except as permitted by this Agreement. In particular, MWCC agrees that it will not assert that any failure of MW to set standards for, or police MWCC's use of, the Licensed Marks results in an abandonment of MW's rights in the Licensed Marks. MWCC shall not directly or indirectly question, attack, contest or, in any other manner, impugn the validity of the Licensed Marks or MW's rights in and to the Licensed Marks, or the license herein granted, including, without limitation thereto, in any action in which enforcement of any provision of this Agreement is sought; nor shall MWCC willingly become a party adverse to MW in litigation in which a third party is contesting the validity of the Licensed Marks or MW's rights in and to the Licensed Marks. (5) LICENSE TERM. (a) The license granted in this Section 5.16 shall terminate upon the later of (i) the termination of this Agreement, or (ii) the date on which, after deducting the portion thereof that is Section 4 Defaulted Indebtedness or Starter Card Account Defaulted Indebtedness, the aggregate of Non-Converted Indebtedness, Purchased Monogram Indebtedness and Participated Monogram Indebtedness is zero (the time from the date hereof to the later such date being referred to as the "License Term"). Upon expiration of the License Term, (a) all rights of MWCC with respect to the Licensed Marks shall terminate and revert to MW, (b) MWCC shall immediately 73 discontinue use of the Licensed Marks and (c) MWCC shall promptly commence and diligently pursue such actions as may be necessary to delete "Montgomery Ward" from its name. The foregoing notwithstanding, it is understood that in no event shall the termination of this Agreement affect the rights of MWCC (or any authorized purchaser of Accounts and/or Indebtedness) to utilize the Licensed Marks in connection with the collection of Indebtedness. (6) INFRINGEMENT. (a) MWCC shall notify MW promptly of any infringements, imitations or unauthorized use of the Licensed Marks by any credit provider(s) (collectively, "Infringements") of which MWCC becomes aware. MW shall take such steps as it deems reasonable in the circumstances to abate such Infringements. Except as provided below, MW shall have the sole right, at its expense, to bring any action on account of any infringements, and MWCC shall cooperate with MW as MW may request (and at MW's expense), in connection with any such action reasonably brought by MW. MW may settle infringements at its sole discretion (but shall use best efforts not to settle in a manner that conflicts with MWCC's rights hereunder, and may retain any and all resulting damages and/or other compensation paid by the infringer(s). If MW does not undertake appropriate steps to abate an Infringement within ninety (90) calendar days after notice thereof from MWCC, MWCC may prosecute the same, at its expense, provided that no settlement shall be made without the prior written approval of MW. MWCC shall advise MW periodically of the status of such action and promptly of any material developments. MW reserves the right to participate at any time in such proceedings. In the event that any damage, settlement and/or compensation are paid in connection with any such action brought by MWCC, MWCC shall first retain an amount reimbursing its expenses, any remaining amount shall be divided equally between MW and MWCC. (b) MW shall have the sole right, at its expense, to defend and settle any action that may be commenced against MW or MWCC alleging that use of the Licensed Marks infringe any rights of others. In such event, MWCC shall, at the reasonable direction of MW, promptly discontinue its use of the Licensed Marks alleged to infringe rights of others. If MW does not give notice to MWCC of its intent to defend or settle such action against MWCC or affecting MWCC's use of the Licensed Marks within ninety (90) calendar days after notice thereof from MWCC, MWCC may defend the same, at its expense, provided that no settlement shall be made without the prior written approval of MW. MWCC shall advise MW periodically of the status of such action and promptly of any material developments. MW reserves the right to participate at any time in such proceedings. It is understood that nothing in this Section 5.16(6)(b) is intended to limit or 74 otherwise modify MW's indemnification obligation under SECTION 5.16(7)(a) hereof. (7) INDEMNIFICATION. In addition to and without limiting any indemnifications specified under Section 11 hereof: (a) MW, at its expense, shall defend and indemnify and save and hold harmless MWCC, MWCC's Assignees and Affiliates, the employees, officers, directors, shareholders, partners, attorneys and agents of MWCC and MWCC's Assignees and Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing from and against any and all liabilities, claims, causes of action, suits, damages and expenses, including reasonable attorneys' fees and expenses, which MWCC, MWCC's Assignees or Affiliates or each of the above described Persons becomes liable for, or may incur or be compelled to pay by reason of claims that MWCC's, MWCC's Assignees or Affiliates' or each of the above described Persons' use of the Licensed Marks in accordance with this Agreement violates any rights of the claimant except claims subject to subsection (b) below or Section 11.2 hereof. (b) MWCC, at its expense, shall defend and indemnify and save and hold harmless MW, MW's Affiliates and Authorized Licensees, the employees, officers, directors, shareholders, partners, attorneys and agents of MW and MW's Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing from and against any and all liabilities, claims, causes of action, suits, damages and expenses, including reasonable attorneys' fees and expenses, which such Persons become liable for, or may incur or be compelled to pay by reason of claims arising from any use of the Licensed Marks, whether by MWCC or its permitted subcontractors and sublicensees, except claims subject to subsection (a) above or SECTION 11.1 hereof. (8) MATERIAL FURNISHED BY MW. MW shall cooperate with MWCC in furnishing art work, photographs, drawings, samples, graphics requirements and other such materials relating to the Licensed Marks which may reasonably be requested by MWCC, the cost of which shall be borne as agreed by the parties. 6. CONDITIONS PRECEDENT 6.1. CONDITIONS TO MWCC'S OBLIGATIONS. Notwithstanding any other provision of this Agreement, MWCC shall have no obligation or liability hereunder unless and until MWCC shall have waived or received (which MWCC shall acknowledge in writing to MW if so 75 waived or received), in form and substance reasonably satisfactory to MWCC, on or before the Closing Date: (1) [SECTION INTENTIONALLY OMITTED]. (2) [SECTION INTENTIONALLY OMITTED]. (3) A favorable opinion of counsel to MW, dated as of the Closing Date, substantially in the form annexed hereto as SCHEDULE 6.1(3). (4) Resolutions of MW's Board of Directors, certified by the secretary or assistant secretary of MW, dated as of the Closing Date, to be duly adopted and in full force and effect, authorizing (i) the execution, delivery and performance of this Agreement and all documents executed and to be executed pursuant hereto, and (ii) specific officers to execute and deliver this Agreement and all other related documents and instruments. (5) [SECTION INTENTIONALLY OMITTED]. (6) [SECTION INTENTIONALLY OMITTED]. (7) [SECTION INTENTIONALLY OMITTED]. (8) [SECTION INTENTIONALLY OMITTED]. (9) Certificate of the secretary or assistant secretary of MW, dated as of the Closing Date, as to incumbency and signatures of the officers of MW, together with evidence of the incumbency of such secretary or assistant secretary. (10) [SECTION INTENTIONALLY OMITTED]. (11) [SECTION INTENTIONALLY OMITTED]. (12) Evidence that the Bank Program Agreement has been executed by MW and is, or upon the effectiveness of this Agreement will be, effective. (13) Evidence that (i) the letter agreement specified in Section 5.5(1) between the Signature Companies and MWCC relating to certain charges in respect of credit insurance and (ii) the letter agreement among the Signature Companies, MW, MWCC and Monogram relating to certain of their respective obligations to each other, both have been fully executed. 6.2. CONDITIONS TO MW'S OBLIGATIONS. Notwithstanding any other provision of this Agreement, MW shall have no obligation or liability hereunder unless and until MW shall have waived or received (which MW shall acknowledge in writing to MWCC if so 76 waived or received), in form and substance reasonably satisfactory to MWCC, on or before the Closing Date: (1) A favorable opinion of counsel to MWCC and GE Capital opining as to MWCC and GE Capital, dated as of the Closing Date, substantially in the form annexed as Schedule 6.2(1). (2) [SECTION INTENTIONALLY OMITTED]. (3) Resolution of MWCC's Board of Directors, certified by the secretary or assistant secretary of MWCC, dated as of the Closing Date, to be duly adopted and in full force and effect, authorizing (i) the execution, delivery and performance of this Agreement and all documents executed and to be executed pursuant hereto, and (ii) specific officers to execute and deliver this Agreement and all other related documents and instruments. (4) Resolutions generally authorizing the execution, delivery and performance of guaranties, as contained in minutes certified by an attesting secretary of GE Capital, and evidence that the Person executing and delivering the Account-Related Agreement Guaranty on behalf of GE Capital is authorized to do so. (5) Certificates of the secretary or assistant secretary of MWCC and GE Capital, respectively, dated as of the Closing Date, as to the incumbency and signatures of the officers of MWCC and GE Capital, together with evidence of the incumbency of such secretary or assistant secretary. (6) Evidence that the letter agreement among the Signature Companies, MW, MWCC and Monogram relating to certain of their respective obligations to each other has been fully executed. 6.3. [SECTION INTENTIONALLY OMITTED]. 6.4. [SECTION INTENTIONALLY OMITTED]. 7. SECURITY AND ACCESS TO DATA 7.1. SECURITY INTEREST. (1) The parties hereto intend and agree that MW shall have no right, title or interest in or to Accounts, Indebtedness and/or Account Documentation (for the avoidance of doubt, whether owned by MWCC or any of its Affiliates) and/or any of the proceeds of any of the foregoing, except for those Accounts, Indebtedness and Account Documentation, if any, specified in SECTION 7.1(2) hereof. Against the possibility that, despite 77 such agreement and intentions of the parties, MW is found to have some right, title or interest in or to Accounts, Indebtedness or Account Documentation or any of the proceeds of any of the foregoing except to the extent specified in SECTION 7.1(2) hereof, and to provide MWCC with further assurance, secure MWCC's rights under the Program (including any right to collect Accounts and Indebtedness hereunder), and secure payment and/or performance of all of MW's Obligations, MW hereby grants, and continues, to MWCC a present and continuing security interest (subject to no other Liens caused by or arising from the acts or omissions, whether direct or indirect, of MW, its Affiliates and/or Authorized Licensees) in and to the following property or interests in property of MW, whether now existing or hereafter created or acquired: (a) all Accounts and Indebtedness; (b) all Account Documentation; and (c) all proceeds of any of the foregoing. (2) To secure MWCC's rights under the Program (including any right to collect and keep and have paid over to it, Recoveries on (a) accounts owned by MW in connection with Section 4.5 of the Original Account Purchase Agreement, (b) Indemnified 1996 Net Defaulted Indebtedness and (c) Indemnified 1996 Starter Card Net Defaulted Indebtedness), and secure payment and/or performance of all of MW's Obligations, MW hereby grants, and continues, to MWCC a present and continuing security interest (subject to no other Liens caused by or arising from the acts or omissions, whether direct or indirect, of MW, its Affiliates and/or Authorized Licensees) in and to the following property or interests in property of MW, whether now existing or hereafter created or acquired: (a) all accounts owned by MW in connection with Section 4.5 of the Original Account Purchase Agreement, (b) all Indemnified 1996 Net Defaulted Indebtedness, (c) all Indemnified 1996 Starter Card Net Defaulted Indebtedness, (d) all Account Documentation (including as defined under the Original Account Purchase Agreement) relating to the foregoing; and (e) all proceeds of any of the foregoing. (3) The parties hereto intend and agree that MW shall have no title to, or ownership of, deposits, credit balances and/or reserves on the books of MWCC, Monogram or their respective Affiliates relative to the Program, this Agreement or the Bank Program Agreement (whether such reserves are held by such Person on its own behalf or for the benefit of an Affiliate) and/or any of the proceeds of any of the foregoing, except such right and interest in or to any of the foregoing as expressly provided herein or in the Bank Program Agreement. Against the possibility that, despite such agreement and intentions of the parties, MW is found to have an ownership interest in or to such deposits, credit balances and/or reserves or any of the proceeds of any of the foregoing, and to provide MWCC with further assurance, secure MWCC's rights against MW and its Affiliates 78 under the Program (including any right to collect Accounts and Indebtedness hereunder), and secure payment and/or performance of all of MW's Obligations, MW hereby grants, and continues, to MWCC a present and continuing security interest (subject to no other Liens caused by or arising from the acts or omissions, whether direct or indirect, of MW, its Affiliates and/or Authorized Licensees) in and to the following property or interests in property of MW, whether now existing or hereafter created or acquired: (a) all deposits, credit balances and/or reserves on the books of MWCC, Monogram or any of their respective Affiliates relative to the Program, this Agreement or the Bank Program Agreement (whether such reserves are held by such Person on its own behalf or for the benefit of an Affiliate) including, without limitation, the Credit Promotions Account, Liquidation Account and Protection Account (all as defined in the Bank Program Agreement), the MWCC Payment Reserve Account described in SECTION 7.1A(2) hereof and any amounts held by Monogram for transmission to MWCC; and (b) all proceeds of any of the foregoing. (4) The parties hereto intend and agree that MW shall have no right, title or interest in or to returned and/or repossessed Merchandise, to the extent such Merchandise was purchased on an Account and MWCC, Monogram, MWCC Assignees and/or Assignees (as defined in the Bank Program Agreement) have not been paid by MW with respect thereto and/or any of the proceeds of any of the foregoing. Against the possibility that, despite such agreement and intentions of the parties, MW is found to have some right, title or interest in or to such returned and/or repossessed Merchandise or any of the proceeds of any of the foregoing, and to provide MWCC with further assurance, secure MWCC's rights under the Program (including any right to collect Accounts and Indebtedness hereunder), and secure payment and/or performance of all of MW's Obligations, MW hereby grants, and continues, to MWCC a present and continuing security interest (subject to no other Liens caused by or arising from the acts or omissions, whether direct or indirect, of MW, its Affiliates and/or Authorized Licensees) in and to the following property or interests in property of MW, whether now existing or hereafter created or acquired: (a) returned and/or repossessed Merchandise, to the extent such Merchandise was purchased on an Account and MWCC, Monogram, MWCC Assignees and/or Assignees (as defined in the Bank Program Agreement) have not been paid by MW with respect thereto; and (b) all proceeds of any of the foregoing. (5) MW agrees to cooperate fully with MWCC in order to give effect to the security interest granted in this SECTION 7.1 including, without limitation, the filing of UCC-1s or comparable statements in order to perfect and continue such security interest, notifying MWCC as to its knowledge of any Liens or purported Liens held or asserted by Persons other than MWCC or 79 its Affiliates and the obtaining of such releases and agreements from its creditors as MWCC may require in its sole discretion. 7.1A MONTHLY PAYMENT OBLIGATION; MWCC PAYMENT RESERVE ACCOUNT. (1) On the last Thursday of the Fiscal Month of January 1997 and the last Thursday of each Fiscal Month thereafter during the Monthly Payment Period, MW shall pay to MWCC in cash the amount of the Monthly Payment Obligation. Such amount when paid shall be the property of MWCC and applied by MWCC to any amounts then due and owing to MWCC from MW and any remainder (the "MWCC Payment Reserve Amount") shall be credited to the MWCC Payment Reserve Account as provided in SECTION 7.1A(2) below. (2) (i) With respect to each Fiscal Year during the Monthly Payment Period, MWCC monthly shall credit to a non-segregated reserve account established for each Fiscal Year by MWCC on its books (collectively, the "MWCC Payment Reserve Account"): (a) the MWCC Payment Reserve Amount specified in SECTION 7.1A(1) and (b) amounts paid MWCC by Monogram under Section 3.8 of the Bank Program Agreement in that Fiscal Year. (ii) Any contrary provision of this Agreement notwithstanding, at all times during the Monthly Payment Period, (a) the amounts of all payments due to MW from MWCC under Sections 5.5(7) and 5.15 shall be credited to the MWCC Payment Reserve Account on the payment due date rather than paid to MW in cash, and (b) MW shall have no obligations to make in cash (x) any payments due to MWCC from MW under Sections 4.7(2) or 4A.3, and (y) any interest when due on Seller Notes, Seller Recourse Notes, the MW 1996 Note and/or the MW Continuation Note and, instead, the amounts of such payments described in this subsection (ii) shall be debited to the MWCC Payment Reserve Account on the payment due dates, which debiting may reduce the balance of the MWCC Payment Reserve Account to a debit balance. In the event a debit balance exists, amounts that would otherwise be credited to the MWCC Payment Reserve Account shall be applied to the unpaid Obligation that would have been paid out of the MWCC Payment Reserve Account so as to satisfy the unpaid Obligation and any remaining amount shall be credited to the MWCC Payment Reserve Account, except that if there is a debit balance on February 28th of any year with respect to such reserve for the previous Fiscal Year, that amount shall be paid as specified below. (iii) On December 31, 1997, MWCC shall debit the MWCC Payment Reserve Account with respect to Fiscal Year 1997 for any unpaid portion of the Three Million Dollars ($3,000,000) payable to MWCC pursuant to the Letter Agreement. 80 (iv) On February 28, 1998 and each February 28th thereafter if there is a balance in the MWCC Payment Reserve Account for the preceding Fiscal Year, MWCC shall calculate the balance in the MWCC Payment Reserve Account for the preceding Fiscal Year (or partial Fiscal Year). If said balance is a credit balance, MWCC on that date shall pay an amount equal to such balance to MW, debiting the MWCC Payment Reserve Account for that Fiscal Year for the amount so paid. If said balance is a debit balance, MW on that date shall pay an amount equal to such balance to MWCC for application to the unpaid Obligation of MW for that Fiscal Year. Such calculation and payment shall not affect the MWCC Payment Reserve Account for the then-current Fiscal Year. The foregoing notwithstanding, it is acknowledged and agreed that, if this Agreement terminates prior to the expiration of the Monthly Payment Period, MWCC shall calculate the balance(s) in such MWCC Payment Reserve Account(s) within sixty (60) days after the effective date of termination. If said balance(s) is a credit balance(s), MWCC on that date shall pay an amount equal to such balance(s) to MW, debiting the MWCC Payment Reserve Account(s), as appropriate, for the amount so paid; PROVIDED that (a) if this Agreement terminates during the Monthly Payment Period other than as a result of an MW Event of Default or an MWCC Event of Default and MW does not both (i) exercise its right to purchase all of the Accounts and Indebtedness and consummate such purchase in accordance with this Agreement and (ii) satisfy all Obligations accrued through the effective date of termination, MWCC shall have no obligation to pay such amount(s) to MW until the later of (x) satisfaction by MW of all Obligations accrued through the effective date of termination and (y) the date 180 days after the effective date of termination; and (b) if this Agreement terminates during the Monthly Payment Period as a result of an MW Event of Default, MWCC shall have no obligation to pay such amount(s) to MW until all Obligations and contingent Obligations owed by MW to MWCC and/or its Affiliates have been satisfied (except that if, on the date two (2) years after the effective date of termination, there are no accrued Obligations MWCC shall pay such credit balance(s) to MW on such date and, if there are accrued Obligations, MWCC shall pay such credit balances to MW on the date upon which they are satisfied). If said balance(s) is a debit balance(s), MW on that date shall pay an amount equal to such balance(s) to MWCC for application to the unpaid Obligation of MW. It is further acknowledged and agreed, for the avoidance of doubt, that, upon any termination of this Agreement prior to expiration of the Monthly Payment Period, MWCC may debit the MWCC Payment Reserve Account for the amount (or any portion of the amount) of any unpaid Obligation of MW and, upon such debiting, said Obligation shall be deemed satisfied to the extent of the amount debited and any remaining unpaid amount of such Obligation shall be paid by MW in cash). 81 (v) MW shall have no ownership interest in or to the MWCC Payment Reserve Account and, except as provided in SECTION 7.1A(2)(iv), MW shall have no right or interest in or to the MWCC Payment Reserve Account. MW shall not receive any interest or profit on or in respect of the balances of the MWCC Payment Reserve Account. 7.2. RETURNS OF MERCHANDISE. MW shall, and shall cause its Authorized Affiliates and Authorized Licensees to, notify MWCC, as soon as reasonably practical (and with sufficient detail to credit the applicable amounts), of all credits granted to Cardholders with respect to returned Merchandise that gave rise to Non-Converted Indebtedness and Purchased Monogram Indebtedness. MW will pay (or will cause the appropriate Authorized Affiliate or Authorized Licensee to pay) the amount of such credit to MWCC within thirty (30) days after the issuance of such credit. 7.3. NOTICES TO MWCC. MW shall (and shall (i) cause Authorized Affiliates to and (ii) use best efforts to cause Authorized Licensees to) use best efforts to promptly furnish to, or inform MWCC of, all material information known to any of them relating to the collectability of Non-Converted Indebtedness and Purchased Monogram Indebtedness, any changes of address of Cardholders obligated in respect of Non-Converted Indebtedness and Purchased Monogram Indebtedness, and notices of filings under the Bankruptcy Code with respect to such Cardholders. 7.4. FURTHER ASSURANCES. In addition to the undertakings specifically provided for in this Agreement, MW and MWCC shall each do all other things and sign and deliver all other documents and instruments reasonably requested by the other to perfect, protect, maintain and help enforce the Lien of MWCC and the priority of such Lien, and all other rights granted pursuant to this Agreement. Such acts shall include, without limitation, the filing of financing statements, amendments, and termination statements under the Code relating to such Accounts and Indebtedness; and the delivery of any MWCC Account Documentation (including, without limitation, computer tapes) the physical possession of which MWCC requires in connection with the ownership, collection and enforcement of thereof. If MW fails to do so within ten (10) Business Days after request, MW irrevocably authorizes MWCC to execute alone any financing statement or any other document or instrument which may be required to perfect or protect the Lien granted to MWCC pursuant to this Agreement, and authorizes MWCC to sign MW's name on the same. 7.5. ATTORNEY-IN-FACT. MW appoints (and shall (i) cause each Authorized Affiliate to appoint and (ii) use best efforts to cause Authorized Licensees to appoint) MWCC or MWCC's designee as its attorney-in-fact to (a) endorse MW's name on any checks, 82 notes, acceptances, money orders, drafts, or other forms of payment of or security for any Account or Indebtedness owned by MWCC, (b) to sign its name(s) on any notices to any Cardholder in connection with the collection of Indebtedness, (c) to send requests for verification of any Account or Indebtedness to Cardholders, (d) to sue Cardholders for the collection of Indebtedness and (e) to do all things necessary to carry out or enforce the obligations of Cardholders and to preserve MWCC's Lien in and to Accounts and Indebtedness. This power, being coupled with an interest, is irrevocable until there shall no longer be any Indebtedness owned by MWCC or Accounts and Indebtedness purchased by MW pursuant to Section 4.5 of the Original Account Purchase Agreement or SCHEDULE 4.2 hereto with respect to which MWCC is entitled to Recoveries. MWCC (or its designee) shall, in exercising such power of attorney-in-fact, comply with all governmental laws, rules and regulations, act so as not to injure or adversely affect MW's business or reputation (it being understood that the collection of Accounts in accordance with applicable debt collection laws, the sending of adverse action letters, and the legally required or MW approved changes of Account terms do not injure or adversely affect such businesses or reputations), and be responsible for all obligations and liabilities arising out of the actions so taken. MWCC may appoint GE Capital and/or its Affiliates to carry out in MW's name the tasks in this Section. 7.6. CONTINUED LIABILITY. Anything herein to the contrary notwithstanding, (a) MW, its Authorized Affiliates and Authorized Licensees shall remain liable under any contracts and agreements with any Cardholder that relate to the Merchandise sold (as opposed to the Credit Agreement, Account, or Indebtedness), and to the extent set forth therein to perform all of their duties and obligations pursuant thereto to the same extent as if this Agreement and the Bank Program Agreement had not been executed; (b) the exercise by MWCC of any rights pursuant to this Agreement shall not release MW or its Authorized Affiliates or Authorized Licensees from any of such duties or obligations under the contracts and agreements; and (c) except to the extent specifically set forth herein, MWCC shall not have any obligation or liability with respect to any Merchandise by reason of this Agreement or the Bank Program Agreement nor shall MWCC be obligated to perform any of the obligations or duties of MW pursuant to this Agreement. 7.7. OTHER PARTY MAY PERFORM. If either MW or MWCC fails to perform any of its duties or obligations contained herein and such failure has remained unremedied for a period of fifteen (15) days after notice to it from the other party, or if such failure is not reasonably susceptible of being cured within such fifteen (15) day period, if it fails to commence to cure such failure within such fifteen (15) day period and diligently proceed to 83 cure thereafter, the other party may itself perform, or cause performance of, such duties or obligations, and the reasonably incurred expenses of the performing party incurred in connection therewith shall be payable by the other party on demand. 7.8. RECEIPT OF PAYMENTS. The primary and exclusive right to effect collection of Indebtedness shall be vested in MWCC and its Affiliates and they may, at any time, in their sole discretion, subject to the proviso below, notify Cardholders to make payments directly to them in accordance with their instructions, provided that MWCC shall permit during the term of this Agreement Cardholders to make In-Store Payments at all times prior to the earliest of (a) occurrence of a MW Default, (b) such time as MWCC has a reasonable basis for believing a MW Default is likely to occur or (c) MWCC reasonably concludes that continued acceptance of In-Store Payments raises concerns regarding Monogram's safety and soundness or other legal concerns. 7.9. ACCESS TO DATA BY MWCC. In addition to the other rights set forth in this Agreement, MWCC (by any of its officers, employees, designees and/or agents) shall have the right, during normal business hours, in such a manner as to minimize interference with MW's normal business operations, to examine, audit, inspect and make extracts from all of the data, records, files, and books of account including, without limitation, non-financial information under the control of MW relating to Purchased Monogram Accounts, Non-Converted Accounts, MWCC Cardholders, Purchased Monogram Indebtedness and Non-Converted Indebtedness; and MW shall use its best efforts to facilitate MWCC's exercise of such right, including the assignment of such personnel of MW for the assistance of MWCC as MWCC shall reasonably request. MW shall deliver any document or instrument necessary for MWCC to obtain such information from any Person maintaining records for MW. Except as otherwise specifically provided in this Agreement, the party reviewing or copying such information shall do so at its own expense. 7.10. ACCESS TO DATA BY MW. In addition to the other rights set forth in this Agreement (e.g., MW's rights pursuant to SECTION 5.7 hereof), MW (by any of its officers, employees, designees, and/or agents) shall have the right, during normal business hours, in such a manner as to minimize interference with MWCC's normal business operations, to examine, audit, inspect, copy and make extracts from all of the data, records, files and books of account under the control of MWCC relating to Purchased Monogram Accounts, Non-Converted Accounts, MWCC Cardholders, Purchased Monogram Indebtedness and Non-Converted Indebtedness; and MWCC shall use its best efforts to facilitate MW's exercise of such rights, including the assignment of such personnel of MWCC for the assistance of MW as MW shall reasonably request. MWCC shall deliver any document or instrument necessary for MW to 84 obtain such information from any Person maintaining records for MWCC. Except as otherwise specifically provided in this Agreement (e.g., MW's access to information pursuant to SECTION 5.7 at no expense to MW), the party reviewing or copying such information shall do so at its own expense. 7.11. AUDIT OF INFORMATION. MW's and MWCC's right to audit information as provided in SECTIONS 7.9 and 7.10 hereof shall include the right to audit information necessary to determine if payments, credits, calculations or allocations made by either of them pursuant to this Agreement were accurate. If a party does not object in writing to the other party respecting any calculation or with respect to the amount of any payment, credit or allocation made under such sections within twenty-four (24) months after the date of such payment, credit, calculation or allocation, the calculation or the amount of such payment, credit or allocation shall be final. Each party shall maintain for a period of at least three (3) years, or any longer period as provided herein or during which an item is being contested, information reasonably sufficient for the other to perform such audits. 7.12. [SECTION INTENTIONALLY OMITTED]. 8. REPRESENTATIONS AND WARRANTIES OF MW MW makes the following representations and warranties to MWCC as set forth below in this SECTION 8 as of the date hereof. Each and all of such representations and warranties shall survive the execution and delivery of this Agreement as long as a claim may be made, except for those set forth in SECTION 8.5, which shall only survive to the extent MWCC gives MW written notice of any misrepresentation or breach of warranty (specifying in reasonable detail the basis thereof) on or before fifteen (15) months after the date hereof. Each and all of such representations and warranties which are set forth in SECTIONS 8.1(a), 8.1(b), 8.1(c), 8.1(d), 8.2(b), 8.2(c), 8.2(d), 8.4, 8.6, and 8.9 shall be deemed to be restated and remade ("Remade MW Representations and Warranties") on each date during the term of this Agreement on which MWCC is required to fulfill its obligations hereunder, including, but not limited to, payments under SECTION 4.8 hereof. Notwithstanding anything to the contrary contained in this Agreement, except for the representations and warranties set forth in SECTION 8.9, in no event shall MW be liable (by way of indemnification or otherwise) for any misrepresentation or breach of warranty, to be read without limitation as to materiality for the purposes of this sentence, until the aggregate amount recoverable under this Agreement on account thereof exceeds [ ]*, and then only to the extent of the excess of such *Confidential treatment has been requested with respect to this information. 85 aggregate amount recoverable over [ ]*. 8.1. CORPORATE EXISTENCE. MW (a) is a corporation duly organized, validly existing, and in good standing under the laws of the State of Illinois, or such other state in which it may be incorporated, (b) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where failure to be so qualified will not have a material adverse effect on the business, operations, property, or financial condition of MW, the Accounts or the Indebtedness (such Accounts and Indebtedness taken as a whole), MWCC's Lien in and to the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), or the priority of such Lien, (c) has the requisite corporate power and authority to own, pledge, mortgage, or otherwise encumber and operate its properties, to lease the properties it operates under lease, and to conduct its business as now, heretofore, and proposed to be conducted, (d) has all material licenses, permits, consents, or approvals from or by, and has made all necessary filings with, and has given all necessary notices to, all governmental authorities having jurisdiction, to the extent required for such ownership, operation, and conduct, except where failure to obtain such licenses, permits, consents, or approvals, or to make such filings or give such notices, does not have a material adverse effect on the business, operations, property, or financial condition of MW, or the Accounts or Indebtedness (such Accounts and Indebtedness taken as a whole), and (e) is in compliance with its certificate of incorporation and by-laws. 8.2. EXECUTIVE OFFICES AND STORES. (a) The chief executive office of MW is at 619 West Chicago Avenue, Chicago, Illinois 60671, (b) the chief executive office of MW will during the term of this Agreement be located at such location or at such other location as MW shall, from time to time, specify upon at least forty-five (45) days prior written notice to MWCC, (c) all records relating to Accounts and Indebtedness maintained by MW are maintained at Stores, or at such other locations as are set forth on SCHEDULE 8.2 annexed hereto, as such schedule may be amended by MW from time to time upon forty-five (45) days prior written notice to MWCC, and (d) SCHEDULE 8.2 contains a complete and correct listing of the addresses of all Stores operated by MW and/or an Authorized Affiliate, as such schedule may be amended by MW from time to time at least sixty (60) days prior to the commencement, or ten (10) days prior to a termination, of a retail store's operations. 8.3. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The execution, delivery, and performance of this *Confidential treatment has been requested with respect to this information. 86 Agreement by MW and all instruments and documents to be executed by MW on the date hereof pursuant to this Agreement, and the creation of all Liens to be granted by MW as provided for herein: (a) are within MW's power; (b) have been duly authorized by all necessary or proper corporate action, including the consent of shareholders where required; (c) are not in contravention of any provision of MW's certificate of incorporation or by-laws; (d) will not violate any law or regulation applicable to MW or any order or decree applicable to MW of any court or governmental instrumentality; (e) except as set forth on SCHEDULE 8.3 annexed hereto, will not conflict with or result in the breach or termination of, constitute a default under, or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement, or other instrument to which MW is a party or by which MW or any of its property is bound, which conflicts, breaches, or defaults, either individually, or in the aggregate will have a material adverse effect on the business, operations, property, or financial condition of MW, the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), MWCC's Lien in and to the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), or the priority of such Lien; and (f) do not require any filing (other than the filings contemplated hereby) or registration by MW with, or the consent or approval of, any governmental body, agency, authority, or any other Person which has not been made or obtained previously where such failure to file, register or obtain consent or approval either individually, or in the aggregate, will have a material adverse effect on the business, operations, property or financial condition of MW, the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), MWCC's Lien in and to the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), or the priority of such Lien. This Agreement has been duly executed and delivered by MW and constitutes the legal, valid, and binding obligation of MW, enforceable against MW in accordance with its terms except as such enforcement may be limited by applicable bankruptcy, moratorium, reorganization, or other laws or legal principles affecting the rights of creditors generally or by general principles of equity (whether or not a proceeding is brought in a court of law or equity). 8.4. SOLVENCY. MW is Solvent. 8.5. FINANCIALS. The consolidated balance sheet of MW as of December 30, 1995 (the "Balance Sheet"), and the related statements of income, shareholders' equity, and changes in financial position for the fiscal year then ended, certified by Arthur Andersen & Company, independent public accountants, were prepared in accordance with GAAP applied on a consistent basis (except as disclosed therein), and present fairly the consolidated financial position of MW as at such date and the 87 results of its operations and changes in financial position for the fiscal year then ended. 8.6. NO DEFAULT. MW is not in default pursuant to or in respect of any contract, agreement, lease, or other instrument to which it is a party, nor has MW received any notice of default pursuant to any such contract, agreement, lease, or other instrument, in either case where such default would have a material adverse effect on the business, operations, property, or financial condition of MW, the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), MWCC's Lien in and to any Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), or the priority of such Lien. No MW Default or event which, with the giving of notice, the lapse of time, or both, would be a MW Default, has occurred and is continuing. 8.7. [SECTION INTENTIONALLY OMITTED]. 8.8. NO LITIGATION. Except as set forth on SCHEDULE 8.8 annexed hereto (which schedule specifies those claims involving consumer credit), no action, claim, or proceeding not covered by insurance which reasonably may be expected to result in a liability of MW in an amount excess of, for each such action, claim or liability [ ]*, is now pending or, to the knowledge of MW, threatened against MW, at law, in equity, or otherwise, before any court, board, commission, agency, or instrumentality of any federal, state, or local government or of any agency or subdivision thereof or before any arbitrator or panel of arbitrators, nor to the knowledge of MW does a state of facts exist which might give rise to any such proceedings. None of such matters set forth on SCHEDULE 8.8 questions the validity of this Agreement or any action taken or to be taken pursuant hereto or any of the conditions precedent thereto. 8.9. ACCOUNTS. With respect to each item of Indebtedness on a Non-Converted Account or Purchased Monogram Account and each item of Participated Monogram Indebtedness (and, to the extent applicable, each Account pursuant to which such Indebtedness is incurred) at the time MWCC obtains its interest: (a) MW has not created or purported to create Liens with respect thereto in favor of any Person other than MWCC or an Affiliate of MWCC; (b) arises or arose in connection with a bona fide sale and delivery of Merchandise by MW, Affiliates of MW or licensees, or the predecessors of any of the foregoing, to a Cardholder; and (c) is for a liquidated amount as stated in the MWCC Account Documentation relating thereto, subject to returns, allowances and other adjustments in the ordinary course of business. 8.10. [SECTION INTENTIONALLY OMITTED]. *Confidential treatment has been requested with respect to this information. 88 8.11. [SECTION INTENTIONALLY OMITTED]. 9. REPRESENTATIONS AND WARRANTIES OF MWCC MWCC makes the following representations and warranties to MW as set forth below in this SECTION 9 as of the date hereof. Each and all of such representations and warranties shall survive the execution and delivery of this Agreement as long as a claim may be made. Each and all of such representations and warranties which are set forth in SECTIONS 9.1(A), 9.1(B), 9.1 (LAST SENTENCE) and 9.3 shall be deemed to be restated and remade ("Remade MWCC Representations and Warranties"), on each date during the term of this Agreement on which MWCC is required to fulfill its obligations hereunder. Notwithstanding anything to the contrary contained in this Agreement, in no event shall MWCC be liable (by way of indemnification or otherwise) for any misrepresentation or breach of warranty, to be read without limitations as to materiality for purposes of this sentence, until the aggregate amount recoverable under this Agreement on account thereof exceeds [ ]*, and then only to the extent of the excess of such aggregate amount recoverable over [ ]*. 9.1. CORPORATE EXISTENCE. MWCC and GE Capital (a) are corporations duly organized, validly existing, and in good standing under the laws of the State of Delaware and New York, respectively, or such other state in which they may be incorporated, (b) have the requisite corporate power and authority to own, pledge, mortgage, or otherwise encumber and operate their properties, to lease the properties they operate under lease, and to conduct their business as now, heretofore, and proposed to be conducted, and (c) are in compliance with their certificates of incorporation and by-laws. MWCC and GE Capital have all material licenses, permits, consents, or approvals from or by, and have made all necessary filings with, and have given all necessary notices to, all governmental authorities having jurisdiction, to the extent required for such ownership, operation, and conduct, except where failure to obtain such licenses, permits, consents, or approvals, or to make such filings or give such notices, does not have a material adverse effect on its business, operations, property, or financial condition. 9.2. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The execution, delivery, and performance of this Agreement and the Guaranties by MWCC and GE Capital, respectively, and all instruments and documents to be executed by MWCC and GE Capital on the date hereof pursuant to this Agreement (a) are within their respective powers; (b) have been duly authorized by all necessary or proper corporate action, including the consent of shareholders where required; (c) are not in *Confidential treatment has been requested with respect to this information. 89 contravention of any provision of their respective certificates of incorporation or by-laws; (d) will not violate any law or regulation applicable to either of them or any order or decree against MWCC or GE Capital (including any order or decree applicable to MWCC solely as a Subsidiary of GE Capital) of any court or governmental instrumentality; (e) except as set forth on SCHEDULE 9.2 annexed hereto, will not conflict with or result in the breach or termination of, constitute a default under, or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement, or other instrument to which MWCC or GE Capital is a party or by which MWCC or GE Capital or any of their property are bound, which conflicts, breaches, or defaults, either individually, or in the aggregate, will have a material adverse effect on MWCC's or GE Capital's business, operations, property, or financial condition; and (f) do not require any filing or registration by MWCC or GE Capital with or the consent or approval of any governmental body, agency, authority, or, as to consents and approvals needed by MWCC or GE Capital, any other Person which has not been made or obtained previously where such failure to file, register or obtain consent or approval either individually, or in the aggregate, will have a material adverse effect on GE Capital's or MWCC's businesses, operations, property or financial condition, the Accounts and Indebtedness, as applicable (such Accounts and Indebtedness taken as a whole), MWCC's Lien in and to the Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), or the priority of such Lien. Upon approval of the transactions contemplated hereby by the shareholder(s) of MWCC, this Agreement and the Guaranties have been duly executed and delivered by MWCC and GE Capital, respectively, and constitute their legal, valid, and binding obligation, enforceable against them in accordance with their terms; except as such enforcement may be limited by applicable bankruptcy, moratorium, reorganization, or other laws or legal principles affecting the rights of creditors generally or by general principles of equity (whether or not a proceeding is brought in a court of law or equity). 9.3. SOLVENCY. GE Capital is Solvent. 10. FINANCIAL STATEMENTS AND INFORMATION 10.1. MW'S REPORTS AND NOTICES. Until the end of the term of this Agreement, MW shall deliver to MWCC: (1) Within sixty (60) days after the end of each fiscal quarter of MW (except the last), MW's unaudited consolidated balance sheets as of the close of such quarter and the related statements of income, shareholder's equity, and changes in cash flow for such fiscal quarter, accompanied by the certification on behalf of MW by MW's chief executive or operating officer or chief financial officer that such financial 90 statements were prepared in accordance with GAAP applied on a consistent basis (except as disclosed therein), and present fairly the consolidated financial position of MW as of the end of such fiscal quarter and the results of its operations and changes in cash flow, subject to non-recurring and year-end adjustments, provided the foregoing financial statements are read in the context of the audited financial statements for the preceding fiscal year, and any notes thereto, and that, except as noted therein, to the actual knowledge of such officer of MW there are no MW Defaults or events which, with the passage of time or giving of notice or both, would constitute a MW Default. (2) Within one-hundred twenty (120) days after the close of each fiscal year, a copy of the consolidated annual financial statements of MW, consisting of a consolidated balance sheet and related statements of income, shareholder's equity, and changes in cash flow, all prepared in accordance with GAAP on a consistent basis (except as disclosed therein), certified by the independent public accountants regularly retained by MW, and accompanied by a certification on behalf of MW by MW's chief executive or operating officer or chief financial officer that, except as noted therein, to the actual knowledge of such officer, there are no MW Defaults or events which, with the passage of time or giving of notice or both, would constitute a MW Default. (3) Such other information respecting the Accounts and Indebtedness or MW's business or financial condition with respect to such Accounts and Indebtedness, as MWCC may, from time to time, reasonably request. 10.2. GE CAPITAL'S AND MWCC'S REPORTS AND NOTICES. Until the end of the term of this Agreement, MWCC shall deliver to MW: (1) Within sixty (60) days after the end of each fiscal quarter of GE Capital (except the last), GE Capital's unaudited consolidated balance sheets as of the close of such quarter and the related statements of income, shareholder's equity, and changes in cash flow for such fiscal quarter, accompanied by the certification on behalf of GE Capital by GE Capital's chief executive or operating officer or chief financial officer that such financial statements were prepared in accordance with GAAP applied on a consistent basis (except as disclosed therein), and present fairly the consolidated financial position of GE Capital as of the end of such fiscal quarter and the results of its operations and changes in cash flow, subject to non-recurring and year end adjustments, provided the foregoing financial statements are read in the context of the audited financial statements for the preceding fiscal year, and any notes thereto. MWCC shall from time to time upon request of the Marketing Committee provide to the Marketing Committee financial information in a form which will be sufficient for it to 91 reasonably ascertain the income, expense and profitability of the operations that relate solely to the transactions that are the subject of the Program, which information shall be kept confidential by members of the Marketing Committee who shall not disclose such information to any Person other than (a) the then current chief executive officer of MW, (b) when necessary for the purpose of performing any analysis requested by the Marketing Committee or the chief executive officer of MW, the then director of credit-services for MW, it being understood that such chief executive officer and director of credit services also shall keep such information confidential, and (c) to the extent necessary in connection with any dispute between the parties, provided, however, that any disclosure to Persons not connected with the dispute shall be subject to any appropriate confidentiality order. (2) Within one-hundred twenty (120) days after the close of each Fiscal Year, a copy of the consolidated annual financial statements of GE Capital, consisting of a consolidated balance sheet and related statements of income, shareholder's equity and changes in cash flow, all prepared in accordance with GAAP applied on a consistent basis (except as disclosed therein), certified by the independent public accountants regularly retained by GE Capital. 11. INDEMNIFICATION 11.1. INDEMNIFICATION BY MW. MW agrees to protect, indemnify, and hold harmless MWCC, its Affiliates, the employees, officers, directors, shareholders, partners, attorneys and agents of MWCC and its Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing against any and all liabilities, costs, and expenses (including reasonable attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions, or proceedings, by whomsoever asserted, including, without limitation, Cardholders with respect to Accounts (including Non-Converted Accounts) and any Person who prosecutes or defends any actions or proceedings, whether as representative of or on behalf of a class or interested group or otherwise, arising out of, connected with, or resulting from (a) any breach by MW of any of its covenants, representations, or warranties contained in this Agreement or the Bank Program Agreement, (b) any changes or failure (unless such failure is a result of a circumstance beyond MW's reasonable control) in computer systems or programs provided, or caused to be provided, by MW that have an adverse impact on MWCC's ability to obtain and utilize the services, information and data to be provided by MW to MWCC pursuant to this Agreement, which adverse impact is not remedied within ten (10) days after the occurrence thereof if it materially adversely affects MWCC's business, or within thirty 92 (30) days in all other events, provided MWCC promptly advises MW of such matter after becoming aware thereof (it being understood that this indemnity shall not apply to periods prior to the expiration of the applicable cure period), (c) any product liability claim arising out of the use by any Person of any Merchandise the purchase of which was financed by an Account, (d) any misrepresentation by employees of MW, an Affiliate of MW or an Authorized Licensee relating to credit terms, (e) failure of MW, any Affiliate of MW or any Authorized Licensee to have all material licenses, permits, consents, or approvals from or by, and make all necessary filings with, and give all necessary notices to, all governmental authorities having jurisdiction, to the extent required for the ownership or operation of its properties, the conduct of its business, or the creation of Accounts or Indebtedness, (f) an assertion, demand, claim, suit, counterclaim or other proceeding by a Person other than an indemnified party that an Account or Accounts is or are unlawful or otherwise actionable because the balance thereon does not decrease at least partially each month because the sum of the insurance premiums and finance charges posted to the Account or Accounts is in excess of the minimum monthly payment, provided that MW's indemnification obligation shall not apply to any assertion, demand, claim, suit, counterclaim or other proceeding to the extent arising from, and based solely upon, new sale activity (renewals shall not be deemed for this purpose to be new sales if they occur within sixty (60) days after MW or an Affiliate thereof no longer owns all or substantially all of the Stock or assets of the Signature Companies) occurring on any date on which MW does not directly own all or substantially all of the Stock or assets of the Signature Companies, (g) the reporting of credit losses and/or sales taxes to federal, state or local governments or governmental units and payments made or due to or from MW to such governments or governmental units involving, relating to, or based in whole or in part on credit losses and/or sales taxes, or (h) any act or failure to act by a Person involved in selling or facilitating the sale of Merchandise on Accounts (including Old Accounts), including such Persons as Valuevision International, Inc., to the extent such act or failure to act arises out of, occurs, is connected with, or results from a sale or attempt to sell Merchandise on an Account (including an Old Account) or a solicitation or application for an Account, including failure of such a Person (i) to act in accordance with instructions given by Monogram and/or MWCC to the extent permitted or contemplated by this Agreement and/or the Bank Program Agreement or (ii) to perform MW's obligations under this Agreement and/or the Bank Program Agreement, provided, however, MW shall have no liability under this subpart (i), if the act or failure to act is the result of failure by Monogram and/or MWCC to comply with this Agreement and/or the Bank Program Agreement, respectively. 93 11.2. INDEMNIFICATION BY MWCC. MWCC agrees to protect, indemnify, and hold harmless MW, its Affiliates, the employees, officers, directors, shareholders, partners, attorneys and agents of MW and its Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing against any and all liabilities, costs, and expenses (including reasonable attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions, or proceedings, by whomsoever asserted, including, without limitation, Cardholders with respect to Accounts, and any Person who prosecutes or defends any actions or proceedings, whether as representative of or on behalf of a class or interested group or otherwise, arising out of, connected with, or resulting from (a) any breach by MWCC of any of its covenants, representations, or warranties contained in this Agreement, (b) any changes or failure (unless such failure is a result of a circumstance beyond MWCC's reasonable control) in computer systems or programs provided, or caused to be provided, by MWCC that have an adverse impact on MW's ability to obtain and utilize the services, information and data to be provided by MWCC to MW pursuant to this Agreement, which adverse impact is not remedied within ten (10) days after the occurrence thereof if it materially adversely affects MW's business, or within thirty (30) days in all other events, provided MW promptly advises MWCC of such matter after becoming aware thereof (it being understood that this indemnity shall not apply to periods prior to the expiration of the applicable cure period), (c) any claim asserted as a result of the exercise of the power-of-attorney granted to MWCC herein or any collection efforts by, or at the direction of, MWCC, including the repossession of Merchandise, (d) any misrepresentation by employees of MWCC or its Affiliates relating to credit terms, or (e) failure of MWCC to have all material licenses, permits, consents or approvals from or by, and make all necessary filings with, and give all necessary notices to, all governmental authorities having jurisdiction, to the extent required for the ownership or operation of its properties, or the conduct of its business or the ownership or servicing of Accounts or Indebtedness. 11.3. DEFENSE OF THIRD PARTY CLAIMS. In the event that any legal proceeding shall be instituted, or that any claim or demand shall be asserted by any Person in respect of which one party hereto is entitled to receive payment from the other party hereto pursuant to SECTIONS 11.1 and 11.2, the party seeking indemnification shall promptly cause written notice of the assertion of any claim of which it has knowledge which is covered by this indemnity to be forwarded to the other party, which other party shall, to the extent of its indemnification, and at its own expense, by counsel of its choice, which must be reasonably satisfactory to the party seeking indemnification, defend the party seeking indemnification against, and negotiate, settle, or 94 otherwise deal with any proceeding, claim, or demand which is related to any matter indemnified against by the indemnifying party hereunder; provided, however, that no settlement shall be made without the prior written consent of the party seeking indemnification, which consent shall not be unreasonably withheld; and provided further that the indemnifying party shall keep the party seeking indemnification advised as to the status of the matter. The party seeking indemnification may participate in any such proceeding with counsel of its choice at its expense. If the party seeking indemnification refuses to approve a proposed settlement that is acceptable to the claimant, the indemnifying party may, at its option, deposit the proposed settlement with the party seeking indemnification and thereupon be relieved of any further indemnity obligation in connection with such claim, including, but not limited to, attorneys' fees and expenses thereafter incurred. If upon the resolution of any such claim or proceeding which is the subject of the aggregate dollar limitations on claims set forth in SECTIONS 8 and 9 the aggregate amount of claims and related expenses which are subject to such limitation for which the indemnifying party is then liable is less than its limitation, any reasonable attorneys' fees and expenses incurred by the indemnifying party in defending against such claim shall within thirty (30) days after demand be paid by the indemnified party to the indemnifying party. The parties hereto agree to cooperate fully with the defense, negotiation, or settlement of any such legal proceeding, claim or demand, but without expense to the party seeking indemnification. 11.4. PAYMENT OF INDEMNIFIED AMOUNTS. After any final judgment or award shall have been rendered by a court, arbitration board or administrative agency of competent jurisdiction, and the expiration of the time in which to appeal therefrom, or a settlement shall have been consummated, or the parties shall have arrived at a mutually binding agreement with respect to each separate matter indemnified hereunder, the party seeking indemnification shall forward to the other party notice of any sums due and owing by the other party with respect to such matter and such other party shall be required to pay all of the sums so owing to the party seeking indemnification by check (or at the option of the recipient by wire transfer constituting immediately available federal funds) within thirty (30) days after the date of such notice. 11.5. INSURANCE AND MITIGATION. The indemnified party shall use its best efforts to minimize the indemnifying party's obligation to indemnify by recovering, to the maximum extent possible without incurring any material expense, reimbursement from insurance carriers under effective insurance policies covering such liability. An indemnified party shall not be able to recover from an indemnifying party hereunder for any damages to the extent that the indemnified party shall have recovered 95 under its insurance. The indemnifications provided for in this Agreement shall be net of tax benefits, if any. The indemnified party shall, at all times, use its reasonable efforts to minimize the indemnity obligation of the indemnifying party through remedial action which it has reason to know may minimize such obligations, provided that the indemnifying party shall have first agreed to reimburse the indemnified party for its cost, if any, in taking such remedial action. 11.6. EXCEPTIONS. Notwithstanding the foregoing provisions of SECTIONS 11.1, 11.2 AND 11.3 hereof or anything otherwise provided in the Bank Program Agreement, the obligations of the parties hereto or Monogram with respect to claims arising in connection with Asserted Claims shall be governed by the provisions of SECTION 5.5(11) hereof, and the provisions of this SECTION 11 shall not apply thereto. 12. AFFIRMATIVE COVENANTS OF MW MW covenants and agrees that, unless MWCC shall consent in writing, from and after the Conversion Date until the end of the term of this Agreement: 12.1. [SECTION INTENTIONALLY OMITTED]. 12.2. COMPLIANCE WITH LAW. MW's own actions and the actions of its Affiliates and Authorized Licensees in connection with Accounts, and the actions of Persons on MW's behalf (or failures to act where any of the foregoing has a duty to act under this Agreement) shall comply with all federal, state, and local laws, statutes, ordinances, rules, regulations, orders and rulings, including, without limitation, court and Federal Trade Commission orders, ERISA, those regarding the collection, payment and deposit of employees' income, unemployment, and social security taxes, and those relating to environmental matters. MW shall not be responsible for noncompliance pursuant to this SECTION 12.2 when noncompliance is a result of MWCC's failure to comply with any such matters, to the extent MWCC is required by this Agreement to so comply. 13. AFFIRMATIVE COVENANTS OF MWCC. MWCC covenants and agrees that, unless MW shall consent in writing, from and after the Conversion Date until the end of the term of this Agreement: 13.1. COMPLIANCE WITH LAW. MWCC's own actions and the actions of Persons on its behalf (or failures to act where any of the foregoing has a duty to act under this Agreement), shall comply with all federal, state, and local laws, statutes, ordinances, rules, regulations, orders and rulings, including, 96 without limitation, court orders and orders of the Federal Trade Commission, ERISA, those regarding the collection, payment and deposit of employees' income, unemployment and social security taxes, and those relating to environmental matters. MWCC shall not be responsible for noncompliance pursuant to this SECTION 13.1 where noncompliance is a result of MW's failure to comply with any such matters, to the extent MWCC is required by this Agreement to so comply. 13.2. SECURITIZATION, ASSIGNMENT AND SALE COMPLIANCE. MWCC shall comply with the terms of all agreements relating to the securitization, assignment or sale of Accounts. 13.3. SALES OF ACCOUNTS AND INDEBTEDNESS. In the event that MWCC sells Non-Converted Accounts, Non-Converted Indebtedness, Purchased Monogram Accounts or Purchased Monogram Indebtedness under circumstances where neither MWCC nor a servicer designated by MWCC or its Affiliates provides servicing therefor once sold, MWCC shall ensure such purchasers shall agree to (i) comply with applicable laws and (ii) indemnify MWCC and MW, for damages resulting from any failure to do so. 13.4. DELINQUENT ACCOUNT PURCHASE AGREEMENT. MWCC shall ensure that the Delinquent Account Purchase Agreement remains in full force and effect until January 1, 2000, or such earlier date upon which the Section 4 Contractual Method and the Contractual Method require that delinquent accounts be written off during the Billing Cycle in which the Cardholder obligated in connection therewith would be considered past due for thirty (30) days or more on 5 required payments (as determined in accordance with the examples in those definitions). 14. NEGATIVE COVENANTS OF MW 14.1. LIENS. MW shall not (except as provided herein) intentionally cause a Lien to be placed against any items with respect to which MWCC has been granted a security interest hereunder. 15. TERM 15.1. TERM AND TERMINATION. (1) Except as otherwise provided herein, the term of this Agreement shall commence on the date hereof and shall continue (unless terminated pursuant to another provision of this SECTION 15.1) until December 31, 2011 (the "Initial Term") and from year to year thereafter, unless terminated by either party hereto effective on the last day of the Initial Term or any December 31 thereafter upon giving written notice to the other of the election to terminate effective on the last day of the 97 Initial Term or any December 31 thereafter, which notice in either event shall be given not less than ten (10) years prior to the effective date of termination. (2) [SECTION INTENTIONALLY OMITTED]. (3) The term of this Agreement may also terminate at the election of the non-defaulting party in the event of a MW Default or MWCC Default as set forth in SECTION 16. (4) The term of this Agreement may also terminate at the election of MW as set forth in SECTION 17.1(3). (5) The term of this Agreement may also terminate at the election of either party in the event that the Bank Program Agreement terminates other than as a result of the occurrence of an event of default thereunder. (6) The term of this Agreement may also terminate as provided in SECTION 5.14(2) hereof. (7) This Agreement shall automatically terminate if any of the conditions to closing set forth in Article 6 shall not have been satisfied or waived by the appropriate party on or prior to the Closing Date. 15.2. EFFECT OF TERMINATION. (1) No termination (regardless of cause or procedure) of this Agreement shall in any way affect or impair the powers, obligations, duties, rights, indemnities, liabilities, undertakings, covenants, warranties and/or representations (individually and collectively "Provisions") of MW or MWCC with respect to times and/or events occurring prior to such termination, including the obligation to make payments in respect of obligations (including indemnification obligations) arising prior to the termination date. No Provision with respect to times and/or events occurring after termination shall survive termination, except (i) those set forth in the previous sentence or otherwise stated in this Agreement to survive termination, (ii) those Provisions contained in SECTIONS 4.6(1), 5.2(6), 5.4(2), 5.4(6), 5.5(13), 5.6 (to the extent consistent with any express provisions of this Section 15), 5.16 (to the extent provided therein), 7.4, 7.6, 7.7, 11, 15.2, 17.11, 17.12, 17.13, 17.21, 17.22 and, unless MW or MW Designee has purchased all Accounts and Indebtedness, to the extent they relate to Accounts and Indebtedness owned or held by MWCC and/or MWCC Assignees, 3.4 (for twelve months after the effective date of termination), 5.4(1)(i), 5.4(5) (for twelve months after the effective date of termination), 5.4(7), 7.1, 7.2, 7.3, 7.5, 7.8, and 14.1, shall also survive subject to any express limitations on such survival 98 set forth in this Agreement (together with those Provisions stated to survive in (i) above, the "Surviving Provisions"), (iii) any other Provision that should reasonably survive to accomplish a reasonable separation of the parties, taking into account the pattern of the Surviving Provisions and the Provisions that are expressly stated not to survive; provided that the burden of proof in the event of dispute as to whether a Provision other than a Surviving Provision survives is on the party contending for survival, and (iv) MW and MWCC shall be liable for any damages suffered by the other in the event of a termination due to a MW Default or MWCC Default, respectively. Except as specifically provided herein to the contrary, upon such termination (i) MWCC shall continue to own Accounts and Indebtedness which it owned prior to such termination and (ii) provided that MW or MW Designee has purchased all Non-Converted Accounts and Purchased Monogram Accounts, MW shall, subject to the rights granted to the Signature Companies under the MWCC Signature License, be given full ownership of and all rights to the MWCC Customer List. In the event of termination, during but before the end of a Fiscal Year, any payment due with respect to a part of a Fiscal Year shall be made sixty (60) days after termination. (2) With regard to a termination of this Agreement pursuant to SECTIONS 15.1(1) or, if not appropriately governed by other sections of this SECTION 15.2, 15.1(5): (i) MW (or, in the case of (A) below, a third party designated by MW) may at MW's option: (A) purchase (or authorize a third party to purchase), as of the opening of business on the date of termination and subject to the restriction contained in SECTION 15.3 below, (x) all existing Non-Converted Accounts, Non-Converted Indebtedness, Purchased Monogram Accounts, Purchased Monogram Indebtedness and Participated Monogram Indebtedness, and (y) subject to all rights granted to the Signature Companies under the MWCC Signature License, the MWCC Customer List, all for a price equal to the MWCC Net Receivable Balance on the opening of business on such date, in which case the provisions of (ii) below shall apply, and MW (or such third party) 99 shall thereupon own all such Accounts, Indebtedness and, subject to all rights granted to the Signature Companies under the MWCC Signature License, the MWCC Customer List, or (B) not purchase existing Non-Converted Accounts, Non-Converted Indebtedness, Purchased Monogram Accounts, Purchased Monogram Indebtedness and Participated Monogram Indebtedness but, subject to all rights granted to the Signature Companies under the MWCC Signature License and the rights granted to MWCC in the provisions of subsection (iv) below, have the exclusive right (without any fee being payable to MWCC and with all revenue and income derived therefrom belonging to MW) to use (or sublicense or assign the right to use) the MWCC Customer List for all purposes, including for advertisement, solicitations or other marketing efforts, regardless of the manner or media through which the marketing effort is made, and regardless of whether the product or service has previously been marketed by MW, provided that for a period ending four (4) years after the effective date of termination, MW shall not use, or allow any other Person to use, the MWCC Customer List directly or indirectly to provide any consumer or commercial financing programs for the retail sale of goods and/or services at Stores (including credit, debit or charge card programs), whether operated in-house by MW or in connection with an outside Person, provided that, subject to all rights granted to the Signature Companies under the MWCC Signature License: (i) MW may use that portion of the MWCC Customer List comprising Persons who applied for Accounts and were 100 rejected by MWCC to provide any closed end consumer or commercial financing programs for the retail sale of goods and/or services at Stores; and (ii) MW may use the MWCC Customer List in connection with the Existing Programs described in SECTION 5.13(2)(b) AND (c) of the Bank Program Agreement and, with the consent of MWCC or its Affiliate (as appropriate), the Existing Program described in SECTION 5.13(2)(a) of the Bank Program Agreement. If option (B) is chosen, the provisions of (iv) below shall apply. The transfer of ownership to MW of Non-Converted Accounts, Non-Converted Indebtedness, Purchased Monogram Accounts, Purchased Monogram Indebtedness and Participated Monogram Indebtedness under option (A) shall include the right to receive all such Accounts and Indebtedness and the MWCC Account Documentation related thereto free and clear of all Liens created or caused by MWCC and/or its Affiliates, and MWCC and/or its Affiliates shall execute, and cooperate in the filing by MW of all Code statements and other documents needed to so transfer the Accounts and Indebtedness to MW. MW shall notify MWCC of the option it has chosen pursuant to this SECTION 15.2(2)(i) not later than twenty-four (24) months prior to the effective date of termination or, if this Agreement is terminated pursuant to Section 15.1(5), not later than such lesser time as reasonable and fair to both parties under the circumstances. The foregoing notwithstanding, it is understood and agreed that MW shall select hereunder the option corresponding to that selected by MW under Section 15.2(2) of the Bank Program Agreement (I.E., if MW selects option A under Section 15.2(2)(i) of the Bank Program Agreement, it shall select option A hereunder (and vice versa) and if MW 101 selects option C under Section 15.2(2)(i) of the Bank Program Agreement, it shall select option B hereunder (and vice versa)). (ii) If MW chooses option (A) above, to the extent MWCC maintains, or causes to be maintained, equipment, facilities and/or employees substantially dedicated to servicing Non-Converted Accounts and/or Purchased Monogram Accounts prior to the effective date of termination, upon the effective date of termination, MWCC shall offer to MW (and MW shall purchase) such equipment, [ ]*; assign, or if not assignable, sublease, such facilities (to the extent MWCC's leases to such facilities are assignable or permit subleasing, and MWCC shall in negotiating such leases use its best efforts to obtain assignable leases) [ ]*; and employ such personnel on terms comparable to the terms under which they were employed. In the event MW purchases such equipment, leases such facilities and/or employs such personnel, MWCC shall concurrently therewith license (on a royalty-free basis) to MW, for its exclusive internal use, the software necessary for MW to service the Non-Converted Accounts and Purchased Monogram Accounts in a manner similar to that in which Monogram serviced such Accounts and Indebtedness prior to the effective date of termination. MW shall pay all costs associated with converting such software to MW's system, including the reasonable costs of MWCC's assistance in such conversion, and shall incur all further costs of maintaining such software. MW shall also be so entitled to such license if such equipment, facilities and/or personnel are not substantially *Confidential treatment has been requested with respect to this information. 102 dedicated to servicing Non-Converted Accounts and Purchased Monogram Accounts prior to the effective date of termination. Such software is confidential trade secret information that is proprietary to MWCC, and MW shall not disclose such software to any other Person or in any other instance (except those listed in SECTION 17.12(1)(a) with prior notice thereof and SECTION 17.12(1)(e), provided the consent pursuant to such SECTION 17.12(1)(e) will not be unreasonably withheld with regard to a consultant who shall execute a confidentiality agreement reasonably acceptable to MWCC). In addition, MWCC shall use its best efforts to cooperate with and assist any Person designated by MW to service Accounts and Indebtedness in a manner similar to MWCC's servicing of Accounts and Indebtedness, and MW shall pay MWCC's reasonable out-of-pocket costs incurred in such cooperation. (iii) In the event of a termination governed by Section 15.2(2)(iii) of the Bank Program Agreement, the following shall apply: (a) Anything in SECTIONS 4, 4A AND 5.5 of this Agreement to the contrary notwithstanding, during the period that said Section 15.2(2)(iii) of the Bank Program Agreement is operative, MW shall have no obligation to pay any amounts accruing pursuant to SECTION 4 AND 4A of this Agreement and MWCC shall have no obligation to pay amounts accruing pursuant to SECTION 5.5 of this Agreement. (b) Upon the effective date of termination, MW shall have the same obligation to purchase (and MWCC shall have the same obligation to sell) such equipment, lease such facilities, and employ such personnel, and the same right to obtain a royalty-free license, as 103 is set forth in SECTION 15.2(2)(ii) of this Agreement. (c) At such time as MW may purchase Accounts and Indebtedness pursuant to Section 15.2(2)(iii) of the Bank Program Agreement, MW shall at such time also purchase all then existing Non-Converted Accounts, Non-Converted Indebtedness, Purchased Monogram Accounts, Purchased Monogram Indebtedness, Participated Monogram Indebtedness and, subject to the rights granted to the Signature Companies under the MWCC Signature License, the MWCC Customer List, for a price equal to [ ]*. (iv) If MW chooses option (B) above, MW shall have no rights in the Accounts and Indebtedness owned by MWCC after the effective date of termination, except to the extent set forth in (B) above. In addition: (i) MWCC shall have the right (in addition to and retaining all other rights it may have under the terms of the Agreement or applicable law) to (x) liquidate the remaining Accounts owned by MWCC in any lawful manner which may be expeditious or economically advantageous to MWCC, including by issuing (or authorizing an Affiliate of MWCC to issue) to MWCC Cardholders a replacement or substitute widely-accepted general purpose credit card, whether or not co-branded (provided that in no event shall such replacement or substitute card bear on its face a trademark, service mark or name of a retail competitor of MW or an Authorized Affiliate) and marketing (or authorizing the issuer to market) to the holders of such replacement and/or substitute cards in manners consistent with the practices with respect to such replacement or substitute cards, and (y) use the *Confidential treatment has been requested with respect to this information. 104 Licensed Marks in accordance with the terms of this Agreement to communicate with MWCC Cardholders in connection with its collection efforts; and (ii) MW shall be obligated to (x) fulfill its obligations under Section 3.4 for a period of twelve (12) months after termination, provided that the aggregate of such purchases shall not exceed the amount of such purchases for the twelve (12) months immediately prior to termination and (y) cooperate with MWCC in order to effectuate an orderly liquidation, including by accepting (at MWCC's request) for a period four (4) years after the effective date of termination any permitted replacement or substitute credit cards issued by MWCC (or an Affiliate of MWCC). (3) In the event of a termination governed by Section 15.2(3) of the Bank Program Agreement the following shall apply: (i) If MW chooses option (A) or (B) in Section 15.2(2)(i) of the Bank Program Agreement, then at the time, if any, that MW purchases Accounts and Indebtedness pursuant to Section 15.2(3) of the Bank Program Agreement, MW shall at such time also purchase all then existing Non-Converted Accounts, Non-Converted Indebtedness, Purchased Monogram Accounts, Purchased Monogram Indebtedness, Participated Monogram Indebtedness and, subject to the rights granted to the Signature Companies under the MWCC Signature License, the MWCC Customer List, for a price equal to [ ]*. In addition, at such time MW shall have the same obligation to purchase (and MWCC shall have the same obligation to sell) such equipment, lease such facilities, and employ such personnel, and the same right to obtain a royalty-free license , as is set forth in SECTION 15.2(2)(ii) of this Agreement. *Confidential treatment has been requested with respect to this information. 105 (ii) If MW chooses option (C) in Section 15.2(i) of the Bank Program Agreement the provisions of SECTION 15.2(2)(iv) of this Agreement shall apply. In addition, MW's obligations under SECTION 3.4 of this Agreement shall continue for a period of twelve months after termination, provided the aggregate of such purchases shall not exceed the amount of such purchases for the twelve months immediately prior to termination. (4) In the event of circumstances governed by Section 15.2(4) of the Bank Program Agreement, if MW purchases Credit Card Agreements and Accounts and Indebtedness relating thereto pursuant to Section 15.2(4) of the Bank Program Agreement, Participated Monogram Indebtedness relating to the Accounts so purchased shall be sold by MWCC to MW at the same time the Accounts as to which such Participated Monogram Indebtedness relates is sold by Monogram to MW such that the amount of Aggregate Cardholders' Balance is at all times no less than eighty percent (80%) of Maximum Aggregate Cardholders' Balance. The price to be paid by MW to MWCC in respect of such Participated Monogram Indebtedness shall equal [ ]*. Such Indebtedness shall be transferred to MW free and clear of all Liens created or caused by MWCC and/or its Affiliates in the same manner that Indebtedness is transferred by Monogram to MW pursuant to the Bank Program Agreement in such instance. For the avoidance of doubt, it is acknowledged and agreed that MW shall pay to Monogram under the Bank Program Agreement 100% of the unamortized portion of the reasonable marketing costs incurred by Monogram and/or MWCC in initially obtaining and opening Accounts bearing such Indebtedness. (5) Upon a termination of this Agreement by MW pursuant to SECTION 15.1(3) due to an MWCC Default, MW may, if it so elects, choose among the options described in SECTION 15.2(2)(i) of the Bank Program Agreement in which case the other provisions of SECTION 15.2(2) which correspond to the option selected shall apply. The exercise of the rights set forth in this SECTION 15.2(5) by MW shall in no way limit its right to exercise any other rights or remedies available to it at law or in equity as a result of such MWCC Default. (6) If MW desires to elect to terminate this Agreement pursuant to SECTION 15.1(4), MW may, if it so elects, treat such termination in the same manner as provided in Section 15.2(3) of the Bank Program Agreement, exercise any of its rights as stated therein, and the "Response Date" as used therein, shall be the date that MW elects to terminate the Agreement pursuant to *Confidential treatment has been requested with respect to this information. 106 SECTION 17.1(3), which termination shall be effective on the date that is twelve (12) months after the Response Date (i.e., the Termination Date described in Section 15.2(3) of the Bank Program Agreement) if MW elects option (A) or (B) under Section 15.2(2)(i) of the Bank Program Agreement. If MW does not elect to exercise such rights pursuant to Section 15.2(3) of the Bank Program Agreement, MWCC shall cause all services provided by MWCC hereunder to be provided by and under the control of a Person other than a Competitor, except that mainframe computer services, if any, may be provided through a Competitor if MWCC obtains a confidentiality agreement from the Competitor satisfactory to MW. (7) If this Agreement terminates pursuant to SECTION 15.1(7), such termination shall be without liability by one party to the other party. 15.3. SECURITIZATION/PARTICIPATION. MWCC shall have the right, to the extent of its interest therein, to securitize, participate or otherwise finance or refinance Accounts, Indebtedness and/or any legal or beneficial interest therein, including (without prejudice to the generality of the foregoing) the right to vest in any Person through which MWCC elects to securitize, participate, finance or refinance the Accounts and Indebtedness as aforesaid such rights and obligations in connection with the administration of the Accounts and Indebtedness as shall be customarily vested in such Persons for such purposes or as MWCC and/or MWCC Assignees shall reasonably require or deem necessary for the purpose of effecting the aforesaid securitization, participation, financing or refinancing. The parties also recognize that certain provisions in SECTION 15.2 require MWCC to sell Accounts and/or service facilities to MW. SECTION 15.2 is to be read so as to be in harmony with the rights of and obligations to third parties in connection with financings described in the first sentence hereof. Notwithstanding any of the foregoing, MWCC shall maintain MW in substantially the same financial position as though MW's rights under or as a result of SECTION 15.2 were not affected by any securitization, participation, financing or refinancing recognizing the obligation of the parties to minimize any adverse effect on MW. 16. EVENTS OF DEFAULT; RIGHTS AND REMEDIES 16.1. MW DEFAULTS. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute a "MW Default" hereunder: (1) MW shall fail to make any payment of any amount in excess of [ ]* in the aggregate when due and payable or declared due and payable under this Agreement, and the same shall remain unremedied for a period of ten (10) Business Days after MWCC shall have made written demand therefor, *Confidential treatment has been requested with respect to this information. 107 or such longer period as may be required to resolve any good faith dispute as to whether any such amount is owed hereunder. (2) MW shall fail or neglect to perform any of the covenants contained in SECTION 12.2 of this Agreement (provided that such failure or neglect shall occur on a repeated and sustained basis with a conscious disregard of MW's obligations with respect thereto, and relate to laws and regulations governing Credit Agreements, Accounts and Indebtedness owned by MWCC), and such failure or neglect shall remain unremedied for a period of thirty (30) days after notice thereof by MWCC to MW, or if such failure or neglect is not reasonably susceptible of being cured within such thirty (30) day period, if MW fails to commence to cure such failure or neglect during such thirty (30) day period and diligently proceed to cure thereafter. (3) Any representation or warranty made by MW to MWCC pursuant to SECTIONS 8.1(a), 8.1(c), 8.2(a), 8.3(a), 8.3(b), 8.3(c), 8.3(f), 8.3 (last sentence), 8.4, or 8.5 of this Agreement shall not be true and correct in any material respect as of the date when made or, if applicable, restated and remade, and MW fails within thirty (30) days after notice thereof by MWCC to MW, to correct the underlying basis which causes the representation or warranty to be untrue, provided that in the case of SECTION 8.4, the thirty (30) day cure period shall not apply. (4) (a) Any material portion of the Accounts or Indebtedness then owned by MWCC and/or MWCC Assignees shall be attached, seized, levied upon or subjected to a writ by a creditor of MW and such action is not being contested by or on behalf of MW in good faith, which contest shall include providing such security as may be reasonably necessary to protect MWCC, or (b) any material portion of the Accounts or Indebtedness then owned by MWCC and/or MWCC Assignees shall come within the possession of any receiver, trustee, custodian, or assignee for the benefit of creditors of MW and such action is not being contested by or on behalf of MW in good faith, which contest shall include providing such security as may be reasonably necessary to protect MWCC. (5) MW shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against MW seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a custodian, receiver, trustee or other similar official for it or for any substantial 108 part of its property and, in the case of any such proceedings instituted against MW (but not instituted by it), either such proceedings shall remain undismissed or unstayed for a period of sixty (60) days or any such adjudication or relief sought occurs; or MW shall take any corporate action to authorize any of the actions set forth in this subsection. (6) [Section Intentionally Omitted]. (7) [Section Intentionally Omitted]. (8) MW assigns the Agreement in a manner not permitted by SECTION 17.1. (9) In connection with any of MW's indebtedness on money borrowed, either (a) the holder or holders of such indebtedness shall accelerate all of the outstanding balance thereof and the amount accelerated shall be greater than or equal to [ ]*, or (b) any scheduled payments of principal or interest in an aggregate amount in excess of [ ]* shall remain unpaid for a period longer than one hundred twenty (120) days beyond the date due. (10) MW shall fail to make any payment of principal of, or interest on or any amount owing in respect of, any one or more Seller Notes, Seller Recourse Notes, the MW 1996 Note or the MW Continuation Note and/or MW's obligations pursuant to SECTIONS 4A.2, 4.3, 4.4(3), 4.6(3), 5.4(7) AND/OR 5.5(11) hereof, when due and payable or declared due and payable, and the same shall remain unremedied for a period of ten (10) Business Days after MWCC shall have made written demand therefor, or, subject to the provisions of SECTION 7.11 hereof, such longer period as may be required to resolve any good faith dispute with respect to MW's obligations pursuant to SECTIONS 4A.2, 4.3, 4.4(3), 4.6(3), 5.4(7) AND/OR 5.5(11), as to whether any such amount is owed hereunder. (11) MW shall have committed an MW Default under the Bank Program Agreement (as defined in the Bank Program Agreement). 16.2. MWCC DEFAULTS. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute a "MWCC Default" hereunder: (1) [SECTION INTENTIONALLY OMITTED]. (2) MWCC shall fail to make any payment of any amount in excess of [ ]* in the aggregate when due and payable or declared due and payable under this *Confidential treatment has been requested with respect to this information. 109 Agreement, and the same shall remain unremedied for a period of ten (10) Business Days after MW shall have made written demand therefor, or such longer period as may be required to resolve any good faith dispute as to whether any such amount is owed hereunder. (3) MWCC shall fail or neglect to perform any of the covenants contained in SECTION 13.1 of this Agreement (provided that such failure or neglect shall occur on a repeated and sustained basis with a conscious disregard of MWCC's obligations with respect thereto and relate to laws and regulations governing Accounts and/or Indebtedness owned by MWCC), and such failure or neglect shall remain unremedied for a period of thirty (30) days after notice thereof by MW to MWCC, or if such failure or neglect is not reasonably susceptible of being cured within such thirty (30) day period, if MWCC fails to commence to cure such failure, neglect or refusal during such thirty (30) day period and diligently proceed to cure thereafter. (4) Any representation or warranty made by MWCC pursuant to SECTIONS 9.1(a), 9.1(b), 9.2(a), 9.2(b), 9.2(c), 9.2(f), 9.2 (LAST SENTENCE), or 9.3 of this Agreement shall not be true and correct in any material respect as of the date when made or reaffirmed, and MWCC fails within thirty (30) days after notice thereof by MW to MWCC, to correct the underlying basis which causes the representation or warranty to be untrue, provided that in the case of SECTION 9.3, the thirty (30) day cure period shall not apply. (5) (a) Any material portion of the Accounts or Indebtedness then owned by MWCC or MWCC Assignees shall be attached, seized, levied upon or subjected to a writ by a creditor of MWCC and such action is not being contested by or on behalf of MWCC in good faith, which contest shall include providing such security as may be reasonably necessary to protect MW, or (b) any material portion of the Accounts or Indebtedness then owned by MWCC or MWCC Assignees shall come within the possession of any receiver, trustee, custodian, or assignee for the benefit of creditors of MWCC and such action is not being contested by or on behalf of MWCC in good faith, which contest shall include providing such security as may be reasonably necessary to protect MW. (6) Either MWCC or GE Capital shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against MWCC or GE Capital seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, 110 or seeking the entry of an order for relief or the appointment of a custodian, receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceedings instituted against MWCC or GE Capital (but not instituted by them), either such proceedings shall remain undismissed or unstayed for a period of sixty (60) days or any such adjudication or relief sought occurs; or MWCC or GE Capital shall take any corporate action to authorize any of the actions set forth in this subsection. (7) [Section Intentionally Omitted]. (8) [Section Intentionally Omitted]. (9) MWCC assigns this Agreement in a manner not permitted by SECTIONS 17.1 or 17.3. (10) MWCC shall fail to make any payment of any amount, including interest, owing in respect of SECTION 5.5 hereof when due and payable or declared due and payable, and the same shall remain unremedied for a period of ten (10) Business Days after MW shall have made written demand therefor, or, subject to the provisions of SECTION 7.11 hereof, such longer period as may be required to resolve any good faith dispute with respect to MWCC's obligations pursuant to SECTION 5.5 as to whether any such amount is owed hereunder. (11) A party other than MW shall have committed a Monogram Default under the Bank Program Agreement (as defined in the Bank Program Agreement). 16.3. MWCC REMEDIES. If any MW Default shall have occurred and be continuing: (1) MWCC, in its discretion, upon written notice to MW, may terminate this Agreement. (2) In addition to (1) above, MWCC may exercise any other rights or remedies available to it at law or in equity, subject to the terms of this Agreement. (3) MWCC may, without notice, declare Seller Notes, Seller Recourse Notes, the MW 1996 Note, the MW Continuation Note and/or MW's obligations under SECTION 4 and SECTIONS 5.4(7) and 5.5(11) hereof to be forthwith due and payable, whereupon such Seller Notes, Seller Recourse Notes, MW 1996 Note, MW Continuation Note and/or obligations shall become due and payable, without presentment, demand, protest, or further notice of any kind, all of which are expressly waived by MW, in which case MWCC shall have the right, at any time and from time to time thereafter, in its discretion, without notice thereof to MW, to 111 enforce payment of the Seller Notes, Seller Recourse Notes, the MW 1996 Note, the MW Continuation Note and/or such obligations. 16.4. MW REMEDIES. If any MWCC Default shall have occurred and be continuing: (1) MW, in its discretion, upon written notice to MWCC, may terminate this Agreement. (2) In addition to (1) above, MW may exercise any other rights or remedies available to it at law or in equity, subject to the terms of this Agreement. (3) MW may declare any amounts under SECTION 5.5 hereof to be forthwith due and payable, whereupon such amounts shall become due and payable, in which case MW shall have the right, at any time and from time to time thereafter, in its discretion, without notice thereof to MWCC, to enforce payment of such amounts. 17. MISCELLANEOUS 17.1. COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT; ASSIGNMENT AND SALE OF INTEREST. (1) This Agreement constitutes the complete agreement between the parties with respect to the subject matter hereof and may not be modified, altered or amended, except by an agreement in writing signed by MWCC and MW. The foregoing notwithstanding, it is acknowledged and agreed that (i) all rights, obligations and liabilities of the parties with respect to events which occur prior to the effective date of this Agreement under the Original Account Purchase Agreement, including letters from MWCC to John Workman dated June 1, 1995 and July 5, 1995, the letter by and among Signature Financial/Marketing, Inc., MWCC and MW, dated June 24, 1988 (including the amendments to that letter dated September 14, 1988, May 23, 1992, June 16, 1994 and as of January 1, 1994), and the prior Service Mark License Agreement, in all cases to the extent not expressly subsumed under this Agreement, and (ii) the obligations of MW under that certain letter agreement between the parties dated as of August 2, 1995 (the "Letter Agreement") solely with respect to the payment by MW to MWCC of the costs of the card reissuance program specified in that letter agreement, shall survive execution of this Agreement and be governed by (as appropriate) the Original Account Purchase Agreement, such letters, the Service Mark License Agreement or the Letter Agreement. (2) MW may not sell, assign, or transfer any of its rights, titles, interests, remedies, duties, obligations or powers hereunder except to a successor to substantially all of 112 its business (including, without limitation, such a successor that is an Affiliate of MW), and MW shall assign this Agreement to any successor to substantially all of its business. MWCC may not sell, assign or transfer any of its rights, titles, interests, remedies, duties, obligations or powers hereunder, except to an Affiliate (including by way of merger of MWCC into GE Capital), or as provided in SECTION 5.10 or subsection (3) below, provided any transfer to an Affiliate or as set forth in such section or subsection are all subject to the limitations set forth in any such section and subsection. Neither party shall be obligated to any such assignee or transferee until it receives notice of the assignment or transfer. Any assignments or transfers hereunder shall not relieve the assigning or transferring party from its obligations under this Agreement, and shall not relieve any guarantor of its obligations, which guarantor shall as a condition of the effectiveness of the assignment acknowledge in writing the continuing validity of its guaranty. The assignee or transferee of this Agreement shall assume, by instrument reasonably acceptable to the other party to this Agreement, the assignor's obligations hereunder. (3) Upon a sale of the entire retail credit department of GE Capital ("Retailer Department"), this Agreement may be assigned to the purchaser of the Retailer Department ("Purchaser"), provided, however, that if such Purchaser is a Competitor, or if a Competitor becomes an Affiliate of MWCC or otherwise directly or indirectly controls MWCC or MWCC's rights or obligations under this Agreement, MW may at any time thereafter elect to terminate this Agreement. Furthermore, upon assignment of this Agreement to a Purchaser, the Account-Related Agreement Guaranty shall continue for the unexpired term of this Agreement calculated as if a notice of termination was served at the time of assignment. The Purchaser shall assume the obligations of MWCC under this Agreement, and GE Capital shall, as a condition to the effectiveness of the assignment, confirm the continuing validity of its guaranty hereof, all by instruments reasonably acceptable to MW. MWCC will not be relieved of its obligations hereunder in the event of such an assignment. In the event GE Capital wishes to sell the Retailer Department, it will give MW at least sixty (60) days prior written notice and allow MW to submit an offer to purchase the Retailer Department. (4) After assignment or transfer by MWCC, as provided in (2) or (3) above, Transparent Servicing shall continue. 17.2. [SECTION INTENTIONALLY OMITTED]. 17.3. MWCC AFFILIATES. At the request of MWCC, MW shall, provided MWCC pays all costs arising therefrom, enter into one or more agreements with a bank, financial institution, industrial 113 bank or similar institution selected by MWCC, which bank or institution shall be an Affiliate of MWCC, in replacement of, or in addition to, this Agreement, provided any such action is approved by the Marketing Committee. Such new agreements referred to in the first sentence of this SECTION 17.3, and this Agreement as so modified, shall be guaranteed by GE Capital in the same form and manner that GE Capital has guaranteed this Agreement, and such new agreements and any required modifications of this Agreement shall be satisfactory in all respects to MW. 17.4. [SECTION INTENTIONALLY OMITTED]. 17.5. NO WAIVER. Either party's failure, at any time or times, to require strict performance by the other of any provision of this Agreement shall not waive, affect or diminish any right of such party thereafter to demand strict compliance and performance therewith. Any suspension or waiver by either party of a default shall not suspend, waive or affect any other default, whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of the parties contained in this Agreement and no MW Default or MWCC Default pursuant to this Agreement shall be deemed to have been suspended or waived by any party hereto, unless such suspension or waiver is by an instrument in writing signed by such party. 17.6. REMEDIES. The parties' rights and remedies pursuant to this Agreement shall, subject to the provisions hereof, be cumulative and nonexclusive of any other rights and remedies which they may have pursuant to any other agreement, by operation of law, or otherwise. 17.7. SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law; if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 17.8. PARTIES. This Agreement shall be binding upon, and inure to the benefit of, the permitted successors and permitted assigns of each party hereto. 17.9. AUTHORIZED SIGNATURE. Until notified to the contrary by the authorizing party, the signature upon any document or instrument delivered pursuant hereto of a respective officer of MW or MWCC listed in SCHEDULE 17.9 hereto shall bind such party and be deemed to be the act of such party affixed pursuant to and 114 in accordance with resolutions duly adopted by the Board of Directors of such party. 17.10. GOVERNING LAW. This Agreement and the obligations arising pursuant hereto shall, in all respects, including all matters of construction, validity, and performance, be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such state and any applicable laws of the United States of America. MW and MWCC agree to submit to personal jurisdiction and to waive any objection as to venue of the federal or state courts in the State of New York. Service of process on MW or MWCC in any action arising out of or relating to this Agreement shall be effective upon receipt thereof if sent or delivered to MW or MWCC, as the case may be, in accordance with SECTION 17.11 hereof. Nothing herein shall preclude MW or MWCC from bringing suit or taking other legal action in any other jurisdiction. 17.11. NOTICES. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by another, or whenever any of the parties desires to give or serve upon another a communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration, or other communication shall be in writing and either shall be delivered in person with receipt acknowledged or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: (1) If to MWCC, at Montgomery Ward Credit Corporation 880 Grier Drive Las Vegas, Nevada 89119 Attn: President with a copy to General Electric Capital Corporation 260 Long Ridge Road Stamford, Connecticut 06904 Attn: Vice President and General Manager, Retailer Financial Services 115 (2) If to MW, at Montgomery Ward & Co., Incorporated 619 W. Chicago Avenue Chicago, Illinois 60671 Attn: Secretary with a copy to Montgomery Ward & Co., Incorporated 619 W. Chicago Avenue Chicago, Illinois 60671 Attn: Chief Financial Officer or at such other address or to such other addressees as may be substituted or added by notice given by the party to receive such notice as herein provided. The giving of any notice required pursuant hereto may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication pursuant hereto shall be deemed to have been duly given or served on the date on which personally delivered or three (3) Business Days after mailing. 17.12. CONFIDENTIALITY. (1) Subject to the provisions of SECTION 5.3 of this Agreement, each party hereto shall hold in confidence any proprietary information obtained from any other party hereto in connection with this Agreement and shall not disclose the same to any third party, except that disclosure to an Affiliate of MW or MWCC or to Valuevision International Inc. is allowed. The parties' duty of confidentiality contained hereunder is specifically intended to apply to the MWCC Customer List and any credit file maintained in connection with MWCC Cardholders (both of which shall be deemed proprietary information). MW agrees that the financial terms of this Agreement are considered proprietary to MWCC and will not be disclosed (except in the circumstances described in subsections (b) and (c) below) to any Person if there are practical ways, after discussion with MWCC, of avoiding such disclosure. Nothing contained herein shall limit the right of either party to disclose any information (a) as required by law or by judicial or administrative process or to appropriate regulatory authorities, (b) as such information is or becomes public knowledge, (c) to the extent that such information is disclosed to recover the Indebtedness or amounts owing hereunder from another party hereto, (d) for legitimate business purposes, including but not limited to purposes relating to any securitization, securities filings or in connection with providing information to auditors, prospective purchasers and lenders (provided that, to the extent that any party determines 116 to disclose the MWCC Customer List in a manner authorized by this Agreement, the disclosing party shall use best efforts to obtain from the party to whom the information is being disclosed a written confidentiality agreement), and (e) subject to the provisions of SECTION 5.3 with the prior written consent of the party whose information is proprietary, pursuant to an agreement between the Person to whom the information is being disclosed and the party whose information is proprietary, satisfactory in form and content to such latter party as to the confidentiality of such proprietary information and reasonable liquidated damages (which liquidated damages for the use of the credit file shall initially be based on SCHEDULE 5.3 annexed hereto as such Schedule may be modified as provided in SECTION 5.3) to be paid for a violation thereof, provided, however, that prior to disclosing any proprietary information of another party hereto to any Person, the party making such disclosure shall notify the appropriate party of the nature of such disclosure and of the fact that such disclosure will be made. (2) The parties acknowledge and agree that: (i) the MWCC Customer List is commercially and competitively valuable; (ii) by this SECTION 17.12, the parties are taking reasonable steps to protect legitimate interests in the MW Customer List; and (iii) the restrictions on the parties under this Agreement relating to the MWCC Customer List are reasonably necessary in order to protect legitimate interests in the MWCC Customer List. 17.13. PAYMENTS. All payments to be made hereunder shall be made in lawful money of the United States in immediately available federal funds to an account designated by the other party. Except as expressly provided herein, if any amount due hereunder is not paid when due and owing, the party failing to make such payment agrees to pay, on demand, a charge equal to the Prime Rate on the date due and owing, or the Business Day immediately following such date, as it from time to time changes thereafter, plus [ ]* on such amount until such amount is paid in full. 17.14. [SECTION INTENTIONALLY OMITTED]. 17.15. SECTION TITLES. The section titles, table of contents and list of exhibits and schedules contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 17.16. COUNTERPARTS. This Agreement may be executed in any number of separate counterparts, each of which shall, collectively and separately, constitute one agreement. *Confidential treatment has been requested with respect to this information. 117 17.17. DISCLOSURE. Disclosure of information on any schedule or exhibit hereto shall be deemed to be a disclosure for all purposes of this Agreement. 17.18. ESTOPPEL CERTIFICATES. Each party shall furnish to the other, as requested from time to time by the other, estoppel certificates stating (or specifying exceptions thereto) that this Agreement is in full force and effect, that such party has no knowledge of any failure by either party to perform its obligations hereunder, and such other matters as may be reasonably requested by the other. 17.19. [SECTION INTENTIONALLY OMITTED]. 17.20. [SECTION INTENTIONALLY OMITTED]. 17.21. THIRD PARTY BENEFICIARIES. No third party shall have any rights under this Agreement except for Monogram, and successors and permitted assigns of the parties hereto. 17.22. FORCE MAJEURE. Except as otherwise expressly provided herein, and except with respect to Sections 11.1(b) and 11.2(b) and payments to be made by either party, neither party shall be responsible for any failure or delay in performance of its obligations under this Agreement because of circumstances beyond its control including, but not limited to, acts of God, flood, criminal acts, fire, riot, computer viruses, computer hackers, accident, strikes or work stoppages for any reason, embargo, war or civil disturbances; PROVIDED, HOWEVER, that such party took reasonable action to avoid such events and such party acts reasonably to mitigate the effects of such events. 118 17.23. MARKETING COMMITTEE. During the term of this Agreement, the parties hereto acknowledge and agree that, if and to the extent that (i) this Agreement provides for consultation with, or approval from, the Marketing Committee, (ii) there are changes over time to the Program which could have an adverse competitive, economic or other impact on MW, the Marketing Committee shall be consulted with, or its approval shall be obtained, in accordance with the standards and procedures set forth in the Bank Program Agreement (including, without limitation, those providing for binding arbitration in the event of a Marketing Committee deadlock). Notwithstanding any other provision of this Agreement or the Bank Program Agreement to the contrary, each of MWCC and MW may take any actions without prior Marketing Committee approval that MWCC or MW, as the case may be, believes in good faith, after consultation with counsel and reasonable notice to the other party, are required by law or by demand of any Governmental Authority. 17.24. CLOSING. The closing of this transaction and any related transactions involving Affiliates of MWCC shall be held on the Closing Date in the offices of Weil, Gotshal & Manges, 767 Fifth Avenue, New York, New York 10153 or such other place or places agreed to by the parties. IN WITNESS WHEREOF, this Agreement has been duly executed on December ___, 1996, effective as of April 1, 1996. MONTGOMERY WARD & CO., INCORPORATED By: ---------------------------------------------- MONTGOMERY WARD CREDIT CORPORATION By: ---------------------------------------------- 119 EXHIBIT A GUARANTY OF ACCOUNT-RELATED AGREEMENT THIS GUARANTY made as of this 1st day of April, 1996, by General Electric Capital Corporation (hereinafter referred to as "Guarantor"), in favor of Montgomery Ward & Co., Incorporated (hereinafter referred to as "MW"). RECITALS A. Montgomery Ward Credit Corporation (herein referred to as "MWCC"), is desirous of entering into that certain Account-Related Agreement of even date herewith between MWCC and MW ("Agreement"). B. Guarantor owns all of the outstanding capital stock of MWCC and has requested that MW enter into the Agreement. C. MW has declined to enter the Agreement unless Guarantor guarantees the obligations of MWCC under the Agreement. NOW, THEREFORE, to induce MW to enter the Agreement, Guarantor hereby agrees as follows: 1. UNCONDITIONAL GUARANTY. Guarantor unconditionally guarantees to MW and the successors and assigns of MW the full and punctual payment, performance and observance by MWCC, of all the terms, covenants, conditions and indemnifications in the Agreement contained on MWCC's part to be kept, performed or observed. If, at any time, default shall be made by MWCC in the performance or observance of any of the terms, covenants, conditions or indemnifications in the Agreement contained on MWCC's part to be kept, performed or observed Guarantor will keep, perform and observe the same, as the case may be, in place and stead of MWCC. 2. WAIVER OF NOTICE; NO RELEASE OF LIABILITY. Any act of MW, or the successors or assigns of MW, consisting of a waiver of any of the terms or conditions of the Agreement, or the giving of any consent to any matter or thing relating to the Agreement, or the granting of any indulgences or extensions of time to MWCC, may be done without notice to Guarantor and without releasing the obligations of Guarantor hereunder. The obligations of Guarantor hereunder shall not be released by MW's receipt, application or release of any security given for the performance and observance of covenants and conditions in the Agreement contained on MWCC's part to be performed or observed, nor by any modification of the Agreement. The liability of Guarantor hereunder shall in no way 1 be affected by (a) the release or discharge of MWCC in any creditors, receivership, bankruptcy or other proceedings, (b) the impairment, limitation or modification of liability of MWCC or the estate of MWCC in bankruptcy, or of any remedy for the enforcement of MWCC's liability under the Agreement, resulting from the operation of any present or future provision of the Federal Bankruptcy Code or other statute or from the decision in any court; (c) the rejection or disaffirmance of the Agreement in any such proceedings; (d) any disability or other defense of MWCC except as otherwise provided in the Agreement; (e) the cessation from any cause whatsoever of the liability of MWCC except or otherwise provided in the Agreement; or (f) the exercise by MW of any rights or remedies reserved to MW under the Agreement, provided or permitted by law, or by reason of any termination of the Agreement. 3. JOINDER; STATUTE OF LIMITATIONS. Guarantor agrees that it may be joined in any action against MWCC in connection with the obligations of MWCC under the Agreement as guaranteed by this Guaranty and recovery may be had against Guarantor in any such action, or MW may enforce the obligations of Guarantor hereunder without first taking any action whatsoever against MWCC or its successors and assigns, or pursue any other remedy or apply any security it may hold. 4. DE FACTO SUBSTITUTION. In the event this Guaranty shall be held ineffective or unenforceable by any court of competent jurisdiction, or in the event of any limitation of liability of Guarantor hereon other than as expressly provided herein, then Guarantor shall be deemed to be a party under the Agreement with the same force and effect as if Guarantor were expressly named as a joint and several party with MWCC therein with respect to the obligations of MWCC thereunder hereby guaranteed. 5. AMENDMENT OR ASSIGNMENT OF AGREEMENT. The provisions of the Agreement may be changed, modified, amended or waived by agreement between MW and MWCC at any time, or by course of conduct, without the consent of or without notice to Guarantor, including but not limited to, any agreement to increase the "Maximum Aggregate Cardholders' Balance" (as such quoted term is defined in the Bank Program Agreement) thereunder. This Guaranty shall guarantee the performance of the Agreement as so changed, modified, amended or waived, including but not limited to, any increase in the "Maximum Aggregate Cardholders' Balance". Any assignment of the Agreement shall not affect this Guaranty and if MW disposes of its interest in the Agreement, "MW", as used in this Guaranty, shall mean MW's successors and assigns. 6. DEFENSE OF MWCC. Guarantor waives any defense by reason of any legal disability of MWCC, and further waives any 2 presentments, and notices of acceptance of this Guaranty as well as all notices of the existence, creation, or incurring of new or additional obligations under the Agreement. 7. NO WAIVER BY MWCC. No delay on the part of MW in exercising any right hereunder or under the Agreement shall operate as a waiver of such right or of any other right of MW hereunder or under the Agreement, nor shall any delay, omission or waiver on any one occasion be deemed a waiver of the same or any other right on any other future occasion. 8. WHOLE AGREEMENT. This instrument constitutes the entire agreement between MW and Guarantor with respect to the subject matter hereof, supersedes all prior oral or written agreements or understandings with respect thereto and may not be changed, modified, discharged or terminated orally or in any manner other than by an agreement in writing signed by Guarantor and MW. 9. APPLICABLE LAW. This Guaranty shall be governed by and construed in accordance with the laws of the State of New York. 10. GUARANTOR'S SUCCESSORS. Guarantor's obligations under this Guaranty shall be binding on the successors, legal representatives and assigns of Guarantor. Guarantor shall not be released by any assignment or delegation by it of its obligations hereunder. 11. ATTORNEYS' FEES. If MW is required to enforce Guarantor's obligations hereunder, Guarantor shall pay to MW all costs incurred, including without limitation, reasonable attorneys' fees. 12. CAPTIONS. The paragraph headings appearing herein are for purposes of identification and reference only and shall not be used in interpreting this Guaranty. 13. INTERPRETATIONS; SEVERABILITY. It is agreed that if any provision of this Guaranty or the application of any provision to any person or any circumstance shall be determined to be invalid or unenforceable, such determination shall not affect any other provisions of this Guaranty or the application of such provision to any other person or circumstance, all of which other provisions shall remain in full force and effect. It is the intention of the parties hereto that if any provision of this Guaranty is capable of two constructions, one of which would render the provision valid, the provision shall have the meaning which renders it valid. 14. EXTENSION AND RENEWALS. This Guaranty shall apply to the Agreement, any extension or renewal thereof, and to any 3 extended term following the term granted in the Agreement, or any extension or renewal thereof, subject to the provision of SECTION 17.1(3) of the Agreement which may limit the period of the Guaranty in certain circumstances where Guarantor has sold the entire retail credit department, all as more fully set forth therein. 15. NOTICES. Notices shall be given pursuant to the Guaranty in the same manner as given in the Agreement. 16. CONFIDENTIALITY. Guarantor shall comply, and shall cause all of its "Affiliates" (as such quoted term is defined in the Agreement) to comply, with the confidentiality provisions contained in the Agreement which are imposed on MWCC. 17. COMPLIANCE. Guarantor hereby additionally agrees to comply with the last sentence of SECTION 3.1(4) and the last sentence of SECTION 17.12 of the Agreement. ACKNOWLEDGEMENT; ENFORCEABILITY. GUARANTOR REPRESENTS AND WARRANTS TO MW THAT GUARANTOR HAS READ THIS GUARANTY AND UNDERSTANDS THE CONTENTS HEREOF AND THAT THIS GUARANTY IS ENFORCEABLE AGAINST GUARANTOR IN ACCORDANCE WITH ITS TERMS. 4 IN WITNESS WHEREOF, Guarantor has executed this Guaranty on December 20, 1996, effective as of April 1, 1996. Guarantor: GENERAL ELECTRIC CAPITAL CORPORATION By: Name: Title: 5 EX-10.(II)(C)(1) 12 LETTER AGREEMENT DATED AS OF APRIL 1, 1996 As of 4/1/96 Monogram Credit Card Bank of Georgia 7840 Roswell Road Atlanta, Georgia 30350 Gentlemen: Reference is made to the letter by and among Signature Financial/Marketing, Inc. ("Signature"), Montgomery Ward Credit Corporation ("MWCC") and Montgomery Ward & Co., Incorporated ("MW"), dated June 24, 1988 to which is attached an outline relating to a proposed Signature-MWCC Servicing Agreement (the "Outline"), and the amendments to that letter dated (respectively) September 14, 1988, May 23, 1992, June 16, 1994 and as of January 1, 1994 (collectively, the "Amendments"). WHEREAS, MWCC heretofore provided revolving credit accessed by a credit card to persons ("Cardholders") in order to make purchases from MW and certain of MW's affiliates and licensees, including Signature; and WHEREAS, MWCC furnishes certain services to Signature as specified in the Outline, in return for which Signature pays MWCC certain fees; and WHEREAS, Monogram Credit Card Bank of Georgia ("Monogram") has entered into a Bank Credit Card Program Agreement with MW, dated as of April 1, 1996, as amended, restated, modified, supplemented or replaced ("Bank Credit Card Program Agreement") pursuant to which Monogram shall be providing revolving credit advances to Cardholders accessed by a credit card in order to allow such Cardholders to make purchases from MW and certain of its affiliates and licensees, including Signature; and WHEREAS, MWCC, Monogram and Signature recognize and desire that the services previously provided by MWCC for Signature should now be provided by Monogram, and that payment for such services be made by Signature to Monogram; NOW, THEREFORE, in consideration of these premises, the parties hereto covenant and agree as follows: 1. Monogram shall, as of April 1, 1997, provide to Signature the same services that were being provided by MWCC and Monogram shall continue to do so until the Bank Credit Card Program Agreement terminates. Monogram may provide such services through a designee. 2. Signature shall, as of April 1, 1996, pay to Monogram the fees it has been paying MWCC as specified in the Outline, as modified by amendment, dated May 23, 1992, and Signature shall continue to do so until the Bank Credit Card Program Agreement terminates. 3. Paragraph 3 in the Third Amendment to Exhibits A & B, dated as of January 1, 1994, entitled "Payment Regarding Finance Charges" ("Paragraph 3"), is void and shall have no force or effect. For the avoidance of doubt, it is understood and agreed that no payments under Paragraph 3 (including with respect to all time periods prior to the date hereof) shall be owed to Signature at any time. 4. This letter replaces the letter by and among Signature, MWCC, and MW, dated June 24, 1988, the Outline and the Amendments, all of which shall be of no further force or effect. Dated: December 20, 1996 Very truly yours, SIGNATURE FINANCIAL/ MARKETING, INC. By: -------------------------------- Acknowledge and Agreed To: MONTGOMERY WARD CREDIT CORPORATION By: -------------------------------------- MONOGRAM CREDIT CARD BANK OF GEORGIA By: -------------------------------------- MONTGOMERY WARD & CO., INCORPORATED By: -------------------------------------- 2 EX-10.(II)(C)(2) 13 LETTER AGREEMENT DATED AS OF 4/1/96 As of 4/1/96 Montgomery Ward Credit Corporation 880 Grier Drive Las Vegas, Nevada 89119 Gentlemen: Reference is made to the Account-Related Agreement by and between Montgomery Ward Credit Corporation ("MWCC") and Montgomery Ward & Co., Incorporated ("MW"), dated as of April 1, 1996 (the "Account-Related Agreement"). Signature Financial/Marketing, Inc. ("Signature"), shall reimburse MWCC for amounts of continued assessments on Accounts with respect to fees, premiums and charges of Signature where (i) such accounts are past due for thirty (30) days or more on five (5) minimum payments at the time of assessment and (ii) where MWCC writes-off such Accounts. Accounts are those defined in the Account-Related Agreement. Signature shall make such reimbursement payment within ten days after MWCC bills Signature for such amounts. With respect to such reimbursements payments for the period April 1, 1996 through December 31, 1996, MWCC shall bill Signature in January 1997 for such period and Signature shall make such payment on or before January 31, 1997. Dated: December 20, 1996 Very truly yours, SIGNATURE FINANCIAL/ MARKETING, INC. By:________________________ Acknowledge and Agreed To: MONTGOMERY WARD CREDIT CORPORATION By:______________________________ EX-10.(II)(C)(3) 14 LETTER AGREEMENT DATED SEPT. 17, 1996 September 17, 1996 Monogram Credit Card Bank of Georgia 7840 Roswell Road Atlanta, GA 30350 Attention: Colin Shave Montgomery Ward Credit Corporation 880 Grier Drive Las Vegas, NV 89119 Attention: Greg Pittman Gentlemen: In connection with the execution by Montgomery Ward & Co., Incorporated ("MW") of the Bank Program Agreement and the Account Related Agreement, both dated as of April 1, 1996 (collectively the "Agreements"), we have had numerous discussions with your representatives concerning the calculation of and the data provided for that calculation with respect to "skip free promotions". We have agreed that these issues require further analysis and review to determine the appropriateness and fairness of the calculation. When this review is completed it may require the further modification of the Agreements. Very truly yours, MONTGOMERY WARD & CO., INCORPORATED By: /s/ John Workman ------------------------------------ Accepted and Agreed To: MONOGRAM CREDIT CARD BANK OF GEORGIA By: /s/ ----------------------------- MONTGOMERY WARD CREDIT CORPORATION By: /s/ Gregory W. Pittman ----------------------------- EX-10.(II)(C)(4) 15 LETTER AGREEMENT DATED AUG. 2, 1995 [LETTERHEAD] August 2, 1995 Mr. John L. Workman Executive Vice President and Chief Financial Officer Montgomery Ward Corporate Offices 535 W. Chicago Ave. - 8C Chicago, IL 60671 Dear John: As you will recall, one item discussed at our 2/28 Credit Marketing status meeting was the launch of the new card reissuance program and the approach to be followed in funding the marketing cost. We estimate that the cost of reissuing 2.6MM cards will be approximately [ ]*. It is our understanding that the launch costs will be billed to Montgomery Ward when incurred and that such cost will be recovered over time as a result of changing the Chairman's Club APR from a fixed rate of 16.9% (or such lesser APR as may be in effect) to a 21.9% fixed rate where allowed. We agreed that the abovementioned increase in the Chairman's Club APR be deferred until 1996 with notification on or about 1/1/96 and an effective date of 3/1/96, subject to applicable change in terms notice requirement. The incremental Chairman's Club finance charge income from the higher fixed APR will be credited [ ]* to Montgomery Ward until the launch cost is fully recovered. We propose that the incremental finance charge income be shared on a [ ]* basis following the complete repayment of the reissuance cost. Consistent with the terms of the 5th amendment to the Account Purchase Agreement, Montgomery Ward's [ ]* share of incremental APRs will be incorporated into the revenue sharing "pool" and be applied against the current note due and payable by Montgomery Ward on 2/28/98 after the reissuance note has been fully repaid. Subject to your agreement, the following terms are suggested for this program: Timing: Reissuance of the cards in early August. Implement new Chairman's APR effective 3/1/96 (subject to applicable law). APR: The APR will be fixed at 21.9% except in those states where the maximum rate is lower. The lower fixed rates will continue to apply to old balances with the higher APRs applying only to new purchases. Incremental Revenue: [ ]* payable to Montgomery Ward until reissuance cost is repaid. Share [ ]* thereafter with Montgomery Ward share being applied against the loss sharing note. * Confidential treatment has been requested with respect to this information. John L. Workman August 2, 1995 Page 2 In order to provide the initial funding necessary to cover the reissuance cost, GE Capital is prepared to provide a loan of [ ]* with quarterly payments due from Montgomery Ward based upon the incremental finance charge income generated by the higher Chairman's Club APR and interest due. Any balance remaining at 12/31/97 will be due and payable at that time. Interest will be charged at [ ]* on a quarterly basis. Interest only will be due on the loan until the Chairman's Club APR is increased on or about 3/1/96. Quarterly payments against the loan balance will be equal to the incremental APR revenues plus interest after 3/1/96. If Montgomery Ward fails to increase the Chairman's Club APR on 3/1/96, the total loan balance will be due and payable at that time. It is our understanding that this agreement relates to cardholders who have been approved for Montgomery Ward cards only and excludes those cardholders approved for a Electric Avenue and More or Lechmere card. Please sign below if you agree with these terms or let's discuss any required modifications. Sincerely, /s/ Gail Lanik Approval: /s/ John Workman Gail Lanik -------------------------------- John L. Workman cc: Ricky Davis Al LeFevre Steve Currey Gene McCaffery * Confidential treatment has been requested with respect to this information. EX-10.(II)(D) 16 INERIM CONSUMER CREDIT CARD PROGRAM AGREEMENT INTERIM CONSUMER CREDIT CARD PROGRAM AGREEMENT This Consumer Credit Card Program Agreement (hereinafter the "Agreement") is made as of the 13th day of March, 1996 by and between Monogram Credit Card Bank of Georgia, a Georgia banking corporation with its principal place of business at 7840 Roswell Road, Atlanta, Georgia 30350 and Lechmere Inc. a Massachusetts corporation with its principal place of business and chief executive office at 275 Wildwood, Woburn, Massachusetts 01801 ("Retailer"). W I T N E S S E T H - - - - - - - - - - WHEREAS, Bank (as hereinafter defined) has established programs to extend customized revolving credit to qualified customers for the purchase of Goods and Services (as hereinafter defined) from various merchants for personal, family or household purposes; WHEREAS, Retailer through its Retailer Locations (as hereinafter defined) is engaged, among other activities, in the retail sale of consumer Goods and Services and desires to create an interim customized revolving credit card program, as more particularly set forth herein; WHEREAS, Retailer has requested that Bank extend credit to qualified customers of Retailer for the purchase of such Goods and Services at Retailer Locations; WHEREAS, Bank has agreed to provide Retailer with such a program for credit extension at Retailer Locations as set forth herein, initially for Accounts that have been created pursuant to the terms of this Agreement and, after GE Capital purchases certain accounts and indebtedness from Hurley State Bank relating to Retailer, all Accounts and Indebtedness including those purchased from Hurley State Bank; WHEREAS, the parties intend to replace this Agreement as soon as practicable by the Long Term Agreement; and NOW, THEREFORE, in consideration of the terms, conditions and mutual covenants contained herein, and for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Bank and Retailer agree as follows: ARTICLE I DEFINITIONS SECTION 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ACCOUNT" means and includes the following: (i) any open-end revolving Credit Card Agreement, whether now existing or hereafter created between a Cardholder and Bank under the Program, pursuant to which such Cardholder may finance Purchases on credit pursuant to the terms of such Credit Card Agreement, together with any modifications or amendments which now or hereafter may be made to such Credit Card Agreement, which Account is owned by Bank, and which Account is to be used for personal, family or household purposes, as well as Old Accounts (ii) any and all Account Documentation; (iii) all of the accounts, accounts receivable, Indebtedness, other receivables, contract rights, choses in action, general intangibles, chattel paper, instruments, documents and notes, Program Documents and contract rights related to, comprising, securing or evidencing the obligation, or the receivables therefrom and all proceeds of all of the foregoing, (iv) any and all rights as to any goods or other property which is represented thereby or is security or collateral therefor; (v) all guarantees, claims, security interests, or other security held by or granted to Bank to secure payment by any Person with respect thereto; (vi) proceeds relating to Insurance Programs; and (vii) any and all other rights, remedies, benefits, interests and titles, both legal and equitable, to which Bank may now or at anytime hereafter be entitled in respect of the foregoing. "ACCOUNT DOCUMENTATION" means with respect to an Account, any and all documentation relating to an Account, including without limitation, Program Documents, Credit Cards, Credit Card Applications, Credit Card Agreements, Charge Transaction Data, Charge Slips, Credit Slips, checks and stubs, credit bureau reports, adverse action information, change of terms notices, correspondence, memoranda, documents, instruments, certificates, agreements and invoices, including any and all amendments or modifications thereto, however stored or kept, and any other written information relating to an Account. "ACTIVE ACCOUNT" means any Account other than an Account that has been written off in accordance with Bank's write-off 2 policies, which at any time during a Billing Period has a debit or credit balance. "AFFILIATE" shall mean, with respect to any Person, each Person that controls, is controlled by or is under common control with such Person. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. "Affiliate" shall not include any individual, and no individuals shall be taken into account in any determinations under this definition, and (b) neither General Electric Company, nor any of its subsidiaries, shall be considered an Affiliate of Retailer. "BANK" means Monogram Credit Card Bank of Georgia and its permitted successors, transferees and assigns. "BILLING DATE" means the last day of a Billing Period as of which Accounts are billed by Bank. "BILLING PERIOD" means the elapsed time between Billing Dates of Bank, usually between 28 and 32 days. "BUSINESS DAY" means any day, except Saturday, Sunday, or a day on which banks are required or permitted to be closed in Georgia. "CARDHOLDER" means any natural Person with a mailing address in, or who resides in, the United States and who has entered into a Credit Card Agreement with Bank or who is or may become obligated under or with respect to an Account, for the purpose of purchasing Goods and/or Services from Retailer or its Licensee for personal, family or household purposes on credit pursuant to an Account. "CARDHOLDER LIST" has the meaning given to it in Section 3.06 hereof. "CHARGE SLIP" means a sales receipt, register receipt tape or other invoice or documentation, in each case evidencing a Purchase that (i) is to be charged to a Cardholder's Account and to be advanced by Bank to Retailer on behalf of such Cardholder or (ii) was charged on an Old Account. "CHARGE TRANSACTION DATA" means Account/Cardholder identification and transaction information with regard to each Purchase by Cardholders on credit and each return of a Purchase 3 for credit to the Account/Cardholder, which data will be transmitted by Retailer to Bank in accordance with the applicable Operating Procedures. "CREDIT CARD" or "CARD" means the plastic card issued and owned by Bank under the Program exclusively for use with the Program which evidences a Cardholder's right to make Purchases under the Program. "CREDIT CARD AGREEMENT" means the open-end revolving credit agreement between Bank and each Cardholder pursuant to which such Cardholder may make Purchases, on credit provided by Bank, together with any modifications or amendments which may be made to such agreement. "CREDIT CARD APPLICATION" means Bank's credit application which must be completed by applicants who wish to become Cardholders and submitted to Bank in Georgia for review and approval by Bank. "CREDIT PROMOTION ACCOUNT" shall have the meaning assigned to such term in Section 2.03(c). "CREDIT SLIP" means a sales credit receipt evidencing a return or exchange of Goods or a credit on an Account, including an Old Account, as an adjustment for Services rendered or not rendered by Retailer or a Licensee to a Cardholder. "DEFAULT" means any event the occurrence of which, with the passage of time or the giving of notice or both, would constitute an Event of Default. "EVENT OF DEFAULT" shall have the meaning assigned to such term in Section 10.01 hereof. "FINAL LIQUIDATION DATE" shall mean the date on which Bank no longer owns any Active Accounts that have a balance outstanding. "FLOOR RELEASE" means the maximum amount of credit for any single credit transaction authorized by Bank whereby Retailer may release Goods and/or Services to Cardholders without securing prior approval by Bank as set forth in the Operating Procedures. "GOODS AND/OR SERVICES", separately or cumulatively, means all merchandise and services which may be purchased by Cardholder from Retailer or a Licensee. Goods and Services shall include 4 Insurance Programs and Value-Added Programs to the extent purchased on an Account. "INDEBTEDNESS" means any and all amounts owing from time to time with respect to an Account (including an Old Account), including, without limitation, any unpaid balances, finance charges, late fees, charges relating to Insurance Programs and Value-Added Programs and any other charges with respect to an Account, whether billed or unbilled. "IN-STORE PAYMENTS" means any payment on an Account made by a Cardholder (or any person acting on behalf of a Cardholder) at a Retailer Location in accordance with Section 3.07. "INSURANCE PROGRAM" means any program which may be offered through Bank pursuant to Section 3.04 under which Bank or any insurance company or other third party makes available insurance coverage to Cardholders. "LICENSEE" means any Person who pursuant to an agreement with Retailer, is permitted from time to time by Retailer to make credit sales of Goods and/or Services to Cardholders pursuant to or utilizing Credit Card Agreements. "LOSSES" has the meaning given to it in Section 12.01 hereof. "LONG TERM AGREEMENT" means an agreement between the parties hereto which replaces this agreement and has among other provisions loss sharing and promotional funding provisions. "NET CREDIT VOLUME" means, with respect to any period, an amount equal to the aggregate amount of Purchases on Accounts for such period (as reflected in Charge Transaction Data) less the sum of (x) the aggregate amount of Credit Slips for such period (as reflected in Charge Transaction Data) and (y) the aggregate amount of chargebacks for such period not otherwise reflected in such Credit Slips. "NEW RETAILER" means any Person engaged in the operation of retail appliance and/or electronics stores, together with any other Person directly or indirectly controlled by such Person and any franchisees of such Person using such Person's name, logo, trademarks and service marks or similar proprietary designations claimed, owned or used by such Person. 5 "OLD ACCOUNTS" means all revolving charge accounts established by Hurley State Bank with respect to Retailer that are acquired directly or indirectly by Bank. "OPERATING PROCEDURES" means the instructions and procedures to be followed by Retailer in connection with the Program, as such instructions and procedures may be amended from time to time. "PERSON" means and includes any individual, partnership, joint venture, corporation, trust, unincorporated organization or government or any department or agency thereof. "POS NETWORK" means the electronic communication system between Retailer and Bank to facilitate the operation of the Program. "PROGRAM" means the credit card program established by Bank pursuant to this Agreement and made available to qualified customers of Retailer and Licensees to make Purchases. The term "Program" includes the extension of credit by Bank to Cardholders, billings, collections, accounting between the parties, and all aspects of the customized revolving credit plan contemplated herein. "PROGRAM DOCUMENTS" has the meaning given to it in Section 3.01 hereof. "PURCHASE(S)" means the purchase by a Cardholder of any of the Goods and/or Services, including those which may be purchased from Retailer or Licensees at the Retailer Locations. "RETAILER LOCATION(S)" means retail stores within the continental United States and other means to conduct retail business that are owned or operated by Retailer or its Licensees at which Purchases may be made by Cardholders from Retailer or Licensees. "RETAILER NAMES" has the meaning given to it in Section 14.07 hereof. "SOLVENT" as to a Person, means (a) the present fair salable value of such Person's assets is in excess of the total amount of its liabilities, (b) such Person is presently able generally to pay its debts as they become due, and (c) such Person does not have unreasonably small capital to carry on such Person's business as theretofore operated and all business in which such Person is about to engage. The phrase "present fair salable 6 value" of a Person's assets is intended to mean that value which can be obtained if the assets are sold within a reasonable time in arm's-length transactions in an existing and not theoretical market. "TRANSACTION DAY" means any day, whether or not a Business Day, on which Goods and/or Services are sold by Retailer or Licensees. "UCC" means the Uniform Commercial Code of the jurisdiction with respect to which such term is used, as in effect from time to time. "UNCONTESTED AMOUNT" means an amount owed by Bank to Retailer or by Retailer to Bank, as the case may be, pursuant to the terms of this Agreement and with respect to which written notice disputing such amount has not been delivered by Bank to Retailer or by Retailer to Bank, as the case may be. "VALUE-ADDED PROGRAM" means any products or services which may, subject to mutual approval of Bank and Retailer, be offered by or through Bank to Cardholders pursuant to Section 3.05 that enhance the features of the Program and/or Account including, without limiting the foregoing, credit card protection plans, legal services, auto clubs and extended warranties; provided, however, that the term shall not be deemed to include credit insurance or any offerings falling within the definition of "Insurance Program". SECTION 1.02 MISCELLANEOUS. As used herein, (i) all references to the plural number shall include the singular number (and vice versa); (ii) all references to the masculine gender shall include the feminine gender (and vice versa) and (iii) all references to "herein," "hereof," "hereunder," "hereinbelow," "hereinabove" or like words shall refer to this Agreement as a whole and not to any particular section, subsection or clause contained in this Agreement. All other undefined terms contained herein shall, unless the context indicates otherwise, have the meanings provided for by the UCC of the State of Georgia to the extent the same are used or defined therein. ARTICLE II ESTABLISHMENT OF PROGRAM SECTION 2.01 COMMENCEMENT OF PROGRAM; MERCHANT TO HONOR CREDIT CARD. 7 (a) Pursuant to the terms and conditions of this Agreement, Retailer and Bank hereby establish the Program for the purpose of making open-end credit available (up to such credit limits as Bank may from time to time establish and modify) to qualified customers of Retailer for Purchases from Retailer Locations. Prior to the time Bank obtains accounts and indebtedness, directly or indirectly, from Hurley State Bank relating to Retailer, the Program shall be limited to establishing Accounts for Persons who request Bank to open an Account. After such time, Bank will also make credit available with respect to Old Accounts unless this Agreement has been replaced by the Long Term Agreement. (b) With respect to each applicant under the Program who qualifies for credit under the standards established solely by Bank, Bank will open an Account, issue to such qualified applicant a Credit Card, activate such applicant's Credit Card in accordance with the Operating Procedures and grant credit to such applicant for any Purchases from Retailer Locations in accordance with credit limits. The terms and conditions upon which a Cardholder may use the Credit Card and upon which Bank may extend credit to a Cardholder shall be governed by the Credit Card Agreement between the Cardholder and Bank. (c) Retailer will participate in the Program and honor any valid Credit Card issued by Bank for Purchase(s) (including taxes) at each Retailer Location. Only the cash selling price of Goods and Services sold or rendered by Retailer shall be charged to Accounts. Sales and services to commercial enterprises shall not be charged to Accounts. Retailer shall permit customers with Accounts to charge Goods and Services to their Accounts, subject to and in accordance with the Operating Procedures. SECTION 2.02 BANK TO EXTEND CREDIT. Subject to (i) the terms of this Agreement, (ii) the credit limits applicable to each Account and (iii) the terms and conditions in the Credit Card Agreement, Bank shall extend credit to Cardholders in amounts set forth as the total for any Purchase(s) reflected in Charge Transaction Data received and accepted by Bank. SECTION 2.03 PROMOTION OF PROGRAM. (a) During the term of this Agreement, Retailer will actively promote the Program. Retailer shall include Program information and/or actual Credit Card Applications and Credit Card Agreements in their general and specialized brochures 8 advertising when deemed appropriate by Retailer management. Retailer shall make available at the Retailer Locations Credit Card Applications and Credit Card Agreements to be used in connection with the Program in such manner as mutually agreed by Retailer and Bank. Any press releases, advertisements, publicity or other materials which promote the Program, including the Program Documents, shall not be publicly distributed or disseminated without the prior consent of Retailer and Bank; provided, however, that (i) Bank shall not be required to obtain Retailer's consent for any portion of a document containing disclosures or other information which in Bank's judgment is required by or appropriate to comply with, any applicable law, rule or regulation; and (ii) Retailer shall not be required to obtain Bank's consent for any materials regarding the Program that are limited to statements or other representations (either oral, written or visual) that the Card may be used for Purchases. (b) From time to time Bank shall make available to Retailer, to encourage Account acquisition and usage, certain credit-based promotions to include, without limiting the foregoing, (i) 90 Day Skip Free Promotions, with respect to which Retailer will pay Bank monthly the amount of [ ]*. Such estimated amounts will be reconciled upon completion of each credit promotion. No credit promotion of a type other than specified above may be run unless agreed to in writing by the parties hereto. (c) Bank shall establish on its books an account known as the "Credit Promotions Account." This Credit Promotions Account shall be non-interest bearing, shall not represent segregated funds and may be commingled by Bank with other funds. The Credit Promotions Account shall be maintained as follows: (i) On the date hereof, Retailer shall pay Bank an amount equal to what Bank reasonably estimates to be the anticipated [ ]* that Retailer will owe Bank under this SECTION 2.03(B) during the term of this Agreement (the "Anticipated Credit Promotion Amount"). The amount of such payment shall be credited to the Credit Promotions Account. If Bank debits the Credit Promotions Account (as specified in the first sentence of *Confidential treatment has been requested with respect to this information. 9 subparagraph (ii) below), Retailer shall immediately pay Bank such amount and such amount when paid shall be credited to the Credit Promotions Account. (ii) Bank will debit the Credit Promotions Account where Retailer fails to pay Bank when due the amount Retailer has been billed by Bank with respect to credit promotions. (iii) After termination of this Agreement and at such time Retailer no longer is obligated to make payments with respect to credit promotions hereunder, Bank shall debit the Credit Promotions Account for the balance thereof and pay such amount to Retailer. ARTICLE III ADMINISTRATION OF PROGRAM SECTION 3.01 PREPARATION OF DOCUMENTS. (a) Subject to the provisions of Section 2.03, Bank and Retailer shall cooperate and assist each other in the preparation of all documents to be used in connection with the Program. Bank shall provide Retailer with the form and content of Credit Card Applications, Credit Card Agreements, Credit Cards, credit card mailers and such other documents as are requested by Retailer, required by law or pursuant to the Operating Procedures (hereinafter collectively, the "Program Documents"). Bank shall establish the nature and quantities of any such documents. (b) Bank shall be responsible for the direct costs of billing statements, Credit Cards (including costs of embossing and distributing Credit Cards) and a host-to-host computer link between Bank and Retailer. All Program Documents, Credit Cards and other forms shall clearly disclose that Bank is the creditor. No Program Documents shall be printed or utilized on a widespread or general basis unless Bank and Retailer have expressly approved the form and content of such documents in writing; provided, however, that if any such changes to the documents are required by law, rule or regulation, then Bank shall not be required to obtain Retailer's approval for any such change. (c) Retailer shall be solely responsible for all other costs and expenses of Program Documents, including, without limitation, Credit Card Applications, credit advertising, in- 10 store point-of-purchase promotional materials and credit marketing expenses related to the promotion of the Program. SECTION 3.02 ACCOUNT ADMINISTRATION; CREDIT CRITERIA. (a) Bank, in its sole discretion, shall determine the creditworthiness of individual applicants under the Program, the range of credit limits to be made available to individual Cardholders, whether to suspend or terminate credit privileges of any Cardholder, the credit criteria to be used in evaluating applicants in connection with the Program, and shall establish all of the terms and conditions of the Credit Card Agreement and the terms and conditions under which credit is extended to Cardholders and may modify all such terms and conditions from time to time in its sole discretion. (b) The rejection for credit of any applicant under the Program, or any number of applicants, shall not give rise to any claim, liability, demand, offset, defense, counterclaim or other right or action by Retailer against Bank or its Affiliates, and Retailer hereby waives and releases any such claim that it may have against Bank or its Affiliates. SECTION 3.03 OWNERSHIP OF ACCOUNTS. Bank shall be the sole and exclusive owner of all Accounts, Account Documentation, Cardholder data, Charge Transaction Data, Charge Slips, Credit Slips and receipts or evidences of payment or purchases by Cardholder and other Program Documents, and shall be entitled to receive all payments made by Cardholders on Accounts, and Retailer acknowledges and agrees that it has no right, title or interest in any of the foregoing and no right to any payments made by Cardholders on Accounts or any proceeds in respect of the Accounts. All collection procedures shall be under the sole control and discretion of Bank and may be modified from time to time by Bank, provided that Bank will provide Retailer notice prior to implementation of material modifications to its collection procedures. SECTION 3.04 INSURANCE SOLICITATION OF ACCOUNTS. Bank, or its agents, may solicit Cardholders for Insurance Programs with the written agreement of Retailer. In the absence of such agreement, Retailer or its designee may solicit Cardholder for Insurance Programs. SECTION 3.05 VALUE-ADDED SOLICITATION OF ACCOUNTS. Bank, or its agents, may, with Retailer's prior written consent, solicit Cardholders for Value-Added Programs. Unless otherwise requested in writing by Retailer, such solicitation shall in no way state 11 or infer that such Value-Added Programs are offered or endorsed by Retailer in any manner. In the absence of such consent, Retailer or its designee may solicit Cardholders for Value-Added Programs. SECTION 3.06 USE OF CARDHOLDER LIST. Although Retailer acknowledges and agrees that Bank is the sole owner of all lists of applicants, Cardholders, Cardholder names and addresses, and all credit information, including that for approved and declined applicants (hereafter the "Cardholder List"), Bank expressly agrees that both during the term of this Agreement or thereafter, Bank will not sell, rent or use such Cardholder List except in connection with its administration and operation of the Program as provided in this Agreement; provided, however, that upon the termination of this Agreement however caused, then Bank shall be entitled to use the Cardholder List as provided in Section 11.05. Bank agrees that during the term of this Agreement Retailer may utilize the Cardholder List at no charge for promotion of this Program or of Goods and Services; provided, however, that until the Final Liquidation Date in no event shall Retailer or its Affiliates be entitled to use such Cardholder List to solicit Cardholders with respect to any other debit, credit or charge programs that are in competition with Bank or its Affiliates. SECTION 3.07 IN-STORE PAYMENTS. Retailer shall not advertise or otherwise promote that Cardholders (or other Persons acting on behalf of Cardholders) may make In-Store Payments. Without derogating the restriction in the preceding sentence, if any In-Store Payment is made, Retailer shall give the person making such In-Store Payment a receipt for such payment, but payments shall not be deemed to be made to Bank until funds are either delivered to Bank or the payments are applied by Bank to reduce amounts payable by Bank to Retailer. Retailer shall transmit In-Store Payment information to Bank. In-Store Payments shall be credited to the Account of the relevant Cardholder as of the date of actual receipt by Bank. In-Store Payments received by Retailer shall reduce the amounts payable by Bank to Retailer. In the event that In-Store Payments received by Retailer exceed amounts so payable by Bank to Retailer at the time Retailer informs Bank of such In-Store Payments, Retailer shall be required to transmit such excess In-Store Payments to Bank within three (3) Business Days of the day received. Retailer shall notify Bank of any In-Store Payments within twenty-four (24) hours of receipt thereof by providing such information in a computer-readable medium. Retailer shall cease to accept In-Store Payments upon notice from Bank which notice may be given (a) upon the occurrence of an Event of Default caused by Retailer or (b) such time as Bank has 12 a reasonable basis for believing an Event of Default caused by Retailer is likely. ARTICLE IV OPERATING PROCEDURES SECTION 4.01 GENERAL. Retailer shall follow all applicable Operating Procedures relative to the Program including, but not limited to, distributing Credit Card Applications, seeking authorizations for Accounts, handling credit transactions with Cardholders and transmitting Charge Transaction Data. The Operating Procedures may be amended from time to time by Bank. Bank shall provide Retailer with prior Notice of material modifications to the Operating Procedures. The parties recognize and agree that from time to time modifications and improvements will be made in hardware, software, and data communications facilities that may, in Bank's discretion, result in changes in the Operating Procedures. SECTION 4.02 NEW CARDHOLDER ACCOUNT ESTABLISHMENT PROCEDURES. (a) All Credit Card Applications will be reviewed by Bank for approval and credit line assignment. (b) Bank will forward Credit Cards for approved Accounts and activate such Credit Cards. (c) Retailer will not submit any corporate accounts or any accounts for other than personal, family or household purposes under this Agreement; provided, however, that any breach or violation of this paragraph shall not constitute a breach of this Agreement which could give rise to an Event of Default pursuant to Article X, but instead shall give rise to a chargeback pursuant to Article VII. SECTION 4.03 PURCHASE AUTHORIZATION PROCEDURES. Retailer agrees that all purchase authorizations shall be conducted in accordance with the Operating Procedures. ARTICLE V SETTLEMENTS; SERVICE FEES AND ADJUSTMENTS SECTION 5.01 SETTLEMENT PROCEDURES. 13 (a) All Charge Transaction Data will be electronically transmitted to Bank using the POS Network. Retailer, or an agent of Retailer, will retain copies of all Charge Slips. (b) Upon receipt, verification and processing of Charge Transaction Data by Bank, Bank will remit to Retailer an amount equal to [ ]* for the Transaction Day(s) for which such remittance is being made less any amounts required or permitted to be deducted from remittances pursuant to the terms of this Agreement. Bank will transfer funds to a bank designated in writing by Retailer via wire transfer. If Charge Transaction Data is received by Bank's processing center before 11:00 AM Eastern Time on a Business Day, Bank will initiate such wire transfer on the following Business Day. In the event that the Charge Transaction Data is received after 11:00 AM Eastern Time, then Bank will initiate such transfer on the second following Business Day. (c) Retailer authorizes Bank to microfilm (or copy using any other reasonable method) all documentation within the definition of Account and Program Documents and destroy all such original Account Documentation in the ordinary course of business as Bank may see fit, and in accordance with applicable laws. (d) In connection with the settlement procedures outlined above, the parties agree that all settlements made hereunder shall be net of any and all other adjustments contemplated by this Agreement, including but not limited to credits, other adjustments and chargebacks pursuant to the Agreement. Bank shall have the right to set off any amounts due to it pursuant to this Agreement against any amounts to be transmitted to Retailer hereunder. Bank agrees that in reference to the settlement procedures outlined herein it will, on at least a monthly basis, provide Retailer with a statement detailing the amount, if any, of adjustments, credits, chargebacks or other amounts set off against amounts due to Retailer. SECTION 5.02 OTHER ADJUSTMENTS. Any costs or expenditures by the parties to this Agreement other than as explicitly set forth herein shall be at the sole expense of the party incurring such costs or other expenditures and shall not entitle that party to seek reimbursement of such costs or other expenditures from the other party to this Agreement. Accordingly, subject to the reimbursement provisions of this Agreement, if any, each of the parties alone shall be liable for the payment of all sums due third parties retained by such party in performing its obligations hereunder. *Confidential treatment has been requested with respect to this information. 14 SECTION 5.03 PAYMENT TO BANK. Bank will invoice Retailer monthly for all appropriate expenses payable by Retailer pursuant to this Agreement including, without limitation, expenses payable by Retailer pursuant to Section 5.02, and Retailer agrees to pay Bank within 15 days of the date of receipt of such invoice. In lieu of such invoicing, Bank may upon reasonable notice reduce remittances made pursuant to Section 5.01 by the amount of such expenses. ARTICLE VI CREDIT TERMS; LOSSES ON ACCOUNTS; SECURITY SECTION 6.01 CREDIT TERMS. Bank shall have the sole right to establish the rate, annual fees, late fees and all other terms and conditions relating to the Accounts, and to amend or modify such rate, fees and/or terms from time to time. The initial terms and conditions relating to the Accounts will be a variable finance charge equal to the prime rate plus 13.15% with a 21.9% minimum (except in the so-called opt-out states) and the payment term will be 1/40th per month with a $10 minimum (except for "big ticket" items the payment term will be 1/50th per month with a $10 minimum). Bank shall give Retailer prior notice of any changes in such terms and conditions. SECTION 6.02 LOSSES ON ACCOUNTS. Under this Agreement, which is an interim agreement, all losses on Accounts shall be solely borne [ ]*. SECTION 6.03 GRANT OF SECURITY INTEREST; PRECAUTIONARY FILING. The parties hereto agree that the transactions contemplated herein shall constitute a program for the extension of consumer credit and service to customers of Retailer. Both (i) against the possibility that it is determined that Article 9 of the UCC applies or may apply to the transactions contemplated hereby, and (ii) to secure payment of and performance by Retailer of any and all indebtedness, liabilities or obligations, now existing on hereafter arising whatsoever of Retailer to Bank, however arising, pursuant to this Agreement, including indebtedness, liabilities and obligations that may be deemed to exist in the event of the applicability of Article 9 of the UCC to, and any recharacterization of, any transactions contemplated hereby, Retailer hereby grants to Bank a first priority continuing security interest in and to all of Retailer's right, title and interest now owned or existing or hereafter acquired or arising *Confidential treatment has been requested with respect to this information. 15 in, to and under the following property (in each case, existing at any time, past, present or future) together with the proceeds thereof: (A) all Accounts, Indebtedness and Program Documents; (B) all deposits, credit balances and reserves on Bank's books relative to any Accounts, including, but not limited to the Credit Promotions Account and (C) all proceeds of the foregoing. All creditors of Retailer seeking to obtain a security interest in any of the foregoing collateral shall be required to subordinate their security interests to the security interest of Bank in the foregoing collateral as a condition precedent to obtaining any such security interest. Retailer agrees to cooperate fully with Bank as Bank may reasonably request in order to give effect to the security interest granted by this Section 6.03, including, without limitation, the filing of UCC-l or comparable statements in order to perfect such security interest. For filing purposes, Retailer agrees to provide Bank with not less than 30 days prior written notice of any change in location of its executive offices or principal place of business or any change of its corporate name and, notwithstanding the foregoing, no such change shall be effected before Retailer shall have supplied Bank signed copies of all filings and actions as Bank may reasonably determine to be necessary or appropriate to preserve and maintain at all times the perfection and priority of the security interests granted or purported to be granted to Bank hereunder. ARTICLE VII CHARGEBACK SECTION 7.01 BANK'S RIGHT TO CHARGEBACK. Bank shall have the right, at its option, to chargeback to Retailer [ ]* if with respect to such Charge Slip or Credit Slip, or the underlying transaction, including those in connection with an Old Account, under the following circumstances: (a) unidentifiable media, (b) unauthorized charges, (c) failure to obtain proper identification, (d) adjustments, (e) missing media and/or (f) Old Account chargebacks. It is the responsibility of Bank to provide Retailer with the following information, if available, with respect to all chargebacks: account name, account number, address, Merchandise description, issuing Retailer Location, amount, and reason for chargeback. Following are guidelines for the issuing of chargebacks which must be complied with. 1. UNIDENTIFIABLE MEDIA. Unidentifiable media is media that does not have a valid account number, or media with *Confidential treatment has been requested with respect to this information. 16 an account number that is illegibly imprinted or written in. Bank will directly request the media from the issuing Retailer Location. The issuing Retailer Location is responsible for providing a legible copy of the media with correct account number to Bank within ten (10) days of notice to the issuing Retailer Location. Bank has the right to chargeback to Retailer if (a) the Retailer Location has not responded to the request for media before expiration of the ten (10) day period, and (b) Bank after reasonable efforts is unable to identify the Indebtedness represented by the media with a valid account number. Notwithstanding the foregoing, all chargebacks by Bank for unidentifiable media must occur within sixty (60) days of the sale date. Retailer has sixty (60) days after the date of the chargeback to complete additional research and, if successful, reverse the chargeback whereupon such Indebtedness shall again become Indebtedness with respect to which Bank shall make payment to Retailer. 2. UNAUTHORIZED CHARGES. An unauthorized charge is a sale that has been abstracted without Bank approval. (These charges will lack an approval code from the P.O.S. system, have an invalid authorization code, lack an approval code from the credit center, or lack an approval code for amounts over the floor limit when floor limits are in effect. It is understood that charges that are equal to or less than the floor limit when it is in effect will be deemed authorized). Bank and Retailer shall work closely to continue the charge authorization control mechanisms in place in Retailer Locations and to develop new mechanisms to minimize violations of the authorization system. Bank may immediately chargeback to Retailer unauthorized charges that are made on a stolen plate or a fraudulent account, provided that Bank has notified Retailer of the unauthorized charges within thirty (30) days of its receipt of a complaint from a Cardholder. In addition, Bank may chargeback to Retailer other unauthorized charges to an Account that is or becomes delinquent (based on the methodology for determining defaulted indebtedness then in effect), provided that Bank has notified Retailer of the unauthorized charges within thirty (30) days of Bank's discovery of the unauthorized charges. 3. FAILURE TO OBTAIN PROPER IDENTIFICATION. Subject to applicable law, failure to obtain proper identification refers to all credit purchases made by a customer shopping without a Credit Card or a priority credit pass where a Retailer Location fails to require the customer to identify himself with a valid permanent driver's license or other state issued identification for his state of residence. Tickets or temporary licenses are not acceptable. The name, address, and 17 signature on the driver's license must correspond with the name, address, and signature on the Charge Slip. If the customer does not have a valid driver's license or other state issued identification, the credit center supervisor on duty will instruct the salesperson to ask for other appropriate identification. In any instance where positive identification is required, the document used for identification must be noted on the Charge Slip. If in the process of investigating a customer dispute it is determined that the issuing Retailer Location failed to obtain proper identification in the manner required pursuant to these provisions and a fraudulent charge resulted, Bank may chargeback to Retailer. Notwithstanding the foregoing, in no event may Bank chargeback to Retailer any items described in this subsection later than sixty (60) days after Bank discovers the failure. 4. ADJUSTMENTS. Requests received by Bank from customers for adjustments will be promptly communicated by Bank directly to the issuing Retailer Location. Such adjustment requests that are not frivolous and that are not resolved by Retailer within eighteen (18) days of notification to Retailer may be charged back by Bank to Retailer. Notwithstanding the foregoing, in no event may Bank chargeback to Retailer any adjustments described in this subsection later than thirty (30) days after receipt of the request for adjustment from the customer. 5. MISSING MEDIA. Requests received by Bank from customers for supporting sales media will be promptly communicated by Bank directly to the issuing Retailer Location. Retailer is responsible for providing Bank with the requested media within ten (10) days of receipt of the request. Indebtedness represented by media not provided within such ten (10) day period may be charged back by Bank to Retailer. Retailer has thirty (30) days after the chargeback to locate the media and reverse the chargeback whereupon such Indebtedness shall again become Indebtedness to be paid by Bank. Notwithstanding the foregoing, in no event may Bank chargeback to Retailer any items described in this subsection later than thirty (30) days after the receipt of the request for adjustment from the customer. 6. OLD ACCOUNT CHARGEBACKS. To the extent not already covered in items 1 through 5, requests received by Bank from customers for credits or adjustments relating to the period prior to Bank's ownership of the Old Accounts which Bank reasonably believes relate to Retailer's handling of the transactions giving rise to the Charge Slips or Credit Slips at 18 issue, including requests for credits/adjustments relating to Goods and/or Services or the information furnished by Retailer with respect to a credit promotion. SECTION 7.02 LIMITATION OF CHARGEBACK. In its reasonable discretion Bank may compromise and settle any claim made by any Cardholder if such claim may give Bank a right to chargeback in accordance with Section 7.01 up to [ ]*, of any Charge Slip or Credit Slip. In the event of any such compromise or settlement, Bank shall obtain Retailer's prior written approval to adjust the Cardholder's Account and Bank's right to chargeback shall be limited to the actual amount so compromised. SECTION 7.03 EXERCISE OF CHARGEBACK. If Bank exercises its right of chargeback in accordance with this Agreement, Bank shall set off amounts charged back against any sums due Retailer under this Agreement or, if chargebacks exceed sums due Retailer, Bank may demand payment from Retailer for the full amount of such excess. If [ ]*, Bank shall assign, without recourse, all right to payment for such Charge Slip or portion thereof to Retailer upon the request of Retailer. ARTICLE VIII WARRANTIES AND COVENANTS OF RETAILER SECTION 8.01 ACCOUNT COVENANTS. Retailer covenants to do the following during the term of this Agreement with respect to each transaction involving an Account or the Program: (a) Retailer shall respond to, and cooperate with, Bank promptly in connection with the resolution of disputes with Cardholders; (b) Retailer shall maintain a policy for the exchange and return of Goods and adjustments for Services rendered or not rendered that is in accordance with all applicable laws and shall promptly deliver a Credit Slip to the Cardholder and include credit for such return or adjustment in the Charge Transaction Data in accordance with the Operating Procedures in the event the return/exchange has been authorized in accordance with Retailer's policies; *Confidential treatment has been requested with respect to this information. 19 (c) Retailer shall not seek or obtain any special agreement or condition from, nor discriminate in any way against, Cardholders with respect to the terms of any transaction. SECTION 8.02 GENERAL REPRESENTATIONS AND WARRANTIES. To induce Bank to establish and administer this Program, all as herein provided for, Retailer makes the following representations and warranties to Bank, each and all of which shall survive the execution and delivery of this Agreement, and each and all of which shall be deemed to be restated and remade on each day on which any Account is opened or Charge Transaction Data is submitted to Bank or any action is taken with respect to the Program: (a) Existence. Retailer (i) is duly organized, validly existing, and in good standing under the laws of the Commonwealth of Massachusetts, (ii) is duly qualified and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business require such qualification; (iii) has the requisite power and authority and the legal right to own and operate its properties, to lease the properties it operates under lease, and to conduct its business as now conducted and hereafter contemplated to be conducted; (iv) has all necessary licenses, permits, consents, or approvals from or by, has made all necessary notices to all governmental authorities having jurisdiction, to the extent required for such current ownership and operation or as proposed to be conducted; and (v) is in compliance with its organizational documents. (b) Power, Authorization; Enforceable Obligation. The execution, delivery, and performance of this Agreement and all instruments and documents to be delivered by Retailer hereunder: (i) are within its corporate power; (ii) has been duly authorized by all necessary or proper or corporate action; (iii) does not and will not contravene any provisions of its organizational documents; (iv) will not violate any law or regulation or any order or decree of any court or governmental instrumentality; (v) will not conflict with or result in the breach of, or constitute a default under any indenture, mortgage, deed of trust, lease, agreement, or other instrument to which it is a party or by which it or any of its assets or property are bound, including without limitation, any arrangement which Retailer has with Hurley State Bank which arrangement has been modified as set forth in Section 8.02(i); and (vi) do not require any filing or registration with or the consent or approval of any governmental body, agency, authority, or any other Person which has not been made or obtained previously. This Agreement has been duly executed and delivered by each Retailer, and constitutes a legal, valid, and 20 binding obligation of such Retailer, enforceable against such entity in accordance with its terms. (c) Solvency. Retailer is Solvent. (d) No Violations. Retailer is not in default with respect to any material contract, agreement, or other instrument to which it is a party nor has it received any notice of default under any such material contract, agreement, lease or other instrument. (e) No Burdensome Restrictions. No contract, lease agreement, or other instrument to which Retailer is a party or by which Retailer is bound, and no provision of applicable law or governmental regulation, materially and adversely affects or may so affect the business, operation, prospects, property, or financial or other condition of Retailer. (f) Information Correct. All information furnished by the Retailer to Bank for purposes of or in connection with this Agreement or any information hereafter furnished by the Retailer to Bank, is true and correct to the best of Retailer's knowledge in all material respects and, to the best of Retailer's knowledge, no such information omits to state a material fact necessary to make the information so furnished not misleading. There is no fact known to the Retailer which the Retailer has not disclosed to Bank which could materially and adversely affect the financial condition, business, property, or prospects of the Retailer. (g) No Default. No Event of Default or Default with respect to Retailer has occurred and is continuing. (h) Name and Address. The chief executive office and principal place of business of Retailer is set forth on page 1 of this Agreement, but will be moved to Chicago, Illinois within one month of the date of this Agreement. Lechmere Inc. is the only name under which Retailer conducts business. (i) Consent of Hurley State Bank. Retailer has obtained the consent of Hurley State Bank to enter into this Agreement with Bank and to establish Accounts relating to Retailer pursuant to the Program, and Hurley State Bank has waived all rights it has to object to this Program. Such consent is attached hereto. SECTION 8.03 ADDITIONAL AFFIRMATIVE COVENANTS OF RETAILER. Until the later of (i) the date on which this Agreement terminates and (ii) the Final Liquidation Date, Retailer will, unless Bank shall otherwise consent in writing: 21 (a) If Retailer is subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (i) as soon as reasonably available and in any event within 90 days after the close of its fiscal year, submit to Bank an audited annual report of Retailer's annual earnings, including its audited consolidating balance sheets, income statements and statement of cash flows and changes in financial position and (ii) promptly after the filing thereof, submit to Bank copies of all proxy statements, and all reports on Forms 10-K, 10-Q, and 8-K filed with the Securities and Exchange Commission by Retailer; (b) If Retailer is not subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (i) as soon as reasonably available and in any event within 90 days after the close of its fiscal year, submit to Bank an audited annual report of Retailer's annual earnings, including its audited consolidating balance sheets, income statements and statement of cash flows and changes in financial position and (ii) as soon as reasonably available and in any event within 45 days after the close of each of its fiscal quarters, submit to Bank an unaudited quarterly report of Retailer's earnings, including its consolidating balance sheets, income statements and statement of cash flows and changes in financial position, accompanied by the certification on behalf of Retailer by Retailer's chief financial officer that such financial statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis and present fairly the financial position of Retailer as of the end of such fiscal quarter and the results of its operations; (c) Comply in all material respects with all laws with respect to Retailer, its business, and properties. (d) Promptly upon receipt, deliver to Bank copies of any communications relating to an Account from a Cardholder, or any governmental or regulatory authority. (e) Permit Bank, during normal business hours and upon reasonable notice, to visit the offices of Retailer from time to time, and shall permit Bank from time to time to discuss the Program with Retailer and their officers and employees and to examine the books and records of Retailer relating to the Program or have the same examined by Bank's attorneys and/or accountants. In connection therewith, Retailer agrees, subject to applicable privacy and other laws, to make data regarding the Program available to Bank, and in connection therewith to permit Bank to make copies of such documentation. 22 (f) Retailer shall take all reasonable measures as conveyed by Bank to comply with the provisions of 12 USC Section 1972(1)(B). SECTION 8.04 ADDITIONAL NEGATIVE COVENANTS OF RETAILER. Until the later of (i) the date on which this Agreement terminates, and (ii) the Final Liquidation Date, Retailer will not, unless Bank shall otherwise consent in writing: (a) Except with respect to Retailer's existing arrangement with Hurley State Bank, promote any other presently existing program for open-end or closed- end consumer accounts more favorably than the Program or engage in any selection process with respect to accounts that could be adverse to Bank. (b) Except with respect to Retailer's existing arrangement with Hurley State Bank, advertise, promote, sponsor, solicit, permit solicitation of, or make available to customers of Retailer or otherwise provide at any Retailer Location any credit program, credit facility, credit card program, charge program or debit or secured card program or facility which is similar in purpose or effect to this Program (whether open-end, closed-end, private label or third party), other than (i) credit provided in connection with the Program hereunder, (ii) credit provided by generally accepted multi-purpose credit or charge cards such as American Express, Mastercard, Visa and the Discover card or by any generally accepted multi-purpose debit or secured cards (provided that none of the cards referred to in this clause (ii) may be "co-branded", "sponsored" or "co-sponsored" with Retailer and provided the Retailer Names or any variations thereof do not appear on such cards), (iii) credit provided on a closed end basis where Bank has previously rejected extending credit to the applicant under this Program and (iv) any credit provided through a credit card bearing the name Montgomery Ward or Electric Ave & More. ARTICLE IX WARRANTIES AND COVENANTS OF BANK SECTION 9.01 REPRESENTATIONS AND WARRANTIES OF BANK. To induce Retailer to enter into this Agreement and participate in the Program, all as herein provided for, Bank makes the following representations and warranties to Retailer, each and all of which shall survive the execution and delivery of this Agreement, and each and all of which shall be deemed to be restated and remade on each day on which Accounts are opened and Charge Transaction Data submitted or any action taken with respect to the Program: 23 (a) Corporate Existence. Bank (i) is a banking corporation duly organized, validly existing, and in good standing under the laws of the State of Georgia; (ii) has the requisite corporate power and authority and the legal right to own, pledge, mortgage, and operate its properties, to lease the properties it operates under lease, and to conduct its business as now conducted and hereafter contemplated to be conducted; and (iii) is in compliance with its articles of incorporation and bylaws. (b) Corporate Power, Authorization; Enforceable Obligations. The execution, delivery, and performance of this Agreement and all instruments and documents to be delivered by Bank hereunder: (i) are within Bank's corporate power; (ii) have been duly authorized by all necessary or proper corporate action; (iii) do not and will not contravene any provision of Bank's certificate of incorporation or bylaws; (iv) will not violate any law or regulation or an order or decree of any court or governmental instrumentality to which Bank is subject; (v) will not conflict with or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, lease agreement, or other instrument to which Bank is a party or by which Bank or any of its property is bound; and (vi) do not require any filing or registration by Bank with or the consent or approval of any governmental body, agency, authority, or any other Person which has not been made or obtained previously. This Agreement has been duly executed and delivered by Bank, and constitutes the legal, valid, and binding obligation of Bank, enforceable against Bank in accordance with its terms. (c) Solvency. Bank is Solvent. (d) No Default. No Event of Default or Default with respect to Bank has occurred and is continuing. SECTION 9.02 AFFIRMATIVE COVENANT OF BANK. Promptly upon receipt, deliver to Retailer copies of any communications relating to any material investigation by any governmental or regulatory authority with respect to the Program. ARTICLE X EVENTS OF DEFAULT; RIGHTS AND REMEDIES SECTION 10.01 EVENTS OF DEFAULT. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder: 24 (a) Either party shall fail to pay the other any Uncontested Amount when due and payable and the same shall remain unpaid for a period of three (3) days after the other party shall have made written demand therefor. (b) Either party shall fail or neglect to perform, keep, or observe any term provision, condition, or covenant contained in this Agreement that is required to be performed, kept, or observed by it, and the same shall remain uncured for a period of thirty (30) days after the other party shall have given written notice thereof. (c) Any representation, warranty or statement, made or delivered by either party or any of its respective officers shall not be true and correct in any material respect as of the date when made or reaffirmed and such failure to be true and correct has a material adverse effect on its ability to perform its obligations hereunder. (d) Either Bank or Retailer (i) shall no longer be Solvent; (ii) shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally; (iii) shall make a general assignment for the benefit of its creditors; or (iv) any proceeding shall be instituted by or against it seeking to adjudicate it a bankrupt or insolvent or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency, or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property, and, in the case of any proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or either party shall take any corporate action to authorize any of the actions set forth above in this paragraph (d). (e) Retailer shall be in default under any loan agreement, indenture or other instrument relating to any indebtedness for borrowed money in excess of [ ]*, and such default gives any party, either with or without notice and without giving effect to any extension of any grace period, the right to accelerate such indebtedness. *Confidential treatment has been requested with respect to this information. 25 (f) Final judgment or judgments for the payment of money in excess of [ ]* in the aggregate shall be rendered against any Retailer and the same shall not be either (i) covered by insurance or the insurer shall not have accepted liability therefor or (ii) vacated, stayed, bonded, paid, or discharged prior to expiration of the applicable appeal period. (g) A material adverse change has occurred in the operations, financial condition, business or prospects of Retailer which Bank has determined, in good faith, has impaired or is reasonably likely to impair, the ongoing operation or continued viability of the Program; in each case, as determined by Bank, in its sole discretion. (h) Accounts, Indebtedness, Charge Slips or proceeds thereof in an aggregate amount of [ ]* or more shall be (or shall purportedly be) (i) attached, seized, levied upon or subject to a writ by a creditor of Retailer, or shall come within the possession of any receiver, trustee, custodian, or assignee for the benefit of creditors of Retailer or (ii) subject to any lien or right of any third party directly or indirectly arising by, through or on account of Retailer or any creditor thereof. SECTION 10.02 REMEDIES. (a) If any Event of Default shall have occurred and be continuing, all of the defaulting party's payment obligations hereunder shall, in the non- defaulting party's sole discretion, be deemed immediately due and payable. (b) If any Event of Default shall have occurred and be continuing, the non-defaulting party shall have any and all rights and remedies under this Agreement. In addition, the Bank, if not the defaulting party, may discontinue originating or offering Accounts, accepting Charge Slips, or otherwise extending credit, and may declare this Agreement terminated. ARTICLE XI TERM/TERMINATION SECTION 11.01 TERM. This Agreement shall continue in full force and effect until and including the earlier of August 31, 1996 or until a Long Term Agreement is executed. SECTION 11.02 TERMINATION. *Confidential treatment has been requested with respect to this information. 26 (a) Retailer shall have the right to terminate this Agreement upon thirty (30) days written notice if an Event of Default shall occur with respect to Bank. (b) Bank shall have the right to terminate this Agreement upon thirty (30) days written notice if an Event of Default shall occur with respect to Retailer. (c) Notwithstanding anything to the contrary contained in this Agreement, Bank may engage Retailer in the good faith renegotiation of this Agreement if usury rates of the State of Georgia change, or if laws regulating Bank's rate structure change, or if federal or state regulation or authority preempts the exportation of Bank's rate structure, which in Bank's reasonable judgment could have a material adverse effect on Bank or its prospects, operations, or condition or its ability to perform the transactions contemplated hereby. In the event of a renegotiation pursuant to this Section 11.02(c), if new terms acceptable to the parties are not agreed upon in writing within 30 days after the date renegotiations begin, this Agreement shall be deemed terminated as of the earlier of (i) the [50]th day after such renegotiation begins, or (ii) the date Bank is required to initiate changes to the Program to comply with applicable law. SECTION 11.03 PURCHASE OF ACCOUNTS BY RETAILER PRIOR TO THE TERMINATION DATE. Retailer shall have the option, exercisable as provided below, to purchase or to arrange for the purchase of the portfolio of Accounts under the following terms and conditions: (a) In the event of a termination of this Agreement pursuant to Sections 11.01, 11.02(a), 11.02(c) or 11.04, Retailer shall have the right to purchase or to arrange for the purchase of the portfolio of Active Accounts, (including the Cardholder List) at a repurchase price equal to [ ]* payable in immediately available funds. Retailer shall exercise such right by giving written notice to Bank within 30 days of the date of the notice of termination of the Agreement, which notice shall specify a date for the repurchase which date shall be not more than 90 days after the date of the notice, and shall thereafter complete such purchase on such date, or such other date as may be agreed to by Retailer and Bank. If Retailer fails to exercise such option (by failing to deliver the notice required by this Section 11.03(a)) then the option shall expire. (b) In the event of a termination of this Agreement pursuant to Section 11.02(b), Retailer shall have the right to *Confidential treatment has been requested with respect to this information. 27 purchase or to arrange for the purchase of the portfolio of Active Accounts (including the Cardholder List) at a repurchase price equal to the product of [ ]*, payable in immediately available funds. Retailer shall exercise such right by giving written notice to Bank within 30 days of the date of the notice of termination of this Agreement, which notice shall specify a date for the repurchase which date shall be not more than 90 days after the effective date of the termination and shall thereafter complete such purchase on such date, or such other date as may be agreed to by Retailer and Bank. If Retailer fails to exercise such option (by failing to deliver the notice required by this Section 11.03(b)) then the option shall expire. SECTION 11.04 TERMINATION FOR FORCE MAJEURE. (a) This Agreement may be terminated by either Bank or Retailer without penalty after the passing of sixty (60) days following the notice by one party to the other that its performance hereunder is prevented or materially impeded, without the ability to cure, by one of the following force majeure events; acts of God, fire, explosion, accident, war, nuclear disaster, riot or material changes in applicable laws or regulations rendering it illegal, impossible or untenable for the notifying party or its ultimate parent corporation to perform as contemplated in this Agreement. (b) Any such failure to perform shall not be considered a breach of this Agreement during the period of such disability (i.e., prior to sixty (60) days), if the disabled party promptly advises the other party in writing that it is unable to perform due to such a force majeure event, setting forth; (i) the nature of the event; (ii) its expected effects(s) and duration; (iii) any expected development which may further affect performance hereunder and (iv) the efforts which will be made to cure such force majeure or provide substitute performance. (c) Such sixty (60) day period may be shortened upon written agreement executed by duly-authorized officers of each party or if required by applicable law or regulation. SECTION 11.05 LIQUIDATION OF ACCOUNTS. (a) Upon the termination of this Agreement, each party shall be required to fulfill its respective obligations hereunder (unless prohibited by law) until the Final Liquidation Date or there is some other disposition thereof in accordance with either Section 11.03 or 11.05. *Confidential treatment has been requested with respect to this information. 28 (b) Upon any such termination of this Agreement, should Retailer not purchase or arrange for a purchase of the Accounts from Bank, then: (i) Bank shall have the right, in addition to and retaining all other rights it may have under the terms of this Agreement or applicable law to: (A) liquidate the remaining Accounts in any lawful manner which may be expeditious or economically advantageous to Bank including the issuance of a replacement or substitute Card; and (B) use the Retailer Names in accordance with the provisions of this Agreement in communicating with existing Cardholders until the Final Liquidation Date. (ii) Retailer expressly agrees that in complying with its obligations to accept substitute or replacement Cards, Retailer will cooperate with Bank in order to effectuate any such liquidation or replacement or substitute card issuance in an orderly manner, including but not limited to, at Bank's request accepting in the manner as in effect immediately prior to such termination the Credit Cards and any replacement or substitute credit cards for up to 24 months following the effective date of termination of the Agreement. SECTION 11.06 ADDITIONAL TERMINATION PROVISIONS. (a) Except as otherwise expressly provided herein, any termination of this Agreement shall in no way affect or impair the powers, obligations, duties, rights and liabilities of Retailer or Bank, including, without limitation, those under Article XII hereof, relating to any transaction or event occurring prior to such termination. (b) Notwithstanding the termination of this Agreement for any reason, until the Final Liquidation Date: (i) the license granted to Bank pursuant to Section 14.07 hereof shall continue in effect after the effective date of termination of this Agreement; (ii) the power of attorney granted to Bank pursuant to Section 14.12 hereof shall continue in effect after the effective date of termination of this Agreement; and (iii) the option 29 granted to Retailer to purchase the Accounts pursuant to Section 11.03 hereof shall survive the termination of this Agreement unless and until such option shall expire in accordance with its terms. (c) All undertakings, agreements, covenants, warranties, representations and indemnities contained herein shall survive such termination, except as specifically provided herein to the contrary. Without in any manner limiting the generality of the foregoing, upon such termination, Bank shall continue to own the Accounts, and, except as provided herein, Retailer shall continue to be liable for all obligations set forth herein until the Final Liquidation Date; provided, however, that the parties' respective obligations pursuant to Article XII and Section 14.13 shall survive the Final Liquidation Date. ARTICLE XII INDEMNIFICATION SECTION 12.01 INDEMNIFICATION BY RETAILER. Retailer agrees to protect, indemnify, and hold harmless Bank, its Affiliates, and the employees, officers, and directors thereof, from and against any and all losses, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions, or proceedings ("Losses") by whomsoever asserted, including, without limitation: (i) the Cardholders or other persons responsible for the payment of Accounts; (ii) any Person or persons who prosecute or defend any proceedings as representatives of or on behalf of a class or interest group;(iii) any governmental instrumentality; or (iv) any other third party (including, without limitation, any Licensee), arising out of, connected with or resulting from: (a) Credit Card sales of Goods and Services; (b) any transaction, contract, understanding, promise, representation, or any other relationship, actual, asserted, or alleged, between Retailer and any Cardholder relating to an Account; (c) any Goods and Services (including, without limitation, any product liability or warranty claim with respect thereto) the purchase of which was financed by an Account; 30 (d) any other act, or omission where there was a duty to act, by Retailer or its employees, officers, directors, agents, lessees, or any independent contractors hired by a Retailer, relating to an Account or items of Indebtedness relating to an Account; (e) any breach by Retailer of any of the terms, covenants, representations, warranties, or other provisions contained in this Agreement or any other instrument or document delivered by Retailer to Bank in connection herewith or therewith; (f) the failure of Retailer to comply with all laws, rules or regulations applicable to Retailer; (g) any agreement, arrangement, understanding or course of dealing between Retailer or any of its Affiliates and any Licensee. Excluded from the foregoing indemnity shall be any Losses to the extent the same arise out of or result from any violation by Bank or any of its Affiliates of law, this Agreement, any Credit Card Agreement or any agreement, understanding or promise between Bank and any Cardholder relating to such Cardholder's Account which is not based on information provided by Retailer or its Affiliates. SECTION 12.02 INDEMNIFICATION BY BANK. Bank agrees to protect, indemnify, and hold harmless Retailer, its Affiliates, and the employees, officers, and directors thereof, from and against any and all Losses by whomsoever asserted, including, but not limited to., (i) the Cardholders or other persons responsible for the payment of Accounts; (ii) any Person or Persons who prosecute or defend any proceedings as representatives of or on behalf of a class or interest group; (iii) any governmental instrumentality; or (iv) any other third party, arising out of, connected with or resulting from: (a) any breach by Bank of any of the terms, covenants, representations, warranties or other provisions contained in this Agreement. (b) any transaction, contract, understanding, promise, representation, or any other relationship, actual, asserted, or alleged, between Bank and any Cardholder relating to an Account; (c) any other act, or omission where there was a duty to act, by Bank or its employees, officers, directors, shareholders, agents or licensees or any independent contractors hired by Bank 31 relating to an Account or items of Indebtedness relating to an Account; or (d) the failure of Bank to comply with any laws, rules or regulations applicable to Bank. Excluded from the foregoing indemnity shall be any Losses to the extent the same arise out of or result from any violation by a Retailer or its Affiliates of law, this Agreement, any Credit Card Agreement or any agreement, understanding or promise between a Retailer and any Cardholder relating to such Cardholder's Account which is not based on information provided by Bank or its Affiliates. SECTION 12.03 PAYMENT OF INDEMNIFIED AMOUNTS. After any final judgment or award shall have been rendered by a court, arbitration board, or administrative agency of competent jurisdiction and the time for an appeal of such judgment or award has expired without an appeal being taken by either party, or after any settlement agreed to by the parties shall have been consummated, the party seeking indemnification shall forward to the other party notice of any sums due and owing by such other party with respect to such matter and such party shall be required to pay all of the sums so owing to the party seeking indemnification within thirty (30) days after the date of such notice unless otherwise mutually agreed to in writing by the parties. SECTION 12.04 NOTICE. Each party shall promptly notify the other party of any claim, demand, suit or threat of suit of which that party becomes aware (except with respect to a threat of suit either party might institute against the other) which may give rise to a right of indemnification pursuant to this Agreement. The indemnifying party will be entitled to participate in the settlement or defense thereof and, if the indemnifying party elects, to take over and control the settlement or defense thereof with counsel satisfactory to the indemnified party. In any case, the indemnifying party and the indemnified party shall cooperate (at no cost to the indemnified party) in the settlement or defense or any such claim, demand, suit or proceeding. ARTICLE XIII OTHER AGREEMENTS SECTION 13.01 OTHER PROGRAMS. If during the term of this Agreement Retailer desires to make arrangements for the provision by any Person of either (i) any private label commercial or 32 business credit program of facility for use at Retailer Locations or (ii) any private label credit program or facility for use outside of the United States, then Retailer shall discuss in good faith with Bank or an Affiliate the possibility of Bank providing either or both of such programs. If the parties or an Affiliate are unable to mutually agree on terms and conditions pursuant to which Bank or an Affiliate will provide one or both such programs, Retailer agrees that it will not enter into any such programs with any other Person unless they shall have first offered Bank or an Affiliate the opportunity to provide such program(s) on the same or substantially similar terms and conditions as such other Person would be willing to provide. Nothing in this Agreement shall restrict Retailer's rights to continue its existing relationship with Hurley State Bank with respect to credit accounts existing at the time this Agreement is executed. ARTICLE XIV MISCELLANEOUS SECTION 14.01 ASSIGNABILITY. Neither Bank nor any Retailer may assign its rights and obligations under this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld; except that Bank may without such prior written consent (i) assign all or part of its rights and obligations under this Agreement to an Affiliate, or in connection with a securitization or participation, or (ii) engage third parties to perform services pursuant to this Agreement without such prior written consent. SECTION 14.02 AMENDMENT. This Agreement may not be amended except by written instrument signed by the parties hereto. SECTION 14.03 NON-WAIVER. No delay by any party hereto in exercising any of its rights hereunder, or in the partial or single exercise of such rights, shall operate as a waiver of that or any other right. The exercise of one or more of any party's rights hereunder shall not be a waiver of, nor preclude the exercise of, any rights or remedies available to such party under this Agreement or in law or equity. SECTION 14.04 SEVERABILITY. If any provision of this Agreement is held to be invalid, void or unenforceable, all other provisions shall remain valid and be enforced and construed as if such invalid provision were never a part of this Agreement. 33 SECTION 14.05 GOVERNING LAW. This Agreement and all rights and obligations hereunder, including, but not limited to, matters of construction, validity and performance, shall be governed by and construed in accordance with the laws of the state of Georgia without regard to internal principles of conflict of laws. SECTION 14.06 CAPTIONS. Captions of the Sections of this Agreement are for convenient reference only and are not intended as a summary of such Sections and do not affect, limit, modify or construe the contents thereof. SECTION 14.07 USE OF RETAILER NAME AND MARK. (a) Subject to and only in accordance with the provisions of this Agreement, Retailer hereby grants Bank a non-exclusive license to create, develop, market and administer the Program and to use the name of Retailer (hereafter the "Retailer Names"), and the logos therefor, in the creation, development, marketing and administration of the Program. Retailer represents that it owns the Retailer Names and has the right to grant such non-exclusive license. (b) Pursuant to the licenses granted to Bank pursuant to this Section 14.07, the parties understand and agree that until the latter of (i) the termination of this Agreement and (ii) the Final Liquidation Date, Bank will, in accordance with the provisions of this Agreement, use the Retailer Names in connection with Bank's operation and administration of the Program and the discharge of its obligations under the Agreement, including but not limited to use in connection with Cardholder service; billing statements and inquiries; credit card applications, agreements, mailers, and card carriers. SECTION 14.08 SECURITIZATION/PARTICIPATION. Any rights to purchase the Accounts which Retailer may have hereunder shall be subject to Bank's right to securitize or participate the Accounts and Indebtedness and such rights shall be available to Retailer only with respect to Accounts Indebtedness owned by Bank at the time of such purchase. SECTION 14.9 FURTHER ASSURANCES. Each party hereto agrees to execute all such further documents and instruments and to do all such further things as the other party may reasonably request in order to give effect and to consummate the transactions contemplated hereby. SECTION 14.10 ENTIRE AGREEMENT. This Agreement and a letter agreement of even date is the entire agreement of the parties 34 with respect to the subject matter hereof and supersedes all other prior understandings and agreements whether written or oral. SECTION 14.11 NOTICES. All notice, demands and other communications hereunder shall be in writing and shall be sent by hand, by facsimile (with verbal confirmation of receipt) or by nationally recognized overnight courier service addressed to the party to whom such notice or other communication is to be given or made at such party's address as set forth below, or to such other address as such party may designate in writing to the other party from time to time in accordance with the provisions hereof and shall be deemed given one Business Day after being sent, as follows: if to Retailer: Lechmere Inc. 619 West Chicago Avenue Chicago, Illinois 60671 Att: Chief Executive Officer with a copy to Secretary/Legal at the same address. and if to Bank: Monogram Credit Card Bank of Georgia 7840 Roswell Rd. Building 100 Suite 210 Atlanta, Georgia 30350 Attention: Senior Vice President Telecopier No.: 770/353-2464 with a copy to RFS Counsel 260 Long Ridge Road Stamford, Connecticut 06927 Telecopier No.: 203/961-5149 Provided, however, that if either of the above parties shall have designated a different address by notice to the other, then to the last address so designated. SECTION 14.12 POWER OF ATTORNEY. Retailer authorizes and empowers Bank and grants to Bank power of attorney (i) to sign and endorse Retailer name on all checks, drafts, money orders or other forms of payment in respect of Accounts under the Agreement; (ii) to do all the things reasonably necessary to carry out or enforce the Accounts; (iii) to sign such Retailer's 35 name on any notices to any Cardholder in connection with the collection of Accounts; (iv) to send requests for verification of any Account to Cardholders; (v) to sue Cardholders for the collection of Accounts; and (vi) to do any and all things Bank determines may be necessary or appropriate to carry out or enforce the obligations of Cardholders under Credit Card Agreements. This limited power of attorney conferred hereby is deemed a power coupled with an interest and shall be irrevocable prior to the Final Liquidation Date. SECTION 14.13 CONFIDENTIAL INFORMATION. (a) All proprietary and non-public material and information supplied by Retailer to Bank or vice versa heretofore or hereafter, or supplied to Retailer or Bank by Cardholders or applicants for Credit Cards, including, without limitation, (i) the pricing and other financial terms of this Agreement, (ii) information concerning the parties' marketing plans, objectives, financial results and employee compensation and benefits, and (iii) the Customer List, is confidential and proprietary ("Confidential Information"). Confidential Information shall not include any information which (i) at the time of disclosure by one party hereto or thereafter is generally available or known to the public (other than as a result of an unauthorized disclosure by the other party hereto); (ii) was available to one party on a non-confidential basis from a source other than the other party (provided that such source, to the best of one party's knowledge, was not obligated to the other party to keep such information confidential); or (iii) was in one party's possession prior to disclosure by the other party to it. (b) Confidential Information shall be used by each party solely in the performance of its obligations or exercise of its rights pursuant to this Agreement. Each party shall receive Confidential Information in confidence and not disclose Confidential Information to any third party, except (i) as may be necessary to perform its obligations or exercise its rights pursuant to this Agreement or to effect a securitization or participation as provided in Section 14.08, (ii) except as may be agreed upon in writing by the other party, or (iii) as otherwise required by law or judicial or administrative process. Each party will use its best efforts to ensure that its officers, employees, and agents take such action as shall be necessary or advisable to preserve and protect the confidentiality of Confidential Information. Upon written request or upon the termination of this Agreement, each party shall destroy or return to the other party all Confidential Information in its possession or control, subject to the each party's respective document 36 retention policies with respect to information required to be maintained by regulatory authorities. SECTION 14.14 INDEPENDENT CONTRACTOR. Nothing contained in this Agreement shall be construed to constitute Bank and Retailer as partners, joint venturers, principal and agent, or employer and employee. Bank will act hereunder solely as an independent contractor and will exercise exclusive control over any and all persons hired by it. SECTION 14.15 THIRD PARTIES. Bank shall have the right to engage third parties to perform services pursuant to this Agreement. In the event a party hereto engages the services of subcontractors and/or other third parties to assist it with the fulfillment of the terms hereunder, then such party agrees to be responsible for and indemnify the other party hereto, its or their Affiliates and the officers, directors, employees and agents of each, for any and all claims (including reasonable legal costs and expenses) asserted by anyone against such party and such Affiliates arising out of any and all work performed by any such subcontractor and/or agent of such party in connection with this Agreement. SECTION 14.16 INTERPRETATION. As each of the parties have contributed to the drafting of the language of this Agreement, it is agreed and understood that in any interpretation of this Agreement, the language utilized will be construed equally as and between the parties without regard to which party provided the language of any particular provision. SECTION 14.17 PAYMENTS. Unless otherwise provided, all payments due one party from the other party shall be made within five (5) Business Days after notice of the amount due. SECTION 14.18 MULTIPLE COUNTERPARTS. This Agreement may be executed in any number of multiple counterparts, all of which shall constitute but one and the same original. 37 IN WITNESS WHEREOF, Bank and Retailer have caused this Agreement to be executed by their respective officers thereunto duly authorized as the date first above written. MONOGRAM CREDIT CARD BANK OF GEORGIA By: /s/ -------------------------- Title: Chairman ----------------------- LECHMERE INC. By: /s/ -------------------------- Title: Assistant Secretary ----------------------- 38 EX-10.(II)(D)(1) 17 LETTER FROM THE PRESIDENT GE Capital - - - ----------------------------------------------------------------------------- GAIL N. LANIK Montgomery Ward Credit President & Chief General Electric Capital Corporation Executive Officer 535 West Chicago Avenue, Suite 16-N, Chicago, IL 60610 (312) 467-3460, Fx (312) 467-7863 January 23, 1996 Mr. John L. Workman Executive Vice President & Chief Financial Officer Montgomery Ward & Co., Incorporated 619 W. Chicago Ave. -- 8C Chicago, IL 60671 Dear John: In our recent discussion you conveyed that you were comfortable with all of the terms for the Lechmere/Electric Avenue & More deal structure. Please indicate your acceptance of the terms as set forth in the attached January 16, 1996 term sheet by signing below. Your timely approval will be appreciated, please call if you have any questions. Sincerely, Agreed & Accepted By: /s/ Gail N. Lanik /s/ John L. Workman - - - --------------------- ---------------------------- Gail N. Lanik John L. Workman Executive Vice President & CEO Attachment LECHMERE/EA&M TERM SHEET -- JANUARY 16, 1996 TERM: Rolling 10 Year Termination Notice, coterminous with the Montgomery Ward Company, Incorporated Account Purchase Agreement CONSUMER TERMS: Variable: Prime + 13.15%, 21.9% minimum (except in opt-out state). PAYMENT TERMS: 1/40th, $10 minimum; 1/50th, $10 minimum. Big ticket program. GUARANTEED ROE: [ ]* -- based on total equity participation of 1/9; any shortfall paid yearly by Montgomery Ward; ROE above [ ]* shared [ ]* GECC/[ ]* Montgomery Ward. For the Lechmere portion only, Montgomery Ward will not be responsible for ROE shortfalls caused by the amortization of the initial loss reserve (after year 1) related to the Lechmere portfolio acquisition or the associated GECC legal and conversion expenses. GUARANTEED ROE PAYMENT ADJUSTMENT: (AFTER YEAR 1) If the ROE shortfall payment exceeds the "rolling loss reserve", then Montgomery Ward is entitled to a [ ]* credit of this reserve amount. If the "rolling loss reserve" exceeds the shortfall payment, then Montgomery Ward is entitled to a [ ]* credit of the shortfall payment. PRICING: Non-Promo: [ ]* 90 Day Skip Free: [ ]* AFF with Pay: [ ]* PROMO RESERVE: Montgomery Ward will provide advance funding to GECC for the purpose of establishing a reserve equivalent to 2 months of estimated promotional finance charge revenues. MONEY COSTS: Portfolio will be charged based on actual/assessed interest expense incurred, using the debt profile selected by GECC consistent with its ordinary funding practices and including the initial 10 year funding of approximately [ ]* million (at the 10 year money rate at the time of purchase) of the Lechmere receivable portfolio. OPERATING EXPENSES: Pegged at [ ]* of average outstandings for guaranteed ROE calculation. Adjustment will be made for paper inflation using the appropriate wholesale index and Postage inflation defined as the change in the U.S. Postal Service 1st class rate when those inflation indices exceed the CPI inflation rate on a cumulative basis. * Confidential treatment has been requested with respect to this information. PROMOTIONAL FUNDING: Pormotional Pricing Reimbursement: At year-end, GECC funds MW for credit marketing programs based on [ ]* of average outstandings multiplied by the weighted APR. (CAN BE APPLIED TO OTHER CREDIT MARKETING PROGRAMS IF NOT NEEDED FOR 0%/AFF PROMOTIONS.) In addition, GECC will also provide promotional funding equal to [ ]* of average outstandings net of Credit Merchandiser/Administrative expense. PREMIUM (LECHMERE): $3.1MM = $2.5MM - Original Upfront Premium 0.8 - Additional 1/2% Premium (0.2) - Money Cost Adjustment for 1994 Pre-funding PORTFOLIO PURCHASE PRICE (LECHMERE): [ ]* of Outstandings, net of prepaid promotional billing INITIAL LOSS RESERVE: (LECHMERE) FOR LECHMERE ONLY, MONTGOMERY WARD WILL BE RESPONSIBLE FOR PAYING [ ]* OF THE INITIAL PORTION OF THE RESERVE POSTING WHICH MUST BE RECOGNIZED IN THE FIRST YEAR. GE WILL FORGIVE ROE BASED SHORTFALL IN THE FIRST YEAR BEYOND THIS 50% PAYMENT. LOSS SHARING: NET LOSS ANI [ ]* [ ]* GECC [ ]* [ ]* GECC/Montgomery Ward [ ]* [ ]* GECC CROSS MARKETING: Signature receives [ ]* of income. LOSS RESERVES: SHARED [ ]* AT THE TIME RECEIVABLES ARE PURCHASED FROM BANK. RECEIVABLE REPURCHASE: Upon termination of the contract, Montgomery Ward will have the right to repurchase the receivables on a gross basis (before loss reserves). * Confidential treatment has been requested with respect to this information. 2 EX-10.(II)(D)(2) 18 CONSUMER CREDIT AGREEMENT March 13, 1996 Montgomery Ward & Co., Incorporated and Lechmere, Inc. 619 West Chicago Avenue 8-C Chicago, Illinois 60610 Attention: Mr. John Workman Re: Consumer Credit Card Program Agreement between Monogram Credit Card Bank of Georgia and Lechmere, Inc. -------------------------------------------------------- Dear Mr. Workman: Monogram Credit Card Bank of Georgia and Lechmere, Inc. ("Lechmere") are entering into a Consumer Credit Card Program Agreement of even date herewith ("Lechmere Interim Agreement"). A letter agreement dated January 23, 1996 was previously executed by Montgomery Ward Credit and Montgomery Ward & Co., Incorporated ("Montgomery Ward") incorporating a term sheet to be applicable to long term agreements relating to Lechmere and Electric Ave. & More credit card agreements ("Term Sheet"). In addition, Montgomery Ward and Montgomery Ward Credit Corporation previously entered into an Account Purchase Agreement dated as of June 24, 1988, as amended ("Account Purchase Agreement"). In connection with such agreements, it is agreed as follows: 1. Various provisions set forth in the Term Sheet are not incorporated at this time in the Lechmere Interim Agreement which is intended to be an interim agreement until a definitive agreement incorporating the terms of the Term Sheet is executed. Accordingly, it is agreed that to the extent the Term Sheet contains provisions that are not incorporated in the Lechmere Interim Agreement, the definitive long term agreements to be executed will provide that the economic and other provisions set forth in the Term Sheet shall control for the period that the Lechmere Interim Agreement is in effect. 2. The Lechmere Interim Agreement and the use of the credit card program contemplated thereby shall in no way be deemed a violation of the Account Purchase Agreement. Any accounts and receivables generated pursuant to the Lechmere Interim Agreement credit card program will be governed by the Lechmere Interim Agreement rather than the Account Purchase Agreement. 3. Notwithstanding anything otherwise provided in any agreement between Montgomery Ward and Lechmere or in any financing statement, Montgomery Ward has no right, title, interest in any of the property in which Monogram has taken a security interest as set forth in Section 6.03 of the Interim Program Agreement. Montgomery Ward will promptly file a UCC-3 releasing any of the above interests, and prior to filing shall consult with General Electric Capital Corporation as to the form of the UCC. Please execute and return a copy of this letter acknowledging your agreement to the foregoing. This letter may be executed in multiple counterparts. Yours very truly, GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ -------------------------------- Its: Vice President MONTGOMERY WARD CREDIT CORPORATION By: /s/ -------------------------------- Its: President and CEO ------------------------------- ACCEPTED AND AGREED TO: MONTGOMERY WARD & CO., INCORPORATED LECHMERE, INC. By: /s/ Philip D. Delk /s/ Philip D. Delk ------------------- ----------------------- Its: Vice President Assistant Secretary ------------------- ----------------------- (Montgomery Ward) (Lechmere) EX-10.(II)(E) 19 MWCC PROGRAM AGREEMENT MWCC PROGRAM AGREEMENT BY AND AMONG MONTGOMERY WARD CREDIT CORPORATION, MONTGOMERY WARD & CO., INCORPORATED AND LECHMERE, INC. dated April 3, 1996 TABLE OF CONTENTS ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II. ESTABLISHMENT OF PROGRAM . . . . . . . . . . . . . . . . . . . 9 Section 2.1 The Companies to Market the Program . . . . . . . . . 9 Section 2.2 MWCC to Purchase Accounts . . . . . . . . . . . . . . 9 Section 2.3 Promotion of the Program . . . . . . . . . . . . . . 10 ARTICLE III. ADMINISTRATION OF PROGRAM . . . . . . . . . . . . . . . . . . 11 Section 3.1 Preparation of Documents . . . . . . . . . . . . . . 11 Section 3.2 Account Administration . . . . . . . . . . . . . . . . 11 Section 3.3 Ownership of Accounts . . . . . . . . . . . . . . . . 12 Section 3.4 Credit Based Promotions . . . . . . . . . . . . . . . 12 Section 3.5 Use of Lists . . . . . . . . . . . . . . . . . . . . . 12 Section 3.6 Operating Procedures . . . . . . . . . . . . . . . . . 13 Section 3.7 In-Store Payments . . . . . . . . . . . . . . . . . . 13 Section 3.8 Purchase Authorization Procedures . . . . . . . . . . 14 Section 3.9 Settlement Procedures . . . . . . . . . . . . . . . . 14 Section 3.10 Service Fee Amount and Related Matters . . . . . . . . 15 Section 3.11 Postage Adjuster . . . . . . . . . . . . . . . . . . 15 Section 3.12 Repurchase of Accounts . . . . . . . . . . . . . . . . 15 Section 3.13 Monthly Billing Statement . . . . . . . . . . . . . . 16 Section 3.14 Establishment of Payment Terms, Late Fees and Charges 17 Section 3.15 Net Late Charges . . . . . . . . . . . . . . . . . . . 17 Section 3.16 Insurance Solicitation of Accounts . . . . . . . . . 17 Section 3.17 Value-Added Solicitation of Accounts . . . . . . . . . 17 Section 3.18 Additional Responsibilities of the Companies and MWCC 18 ARTICLE IV. SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.1 Grant of Security Interest . . . . . . . . . . . . . 18 ARTICLE V. WARRANTIES AND COVENANTS . . . . . . . . . . . . . . . . . . . 18 Section 5.1 Presentment Warranties . . . . . . . . . . . . . . . 18 Section 5.2 Account Covenants . . . . . . . . . . . . . . . . . . 22 Section 5.3 Additional Affirmative Covenants . . . . . . . . . . 22 Section 5.4 Negative Covenants of the Companies . . . . . . . . . 23 Section 5.5 General Representations and Warranties . . . . . . . . 23 Section 5.6 Representations and Warranties of MWCC . . . . . . . . 25 ARTICLE VI. EVENTS OF DEFAULT; RIGHTS AND REMEDIES . . . . . . . . . . . . 27 Section 6.1 Events of Default . . . . . . . . . . . . . . . . . . 27 Section 6.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE VII. TERM/TERMINATION . . . . . . . . . . . . . . . . . . . . . . 29 Section 7.1 Term . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 7.2 Termination by the Companies . . . . . . . . . . . . 29 i Section 7.3 Termination by MWCC . . . . . . . . . . . . . . . . . 30 Section 7.4 Renegotiation . . . . . . . . . . . . . . . . . . . . 30 Section 7.5 Termination for Force Majeure . . . . . . . . . . . . 30 Section 7.6 Purchase of Accounts by the Companies . . . . . . . . 31 Section 7.7 Liquidation of Accounts . . . . . . . . . . . . . . . 31 ARTICLE VIII. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 32 Section 8.1 By The Companies . . . . . . . . . . . . . . . . . . 32 Section 8.2 By MWCC . . . . . . . . . . . . . . . . . . . . . . . 33 Section 8.3 Payment of Indemnified Amounts . . . . . . . . . . . 33 Section 8.4 Insurance and Mitigation . . . . . . . . . . . . . . 34 Section 8.5 Notice . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE IX. OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE X. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 10.1 Confidential Information . . . . . . . . . . . . . . 35 Section 10.2 Assignability . . . . . . . . . . . . . . . . . . . . 36 Section 10.3 Amendment . . . . . . . . . . . . . . . . . . . . . . 36 Section 10.4 Non-Waiver . . . . . . . . . . . . . . . . . . . . . 36 Section 10.5 Severability . . . . . . . . . . . . . . . . . . . . 36 Section 10.6 Governing Law . . . . . . . . . . . . . . . . . . . . 36 Section 10.7 Captions . . . . . . . . . . . . . . . . . . . . . . 36 Section 10.8 Use of Company Names and Marks . . . . . . . . . . . 36 Section 10.9 Further Assurances . . . . . . . . . . . . . . . . . 37 Section 10.10 Entire Agreement . . . . . . . . . . . . . . . . . . 37 Section 10.11 Notices . . . . . . . . . . . . . . . . . . . . . . . 37 Section 10.12 Power of Attorney . . . . . . . . . . . . . . . . . . 38 Section 10.13 Third Parties . . . . . . . . . . . . . . . . . . . . 38 Section 10.14 Interpretation . . . . . . . . . . . . . . . . . . . 39 Section 10.15 No Joint Venture . . . . . . . . . . . . . . . . . . 39 Section 10.16 Waiver of Jury Trial . . . . . . . . . . . . . . . . 39 Section 10.17 Counterparts . . . . . . . . . . . . . . . . . . . . 39 Section 10.18 Survival . . . . . . . . . . . . . . . . . . . . . . 39 Section 10.19 No Inconsistent Action . . . . . . . . . . . . . . . 40 ii MWCC PROGRAM AGREEMENT This MWCC Program Agreement, made as of the 3rd day of April, 1996 by and among Montgomery Ward Credit Corporation, a Delaware corporation ("MWCC"), with administrative offices at 3720 Howard Hughes Parkway, Suite 200, Las Vegas, Nevada 89109, Montgomery Ward & Co., Incorporated, a Illinois corporation ("Montgomery Ward"), with its chief executive office at 619 W. Chicago Avenue, Chicago, Illinois 60671, and Lechmere, Inc., a Massachusetts corporation ("Lechmere" and together with Montgomery Ward, collectively, the "Companies", and each individually, a "Company"), with its chief executive office at 619 W. Chicago Avenue, Chicago, Illinois 60671; WITNESSETH WHEREAS MWCC has established programs relating to the extension of commercial credit to qualified customers for the purchase of goods and/or services pursuant to CommerciaLine Agreements (as hereinafter defined); and WHEREAS the Companies, through their Retail Locations (as hereinafter defined), are engaged in, among other activities, the distribution and sale of Goods and/or Services (as hereinafter defined) at retail on credit; and WHEREAS MWCC and the Companies agree to establish customized Programs (as hereinafter defined) for the exclusive use of the Companies at Retail Locations and otherwise on the terms and conditions set forth herein during the Initial Term and any Renewal Term(s) (as hereinafter defined); NOW THEREFORE, in consideration of the terms and conditions stated herein, and for good and valuable consideration, the receipt of which is hereby acknowledged, MWCC and the Companies agree as follows: ARTICLE I. DEFINITIONS SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: "Account" means and includes the following: a. a secured or unsecured business credit facility established in connection with a CommerciaLine Agreement and established under an agreement between one or both of the Companies and an Account Holder, pursuant to which the Account Holder is permitted to purchase through one or both of the Companies, from time to time, Goods and/or Services on credit and pursuant to which the Account Holder must pay the outstanding balance in full using the payment terms specified in the CommerciaLine Agreement; b. any and all Account Documentation; c. accounts, accounts receivable, other receivables, Indebtedness, contract rights, choses in action, general intangibles, chattel paper, instruments, documents, notes and all proceeds of all of the foregoing (as each of those terms which is defined in the UCC is so defined) arising in connection with the CommerciaLine accounts referred to in subsection a of this definition; d. any and all rights and remedies as to stoppage-in-transit, reclamation, return and repossession of Goods and/or Services financed pursuant thereto; e. to the extent assignable, any and all goods or other property, contracts of indemnity, guaranties, letters of credit or sureties standing as security for payment of Indebtedness; f. any and all proceeds of insurance and other proceeds at any time standing as security for payment of Indebtedness; and g. any and all other rights, remedies, benefits, interests and titles, both legal and equitable, to which the Companies may be entitled in respect of the foregoing. "Account Documentation" means, with respect to any Account, any and all documentation relating to an Account, including, without limitation, CommerciaLine Applications, CommerciaLine Agreements, Charge Transaction Data, Program Documents, checks and stubs, credit bureau reports, adverse action information, change of terms notices, correspondence, memoranda, documents, instruments, certificates, agreements and invoices, including any and all amendments or modifications thereto, however stored or kept, and any other written information relating to an Account. "Account Holder" means a CommerciaLine Customer. "Active CommerciaLine Account" means an Account (excluding Net-Writeoffs) which arises under a CommerciaLine Agreement and, with respect to any Billing Period, has a debit or credit balance at any time during such Billing Period. 2 "Agreement" means this Agreement, together with all of its schedules and exhibits, and, if amended, restated, modified or supplemented, as the same may be so amended, restated, modified or supplemented from time to time. "Bankruptcy Code" means Title 11 of the United States Code, as now constituted or as hereafter amended, or any successor law. "Billing Date" means (i) for any Account the date during a calendar month as of which the Account Holder, is billed, and (ii) for all Accounts each date during a calendar month as of which Account Holders are billed, both as designated by MWCC. "Billing Period" means the elapsed time between Billing Dates, usually twenty-eight (28) to thirty-two (32) days. "Billing Period Outstandings" means, as of any Billing Date, the aggregate Indebtedness on all Accounts determined as of the end of the Billing Period applicable to such Accounts. "Business Day" means any day, other than a Saturday, Sunday or New York bank legal holiday. "Change of Control" means (i) the acquisition by any Person or group of Persons of beneficial ownership of 50% or more of the combined voting power of the then outstanding voting securities of any Company entitled to vote generally in the election of directors; (ii) the cessation by individuals who, as of the Closing, constitute the Board of Directors of any Company (the "Incumbent Board") to constitute at least a majority of such Board; PROVIDED, that any individual becoming a director subsequent to the Closing whose election or nomination for election by a Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; (iii) the approval by the stockholders of any Company of a reorganization, merger or consolidation (each a "Reorganization"), in each case through which all or substantially all the Persons who where the respective beneficial owners of the voting securities of such Company immediately prior to such Reorganization do not beneficially own, following such Reorganization, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation, as a result of such Reorganization; or (iv) the sale or other disposition of all or substantially all the assets or property of any Company in one transaction or series of related transactions. Notwithstanding the foregoing, should the 3 owners of Montgomery Ward Holding Corp. Class A common stock transfer, sell or otherwise dispose of their respective interest, such transfer, sale or disposal (either individually or cumulatively) in a transaction involving General Electric Capital Corporation shall not be deemed a Change of Control under this Agreement. "Charge Slip" means a sales receipt, including but not limited to an invoice, evidencing a purchase of Goods and/or Services from any Company that is to be charged to an Account. "Charge Transaction Data" means Account Holder identification and transaction information with regard to each purchase of Goods and/or Services by Account Holders on credit from any Company with respect to an Account and each return of Goods and/or Services for credit to the Account Holders with respect to an Account, which data is being required to be transmitted by the Companies to MWCC in accordance with the applicable Operating Procedures. "CommerciaLine Agreement" means the credit agreement between one or both Companies and a CommerciaLine Customer pursuant to which the CommerciaLine Customer may purchase Goods and/or Services on credit from the Companies at the Companies' Retail Locations and is required to pay the outstanding balance in full on the date specified in the billing statement, together with any modifications or amendments which may be made to such agreement. "CommerciaLine Application" means the credit application which must be completed by applicants who wish to become CommerciaLine Customers. "CommerciaLine Customer" means any Person who has entered into a CommerciaLine Agreement or who is liable on an Account established by a CommerciaLine Agreement for purchase of Goods and/or Services to be used primarily for commercial or business purposes. "Company" and "Companies" have the meanings set forth on page one. "Company Names" means the trademarks, tradenames, service marks, logos and other proprietary designations of the Companies licensed to MWCC by the Companies pursuant to this Agreement. "CP Base Rate" means [ ]* "CP Factor" means, with respect to each calendar month, the product of (i) the remainder of the CP Rate minus the CP *Confidential treatment has been requested with respect to this information. 4 Base Rate, multiplied by (ii) [ ]*. "CP Rate" means, as of the last Business Day of the preceding calendar month, [ ]* if not published therein, as published or made available by such other source as MWCC shall reasonably determine. "Confidential Information" has the meaning as set forth in Section 10.1 hereof. "Credit Review Point" means, except as adjusted pursuant to Section 2.2, [ ]*, or such higher amount as MWCC, in its sole discretion, shall from time to time specify to the Companies in writing. MWCC may, in its sole discretion, increase the Credit Review Point to an amount MWCC deems acceptable during the Term. "Credit Slip" means a sales credit receipt evidencing a return or exchange of Goods or a credit on an Account or an adjustment for Services rendered or not rendered by a Company to an Account Holder. "Default" means any event the occurrence of which, with the passage of time or the giving of notice or both, would constitute an Event of Default. "Event of Default" has the meaning set forth in Section 6.1 hereof. "Final Liquidation Date" means the date on which MWCC no longer owns any Accounts that have a balance outstanding other than a balance that has been written off. "GAAP" means generally accepted accounting principles in the United States of America as from time to time in effect. "Goods and/or Services", separately or cumulatively, means all merchandise and services which may be purchased by an Account Holder under an Account. "Indebtedness" means any and all amounts that are from time to time due from the Account Holder under an Account, including without limitation any charges for Goods and/or Services, credit insurance charges, sales tax, finance charges and all other charges in respect of an Account, whether or not billed or posted, and all monies due or to become due with respect to the foregoing and all proceeds of the foregoing, including without limitation, insurance proceeds relating thereto. *Confidential treatment has been requested with respect to this information. 5 "Initial Period" means the period from the date of this Agreement through the three month anniversary thereof. "Initial Term" has the meaning set forth in Section 7.1 hereof. "Insurance Program" means credit life, credit property and/or other types of credit insurance that may be offered by MWCC to Account Holders pursuant to Section 3.16 hereof. "Invoice" means a Charge Slip or sales receipt evidencing a Purchase that is charged to an Account and that evidences an amount to be paid by MWCC to the Companies. "Lid Code" means line item description as established from time to time by MWCC. "Lien" means any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, restriction, lien, charge, claim, security interest (including, without limitation, any interest of a buyer of accounts or chattel paper which is subject to Article 9 of the UCC), easement or encumbrance, preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to file, any financing statement pursuant to the UCC), other than mechanics liens and other liens that arise by operation of law which have not been in existence for more than 30 days. "Lists" has the meaning set forth in Section 3.5 hereof. "Losses" has the meaning set forth in Section 8.1 hereof. "Monthly Billing Statement" has the meaning set forth in Section 3.13 hereof. "MWCC" has the meaning set forth on page 1 hereof. "Net Credit Volume" means, with respect to any period, an amount equal to the aggregate amount of Purchases on Accounts for such period (as reflected in the Charge Transaction Data) less the sum of (x) the aggregate amount of Credit Slips for such period (as reflected in the Charge Transaction Data) and (y) the aggregate amount of Repurchases for such period. "Net Late Charges" means any late fees charged in respect of Accounts less any of such fees or charges which have been waived pursuant to policies and procedures adopted by the 6 mutual agreement of the Companies and MWCC. "Net Sales Volume" means, with respect to any period, Net Credit Volume for such period before deducting the aggregate amount of Repurchases for such period. "New Retailer" has the meaning set forth in Article IX hereof. "Operating Procedures" means the written instructions and procedures established by MWCC and agreed to by the Companies in connection with the Program, as the same may be amended from time to time. "Person" means and includes any individual, partnership, joint venture, corporation, trust, unincorporated organization of government or any department, agency or instrumentality thereof. "Postage Base Rate" means the first class postage-rate paid by MWCC as of the date hereof. "Presentment Warranties" has the meaning set forth in Section 5.1. "Program" means the programs established by this Agreement and made available to qualified Account Holders for the purchase of Goods and/or Services sold or supplied by the Companies and/or Services rendered by the Companies. The term "Program" includes the extension of credit, billings, collections, accounting between the parties, and all aspects of the relationships contemplated herein other than advertising in respect of credit promotions. "Program Documents" has the meaning set forth in Section 3.1 hereof. "Purchase" means the purchase by an Account Holder of any of the Goods and\or Services that may be purchased from any Company at any Retail Location. "Renewal Term" has the meaning set forth in Section 7.1 hereof. "Repurchases" has the meaning set forth in Section 3.12 hereof. "Retail Location(s)" means retail business locations which are owned or operated by any Company or its licensees. "RSA Average Account Balance" means with respect to any Billing Date, (i) the portion of the Billing Period 7 Outstandings on such Billing Date attributable to sales made at Retail Locations, divided by (ii) the number of Active CommerciaLine Accounts attributable to sales made at Retail Locations ending on such Billing Date. "RSA Average Account Balance Factor" means the product of (i) the remainder of [ ]* minus the RSA Average Account Balance, multiplied by, (ii) either (a) [ ]*, if such remainder is a negative amount, or (b) [ ]*, if such remainder is a positive amount. "Service Fee Amount" has the meaning set forth in Section 3.10 hereof. "Solvent", as to an entity, means (a) the current book value of such entity's assets, as a going concern, is in excess of the total of its current book liabilities, in each case as determined in accordance with generally accepted accounting principles, and (b) such entity is currently able generally to pay its debts as they become due. The phrase "book value" means the net amounts at which assets and liabilities are carried on the books of a Company on a going concern basis. "Term" has the meaning set forth in Section 7.1 hereof. "Transaction Day" means a day, whether or not a Business Day, on which Goods and/or Services are sold by any Company. "UCC" means the Uniform Commercial Code (or similar law) of the jurisdiction with respect to which such term is used, as in effect from time to time. "Unadjusted RSA Discount Rate" has the meaning set forth in Section 3.10a. "Uncontested Amount" means an amount which is owed by MWCC to any Company or by any Company to MWCC, as the case may be, pursuant to the terms of this Agreement and with respect to which written notice disputing such amount has not been delivered by MWCC to the Companies or by the Companies to MWCC, as the case may be. "United States" or "U.S." means the fifty states of the United States of America and the Commonwealth of Puerto Rico. "Value-Added Program" means any products or services that may be offered by MWCC to Account Holders that enhance the features of the Program and/or Accounts including, without limiting the foregoing, credit card protection plans, legal service plans, financial products and services, and such *Confidential treatment has been requested with respect to this information. 8 other products and services as MWCC may specify from time to time; PROVIDED, that the term shall not be deemed to include (i) credit insurance, or (ii) any offerings falling within the definition of "Insurance Programs." Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine, or neuter gender shall include the masculine, the feminine, and the neuter. ARTICLE II. ESTABLISHMENT OF PROGRAM SECTION 2.1 THE COMPANIES TO MARKET THE PROGRAM. The Companies hereby agree that they will participate in the Program and will market the Program. The Companies will make credit available to Account Holders under the Program for the purchase of Goods and/or Services only in accordance with the Operating Procedures. SECTION 2.2 MWCC TO PURCHASE ACCOUNTS. a. Subject to: (i) the terms of this Agreement, and (ii) the credit limits applicable to each Account, MWCC shall purchase Accounts created on or after the date hereof from the Companies in amounts set forth as the total for any Purchase reflected in Charge Transaction Data properly submitted to MWCC by the Companies in accordance with the terms of this Agreement and for which the Companies have obtained authorization from MWCC, subject to any applicable Service Fee Amounts (including as set forth in Section 3.10 hereof) or other promotional discounts, and any other adjustments expressly permitted by this Agreement; PROVIDED, that MWCC will not be required to purchase Accounts or the underlying Indebtedness to the extent that such new purchase, together with the amount of existing Indebtedness purchased by MWCC, would exceed the Credit Review Point; and PROVIDED FURTHER, that the payment for or acceptance by MWCC of Accounts shall not be deemed a waiver of any rights MWCC may have under this Agreement. b. In the event the aggregate Indebtedness arising under all Accounts equals or exceeds ninety percent (90%) of the then in effect Credit Review Point, then within ninety (90) days after such balance reaches said point, MWCC shall elect any one of the following options and give the Companies written notice of such election within said ninety (90) day period: (i) MWCC will, in its sole discretion, increase the Credit Review Point to an amount MWCC deems acceptable, but in any event to a sum equal to or higher than the amount which, at the time of the election of this option, would not trigger the 9 provisions of this Section 2.2b. If MWCC elects this option, then MWCC's written notice to the Companies shall include the amount of the increased Credit Review Point. (ii) MWCC will obtain funds from one or more lending institutions, of MWCC's sole choice and in such manner as MWCC deems appropriate and consistent with the provisions of this Agreement, for the purpose of securitizing or participating with MWCC in buying a portion of the Indebtedness, such portion to be unlimited in amount and at MWCC's sole discretion. If MWCC elects this option, then MWCC's written notice to the Companies shall constitute notice that, for purposes of this Section 2.2, thenceforth the aggregate Indebtedness shall be deemed to be reduced by an amount equal to the aggregate amount of the portion of the Accounts participated pursuant to this Section 2.2b(ii). (iii) MWCC may elect not to increase the Credit Review Point to an amount as required in Section 7.2b. In such event, the Companies shall be entitled to terminate this Agreement in accordance with Section 7.2b hereof. c. The Companies expressly acknowledge MWCC's right to establish a Credit Review Point as described in this Section 2.2 and, in this regard, provided that MWCC has not wilfully misrepresented any facts relating to the Credit Review Point, hereby release MWCC from any all Losses incurred as a result of MWCC's refusal to purchase Accounts or the underlying Indebtedness to the extent that the amount of such new purchase, together with the amount of existing Indebtedness, would exceed the Credit Review Point, increase the Credit Review Point or take any other action contemplated under Section 2.2, including but not limited to, any Losses relating to a lender liability claim. SECTION 2.3 PROMOTION OF THE PROGRAM. a. (i) The Companies may promote the Program during the Term and encourage the acquisition and usage of Accounts by Account Holders through promotions mutually agreed upon by the Companies and MWCC, and MWCC shall assist in planning and monitoring all such promotions. The Companies shall include actual CommerciaLine Applications/Agreements and/or information relating to the Program in its generalized and specialized brochure advertising when deemed appropriate by the Companies' management. The Companies shall be responsible for all costs and expenses of promoting the Program. (ii) The Companies and MWCC each shall obtain the prior written consent of the other party with regard to the substance and timing of any press releases issued during the Term which announce the execution of this Agreement, or the transactions specified herein, which prior approval shall not unreasonably be withheld. At all times thereafter, the Companies 10 and MWCC, prior to issuing any press releases concerning this Agreement or the transactions specified herein, shall consult with each other concerning the proposed substance and timing of such releases and give due consideration to the comments of the other party relating thereto. The foregoing notwithstanding, it is understood that neither party shall be required to consult with the other party with regard to (A) press releases and other announcements as may be required by applicable laws or the applicable rules and regulations of any governmental agency or stock exchange and (B) publications prepared solely by and for employees of the Companies or MWCC, all of which may be issued without prior consultation with, or the prior written consent of, the other party. ARTICLE III. ADMINISTRATION OF PROGRAM SECTION 3.1 PREPARATION OF DOCUMENTS. a. MWCC and the Companies shall cooperate and assist each other in the preparation of all documents to be used in connection with the Program. MWCC shall provide the Companies with the form and content of CommerciaLine Applications, CommerciaLine Agreements, and other forms, as required by law and this Agreement (hereinafter referred to as "Program Documents"). The Companies shall be solely responsible for the costs of printing, customizing, and any other incidental expenses associated with document preparation, including but not limited to customized CommerciaLine Applications/Agreements, Charge Slips, Credit Slips and other Program Documents. All Program Documents and other forms shall, at MWCC's option exercised prior to the printing of such Program Documents, state that the Accounts and underlying Indebtedness will be sold to, assigned to and serviced by, MWCC. No Program Documents shall be utilized unless MWCC has expressly approved the form and content of such documents. The Companies shall be responsible for distributing such Program Documents to each Company's customers and instructing their employees to use only Program Documents that have been approved by MWCC. The Companies will indemnify MWCC with respect to any Losses incurred as a result of all changes to and/or omissions of Program Documents made without MWCC's written authorization. b. The Companies shall be solely responsible for all costs and expenses relating to materials promoting the Program and other credit marketing expenses relating thereto including, without limitation, credit advertising, in-store point-of-purchase promotional materials and credit marketing expenses related to the promotion of the Program. SECTION 3.2 ACCOUNT ADMINISTRATION. 11 MWCC shall, in accordance with Operating Procedures, determine the creditworthiness of individual applicants under the Program, the range of credit limits to be made available to individual Account Holders and whether to suspend, alter to terminate credit privileges of any Account Holder. Indebtedness with respect to Accounts failing to meet such criteria as determined by MWCC shall not be eligible for purchase. The parties acknowledge that one or more affiliates of MWCC, as MWCC may in its sole discretion appoint from time to time, may have day-to-day responsibility for administration of the Program. SECTION 3.3 OWNERSHIP OF ACCOUNTS. With respect to the Accounts and underlying Indebtedness which it purchases, MWCC shall be the sole and exclusive owner of all such Accounts and underlying Indebtedness and of the related Account Documentation, Account Holder data, Charge Transaction Data, Charge Slips, Credit Slips and receipts or evidences of payment or purchases by Account Holders and other Program Documents, and shall be entitled to receive all payments made by Account Holders on Accounts and the underlying Indebtedness, and the Companies acknowledge and agree that they have no right, title or interest in such Accounts or underlying Indebtedness or related Account Documentation, Account Holder data, Charge Transaction Data, Charge Slips, Credit Slips, receipts or evidences of payments or purchases by Account Holders or other Program Documents, and has no right to any payments made by Account Holders on Accounts or underlying Indebtedness. SECTION 3.4 CREDIT BASED PROMOTIONS. MWCC may make available to the Companies, to encourage Account acquisition and usage, certain credit-based promotions, which will be developed and mutually agreed to by MWCC and the Companies. The Companies shall pay Service Fee Amounts, in addition to those specified in Section 3.10, as mutually agreed to by MWCC and the Companies, for any such credit promotion which may result in additional expense to MWCC. SECTION 3.5 USE OF LISTS. The Companies or their designees (including unrelated third parties designated by the Companies) have exclusive right and control of all lists of applicants, Account Holders, Account Holder names and addresses, and all credit and demographic information reflected therein, including that for approved and declined applicants (hereinafter the "Lists"); PROVIDED, that (i) MWCC shall be entitled to use such Lists in connection with its administration and operation of the Programs as provided in this Agreement; (ii) upon the termination of this Agreement however caused, then MWCC shall be entitled to use the Lists in 12 connection with the liquidation or sale of the portfolio of Accounts as provided in Section ?: and (iii) MWCC shall have a right of first refusal if at any time the Companies propose to solicit the Lists for Visa or Master Charge applications. MWCC agrees that during the term of this Agreement all income arising from the marketing of or to the Lists will belong to the Companies, other than any income derived by MWCC pursuant to the provisions of Sections 3.16 or 3.17. SECTION 3.6 OPERATING PROCEDURES. The Companies shall follow all applicable Operating Procedures in connection with the Program including, but not limited to, distributing CommericaLine Applications, seeking authorizations for Accounts, handling credit transactions with Account Holders and transmitting Charge Transaction Data. SECTION 3.7 IN-STORE PAYMENTS. a. The Companies shall not advertise or otherwise indicate to any persons that Account Holders (or other persons acting on behalf of Account Holders) may make In-Store Payments (as defined in subsection c below) and instead shall advise employees (i) not to accept In-Store Payments and (ii) to direct Account Holders seeking to make such payments to send payments to the payment address contained on the monthly billing statement. Without derogating the restriction in the preceding sentence, if any In-Store Payment is made, the Company receiving such In-Store payment shall give the person making such In-Store Payment a receipt therefor and shall be deemed to hold such In-Store Payment as property of, and in trust for, MWCC until (x) such payment is delivered to MWCC or (y) MWCC is informed of the amount of such payment and applies said amount to reduce amounts payable by MWCC to such Company pursuant to this Agreement. MWCC shall apply amounts of In-Store Payments received by any Company (and of which it is duly informed) to reduce the amounts payable by MWCC to such Company; PROVIDED, that, the Companies will, upon the request of MWCC, thenceforth transmit to MWCC all In-Store Payments within two (2) Business Days of the day received by any Company. b. Within twenty-four (24) hours after the receipt of any In-Store Payment, the Companies shall notify MWCC of such receipt (which notification shall include the amounts of such payments and identification of the Accounts and make reasonable efforts to supply the Invoice number as to which such payments relate) by providing such information with its provision of Charge Transaction Data. An In-Store Payment shall be credited to the Account of the relevant Account Holder as of the date MWCC applies the amount of such payment to reduce amounts payable by MWCC to the Companies (or, if no such application is made, as of the date MWCC receives said In-Store Payment from the Companies). 13 c. For purposes of this provision, "In-Store Payment" means a payment on an Account made by an Account Holder (or any person acting on behalf of an Account Holder) at a Retail Location. SECTION 3.8 PURCHASE AUTHORIZATION PROCEDURES. Each Company agrees as follows with respect to each Purchase by an Account Holder: a. It must complete an Invoice. The Account number must be printed or written on the Invoice. b. It must have the CommerciaLine Customer sign the Invoice, once all other purchase information is filled in as requested. c. It must obtain authorization through the existing POS Network for all Purchases and record the authorization code on the Invoice. For authorizations during any time that the POS Network is not in operation, the Companies must call MWCC (or its affiliate, if an affiliate is appointed to administer the processing Program) for an authorization code. SECTION 3.9 SETTLEMENT PROCEDURES. a. All sales data will be electronically transmitted to MWCC using POS Network settlement procedures. The Companies, or an agent of the Companies, will retain a copy of the Charge Slip. b. Upon receipt, verification and processing of the Charge Transaction Data by MWCC, MWCC will remit to the Companies an amount equal to [ ]* the Transaction Day(s) for which such remittance is being made. MWCC will transfer funds via wire transfer to a bank designated in writing by the Companies. If Charge Transaction Data is received by MWCC's processing center before 10 a.m. Eastern Time on a Business Day, MWCC will initiate such wire transfer on the same Business Day. In the event that the Charge Transaction Data is received after 10 a.m. Eastern Time, then MWCC will initiate such transfer on the following Business Day. If MWCC, in its sole discretion, determines that any amount payable to MWCC, as set forth on any Monthly Billing Statement sent to the Companies has not been paid as set forth in Section 3.13, MWCC may deduct from or set off against any amounts to be remitted to the Companies pursuant to the foregoing sentence, the sum of (x) the Service Amount Fee for that Business Day and any other Business Days for which the Service Fee Amount has not been collected and (y) all other amounts due, including without limitation amounts due pursuant to Sections 3.10b, 3.11 and 3.12 from the Companies to MWCC hereunder, except as otherwise expressly provided herein. *Confidential treatment has been requested with respect to this information. 14 c. The Companies authorize MWCC to microfilm (or copy using any other reasonable method) all documentation within the definition of Account and Program Documents and destroy all such original Account and Program Documents in the ordinary course of business as MWCC may see fit, and in accordance with applicable laws. SECTION 3.10 SERVICE FEE AMOUNT AND RELATED MATTERS. In addition to any amount due to MWCC pursuant to Section 3.3 hereof: a. With respect to RSA CommerciaLine Accounts, the Service Fee amount payable by the Companies to MWCC will be the amount equal to the product of (i) [ ]*, multiplied by (ii) the sum of (A) [ ]* (the "Unadjusted RSA Discount Rate"), (B) the CP Factor (which may be either positive, zero or negative), and, after the Initial Period, (C) the RSA Average Account Balance Factor (which may be either positive, zero or negative). For purposes of illustration, attached hereto as Exhibit A is a schedule which shows how the Unadjusted RSA Discount Rate would be adjusted for fluctuations in the CP Rate and the RSA Average Account Balance. b. The Companies shall pay the MWCC a fee in the amount of [ ]* with respect to each CommerciaLine Application processed by MWCC, regardless of whether any such CommerciaLine Application is approved. SECTION 3.11 POSTAGE ADJUSTER. In the event actual first class postage rate paid by MWCC is increased at any time above the Postage Base Rate, the Companies shall pay to MWCC in respect each Billing Period an amount equal to the aggregate amount of such increases multiplied by the number of Accounts as to which billing statements are mailed, provided, that MWCC shall make reasonable efforts to obtain the lowest postage rate possible. SECTION 3.12 REPURCHASE OF ACCOUNTS. a. The Companies shall Repurchase (any such repurchase made pursuant to this Section 3.12 shall be referred to herein as a "Repurchase") for cash from MWCC upon demand an Account or the amount of any Charge Slip or Credit Slip if with respect to such Account or Charge Slip or Credit Slip or the underlying transactions: (i) any Presentment Warranty proves to be materially false or inaccurate in any respect; (ii) the Account Holder asserts any claim or defense against MWCC as a result of any act or omission of any Company allegedly in violation of any applicable law, statute, ordinance, rule or regulation; (iii) the Account Holder reasonably disputes the amount or existence of *Confidential treatment has been requested with respect to this information. 15 such Account, or refuses to pay alleging dissatisfaction with the quality or performance of Goods and/or Services received, including without limitation, work or service performed by any agent, contractor, or supplier or any other person retained or employed by any Company, a breach of warranty or representation by any Company in connection with the transaction, or an offset or counterclaim based on any Company's act or omission or any act or omission of any agent, contractor or supplier; (iv) the Account Holder disputes a Charge Slip and the Companies cannot supply MWCC with a copy of the Charge Slip within eighteen (18) days of MWCC's written request (v); any Charge Slip is submitted to and processed by MWCC and MWCC determines in its reasonable discretion that any Company did not materially comply with the Operating Procedures; (vi) the balance in any Account or item of Indebtedness is for any reason not valid or enforceable (other than instances where such invalidity or unenforceability is a direct result of some action or failure to act by MWCC) against the Account Holder obligated for payment and performance under the Account; and (vii) at the time of purchase by MWCC, the Account or item of Indebtedness is not free of any defense, offset, counterclaim, or recoupment assertable by the Account Holder or any other person obligated therefor or by any Company's creditors or assignees other than under any product warranty, service or installation agreement. The parties agree that MWCC will recoup or set off the amount of any Repurchases against amounts payable to the Companies pursuant to Section 3.9 unless the amount of Repurchases is in excess of the amount payable to the Companies pursuant to Section 3.9 in which case such excess will be payable to MWCC in cash upon demand. b. Any obligation by the Companies to make Repurchases pursuant to this 3.12 shall be joint and several, unconditional and shall not be waived, released or affected by the retention of purchase by MWCC with the knowledge of a breach of warranty or other infirmity, whether or not communicated to the Companies, and such retention or purchase by MWCC with knowledge of a breach of warranty other infirmity shall not be deemed a waiver of any of MWCC's rights with respect to the asset purchased. MWCC shall not unreasonably be required to exhaust its remedies against the Account Holder as condition precedent to requiring performance by the Companies of their Repurchase obligation. c. The Repurchase price payable under this Section 3.12 shall be the aggregate of [ ]* at the time of the purchase by the Companies. SECTION 3.13 MONTHLY BILLING STATEMENT. MWCC will send the Companies a monthly billing statement (the "Monthly Billing Statement") setting forth the Service Fee *Confidential treatment has been requested with respect to this information. 16 Amounts, application fees, postage adjuster fees, amounts of Repurchases and other charges and adjustments incurred during such calendar month. The Companies will pay such Monthly Billing Statement within ten days of receipt or MWCC may indicate its intent to recoup or offset such amounts pursuant to the settlement procedures set forth in Section 3.9. MWCC's rights under this Section 3.13 are in addition to, and not intended to limit, any rights MWCC may have pursuant to this Agreement to recoup or offset against amounts due to any Company hereunder. SECTION 3.14 ESTABLISHMENT OF PAYMENT TERMS, LATE FEES AND CHARGES. The payment terms, credit standards, credit limits, late charges and other charges applicable to Accounts arising pursuant to a CommerciaLine Agreement have been mutually agreed by the parties hereto. Payment terms, late charges and other charges may be modified or amended at the sole discretion of the Companies, PROVIDED, that the Companies shall compensate MWCC in an amount or take such other action mutually agreed by MWCC and the Companies to be reasonable in view of the changed or modified economics arising in connection with any such modification or amendment, and PROVIDED, FURTHER that the Companies shall not institute a proposed modification or amendment until they have consulted with MWCC regarding such modification or amendment. Notwithstanding the foregoing, all decisions with respect to determining credit standards for opening a CommerciaLine Account and the credit limits applicable thereto shall be made in accordance with mutually agreed Operating Procedures. SECTION 3.15 NET LATE CHARGES. MWCC and the Companies shall each be entitled to [ ]* of Net Late Charges collected by MWCC. The Companies' share of Net Late Charges in respect of each Billing Period shall be set forth on each Monthly Billing Statement and shall be credited against amounts otherwise owing to MWCC. SECTION 3.16 INSURANCE SOLICITATION OF ACCOUNTS. MWCC, or its agents, may solicit Account Holders for Insurance Programs, but only after having offered the right to do so to the Companies and the Companies having declined such right. Unless otherwise agreed to in writing by the Companies, any solicitations regarding such Insurance Programs shall in no way state or imply that such Insurance Programs are offered or endorsed by the Companies in any way. SECTIONS 3.17 VALUE-ADDED SOLICITATION OF ACCOUNTS. MWCC, or its agents, may solicit Account Holders for Value-Added Programs, but only after having offered the right to do so *Confidential treatment has been requested with respect to this information. 17 to the Companies and the Companies having declined such right. Unless otherwise agreed to in writing by the Companies, any solicitations regarding such Value-Added Programs shall in no way state or imply that such Value-Added Programs are offered or endorsed by the Companies in any way. SECTION 3.18 ADDITIONAL RESPONSIBILITIES OF THE COMPANIES AND MWCC. As to Accounts which are delinquent, the Companies shall furnish to MWCC such assistance with collections as MWCC may reasonably request and as the parties may mutually agree from time to time. ARTICLE IV. SECURITY INTEREST SECTION 4.1 GRANT OF SECURITY INTEREST. The parties intend that the transactions contemplated herein shall constitute a purchase and sale of Accounts and Indebtedness for all purposes, not lending transactions. Notwithstanding the foregoing, to secure all obligations of the Companies to MWCC whatsoever, whether now existing or hereafter created or acquired and, against the possibility that those transactions contemplated herein as a purchase and sale of Accounts and Indebtedness are not so considered despite the intentions of the parties, each of the Companies hereby grants to MWCC a present and continuing first priority security interest in and to the following, together with the proceeds thereof: (A) all Accounts, Indebtedness and Program Documents; (B) all deposits, credit balances and reserves on MWCC's books relating to the Program; and (C) all proceeds of the foregoing. The Companies agree to cooperate fully with MWCC as MWCC may reasonably request in order to give effect to the security interest granted by this Section 4.1., including without limitation the execution and filing by the Companies of UCC-1 or comparable statements in order to perfect the interests created hereby. For filing purposes, each Company agrees to provide MWCC with not less than 30 days prior written notice of any change in location of its chief executive office or any change of its corporate name and, notwithstanding the foregoing, no such change shall be effected before such Company shall have supplied MWCC signed copies of all filings and actions as MWCC may reasonably determine to be necessary or appropriate to preserve and maintain at all times the perfection and priority of the interests granted or purported to be granted to MWCC hereunder. ARTICLE V. WARRANTIES AND COVENANTS SECTION 5.1 PRESENTMENT WARRANTIES. 18 Each of the Companies represents and warrants to MWCC with respect to each Account and each item of Indebtedness purchased by MWCC (and the following, referred to herein as the "Presentment Warranties" shall be deemed restated, renewed and reaffirmed with respect to each transaction each time MWCC receives Charge Transaction Data from any Company relative to each such Account and item of Indebtedness): a. That at the time of each sale to MWCC, it was the owner of such Account and item of Indebtedness, free and clear of any Liens, and upon the sale of such Account and item of Indebtedness to MWCC, MWCC shall be vested with full and complete title to each such Account or item of Indebtedness, free and clear of any Lien other than the interest of MWCC; b. That it has complied with any materials MWCC in its reasonable discretion provides it concerning applicable provisions of local, state and federal law and implementing regulations as they apply to it in the sale of Goods and/or Services to Account Holders in the offering of credit; c. That each Account and item of Indebtedness shall have been authorized and created in accordance with this Agreement, all applicable laws (other than any breach of law arising directly from any action or failure to act on the part of MWCC), and the Operating Procedures; d. That credit application information submitted by it to MWCC shall be identical to such information provided by an Account Holder to the Companies, and the contract representing such Account shall be fully executed by the Account Holder; e. That there are no other agreements between it and any Account Holder with respect to the Account or item of Indebtedness sold to MWCC and/or the underlying Goods and/or Services, except any bona fide and reasonable sale, warranty, service or installation agreement; f. That all Goods and/or Services sold pursuant to each Account and item of Indebtedness have been delivered by it to the Account Holder and accepted by such Account Holder or that an arrangement has been formalized between it and the Account Holder providing for such delivery, prior to the sale of such Account and item of Indebtedness to MWCC; g. That each Charge Slip will have resulted from a bona fide sale of Goods and/or Services effected by it at one of its regular places of business which will include all mail, phone and job-site orders, and not from a sale of Goods and/or Services effected by a third party other than licensees or other duly authorized agents; 19 h. That it shall provide and maintain adequate services with respect to the Goods and/or Services covered by such Account or item of Indebtedness and shall comply with all its warranties, if any, and/or the manufacturer's warranties (as the case may be) with respect to Goods and/or Services sold under such Account or item of Indebtedness, other than warranties which are the responsibility of others; i. Except in connection with any proceeding in bankruptcy, insolvency, reorganization, receivership or other similar law of the Account Holder, that the balance in each Account or item of Indebtedness is valid and enforceable against the Account Holder obligated for payment and performance under the Account; j. That each Account or item of Indebtedness is secured by a purchase money security interest in the Goods to the extent described in the applicable CommerciaLine Agreement, which security interest shall be prior to all other security interests in and/or Liens which are created on such Goods; k. That the Goods covered by each Account or item of Indebtedness shall be sold by it in the ordinary course of business to Account Holders who represent that the Goods are to be used primarily for business or commercial purposes; l. That at the time of purchase by MWCC, each Account or item of Indebtedness is free of any defense, offset, counterclaim or recoupment assertable by the Account Holder or any other person obligated therefor or by a Company's creditors or assignees except under any product warranty, service or installation agreement; m. That there are no actions, suits or proceedings existing, pending or, to its knowledge, threatened against or affecting it before any court, arbitrator or governmental administrative body or agency which affect the validity or enforceability of Indebtedness, which might result in any material adverse change in the value of such Account or item of Indebtedness or which would have a material adverse effect on its ability to perform its obligations hereunder; n. That all actions taken by it and all agreements with Account Holders, forms, letters, notices, statements and other materials used or requested by Account Holders in connection with the performance of its duties and obligations under this Agreement comply with and each sale of Goods and/or Services resulting in an item of Indebtedness have been made in compliance with and all documentation evidencing or connected with such sale complies with all applicable state and federal laws concerning the sales of goods and services, and all other applicable federal, state and local statutes, regulations, ordinances or administrative rulings relating thereto, including, but not 20 limited to, those relating to unfair, deceptive or unconscionable practices; o. That with respect to each Account or item of Indebtedness purchased by MWCC hereunder, to the best of it's knowledge, information and belief, a petition under the Bankruptcy Code (or similar state law) has not been filed by or against the Account Holder; the Account Holder is not deceased, dissolved, incompetent or otherwise not in existence; and the Account Holder has a valid U.S. address; p. It has caused to be paid and discharged all lawful taxes, assessments and governmental charges or levies imposed upon it or its income or profits on any property belonging to it before the same be in default except for such taxes, assessments, charges or levies which are being contested in good faith by appropriate proceedings; q. That it is and at all times prior hereto has been kept adequately insured by solvent insurers with respect to its property of a character usually insured by corporations engaged in a similar business against loss or damage of the kind customarily insured against by such corporation; r. That the Charge Slip has not been materially altered; s. That the transaction did not involve a cash advance or Goods and/or Services not listed on the Charge Slip and only Goods and/or Services sold by it are the subject of the transaction; t. That the transaction giving rise to the Charge Transaction Data and any matter incidental thereto were conducted by it in accordance with the Operating Procedures; u. That the Account number and name of the Account Holder has been printed on each Charge Slip; v. That all sales slips and other writings which bear a signature purporting to be that of a Account Holder or an authorized user shall in fact be genuine, not forged or unauthorized; w. That each Charge Slip be executed by an authorized user of the Account to which the Purchase is charged; x. That it shall do nothing to prevent the Account or item of Indebtedness from being valid and enforceable against the Account Holder obligated for payment and performance under the Account; and y. That the amount of credit extended in connection with 21 each Purchase does not exceed the amount of credit authorized by MWCC for such transaction. SECTION 5.2 ACCOUNT COVENANTS. Each of the Companies covenants to do the following with respect to each transaction involving an Account or the Program: a. It shall cooperate with MWCC promptly to resolve all disputes with Account Holders; b. It shall maintain a fair and equitable policy for the exchange and return of Goods (other than those sold on an "as is" basis) and adjustments for Services rendered or not rendered and shall promptly deliver a Credit Slip to the Account Holder and include credit for such return or adjustment in the Charge Transaction Data in accordance with the Operating Procedures; c. It shall not seek or obtain any special agreement or condition from, nor unlawfully discriminate in any way against, Account Holders with respect to the terms of any transaction; d. It shall submit invoices on the same day as the date of such invoice by electronic transmission, in accordance with the Operating Procedures and shall use only Account Documentation provided by MWCC when taking any action with regard to the Program. SECTION 5.3 ADDITIONAL AFFIRMATIVE COVENANTS. Until the later of (i) the date on which the Agreement terminates or (ii) the Final Liquidation Date, unless MWCC shall otherwise consent in writing, each of the Companies shall: a. As soon as reasonably available and in any event within 120 days after the end of each fiscal year, submit to MWCC its consolidating annual financial statements, consisting of a consolidating balance sheet and the related statements of income, shareholder's equity, and changes in cash flow, all prepared in accordance with GAAP applied on a consistent basis (except as disclosed therein) certified by its regularly retained independent public accountants. b. Comply in all material respects with all laws with respect to it, its business, and properties. c. Promptly upon receipt, deliver to MWCC copies of any communications relating to an Account from an Account Holder, or any governmental or regulatory authority. d. Permit MWCC, during normal business hours, to visit its offices from time to time, and permit MWCC from time to time to 22 discuss the Program with it and its officers and employees and to examine its books and records relating to the Program or have the same examined by MWCC's attorneys and/or accountants. In connection therewith, it agrees, subject to applicable privacy and other laws, to make data regarding the Program available to MWCC, and in connection therewith to permit MWCC to make copies of such documentation. e. Not, in connection with the selling of any service contract and/or extended warranty, offer to return to Account Holders some or all of the purchase price advanced by MWCC, including, without limitation, by granting merchandise credits. f. Provide all Charge Transaction Data to MWCC in such form satisfactory to MWCC as to enable Lid Code level detail in all billings in respect of CommerciaLine Accounts. SECTION 5.4 NEGATIVE COVENANTS OF THE COMPANIES. Until the later of (i) the date on which this Agreement terminates, and (ii) the Final Liquidation Date, unless MWCC shall otherwise consent in writing, the Companies shall not advertise, promote, sponsor, solicit, permit solicitation of, or make available specifically to commercial customers of the Companies or otherwise provide any commercial credit program, commercial credit facility, commercial credit card program, commercial charge program or commercial debit or commercial secured card program or commercial facility (whether open-end, closed-end, fixed-term, private-label, "co-branded" or third party), other than (i) credit provided in connection with the Program hereunder, and (ii) credit provided by generally accepted multi-purpose commercial credit or charge cards such as American Express, Mastercard, Visa and the Discover card or by any generally accepted multi-purpose debit or secured cards; PROVIDED, that none of the cards referred to in this paragraph (ii) may be "co-branded", sponsored or co-sponsored with the Companies. SECTION 5.5 GENERAL REPRESENTATIONS AND WARRANTIES. To induce MWCC to establish and administer the Program, each of the Companies makes the following representations and warranties to MWCC, each and all of which shall survive the execution and delivery of this Agreement, and each and all of which shall be deemed to be restated and remade on each day on which any Account is opened or Charge Transaction Data submitted or any action taken with respect to the Program: a. Organization. Each Company: (i) is a corporation duly organized, validly existing, and in good standing under the laws of its state of incorporation, with its chief executive office as 23 indicated in the first paragraph of this Agreement; (ii) is duly licensed or qualified to do business as a corporation and is in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted or proposed to be conducted by it or the character of the assets owned or leased by it makes such licensing or qualification necessary to perform its obligations hereunder; (iii) has all necessary material licenses, permits, consents, or approvals from or by, and has made all material necessary notices to, all governmental authorities having jurisdiction, to the extent required for its current ownership, lease or conduct and operation of its business; (iv) has the requisite corporate power, authority and legal right to own, pledge, mortgage, and operate its properties, to lease the properties it operates under lease and to conduct its business as conducted; and (v) is in compliance with its certificate of incorporation and bylaws. b. Capacity, Authorization, Validity. Each of the Companies has all necessary corporate power and authority to (i) execute and enter into this Agreement and (ii) perform the obligations required of the Companies hereunder and any other documents, instruments and agreements required to be executed by it pursuant hereto. The execution and delivery by each Company of this Agreement and all documents, instruments and agreements required to be executed and delivered by any Company pursuant hereto, and the consummation by each Company of the transactions specified herein and therein have been duly and validly authorized and approved by all necessary corporate action of each Company party thereto. This Agreement and all documents, instruments and agreements required to be executed and delivered by any Company pursuant hereto, (i) have each been duly executed and delivered by each Company party thereto, (ii) constitute the valid and legally binding obligations of each Company party thereto, and (iii) are enforceable in accordance with their respective terms (subject to applicable bankruptcy, insolvency, reorganization, receivership or other laws affecting the rights of creditors generally and by general equity principles including, without limitation, those respecting the availability of specific performance). c. Conflicts, Defaults, Etc. The execution, delivery and performance of this Agreement, its compliance with the terms hereof, and the consummation of the transactions specified herein will not (i) conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action by a third party or both would, result in a default under, or accelerate the performance required by, the terms of any contract, instrument or agreement to which any Company is a party or by which it is bound, or by which any Company's assets are bound; (ii) conflict with or violate the certificate of incorporation, by-laws or any other equivalent organizational document(s) of any Company; (iii) violate any law or conflict 24 with, or require any consent or approval under, any judgment, order, writ, decree, permit or license, to which any Company is a party or by which it is bound or affected; (iv) require the consent or approval of any other party to any contract, instrument or agreement to which any Company is a party or by which it is bound, other than the approvals of regulatory authorities which have been obtained; or (v) except for the filing of UCC-1 financing statements, require any filing with, notice to, consent or approval of, or any other action to be taken with respect to, any regulatory authority. d. Solvency. Each of the Companies is Solvent. e. Accuracy of Information. All information furnished by each of the Companies to MWCC for purposes of or in connection with this Agreement and any information hereafter furnished in writing by any Company to MWCC is or will be true and correct in all material respects at the time of such delivery and no such information has or will omit to state a material fact necessary to make the information so furnished not misleading at the time of such delivery. There is no fact known to any Company which the Companies have not disclosed to MWCC which materially and adversely affects the financial condition, business, property, or prospects of any Company. f. Compliance with MWCC Procedures. With respect to each CommerciaLine Application, Account and the Program, every action taken by the Companies, their employees or agents materially complies with all procedures, including but not limited to, the Operating Procedures provided to the Companies by MWCC. g. No Event of Default or Default has occurred and is continuing. SECTION 5.6 REPRESENTATIONS AND WARRANTIES OF MWCC. To induce the Companies to enter into this Agreement and participate in the Program, MWCC makes the following representations and warranties to the Companies, each and all of which shall survive the execution and delivery of this Agreement, and each and all of which shall be deemed to be restated and remade on each day on which Accounts are opened and Charge Transaction Data submitted or any action taken with respect to the Program: a. Organization. MWCC: (i) is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, with its principal place of business as indicated in the first paragraph of this Agreement; (ii) is duly licensed or qualified to do business as a corporation and is in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted or proposed to be 25 conducted by it or the character of the assets owned or leased by it makes such licensing or qualification necessary to perform its obligations hereunder, except to the extent that its non-compliance would not have a material and adverse effect on MWCC; (iii) has all necessary licenses, permits, consents, or approvals from or by, and has made all necessary notices to, all governmental authorities having jurisdiction, to the extent required for MWCC's current ownership, lease or conduct and operation of its business, except to the extent that the failure to obtain such licenses, permits, consents, approvals or to provide such notices would not have a material and adverse effect on MWCC; (iv) has the requisite corporate power, authority and legal right to own, pledge, mortgage, and operate its properties, to lease the properties it operates under lease and to conduct its business as conducted; and (v) is in compliance with its certificate of incorporation and bylaws. b. Capacity, Authorization, Validity. MWCC has all necessary corporate power and authority to (i) execute and enter into this Agreement and (ii) perform the obligations required of MWCC hereunder and any other documents, instruments and agreements required to be executed by MWCC pursuant hereto. The execution and delivery by MWCC of this Agreement and all documents, instruments and agreements required to be executed and delivered by MWCC pursuant hereto, and the consummation by MWCC of the transactions specified herein have been duly and validly authorized and approved by all necessary corporate action of MWCC. This Agreement (i) has been duly executed and delivered by MWCC, (ii) constitutes the valid and legally binding obligations of MWCC, and (iii) is enforceable in accordance with its respective terms (subject to applicable bankruptcy, insolvency, reorganization, receivership or other laws affecting the rights of creditors generally and by general equity principles including, without limitation, those respecting the availability of specific performance). c. Conflicts, Defaults, Etc. The execution, delivery and performance of this Agreement, its compliance with the terms hereof, and the consummation of the transactions specified herein will not (i) conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action by a third party or both would, result in a default under, or accelerate the performance required by, the terms of any material contract, instrument or agreement to which MWCC is a party or by which it is bound, or by which MWCC's assets are bound, except for conflicts, breaches and defaults which would not have a material and adverse effect upon MWCC; (ii) conflict with or violate the certificate of incorporation, by-laws or any other equivalent organizational document(s) of MWCC; (iii) violate any law or conflict with, or require any consent or approval under, any judgment, order, writ, decree, permit or license, to which MWCC is a party or by which it is bound or 26 affected, except to the extent that such violation or the failure to obtain such consent or approval would not have a material and adverse effect upon MWCC; (iv) require the consent or approval of any other party to any contract, instrument or agreement to which MWCC is a party or by which it is bound other than the approvals of regulatory authorities which have been obtained. d. Solvency. MWCC is Solvent. e. Accuracy of Information. All information furnished by MWCC to the Companies for purposes of or in connection with this Agreement or any information hereafter furnished in writing by MWCC to the Companies is or will be true and correct in all material respects at the time of such delivery and no such information has or will omit to state a material fact necessary to make the information so furnished not misleading at the time of such delivery. There is no fact known to MWCC which MWCC has not disclosed to the Companies which materially and adversely affects the financial condition, business, property, or prospects of MWCC. f. No Event of Default or Default has occurred and is continuing. ARTICLE VI. EVENTS OF DEFAULT; RIGHTS AND REMEDIES SECTION 6.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder: a. Any party shall fail to pay the other any Uncontested Amount when due and payable and the same shall remain unpaid for a period of three (3) days after the other party shall have made written demand therefor. b. Any party shall fail or neglect to perform, keep, or observe any material term, provision, condition, or covenant contained in this Agreement that is required to be performed, kept, or observed by it, and the same shall remain uncured for a period of thirty (30) days after the other party shall have given written notice thereof. c. Any representation, warranty or statement, made or delivered by any party or any of its respective officers shall not be true and correct in any material respect as of the date when made or reaffirmed and such failure to be true and correct has a material adverse effect on its ability to perform its obligations hereunder. 27 d. Either MWCC or any Company (i) shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally; (ii) shall make a general assignment for the benefit of its creditors; or (iii) shall be the subject of any proceeding (other than an involuntary proceeding which is dismissed within sixty (60) days) seeking to adjudicate it bankrupt or insolvent or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency, or reorganization or relief of debtors, or seeking the entry of an order for such relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property; or any party shall take any corporate action to authorize any of the actions set forth above in this paragraph 6.1d. e. Any Company shall be in default under any loan agreement, indenture or other instrument relating to any indebtedness for borrowed money in excess of [ ]* and such default gives any party, either with or without notice and without giving effect to any extension of any grace period, the right to accelerate such indebtedness. f. There shall be a Change of Control. g. Final judgment or judgments for the payment of money in excess of [ ]* in the aggregate shall be rendered against any Company, and the same shall not be either (i) covered by insurance or the insurer shall not have accepted liability therefor or (ii) vacated, stayed, bonded, paid, or discharged prior to expiration of the applicable appeal period. h. In connection with any or both Company's indebtedness on money borrowed, either (a) the holder or holders of such indebtedness shall accelerate all of the outstanding balance thereof and the amount accelerated shall be greater than or equal to [ ]*, or (b) any scheduled payments of principal or interest in the aggregate amount in excess of [ ]* shall remain unpaid for a period longer than one hundred twenty (120) days beyond the due date. i. The Account Purchase Agreement dated June 24, 1988, as amended, restated, revised and/or supplemented from time to time, by and between Montgomery Ward and MWCC (including without limitation any successor credit card program agreement between Montgomery Ward and any Person that has acquired, by way of assignment or otherwise, MWCC's rights and obligations thereunder) shall be terminated (other than by default of Montgomery Ward) or a Seller Default (as defined therein) shall occur thereunder. *Confidential treatment has been requested with respect to this information. 28 SECTION 6.2 REMEDIES. a. If any Event of Default shall have occurred and be continuing, all of the defaulting party's payment obligations hereunder shall, in the non-defaulting party's sole discretion, be deemed immediately due and payable; PROVIDED, that upon the occurrence of an Event of Default described in Section 6.1d, all the defaulting party's payment obligations hereunder shall immediately become due and payable. b. If any Event of Default shall have occurred by any Company (other than the non-compliance of Lechmere with Section 5.5d), MWCC shall have any and all rights and remedies under this Agreement, including but not limited to, accepting Charge Slips or otherwise extending credit, and may declare this Agreement terminated; PROVIDED, that upon the occurrence of an Event of Default described in Section 6.1d, this Agreement shall terminate. c. If any Event of Default shall have occurred by MWCC and be continuing, the Companies shall have any and all rights and remedies under this Agreement and may declare this Agreement terminated; PROVIDED, that upon the occurrence of an Event of Default described in Section 6.1d, all of the defaulting party's payment obligations hereunder shall immediately become due and payable. ARTICLE VII. TERM/TERMINATION SECTION 7.1 TERM. This Agreement shall continue in full force and effect upon full execution hereof for a period of two years (the "Initial Term" and together with any Renewal Terms(s), the "Term") and shall be automatically renewed for successive one year terms ("Renewal Terms(s)"), unless terminated as provided elsewhere herein. SECTION 7.2 TERMINATION BY THE COMPANIES. a. In the event MWCC breaches its obligations under this Agreement, and after notice to MWCC such breach remains uncured for a period of thirty (30) days, then the Companies may terminate this Agreement by giving MWCC thirty (30) days prior written notice and this Agreement shall terminate on the thirtieth (30) day. b. If (i) MWCC makes an election pursuant to Section 2.2b hereof and (ii) during the one hundred and eighty (180) period subsequent to such election, the Billing Period Outstandings exceed 95% of the Credit Review Point then in effect for any period of ninety (90) consecutive days, then, within ten (10) 29 days following the end of such period, the Companies shall have the right, upon thirty (30) days prior written notice to MWCC, to terminate this Agreement and this Agreement shall terminate on the thirtieth (30) day. c. The Companies shall have the right to terminate this Agreement and the Program as of the end of the Initial Term or at the end of any Renewal Term upon 180 days prior written notice to MWCC. SECTION 7.3 TERMINATION BY MWCC. a. In the event any Company breaches its obligations under this Agreement, and such breach remains uncured for a period of thirty (30) days, MWCC shall have the right to terminate this Agreement by giving the Companies thirty (30) days prior written notice and this Agreement shall terminate on the thirtieth (30) day. b. MWCC shall have the right to terminate this Agreement and the Program as of the end of the Initial Term or at the end of any Renewal Term upon 180 days prior written notice to the Companies. c. MWCC shall have the right to terminate this Agreement and the Program if any law, rule or regulation is enacted by any federal, state or local authority that materially impairs or restricts MWCC's ability to perform its obligations hereunder or impairs or restricts MWCC's ability to realize substantially the benefits hereof. SECTION 7.4 RENEGOTIATION. Upon the one year anniversary of this Agreement MWCC and the Companies agree to review the economics of the transactions contemplated by this Agreement and to renegotiate in good faith the provisions of Section 3.10 in light of such review. If such renegotiation is not completed to the satisfaction of any party within 30 days following the one year anniversary of this Agreement, such party may terminate this Agreement upon 60 days prior written notice to the other party. SECTION 7.5 TERMINATION FOR FORCE MAJEURE. a. This Agreement may be terminated by either MWCC or the Companies without penalty after the passing of sixty (60) days following the notice by one party to the other that its performance hereunder is prevented or materially impeded, without the ability to cure, by one of the following force majeure events: acts of God, fire, explosion, accident, war, nuclear disaster, riot or material changes in applicable laws or regulations rendering it illegal, impossible or untenable for the 30 notifying party or its ultimate parent corporation to perform as contemplated in this Agreement. b. Any such failure to perform shall not be considered a breach of this Agreement during the period of such disability (I.E., prior to sixty (60) days), if the disabled party promptly advises the other party in writing that it is unable to perform due to such a force majeure event, setting forth: (i) the nature of the event; (ii) its expected effects(s) and duration; (iii) any expected development which may further affect performance hereunder; and (iv) the efforts which will be made to cure such force majeure or provide substitute performance. SECTION 7.6 PURCHASE OF ACCOUNTS BY THE COMPANIES. In the event of a termination of this Agreement, the Companies may have the option to purchase or arrange for the purchase of the portfolio of non-written off Accounts at a price equal to [ ]* of the aggregate amount of all Indebtedness on non-written off Accounts owned by MWCC on the day of such purchase, payable in immediately available funds. The Companies shall exercise such right by giving written notice to MWCC within thirty (30) days of the date of the notice of termination of the Agreement, which notice shall specify a date for the purchase no later than the date this Agreement terminates. If The Companies fail to exercise such option (by failing to deliver the notice required by this Section 7.6), then the option shall expire. SECTION 7.7 LIQUIDATION OF ACCOUNTS. a. Upon the termination of this Agreement, each party shall be required to fulfill its respective obligations hereunder (unless prohibited by law) until all Accounts are liquidated or there is some other disposition thereof. b. Upon the termination of this Agreement, should the Companies not purchase or arrange for a purchase of the non-written off Accounts from MWCC, then: (i) MWCC shall have the right, in addition to and retaining all other rights it may have under the terms of this Agreement or applicable law to: (a) liquidate the remaining Accounts in any lawful manner which may be expeditious or economically advantageous to MWCC including but not limited to, the sale of Accounts to any party; and (b) use Company Names in accordance with the *Confidential treatment has been requested with respect to this information. 31 provisions of this Agreement in communicating with existing Account Holders and in communicating with respect to Accounts, including accounts that have been written off. (ii) The Companies will cooperate with MWCC in order to effectuate any such liquidation in an orderly manner, and to that end shall permit MWCC to use the Lists in connection with such liquidation. ARTICLE VIII. INDEMNIFICATION SECTION 8.1 BY THE COMPANIES. The Companies agree to protect, indemnify, and hold harmless MWCC, its affiliates, and the employees, officers, and directors thereof, from and against any and all losses, damages, liabilities, costs, and expenses (including attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions, or proceedings ("Losses") by whomsoever asserted, including, without limitation: (i) the Account Holders or other persons responsible for the payment of Accounts; (ii) any Person or persons who prosecute or defend any proceedings as representatives of or on behalf of a class or interest group; (iii) any governmental instrumentality; or (iv) any other third party, arising out of, connected with or resulting from: a. Sale of Goods and/or Services arising under a CommerciaLine Agreement; b. any transaction, contract, understanding, promise, representation, or any other relationship, actual, asserted, or alleged, between any Company and any Account Holder relating to an Account; c. any act, or omission where there was a duty to act, by any Company or its employees, officers, directors, shareholders, agents, lessees, franchisees or any independent contractors hired by any Company, relating to an Account or items of Indebtedness relating to an Account; d. any breach by any Company of any of the terms, covenants, representations, warranties, or other provisions contained in this Agreement or any other instrument or document delivered by any Company to MWCC in connection herewith or therewith; e. the failure of any Company to comply with all laws, rules or regulations applicable to it; 32 f. any agreement, arrangement, understanding or course of dealing between any Company and any of its affiliates (other than General Electric Company or any of its subsidiaries). Excluded from the foregoing indemnity shall be any Losses to the extent the same arise out of or result from any violation by MWCC of law, this Agreement, a CommerciaLine Agreement or any agreement, understanding or promise between MWCC and any Account Holder relating to the Account thereof. SECTION 8.2 BY MWCC. MWCC agrees to protect, indemnify, and hold harmless each Company, its affiliates, and the employees, officers, and directors thereof, from and against any and all Losses by whomsoever asserted, including, but not limited to, (i) the Account Holders or other persons responsible for the payment of Accounts; (ii) any Person or Persons who prosecute or defend any proceedings as representatives of or on behalf of a class or interest group; (iii) any governmental instrumentality; or (iv) any other third party, arising out of, connected with or resulting from: a. any act, or omission where there was a duty to act, by MWCC or its employees, officers, directors, shareholders, agents, lessees, franchisees or any independent contractors hired by MWCC, relating to an Account or items of Indebtedness relating to an Account; b. any breach by MWCC of any of the terms, covenants, representations, warranties, or other provisions contained in this Agreement or any other instrument or document delivered by MWCC to the Companies in connection herewith or therewith; c. the failure of MWCC to comply with all laws, rules or regulations applicable to MWCC; Excluded from the foregoing indemnity shall be any Losses to the extent the same arise out of or result from any violation by any Company or its affiliates (other than General Electric Company or any of its subsidiaries) of law, this Agreement, any CommerciaLine Agreement, or any agreement, understanding or promise between any Company and any Account Holder relating to the Account thereto. SECTION 8.3 PAYMENT OF INDEMNIFIED AMOUNTS. After any final judgment or award shall have been rendered by a court, arbitration board, or administrative agency of competent jurisdiction and the time for an appeal of such judgement or award has expired without an appeal being taken by either party, or after any settlement agreed to by the parties 33 shall have been consummated, the party seeking indemnification shall forward to the other party notice of any sums due and owing by such other party with respect to such matter and such party shall be required to pay all of the sums so owing to the party seeking indemnification within thirty (30) days after the date of such notice unless otherwise mutually agreed to in writing by the parties. SECTION 8.4 INSURANCE AND MITIGATION. The indemnified party shall use its best efforts to minimize the indemnifying party's obligation to indemnify by recovering, to the maximum extent possible without incurring any material expense, reimbursement from insurance carriers under effective insurance policies covering such liability. An indemnified party shall not be able to recover from an indemnifying party hereunder for any damages to the extent that the indemnified party shall have recovered under its insurance. The indemnifications provided for in this Agreement shall be net of tax benefits, if any. The indemnified party shall, at all times, use its reasonable efforts to minimize the indemnity obligation of the indemnifying party through remedial action which it has reason to know may minimize such obligations, provided that the indemnifying party shall have first agreed to reimburse the indemnified party for its cost, if any, in taking such remedial action. SECTION 8.5 NOTICE. Each party shall promptly notify the other party of any claim, demand, suit or threat of suit of which that party becomes aware (except with respect to a threat of suit either party might institute against the other) which may give rise to a right of indemnification pursuant to this Agreement. The indemnifying party will be entitled to participate in the settlement or defense thereof and, if the indemnifying party elects, to take over and control the settlement or defense thereof with counsel satisfactory to the indemnified party. In any case, the indemnifying party and the indemnified party shall cooperate (at no cost to the indemnified party) in the settlement or defense of any such claim, demand, suit or proceeding. ARTICLE IX. OTHER AGREEMENTS In the event that any Company or any of its affiliates, directly or indirectly, acquires an existing retail operation or acquires (regardless of the form of the transaction) an affiliate that operates a retail operation (collectively, a "New Retailer"), then, unless MWCC indicates otherwise to the Companies in writing, the Companies shall cause such New Retailer to execute and deliver to MWCC instruments in form and substance satisfactory to MWCC pursuant to which such New Retailer shall agree to be bound by the terms and conditions of this Agreement; 34 provided, that such obligation shall be subject to the terms and conditions of any commercial credit card program to which a New Retailer is party as of the date it is acquired by any Company, it being agreed that the Companies shall use reasonable efforts to terminate any such program as soon as possible after any such acquisition and that, in any event, any such program shall not be renewed or replaced, except with a program involving MWCC. ARTICLE X. MISCELLANEOUS SECTION 10.1 CONFIDENTIAL INFORMATION. a. All proprietary and non-public material and information supplied by the Companies to MWCC or vice versa heretofore or hereafter, or supplied to any Company or MWCC by Account Holders or applicants, including, without limitation, (i) the pricing and other financial terms of this Agreement, (ii) information concerning the parties' marketing plans, objectives, financial results and employee compensation and benefits, and (iii) the Lists, is confidential and proprietary ("Confidential Information"). Confidential Information shall not include any information which (i) at the time of disclosure by one party hereto or thereafter is generally available or known to the public (other than as a result of an unauthorized disclosure by the other party hereto); (ii) was available to one party on a non-confidential basis from a source other than the other party; PROVIDED, that such source, to the best of one party's knowledge, was not obligated to the other party to keep such information confidential; or (iii) was in one party's possession prior to disclosure by the other party to it. b. Confidential Information shall be used by each party solely in the performance of its obligations or exercise of its rights pursuant to this Agreement. Each party shall receive Confidential Information in confidence and not disclose Confidential Information to any third party, except (i) as may be necessary to perform its obligations, (ii) as may be agreed upon in writing by the other party, or (iii) as otherwise required by law or judicial or administrative process. Each party will use its best efforts to ensure that its officers, employees, and agents take such action as shall be necessary or advisable to preserve and protect the confidentially of Confidential Information. Upon written request or upon the termination of this Agreement, each party shall destroy or return to the other party all Confidential Information owned by that other party in its possession or control, subject to each party's respective document retention policies with respect to information required to be maintained by regulatory authorities. 35 SECTION 10.2 ASSIGNABILITY. Neither any Company nor MWCC may assign its respective rights and obligations under this Agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld; PROVIDED, that any party may assign all or part of this Agreement to its parent corporation, or its parent corporation's affiliates or subsidiaries, without such prior written consent. SECTION 10.3 AMENDMENT. This Agreement may not be amended except by written instrument signed by both MWCC and the Companies. SECTION 10.4 NON-WAIVER. No delay by any party hereto in exercising any of its rights hereunder or partial or single exercise of such rights, shall operate as a waiver of that or any other right. The exercise of one or more of any party's rights hereunder shall not be a waiver of, nor preclude the exercise of, any rights or remedies available to such party under this Agreement or in law or equity. SECTION 10.5 SEVERABILITY. If any provision of this Agreement is held to be invalid, void or unenforceable, all other provisions shall remain valid and be enforced and construed as if such invalid provision were never a part of this Agreement. SECTION 10.6 GOVERNING LAW. This Agreement and all rights and obligations hereunder, including, but not limited to, matters of construction, validity and performance, shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. SECTION 10.7 CAPTIONS. Captions of the sections of this Agreement are for convenient reference only and are not intended as a summary of such sections and do not affect, limit, modify or construe the contents thereof. SECTION 10.8 USE OF COMPANY NAMES AND MARKS. a. Subject to and only in accordance with the provisions of this Agreement, the Companies hereby grant MWCC a non-exclusive license to create, develop, market and administer the Program and, subject to the prior approval of the Companies which 36 shall not be unreasonably withheld, to use all Company Names in the creation, development, marketing and administration of the Program. b. Pursuant to the licenses granted to MWCC pursuant to this Section 10.8, the Companies understand and agree that until the later of (i) the termination of this Agreement and (ii) the Final Liquidation Date, MWCC will, in accordance with the provisions of this Agreement, use the Company Names in connection with the operation and administration of the Program and the discharge of its obligations under the Agreement, including but not limited to use in connection with: Account Holder service; adverse action letters; billing statements and inquiries; and matters incidental to collection and recovery. SECTION 10.9 FURTHER ASSURANCES. Each party hereto agrees to execute all such further documents and instruments and to do all such further things as the other party may reasonably request in order to give effect and to consummate the transactions contemplated hereby. SECTION 10.10 ENTIRE AGREEMENT. This Agreement supersede and incorporate all representations, promises and statements, oral or written, made in connection with the subject matter hereof and the negotiation hereof, and no such representation, promise or statement not written herein or therein shall be binding upon the parties. SECTION 10.11 NOTICES. All notice, demands and other communications hereunder shall be in writing and shall be sent by hand, by facsimile or by nationally recognized overnight courier service addressed to the party to whom such notice or other communication is to be given or made at such party's address as set forth below, or to such other address as such party may designate in writing to the other party from time to time in accordance with the provision hereof and shall be deemed given one Business Day after being sent, as follows: if to the Companies: Montgomery Ward & Co., Incorporated 619 W. Chicago Avenue Chicago, Illinois 60671 Attention: Secretary Telefax: 37 with a copy to: Montgomery Ward & Co., Incorporated 619 W. Chicago Avenue Chicago, Illinois 60671 Attention: Chief Financial Officer Telefax: and if to MWCC to: Montgomery Ward Credit Corporation 3720 Howard Hughes Parkway Suite 200 Las Vegas, Nevada 89109 Attention: President Telefax: with a copy to: General Electric Capital Corporation Attention: RFS Legal Operation 1600 Summer Street Stamford, Connecticut 06927 PROVIDED, that if either of the above parties shall have designated a different address by notice to the other, then to the last address so designated. SECTION 10.12 POWER OF ATTORNEY. Each Company authorizes and empowers MWCC (a) to sign and endorse its name on all checks, drafts, money orders or other forms of payment with regard to Indebtedness under the Agreement, (b) to sue Accountholders for collection of Indebtedness in its name, and (c) to do all the things reasonably necessary to carry out or enforce the Indebtedness. This limited power of attorney conferred hereby is deemed a power coupled with an interest and shall be irrevocable while any Indebtedness remains unpaid. SECTION 10.13 THIRD PARTIES. MWCC shall have the right to engage affiliated third parties to perform services pursuant to this Agreement. In the event a party hereto engages the services of subcontractors and/or other third parties to assist it with the fulfillment of the terms hereunder, then such party agrees to be responsible for and indemnify the other parties hereto, its or their affiliates and the officers, directors, employees and agents of each, for any and all claims (including reasonable legal costs and expenses) asserted by anyone against such party and such affiliates arising out of any and all work performed by any such subcontractor and/or agent of such party in connection with this Agreement, and such party further agrees to contractually obligate such subcontractors and/or agents to supply their services in accordance with the terms and conditions of this Agreement. 38 Notwithstanding the foregoing, this Agreement is not for the benefit of any third party and shall not be deemed to give any right or remedy to any such third party. SECTION 10.14 INTERPRETATION. As each of the parties have contributed to the drafting of the language of this Agreement, it is agreed and understood that in any interpretation of this Agreement, the language utilized will be construed equally as and between the parties without regard to which party provided the language of any particular provision. SECTION 10.15 NO JOINT VENTURE. Nothing contained in this Agreement shall be deemed or construed by the parties or any third party to create the relationship of principal and agent, partnership, joint venture or of any association between any Company and MWCC, and no act of any party shall be deemed to create any such relationship. MWCC and the Companies each agrees to such further actions as the other may request to evidence and affirm the non-existence of any such relationship. SECTION 10.16 WAIVER OF JURY TRIAL. The parties hereto waive all right to trial by jury in any action or proceeding to enforce or defend any of their respective rights under this Agreement. SECTION 10.17 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together constitute but one Agreement. SECTION 10.18 SURVIVAL. a. Except as otherwise expressly provided herein, any termination of this Agreement shall in no way affect or impair the powers, obligations, duties, rights and liabilities of the Companies or MWCC, including, without limitation, those under Article VIII hereof, relating to any transaction or event occurring prior to such termination. b. All undertakings, agreements, covenants, warranties, representations and indemnities contained herein shall survive the termination of this Agreement, except as may be specifically provided herein to the contrary. Without in any manner limiting the generality of the foregoing, upon such termination, MWCC shall continue to own the Accounts (unless the Companies exercise their option under Section 7.5), and, except as provided herein, 39 the Companies and MWCC shall continue to be liable for all obligations set forth herein until the Final Liquidation Date; PROVIDED, that the parties' respective obligations pursuant to Article VIII and Sections 10.1, 10.9 and 10.12 shall survive the Final Liquidation Date. SECTION 10.19 NO INCONSISTENT ACTION. The Companies agree that any action (or failure to act) taken by either Company with respect to its rights or obligations hereunder shall be binding on both Companies and that MWCC shall be entitled to treat any inconsistent action (or failure to act) taken by each Company in the manner most favorable to MWCC. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the date first written above. MONTGOMERY WARD & CO., INCORPORATED By: /s/ Philip D. Delk ------------------------ Title: Vice President --------------------- LECHMERE, INC. By: /s/ Philip D. Delk ------------------------ Title: Assistant Secretary --------------------- MONTGOMERY WARD CREDIT CORPORATION By: /s/ Gregory W. Pittman ------------------------ Title: President --------------------- 40 EXHIBIT "A" RSA Discount Rate - - - ------------------------------------------------------------------------------- Average Discount Avg Acct Bal Commercial Discount CP Acct Balance Rate Factor Paper Rate Factor -------------------------------------- -------------------------------- [ ]* - - - ------------------------------------------------------------------------------- Base = [ ]* Base = [ ]* - - - ------------------------------------------------------------------------------- [ ]* Note: This Exhibit is for examples only of selected Average Account Balances and Commercial Paper Rates. See Section 3.10 for actual calculation methodology. *Confidential treatment has been requested with respect to this information. EX-10.(III)(A) 20 PROGRAM AGREEMENT DATED 10/12/89 PROGRAM AGREEMENT THIS PROGRAM AGREEMENT is made and entered into this 12th day of October, 1989, by and between MONTGOMERY WARD & CO., INCORPORATED, an Illinois corporation, having its principal executive office and place of business at Montgomery Ward Plaza, Chicago, Illinois ("MW") and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation having its principal office at 570 Lexington Avenue, New York, New York and administrative offices at 1600 Summer Street, Stamford, Connecticut ("GE Capital"). WITNESSETH: WHEREAS, MW acquires Inventory (as hereinafter defined) from certain manufacturers and distributors for resale to its customers; and WHEREAS, MW has requested GE Capital to pay to such manufacturers and distributors whose payment terms are approved by GE Capital from time to time in its sole discretion as hereinafter provided ("Vendors") the invoice price of such Inventory acquired after the date of this Agreement (net of any applicable discount); and WHEREAS, GE Capital is willing to make such payments for MW if it is reimbursed for such payments on the terms and subject to the conditions herein set forth; NOW, THEREFORE, the parties hereto, in consideration of the terms, covenants, provisions and conditions hereinafter set forth, have agreed as follows: 1. PAYMENTS BY GE CAPITAL. At MW's request, GE Capital shall, from time to time, make payments to Vendors in amounts equal to the invoice price (net of any applicable discount) for Inventory acquired by MW ("Payments"). GE Capital shall from time to time in GE Capital's sole discretion approve or refuse to approve specific purchase orders from any Vendors based upon each such Vendor's payment terms. If GE Capital shall refuse -1- such approval for any purchase order(s) from a Vendor at any time for any reason it shall not have the right to rescind such approval for any previously approved purchase order(s) from such Vendor. GE Capital shall be under no obligation to make Payments to Vendors with respect to any purchase orders which it has not approved. For purposes of this Agreement, the term "Inventory" shall mean appliances, electronics, furniture and such other items of merchandise as the parties may agree from time to time shall constitute Inventory purchased by MW from Vendors for resale in its retail stores. The aggregate amount of outstanding Payments and other amounts payable hereunder, at any given time, shall not exceed One Hundred Million Dollars ($100,000,000.00). Whenever GE Capital is notified orally or in writing, in any manner, by any Vendor, that MW desires GE Capital to pay for the acquisition of Inventory to be sold to MW by such Vendor, GE Capital may rely upon such notice as a request from MW to pay for such acquisition. Notwithstanding the foregoing, GE Capital shall not be obligated to pay for any acquisition of furniture by MW if after giving effect to such acquisition, the aggregate amount of unreimbursed Payments made with respect to furniture would exceed twenty-five percent (25%) of the aggregate amount of unreimbursed Payments made with respect to all Inventory. Any invoice, notice of shipment or schedule ("Invoice") pertaining to Inventory, which lists GE Capital as vendee or which otherwise indicates that GE Capital will pay for the acquisition of such Inventory for MW, shall be conclusive evidence that MW has agreed that GE Capital is to pay for the acquisition of such Inventory for MW under the terms of this agreement. The amount of any Payment plus any applicable charges provided for on any supplement(s) attached hereto (each of which, when signed by the parties hereto, shall become a part of this Agreement) ("Supplement"), shall be subject to the reimbursement provisions of this Agreement and any such applicable Supplement(s). -2- 2. MW REIMBURSEMENTS. MW shall, following receipt of Invoices from GE Capital, reimburse GE Capital for Payments. Such reimbursements shall be equal to the gross amount due as shown on such Invoices (prior to deducting any applicable discount). Such reimbursement shall be made when due, as determined in accordance with any applicable Supplement(s). MW shall make all reimbursements at or to the GE Capital office located at 1600 Summer Street, Stamford, Connecticut, or such other office address as GE Capital may hereafter specify in writing for such purpose. Reimbursements shall be applied by GE Capital against the Payments outstanding at the time reimbursements are made. If any reimbursement is not received by GE Capital on or before the date due, MW agrees to pay applicable charges as provided in any applicable Supplement(s). MW hereby assigns to GE Capital any credits or payments received by MW in connection with the Inventory paid for by GE Capital hereunder, for application in GE Capital's sole discretion to any amounts owed by MW. GE Capital shall provide monthly, or at other intervals mutually agreed to by GE Capital and MW, an accounting of Payments made to Vendors and reimbursements received from MW. Each such accounting shall (absent manifest error) be deemed prima facie evidence in all respects as to all matters reflected therein, unless MW shall, within twenty (20) days after the date any such accounting is rendered, notify GE Capital in writing of any objection which MW may have to any such accounting, describing the basis for such objection with specificity. 3. REPRESENTATIONS AND WARRANTIES. MW represents and warrants to GE Capital that: (a) MW is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois; (b) MW is duly authorized to enter into this Agreement, has taken all necessary corporate action to authorize the execution and consummation of this Agreement, and shall furnish -3- GE Capital with satisfactory evidence of same upon request. This Agreement is a legal, valid and binding obligation of MW enforceable against MW in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally; (c) The execution, delivery and performance of this Agreement do not constitute a breach of any provisions contained in MW's Articles of Incorporation or Bylaws; (d) The execution, delivery or performance of this Agreement is not in contravention of any applicable provision of law, governmental rule or regulation and does not require the consent of approval or any governmental entity or authority or any other person which has not been obtained; (e) The execution, delivery or performance of this Agreement is not in contravention of any order binding upon MW, or any agreement, indenture or other instrument, including, without limitation, any loan agreement to which MW is a party or by which MW or its property is or may be bound, and will not result in a breach or termination thereof, constitute a default thereunder, or accelerate any performance required thereby or result in the creation or imposition of a lien on any of its properties; (f) The financial statements which have been delivered by or for MW to GE Capital, have been prepared in accordance with generally accepted accounting principles, and accurately reflect MW's financial condition as of the dates of such statements. MW has no material contingent liabilities not provided for or disclosed in the financial statements delivered to GE Capital; (g) No litigation which might impair the enforceability of this Agreement or MW's ability to perform its obligations hereunder ("Material Litigation") is pending or, to MW's knowledge, threatened against MW; (h) (1) All tax returns, reports and forms required to be filed with any domestic or foreign taxing authority in connection with any activities or assets of MW have been filed, except were the failure to file any such return, report or form -4- would not have any material adverse effect on the business or financial condition of MW and its subsidiaries taken as a whole. (2) All taxes required to be paid with respect to the activities or assets of MW and its subsidiaries have been duly paid or provisions deemed appropriate where made by Mobil Corporation ("Mobil"), Marcor Inc. ("Marcor") and/or MW and its subsidiaries, on the books and records therefor, except such amounts (i) as are contested in good faith and as to which adequate reserves were provided by MW in accordance with the best estimates of ultimate liability by the entity responsible therefor or (ii) the non-payment of which would not have a material adverse effect on the business or financial condition of MW and its subsidiaries taken as a whole. (3) From July 1, 1976 through June 22, 1988, for federal income tax purposes, MW and its subsidiaries were a member of the affiliated group of which Mobil, MW's ultimate parent corporation, was the common parent, and the income of MW and its subsidiaries were included in the consolidated federal income tax returns of Mobil through June 22, 1988. All filings and payments with respect thereto were made directly by Mobil, and all refunds with respect thereto have been or will be paid directly to Mobil; payments have been or are made and received by MW and its subsidiaries with respect to such taxes under tax sharing agreements with Mobil and Marcor. Accordingly, all representations and warranties made in Sections 3(h) (1) and (2) with respect to federal income taxes are qualified to the best of MW's general knowledge of Mobil's practices and procedures. To the best of its knowledge, MW has made all payments which are due to Mobil and Marcor as determined by Mobil and Marcor, under such tax sharing agreements. (i) The Inventory is not covered by or subject to, in whole or in part, (1) any effective security agreement or equivalent security or lien instrument, or (2) any financing statement or continuation statement on file or of record in any public office. (j) MW's principal place of business is located at the address indicated above. -5- 4. FINANCIAL STATEMENTS AND INFORMATION. For so long as MW shall have any obligation to GE Capital under this Agreement, it shall deliver to GE Capital: (a) Within one hundred five (105) days after the close of each fiscal year, a copy of the annual financial statements of MW and Parent, consisting of a balance sheet, income statement and statements showing changes in financial position, certified by independent public accountants regularly retained by MW and Parent and accompanied by such accountants' certification stating that, in the normal course of their audit, such accountants have not become aware of any Event of Default under this Agreement (or, if there is any such Event of Default, describing it and the steps, if any, being taken to cure it); (b) Within sixty (60) days after the end of each quarter, except the last quarter of each fiscal year of MW, a copy of an unaudited financial statement of MW prepared in the same manner as the audit report referred to in Section (a) above and consisting of a balance sheet as of the close of that quarter, statements of earnings for that quarter and statements of earnings and cash flows for the period from the beginning of that fiscal year to the close of that quarter; (c) Within thirty (30) days after learning of the occurrence of either of the following written notice thereof, describing the same and the steps (if any) being taken by MW with respect thereto: (i) the occurrence of any Event of Default (whether or not cured), or (ii) the institution of any Material Litigation or development which might lead to Material Litigation. The financial statements which are delivered by or for MW to GE Capital pursuant to Section 4(a) and (b) shall be prepared in accordance with generally accepted accounting principles, and accurately reflect MW's financial condition as of the date of such statements. 5. COVENANTS. MW covenants and agrees that, for so long as it shall have any obligation to GE Capital hereunder, it shall: (a) Except as permitted in Section 5(b) below, -6- preserve and maintain its corporate existence and rights, privileges and franchises in connection therewith; (b) Not consolidate or merge with or into any other entity or convey its property as an entirety or substantially as an entirety to any other entity unless: (i) in the case of a merger, MW shall be the surviving entity, and immediately after such consolidation or merger no Event of Default shall exist, or (ii) if MW shall not be the surviving entity, the entity into which MW is consolidated or merged shall specifically assume in a writing satisfactory to GE Capital any and all of the liabilities of MW under this Agreement and the related documents, including any Supplement(s) hereto; (c) Not violate any of the requirements of any applicable laws, rules, regulations, and orders of any governmental authority (federal, state, local or foreign, including, without limitation, environmental, health and safety laws, rules, regulations and orders); provided, however, that any violation by MW of any environmental, health or safety order, rule or regulation shall not be deemed a violation of this Section 5(c) so long as MW shall, upon notice of such violation, immediately take appropriate action to cure such violation; (d) Promptly pay when due all taxes, assessments or other charges owing by MW except taxes, assessments and other charges which shall be diligently contested in good faith by appropriate proceedings and as to which adequate reserves shall have been set aside in accordance with generally accepted accounting principles; (e) Not grant a security interest in, or otherwise create a lien on, the Inventory without forty-five (45) days prior written notice to GE Capital; (f) Not change its principal place of business without giving GE Capital thirty (30) days prior written notice thereof; (g) Permit a GE Capital employee designated by GE Capital to work on MW's premises in MW's accounts payable operation to administer this program; MW agrees to allow such -7- employee access to all MW books and records as necessary to perform this function; (h) Use its best efforts to implement streamlined payment and other procedures, including but not limited to tape to tape purchasing, mutually agreed to by GE Capital and MW in order to administer this Agreement; and (i) Indemnify and hold GE Capital harmless from and against any and all third party suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including without limitation, reasonable attorneys' fees and disbursements, including those incurred upon any appeal) which may be instituted or asserted against or incurred by GE Capital as the result of its having entered into this Agreement or made Payments hereunder; provided, however, that MW shall not be liable for such indemnification to GE Capital to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results from GE Capital's gross negligence or willful misconduct. 6. TERM. This Agreement shall remain in effect for one year commencing on the date hereof, unless sooner terminated as provided in this Section 6 or in Section 7, and shall continue thereafter from year to year unless terminated by either party by giving the other party thirty (30) days written notice prior to any anniversary date hereof. Notwithstanding the foregoing, GE Capital may terminate this Agreement at any time upon thirty (30) days prior written notice to MW or upon the occurrence of an Event of Default specified in Section 7. Upon termination of this Agreement by either party, pursuant to this Section 6, MW shall reimburse to GE Capital (a) the amount of Payments which have not been reimbursed as of the date of termination (including Payments covering any Inventory shipped to MW for which the Invoice(s) has not yet been received by GE Capital) which amount of Payments shall be due and payable in accordance with the terms of any applicable Supplement(s), and (b) all applicable charges and any other unpaid amounts owing pursuant to this Agreement and any Supplement(s), -8- which charges and other unpaid amounts shall be immediately due and payable unless otherwise provided in any applicable Supplement(s). 7. EVENTS OF DEFAULT. (a) Each of the following shall constitute an Event of Default under this Agreement: (1) Failure by MW to make any reimbursement due under Section 2 or any applicable Supplement(s) and the continuance thereof for five (5) business days after notice thereof to MW by GE Capital; (2) Failure by MW to make any other payment under any other provision of this Agreement or any applicable Supplement(s) and continuance of such failure for ten (10) days after notice thereof to MW by GE Capital; (3) Failure by MW to comply with or to perform its obligations under any material provision of this Agreement (and not constituting an Event of Default under any of the other provisions of this Section (7) and (i) continuance of such failure for thirty (30) days after notice thereof to MW by GE Capital specifying such failure if such failure can be cured with diligence within such 30-day period by MW or can be cured by the payment of money, or (ii) continuance of such failure for sixty (60) days after notice thereof to MW by GE Capital specifying such failure if such failure cannot with diligence be cured within such 30-day period and cannot be cured by the payment of money. (4) Default by MW in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Debt (as hereinafter defined) of MW or default in the performance or observance of any obligation or condition with respect to any such Debt, if (i) such default has not been remedied within five (5) business days after notice thereof to MW by the holder or holders of such Debt or any trustee or agents for such holders; (ii) the effect of such default is to accelerate the maturity of any such Debt or cause any of such Debt to be prepaid, purchased or -9- redeemed; or (iii) the holder of holders thereof, or any trustee or agent for such holder(s) (x) causes such Debt to become due and payable prior to its express maturity or to be prepaid, purchased or redeemed or (y) receives any payment (other than any payment which was scheduled to be made prior to the occurrence of such default), guaranty or security or other concession from or on behalf of MW, or any subsidiary; provided, however, that no such default under this Section 7(a)(4) shall constitute an Event of Default unless the amount of Debt so affected is at least $5,000,000. For purposes hereof, "Debt" with respect to MW means, as of the date of determination thereof, (i) all of MW's indebtedness for borrowed money, (ii) all of MW's capitalized lease obligations, (iii) all of MW's actual or contingent reimbursement obligations with respect to letters of credit issued for MW's account (iv) all of MW's actual or contingent obligations with respect to interest swap agreements or currency swap agreements or other hedge agreements relating to fluctuations in interest rates or currencies, (v) all of MW's liabilities under Title IV of ERISA, and (vi) any and all indebtedness or obligations of any of the types described in the preceding clauses (i), (ii), (iii), (iv) and (v) for which MW is liable, directly or indirectly, under a guaranty. (5) The Account Purchase Agreement (the "Account Purchase Agreement") dated as of June 24, 1988 between MW and Montgomery Ward Credit Corporation ("MWCC") shall be amended or modified in any material respect, or shall fail to remain in full force and effect, or (ii) any "Seller Default" or "Buyer Default", as defined in the Account Purchase Agreement, shall occur thereunder, or (iii) MW or MWCC shall give notice of termination or take any action to terminate thereunder, or (iv) MWCC shall exercise an option to repurchase any receivables thereunder. -10- (6) The occurrence of any of the following events: (i) MW shall become insolvent or generally fail to pay, or shall admit in writing its inability or refusal to pay debts as they become due, or (ii) MW shall apply for, consent to, or acquiesce on the appointment of a trustee, receiver, or other custodian shall be appointed for MW or for a substantial part of its property and shall not be discharged within sixty (60) days, or (iv) any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding shall be commenced in respect to MW, and if such case or proceeding is not commenced by MW, it shall be consented to or acquiesced in by MW or remain for sixty (60) days undismissed, or (v) MW shall generally fail to pay its debts as they become due, or (vi) MW shall take any corporate action to authorize, or in furtherance of, any of the foregoing. (7) Any representation or warranty made by MW herein is breached or contains any statement which is false or misleading in any material respect. (8) The rendering of any final judgment or judgments (after the expiration of all times to appeal therefrom) for the payment of money in excess of One million dollars ($1,000,000.00) in the aggregate against MW, if the same shall not be (i) fully covered by insurance, or (ii) vacated, stayed, bonded, paid or discharged for a period of sixty (60) days; (b) EFFECT OF EVENT OF DEFAULT. If any Event of Default shall occur, GE Capital may immediately, by written notice to MW, terminate this Agreement, cease making further Payments to Vendors pursuant to Section 1 hereof, and declare all of MW's obligations under this Agreement and any applicable Supplement(s) to be immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are expressly waived by MW, and GE Capital may proceed to enforce payment of same. 8. SELECTION OF INVENTORY; DICLAIMER OF WARRANTY/ MAINTENANCE. MW has selected both the Inventory and the Vender from whom it shall acquire the Inventory and MW acknowleges and agrees that GE Capital makes no representation -11- or warranty as to, and MW assumes all responsibility and risk for the Inventory including, without limitation, the existence, character, quality, condition and value of the Inventory. MW irrevocably waives any claims against GE Capital with respect to the Inventory, whether for breach of warranty or otherwise. Any such claims shall not alter, diminish or otherwise impair MW's liabilities or obligations to GE Capital hereunder. Without limiting the foregoing, MW shall be obligated to REIMBURSE GE Capital in full even if the Inventory is defective or fails to conform to the warranties extended by Vendors. MW shall not assert against GE Capital any claim or defense MW may have against any Vendor. 9. COLLECTIONS FROM VENDORS BY GE CAPITAL. (a) Notwithstanding anything to the contrary contained herein, GE Capital's right to any reimbursement under this Agreement shall be subject to MW's right of deduction of any valid claim of MW asserted in good faith against a Vendor to the extent that, at the time MW notifies GE Capital of such valid claim, there are unpaid Payments due from GE Capital on Invoices from such Vendor or it is reasonably expected by MW that GE Capital will be requested to make Payments to such Vendor in the future. The deduction shall be no greater than the amount of the valid claim charged back by or on behalf of MW to said Vendor. A copy of the chargeback documentation shall be furnished to GE Capital at the time MW asserts such right of deduction. Valid claims shall be limited to (i) claims respecting Inventory which result from returned merchandise, damaged merchandise, or incorrect unit pricing or quantities of merchandise, or (ii) other such bona fide claims directly related to the Inventory merchandise. GE Capital shall use its best efforts to resolve any valid claims submitted as chargebacks to Vendor. MW will indemnify GE Capital and will hold harmless GE Capital from and against any and all losses, liabilities, claims, expenses, charges, demands, suits, judgements, and awards (including all attorney's fees) (collectively "Losses") arising from the taking of any deduction by MW, including without limitation -12- (i) any Losses arising from GE Capital's inability to withhold an amount equal to such deduction from amounts payable on Invoices to the applicable Vendor if (a) such inability arises from the fact that MW has ceased doing business with such Vendor and (b) sixty (60) days have passed since the date GE Capital learned that MW has ceased doing business with such Vendor and (ii) any Losses arising from any chargeback withheld from such Vendor which is disputed by such Vendor and which cannot be resolved satisfactorily with such Vendor within one hundred (120) days after the date MW notified GE Capital of such valid claim; provided that MW shall not be required to indemnify GE Capital to the extent that the Losses arise solely from GE Capital's negligence or misconduct and provided, further, that with respect to indemnification under (ii) above, GE Capital shall not make payment to the Vendor of the amount represented by the disputed chargeback which was previously deducted by GE Capital, but shall assign the claim to MW, and MW shall assume all obligations for resolving such claim. MW shall remit promptly to GE Capital all amounts which become payable pursuant to the above indemnity upon the expiration of the time periods referred to in (i) and (ii) above, but in no case shall such amounts be remitted sooner than one hundred twenty (120) days from the earlier of (i) the shipping date of the Inventory covered by such Invoice or (ii) the date of such Invoice. Without limiting the foregoing, if amounts previously deducted by MW become payable to GE Capital pursuant to the above indemnity and are not remitted immediately to GE Capital when due, such amounts shall be subject to interest at a rate equal to the prime rate in effect on the last business day of the month preceeding the month in which such amounts become payable. (b) GE Capital agrees that it shall, during the term of this Agreement, at no cost to MW, use its best efforts to collect from any Vendor with whom MW has ceased doing business any debit balance owed to MW by such Vendor with regard to Inventory for which GE Capital has made Payments, provided that -13- MW requests that GE Capital do so and provides GE Capital with documentation verifying said debit balance. Notwithstanding the foregoing, MW shall not be entitled to deduct any such debit balance from any reimbursement due to GE Capital and shall remain obligated to reimburse GE Capital in full for any Payment made with respect to such Inventory in accordance with the applicable Supplement(s). MW shall indemnify GE Capital against Losses arising in connection with any such collection efforts; provided that MW shall not be required to indemnify GE Capital to the extent that the Losses arise solely from GE Capital's negligence, willful misconduct or failure to comply with applicable law. 10. GENERAL PROVISIONS. (a) GE Capital's rights and remedies under this Agreement shall be cumulative and non-exclusive of any other rights or remedies which it may have under any other agreement or instrument, by operation of law or otherwise. (b) This Agreement may not be assigned by GE Capital or MW without the prior written consent of the other party, which consent shall not be unreasonably withheld. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. (c) Wherever this Agreement provides for notice from one party to the other (except as expressly provided to the contrary), it shall be given by messenger, electronic transmission, telegram or mail, effective when received by the corporate party to whom addressed, and shall be addressed as follows, or to such other address as the party affected may hereafter designate in writing to the other party: If to GE Capital: General Electric Capital Corporation 260 Long Ridge Road Stamford, Connecticut 06902 Attention: S.P. Joyce -14- With a copy to: General Electric Capital Corporation 260 Long Ridge Road Stamford, Connecticut 06904 Attention: Counsel, Retailer Financial Services and if to MW: Montgomery Ward & Co., Incorporated Montgomery Ward Plaza Chicago, Illinois 60671 Attention: E.G. Pohlmann with a copy to: Montgomery Ward & Co, Incorporated Montgomery Ward Plaza Chicago, Illinois 60671 Attention: Corporate Secretary (d) No delay or failure on the part of GE Capital in exercising any right, privilege, remedy or option hereunder shall operate as a waiver of such or of any other right, privilege, remedy or option and no waiver whatsoever shall be valid unless in writing and signed by an officer of GE Capital and then only to the extent therein set forth. (e) In the event that GE Capital employs counsel, other than salaried employees of GE Capital, with respect to the enforcement or defense of this Agreement, or the relationship created hereby, all reasonable attorney's fees arising from such services, and any expenses, costs and charges relating thereto shall constitute additional obligations of MW, payable on demand. (f) This Agreement and the Supplement(s) to which it expressly refers constitute the complete agreement between the parties with respect to the subject matter and may not be -15- changed, modified, waived, amended or terminated orally, but only by a writing signed by the party to be charged. (g) The validity of this Agreement and of all transactions provided for herein shall be governed by, interpreted and construed under, and in connection with, the laws of the State of New York. IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written. General Electric Capital Corporation By: ------------------------------------ Title: Vice President --------------------------------- Montgomery Ward & Co., Incorporated By: ------------------------------------ Title: Sr. Vice President --------------------------------- -16- SUPPLEMENT NO. 1 TO PROGRAM AGREEMENT TO: GENERAL ELECTRIC CAPITAL CORPORATION MW hereby supplements and amends its Program Agreement ("Agreement") with GE Capital dated October 12, 1989, to include and incorporate by reference the following additional terms and conditions: In consideration of the Payments made from time to time by GE Capital for MW under the Agreement, for certain Invoices covering Inventory acquired by MW from Vendors, MW agrees to make reimbursement in full of each such Invoice paid by GE Capital no later than 120 days from the earlier of (i) the shipping date of the Inventory covered by such Invoice or (ii) the date of such Invoice. If for any reason any reimbursement is received by GE Capital later than the applicable due date, MW agrees to pay to GE Capital a late charge fee equal to the sum of (i) two (2) basis points (.02% or .0002) times the amount due times the number of days past due up to fifteen (15) days and (ii) five (5) basis points (.05% or .0005) times the amount due times the number of days past due in excess of fifteen (15) days. With respect to each six (6) month period during the term of the Agreement, (beginning with the period which ends on the date which is six (6) months from the date of the Agreement), GE Capital shall calculate whether MW is entitled to a discount rebate ("Discount Rebate"). GE Capital shall calculate the Discount Rebate for each six (6) month period as follows: (1) GE Captial shall first make the following calculations with respect to each month during such six month period: (a) Determine the actual number of days elapsed between (i) the earlier of (y) the shipping date of the Inventory covered by each Invoice for which reimbursement has been made by MW to GE Capital during such month (each such reimbursed Invoice herein referred to as a "Paid Invoice") and (z) the date of such Paid Invoice, and (ii) the date reimbursement for such Paid Invoice has been received by GE Capital ("Actual Number of Elapsed Days"). -1- (b) Determine the "Required Dollar Discount" for each Paid Invoice. The "Required Dollar Discount" with respect to a Paid Invoice shall equal the "Required Percent Discount" for such Paid Invoice times the gross amount due as shown on such Invoice (prior to deducting any applicable discount). The "Required Percent Discount" for such Paid Invoice shall be determined by reference to Exhibit A hereto, based on the applicable "Prime Rate" and the Actual Number of Elapsed Days with respect to such Paid Invoice. The applicable "Prime Rate" shall be the highest prime rate as published in the Money Rates Table of THE WALL STREET JOURNAL on the last business day of the month preceeding the month in which the Paid Invoice was paid to the Vendor by GE Capital; and (c) Determine the actual discount received by GE Capital with respect to its payment to Vendors of each Paid Invoice with respect to such month ("Actual Dollar Discount"); and (d) Aggregate the Required Dollar Discounts for all Paid Invoices with respect to such month ("Aggregate Required Dollar Discounts"); and (e) Aggregate the Actual Dollar Discounts for all Paid Invoices with respect to such month ("Aggregate Actual Dollar Discounts"); and (f) Compute the "Base Discount Rebate" for all Paid Invoices with respect to such month by (i) multiplying .003 times the gross amount due as shown on each Paid Invoice (prior to deducting any applicable discount) and (ii) adding such products together; and (g) Compute the "Average Number of Elapsed Days" by (i) aggregating the Actual Number of Elapsed Days for all Paid Invoices with respect to such month and (ii) dividing such aggregate by the number of Paid Invoices with respect to such month; and -2- (h) Determine the "Required 120 Day Dollar Discount" for each Paid Invoice. The "Required 120 Day Dollar Discount" with respect to a Paid Invoice shall be computed in the same manner as the "Required Dollar Discount" in subparagraph (b) above with the exception that the Actual Number of Elapsed Days shall be assumed to be 120 days for all Paid Invoices; and (i) Aggregate the Required 120 Day Dollar Discounts for all Paid Invoices with respect to such month ("Aggregate Required 120 Day Dollar Discounts"). (2) GE Capital shall then apply such calculations as follows with respect to each month during such six (6) month period: (a) If Aggregate Actual Dollar Discounts exceed Aggregate Required Dollar Discounts, GE Capital shall credit all or a portion of the amount of such excess to a MW Rebate Memorandum Account ("Rebate Account") as follows: (i) First, an amount equal to the amount by which, if any, the Aggregate Required 120 Day Dollar Discount exceeds the Aggregate Required Dollar Discount shall be credited by GE Capital to the Rebate Account; (ii) Second, GE Capital shall determine the amount by which, if any, the Aggregate Actual Dollar Discount exceeds the Aggregate Required 120 Day Dollar Discount (the "Shared Excess"); (iii) Third, GE Capital shall credit the Rebate Account with all or a portion of the Shared Excess as follows: (1) If the Shared Excess is less than the Base Discount Rebate, all of the Shared Excess shall be credited to the Rebate Account. -3- (2) If the Shared Excess exceeds the Base Discount Rebate, GE Capital shall credit the Rebate Account in an amount equal to (X) the Base Discount Rebate, plus (Y) fifty percent (50%) of the portion of the Shared Excess which exceeds the Base Discount Rebate plus (Z) if the Average Number of Elapsed Days is less than one hundred twenty (120) and greater than seventy (70), an additional one percent (1%) of the portion of the Shared Excess which exceeds the Base Discount Rebate for each such day by which the Average Number of Elapsed Days is less than one hundred twenty (120), but in no event more than fifty percent (50%) of such portion. (b) If Aggregate Actual Dollar Discounts are less than Aggregate Required Dollar Discounts, GE Capital shall debit the Rebate Account in an amount equal to such difference. (3) At the end of each six (6) month period of the Agreement, GE Capital shall net the credits and debits made to the Rebate Account during such six month period (including any carried over from prior six (6) month periods.) Any net credit amount shall be the Discount Rebate and shall be remitted to MW by check. Any net debit amount shall be carried over to future six (6) month periods. GE Capital shall provide a monthly accounting of the Rebate Account to MW. GE Capital shall have the right to set off any late charge fees and other amounts, including Payments, due and unpaid pursuant to this Supplement and/or the Agreement, against any Discount Rebates owed to MW hereunder. -4- In no event shall late charge fees due hereunder exceed the maximum amount of such charges permissible under applicable law. In the event that a court of competent jurisdiction, notwithstanding the provisions of the preceding sentence, shall make a final determination that GE Capital has received late charge fees hereunder in excess of the maximum permissible under applicable law GE Capital shall, to the extent permitted by applicable law, promptly apply such excess first to any due and unpaid reimbursements under the Agreement, and thereafter shall refund any excess to MW or as a court of competent jurisdiction may otherwise order. The parties agree that this Supplement contains the entire Agreement between the parties relating to the subject matter hereof. There are merged herein all prior representations, promises and conditions, whether oral or written, which relate to the subject matter, and any representation, promise or condition not incorporated herein will not be binding upon the parties. All terms used in this Supplement will have the meanings defined in the Agreement. If any provisions of this Supplement are inconsistent with any provisions of the Agreement or any other Supplement(s) executed on or prior to the date hereof, the provisions of this Supplement will prevail and govern and the inconsistent provisions of the Agreement or such other Supplement(s) will be deemed to be amended accordingly. The parties agree that this Supplement may not be varied, altered or its provisions waived except by another agreement in writing signed by the parties' authorized representatives. This Supplement will be binding on the respective permitted successors and assigns of MW and GE Capital under the Agreement, their legal representatives, heirs, executors and administrators. -5- IN WITNESS WHEREOF, this Supplement is hereby signed and sealed this 12th day of October, 1989. MONTGOMERY WARD & CO., INCORPORATED ----------------------------------- CORPORATE SEAL By -------------------------------- Title Sr. Vice President ----------------------------- ACCEPTED: GENERAL ELECTRIC CAPITAL CORPORATION By: ---------------------------------- Title: Vice President ------------------------------ -6- EX-10.(III)(B) 21 AMENDMENT TO PROGRAM AGREEMENT PROGRAM AGREEMENT AMENDMENT PROGRAM AGREEMENT AMENDMENT dated as of March 4, 1997 (this "Amendment") among GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("GE Capital"), MONTGOMERY WARD & CO., INCORPORATED, an Illinois corporation ("MW"), and LECHMERE, INC., a Massachusetts corporation ("Lechmere"). R E C I T A L S WHEREAS, MW and GE Capital have heretofore entered into a Program Agreement dated October 12, 1989, as amended (the "Program Agreement"; terms defined therein being used herein as so defined); and WHEREAS, GE Capital and MW desire to amend the Program Agreement in certain respects (including, but not limited to, adding Lechmere, a wholly owned subsidiary of MW, as a party thereto); and WHEREAS, MW and Lechmere each acquire Inventory for resale to its customers from certain manufacturers and distributors; and WHEREAS, MW and Lechmere have requested GE Capital to provide funds to each of MW and Lechmere to pay to such manufacturers and distributors supplying Inventory to MW and/or Lechmere; and WHEREAS, GE Capital is willing to make such payments for MW and Lechmere in the amounts and under the terms and subject to the conditions set forth in the Program Agreement as amended by this Amendment; and WHEREAS, in connection with this Amendment, Montgomery Ward Holding Corp., the direct parent of MW ("Holding"), will agree to amend its certificate of incorporation to create and issue to GE Capital shares of its Series C Preferred Stock having a liquidation value of $21,120,000, and MW will agree to amend its articles of incorporation to create and issue to Holding preferred stock with substantially identical forms of such Series C Preferred Stock of Holding and with an equivalent liquidation value; NOW, THEREFORE, the parties hereto, in consideration of the terms, covenants, provisions and conditions hereinafter set forth, hereby agree as follows: 1. Section 1 of the Program Agreement is hereby amended by (i) inserting "or Lechmere's" after the word "MW" on the first line of this Section, (ii) deleting the reference to "One Hundred Million Dollars ($100,000,000.00)" in the first paragraph of this Section and replacing it with the words "Three Hundred Fifty Million Dollars ($350,000,000.00)", (iii) inserting the words "or Lechmere" after each other reference to "MW" in this Section and (iv) adding the following at the end thereof: "MW and Lechmere shall, from time to time, make payments to vendors (the "Vendor Payable Extension Program") in amounts equal to the invoice price (net of applicable discount) for inventory acquired by MW or Lechmere by checks written against an account maintained for such purpose at The First National Bank of Boston ("FNBB"), or such other account as may be approved by GE Capital (the "FNBB Account"). MW and Lechmere will send GE Capital a report indicating the total amount of the same day's cleared checks before 11:00 a.m. of each day. Upon the request of MW or Lechmere, GE Capital will wire same day funds into the FNBB Account in an amount equal to the prior day's Vendor Payments (the "Daily FNBB Funding"). GE Capital will provide MW and Lechmere an invoice equal to the amount of the previous day's Daily FNBB Funding (the "Vendor Payable Invoices"). The aggregate amount of outstanding payments and other amounts payable in connection with the Vendor Payable Extension Program, at any given time, shall not exceed One Hundred Fifty Million Dollars ($150,000,000). Notwithstanding anything contained herein to the contrary, (i) the maximum aggregate amount of outstanding payments and other amounts payable to GE Capital hereunder, at any time, shall not exceed $500,000,000 and (ii) in no event shall the aggregate amount of outstanding payments and other amounts payable to GE Capital pursuant to the Vendor Payable Extension Program exceed the amount set forth below for the time periods indicated: 2 Maximum Amount Outstanding Period $100,000,000 date hereof through March 14, 1997 150,000,000 March 15, 1997 and thereafter GE Capital shall not be obligated to make any payments pursuant to the Vendor Payable Extension Program if MW has the ability to borrow any amounts under the Long Term Credit Agreement among MW, various banks, and The First National Bank of Chicago, The Bank of Nova Scotia, The Bank of New York, and Bank of America National Trust and Savings Association, as agents, or the Short Term Credit Agreement among MW, various banks, and The First National Bank of Chicago, The Bank of Nova Scotia, The Bank of New York, and Bank of America National Trust and Savings Association, as agents, each dated as of September 15, 1994 and as amended on March 19, 1996, September 6, 1996 and as of December 23, 1996 (collectively, the "Bank Facility") or under its existing inventory financing facility with Deutsche Financial Services Corporation ("DFS") pursuant to the Program Agreement, dated as of October 7, 1996, among DFS, MW and Lechmere (the "Inventory Financing Facility"), to the extent that MW or Lechmere have outstanding invoices payable thereunder. MW hereby covenants and agrees that it will not make any optional prepayment of principal under the Bank Facility or the Inventory Financing Facility, if the aggregate amount of outstanding Payments and other amounts payable to GE Capital hereunder exceed $350,000,000 (a "Prohibited Payment"). The making of any such Prohibited Payment shall constitute an Event of Default and shall have the consequences set forth in Section 7(b) of this Agreement. GE Capital's agreement to provide funds to MW and Lechmere under this Agreement pursuant to the Vendor Payable Extension Program shall terminate on the first to occur of (i) March 4, 1998, (ii) an occurrence and continuation of an Event of Default pursuant to Section 7(a)(6) of this Agreement or (iii) upon notice by GE Capital, the occurrence and continuation of an Event of Default pursuant to any other subsection of Section 7(a) of this 3 Agreement. Upon any termination of GE Capital's obligations under this Agreement due to the occurrence and continuance of an Event of Default pursuant to Section 7(a)(6) of this Agreement, all of MW's and Lechmere's obligations under this Agreement shall be immediately due and payable and upon any termination due to the occurrence and continuation of an Event of Default under any other subsection of Section 7(a) of this Agreement, GE Capital may immediately, by written notice to MW and Lechmere, declare all of MW's and Lechmere's obligations under this Agreement to be immediately due and payable." 2. Section 2 of the Program Agreement is hereby amended by (i) adding the words "and Lechmere" after each reference to "MW" in this Section and (ii) adding the following to the end thereof: "MW and Lechmere shall each reimburse GE Capital in full the amount funded by it on their respective behalfs as set forth in each Vendor Payable Invoice no later than 45 days after the date of such Vendor Payable Invoice together with interest on such amount from the date of funding until paid in full at the GE Capital Charge Rate as in effect from time to time. "GE Capital Charge Rate" means the per annum GE Capital money cost as reported in the internal financial reports of GE Capital's Appliance/Electronics Financing Group plus four hundred twenty-five (425) basis points." 3. Section 3 of the Program Agreement is hereby amended by inserting after the second word of subsection (i) the words "purchased by MW" and by adding the following to the end thereof: "Lechmere represents and warrants to GE Capital that: (a) Lechmere is a corporation duly organized, validly existing and in good standing under the laws of the State of Massachusetts; (b) Lechmere is duly authorized to enter into this Agreement, has taken all necessary corporate action to authorize the execution and 4 consummation of this Agreement, and shall furnish GE Capital with satisfactory evidence of same upon request. This Agreement is a legal, valid and binding obligation of Lechmere enforceable against Lechmere in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally; (c) The execution, delivery and performance of this Agreement do not constitute a breach of any provisions contained in Lechmere's Articles of Organization or Bylaws; (d) The execution, delivery or performance of this Agreement is not in contravention of any applicable provision of law, governmental rule or regulation and does not require the consent or approval of any governmental entity or authority or any other person which has not been obtained; (e) The execution, delivery or performance of this Agreement is not in contravention of any order binding upon Lechmere, or any agreement, indenture or other instrument, including, without limitation, any loan agreement to which Lechmere is a party or by which Lechmere or its property is or may be bound, and will not result in a breach or termination thereof, constitute a default thereunder, or accelerate any performance required thereby or result in the creation or imposition of a lien on any of its properties; (f) No litigation which might impair the enforceability of this Agreement or Lechmere's ability to perform its obligations hereunder ("Material Litigation") is pending or, to Lechmere's knowledge, threatened against Lechmere; (g) The Inventory of Lechmere is not covered by or subject to, in whole or in part, (1) any effective security agreement or equivalent security or lien instrument, or (2) any financing statement or continuation statement on file or of record in any public office, except for the security agreement and financing statement in favor of MW; 5 (h) Lechmere's principal place of business is located at Montgomery Ward Plaza, Chicago, Illinois 60671." 4. Section 5 of the Program Agreement is hereby amended by deleting subsection (i) and by adding the following to the end thereof: "Lechmere covenants and agrees that, for so long as it shall have any obligation to GE Capital hereunder, it shall: (a) Not grant a security interest in, or otherwise create a lien on, any Inventory with respect to which GE Capital is to make or makes a Payment to a Lechmere Vendor without giving GE Capital 45 days prior written notice thereof; (b) Not change its principal place of business without giving GE Capital 30 days' prior written notice thereof; (c) Permit a GE Capital employee or employees designated by GE Capital to work on Lechmere's premises in Lechmere's accounts payable operation to administer the program as to Lechmere and to allow such employee or employees access to all Lechmere's books and records necessary to perform this function." 5. Section 6 of the Program Agreement is hereby amended by inserting the words "and Lechmere" after each reference to "MW" in this Section. 6. Section 7 of the Program Agreement is hereby amended by (i) inserting the words "or Lechmere" after each reference to "MW" in subsection (a)(1), (a)(2), (a)(3), (a)(4), (a)(6), (a)(7) and (a)(8), (ii) by inserting the words "or Lechmere's" after each reference to "MW's" in subsection (a)(4), (iii) inserting the words "and Lechmere" after each reference to "MW" and inserting the words "or Lechmere's" after the reference to "MW's" in subsection (b), and (iv) deleting subsection (a)(5) in its entirety and replacing it with the following: (5) The Interim Consumer Credit Card Agreement, dated as of April 1, 1996, as amended, restated and renamed The Bank Credit Card Program 6 Agreement, among Monogram Credit Card Bank of Georgia and MW or the Account Purchase Agreement dated as of June 24, 1988, as amended and restated and renamed the Account Related Agreement, dated as of April 1, 1996, between Montgomery Ward Credit Corporation and MW (i) shall fail to remain in full force and effect, or (ii) any "MW Default" (as defined in such agreements) shall occur thereunder or (iii) MW shall give notice of termination or take any action to terminate any of such agreements. 7. Section 8 of the Program Agreement is hereby amended by (i) inserting the words "and Lechmere" after each reference to "MW" and (ii) inserting the words "or Lechmere's" after each reference to "MW's". 8. Section 9 of the Program Amendment is hereby amended by (i) inserting the words "and Lechmere" after each reference to "MW", (ii) inserting the words "and Lechmere's" after each reference to "MW's", (iii) deleting the first two words of the second sentence of the third paragraph of subsection 9(a) and by inserting in its place "MW and Lechmere will jointly and severally" and (iv) deleting the first two words of the last sentence of subsection 9(b) and by inserting in its place "MW and Lechmere will jointly and severally". 9. Section 10 of the Program Agreement is renumbered as Section 12 and new Sections 10 and 11 are hereby added as follows: "10. LECHMERE AND MW LIABILITY. (a) By becoming a party to this Agreement, Lechmere shall be responsible only for reimbursement obligations or other obligations hereunder arising out of commitments or Payments made with respect to Lechmere's invoices or deduction against Payments made or claims asserted on behalf of Lechmere against Lechmere's Vendors, or payments made by GE Capital in connection with Lechmere's participation in the Vendor Payable Extension Program, but not for reimbursement obligations or other obligations hereunder arising out of commitments or Payments made with respect to MW's invoices or deductions made or claims asserted on behalf of MW against MW's Vendors or any other obligations of MW under this Agreement. MW shall 7 be responsibe for all its obligations under this Agreement. (b) MW and Lechmere agree to jointly and severally indemnify and hold GE Capital harmless from and against any and all third party suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including, without limitation, reasonable attorneys' fees and disbursements, including those incurred upon any appeal) which may be instituted or asserted against or incurred by GE Capital as the result of its having entered into this Agreement or made Payments hereunder or any payments pursuant to the Vendor Payable Extension Program; provided, however, that MW and Lechmere shall not be liable for such indemnification to GE Capital to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results from GE Capital's gross negligence or willful misconduct. 11. GUARANTEE. 11.1 MW GUARANTEE. MW hereby unconditionally and irrevocably guarantees (the "Guarantee") to GE Capital the due and punctual payment and performance of all current and future liabilities and obligations of Lechmere arising under this Agreement, including, without limitation, the reimbursement obligations of Lechmere arising out of commitments or Payments for the benefit of Lechmere hereunder, including payments pursuant to the Vendor Payable Extension Program, together with all costs and expenses incurred by GE Capital for which Lechmere is responsible hereunder or incurred by GE Capital in connection with the enforcement of this Guarantee. The obligations of MW under this Guarantee shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (a) any extension, renewal, settlement, compromise, waiver or release in respect 8 of any obligation of Lechmere under this Agreement by operation of law or otherwise; (b) any modification or amendment of or supplement to this Agreement if such modification, amendment or supplement is signed by an officer of MW; (c) any modification, amendment, waiver, release, non-perfection or invalidity of any direct or indirect security, or of any guarantee or other liability of any third party, for any obligation of Lechmere under this Agreement; (d) any change in the corporate existence, structure or ownership of, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting Lechmere, its assets or any resulting release or discharge of any obligation of Lechmere hereunder; (e) the existence of any claim, set-off or other rights which MW may have at any time against Lechmere, whether or not arising in connection with this Agreement, or against GE Capital arising under this Agreement; provided, however, that nothing herein shall prevent the assertion of any such claim by seperate suit or compulsory counterclaim; (f) any invalidity or unenforceability of any liability or obligation of or relating to Lechmere for any reason under this Agreement, or any provision of applicable law or regulation purporting to prohibit the payment or performance by Lechmere of any liability or obligation under this Agreement; or (g) any other act or omission to act or delay of any kind by Lechmere, GE Capital or any other circumstance whatsoever that might, but for the provisions of this paragraph, constitute 9 a legal (excluding any statute of limitations defense) or equitable discharge of the obligations of MW under this Guarantee. MW's obligations under this Guarantee shall remain in full force and effect until all liabilities and obligations of Lechmere under this Agreement shall have been irrevocably paid and performed in full. If at any time the payment of any amount by Lechmere under this Agreement is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of Lechmere or otherwise, MW's obligations under this Guarantee with respect to such payment shall be reinstated at such time as though such payment had become due but had not been made at such time. 11.2. WAIVERS. With respect to the Guarantee, MW irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any person against Lechmere or its successors or assigns. Furthermore, MW irrevocably and absolutely waives any and all rights of subrogation, contribution, indemnification, recourse, reimbursement and any similar rights against Lechmere arising as a result of any payment made by MW hereunder for the account of Lechmere, whether such rights arise under any express or implied contract or by operation of law, until Lechmere's obligations hereunder have been irrevocably paid and discharged in full. If acceleration or the time for payment of any amount payable by Lechmere under this Agreement is stayed upon the insolvency, bankruptcy or reorganization of Lechmere, all such amounts otherwise payable or subject to acceleration under the terms of this Agreement shall nonetheless be payable by MW hereunder forthwith on demand by GE Capital." 10. Section 12 of the Program Agreement is hereby amended by inserting the words "and Lechmere" after each reference to "MW". Subsection (c) of Section 12 of the Program Agreement is hereby deleted and replaced with the following: 10 "(c) Notices give under this Agreement shall be deemed made and received: (a) three Business Days after depositing same in the U.S. Mail, postage paid, addressed to the party to whom such notice is directed at the address set forth below or at such other address as such party may by written notice received by the other parties hereto designates as its address for such purpose or (b) if sooner, the next Business Day following facsimile transmission to the party to whom such notice is directed at the number set forth below or at such other number as such party may by written notice received by the other parties hereto designates as its number for such purpose. The addresses and the facsimile transmission numbers for notices hereunder are as follows: If to GE Capital: General Electric Capital Corporation 7595 Centurion Parkway Jacksonville, FL 32256 Attention: Director of Inventory Financing FAX No. (800) 723-1590 With a copy to: General Electric Capital Corporation 260 Long Ridge Road Stamford, Connecticut 06904 Attention: Vice President and General Manager, Retailer Financial Services FAX No. (203) 357-4135 and if to MW: Montgomery Ward & Co., Incorporated 844 N. Larrabee, 5-3 Chicago, Illinois 60671 Attention: Treasurer FAX No. (312) 467-7421 11 with a copy to: Montgomery Ward & Co., Incorporated 535 W. Chicago Avenue, 24-S Chicago, Illinois 60671 Attention: Secretary FAX No. (312) 467-7898 and if to Lechmere: Lechmere, Inc. c/o Montgomery Ward & Co., Incorporated 844 N. Larrabee, 5-3 Chicago, Illinois 60671 Attention: Treasurer FAX No. (312) 467-7421 with a copy to: Lechmere, Inc. c/o Montgomery Ward & Co., Incorporated 535 W. Chicago Avenue, 24-S Chicago, Illinois 60671 Attention: Secretary FAX No. (312) 467-7898 11. In each place in the Program Agreement when the words "and Lechmere", "or Lechmere" or "Lechmere's" have been inserted, all words in the singular that follow such insertion shall include the plural and all words in the plural that follow such insertion shall include the singular. 12. Supplement No. 1 to the Program Agreement is hereby amended by inserting the words "and Lechmere" after the first reference to "MW" in such supplement and the words "or Lechmere" after each subsequent reference to "MW". In addition, the second paragraph of Supplement No. 1 to the Program Agreement is hereby deleted and replaced with the following: "Commencing as of March 1, 1997 in consideration of the payments made from time to time by GE Capital for MW and/or Lechmere under the Agreement for certain invoices covering inventory acquired by MW and/or Lechmere from Vendors (other than pursuant to the Vendor Payable Extension Program, as to which the provisions of this Supplement No. 1 shall not be applicable), MW 12 and Lechmere each agree to make reimbursement in full of each such Invoice paid by GE Capital on its behalf no later than 120 days from the earlier of (i) the shipping date of the Inventory covered by such Invoice or (ii) the date of such Invoice, or such other date as may be agreed upon by GE Capital and MW or Lechmere, as the case may be. Notwithstanding the foregoing, MW or Lechmere may delay any such reimbursement payment for up to 90 days beyond the due date with respect to any particular Invoice, but not beyond 180 days from the date of such Invoice. GE Capital may terminate this 90-day extension right as to future Invoices at any time upon 30 days' prior written notice to MW and Lechmere. If for any reason any reimbursement is received by GE Capital later than the applicable due date, MW and Lechmere, as the case may be, each agree to pay to GE Capital interest on such outstanding amount from such due date until paid in full at the GE Capital Charge Rate as in effect from time to time." 13. MW and Lechmere hereby jointly and severally represent and warrant to GE Capital as follows: (a) No Event of Default or event which with the giving of notice or the lapse of time, or both, would constitute an Event of Default has occurred and is continuing. (b) The execution, delivery and performance by MW and Lechmere of this Amendment have been duly authorized by all necessary or proper corporate action and do not require the consent or approval of any person which has not been obtained. (c) This Amendment has been duly executed and delivered by MW and Lechmere and each of this Amendment and the Program Agreement as amended hereby constitutes a legal, valid and binding obligation of MW and Lechmere, enforceable against them in accordance with its terms. MW further represents and warrants to GE Capital that each of the representations and warranties of MW contained in subsections 3(a), (c), (d), (e), (g), (i) and (j) is true and correct as of the date hereof, with all references therein to the Agreement being deemed to refer to the Agreement as amended hereby. 13 14. That certain letter agreement dated February 14, 1997 between GE Capital and MW relating to the Program Agreement (the "Letter Agreement") is deemed terminated and the commitment amount under Section 1 of the Agreement is reinstated at $350,000,000; provided, however, that MW's payment obligation under the Letter Agreement shall remain in full force and effect and that any amounts funded by GE Capital pursuant to the Letter Agreement prior to the date hereof shall be deemed outstanding for purposes of calculating the maximum amount outstanding under Section 1 of the Program Agreement (as amended hereby). 15. MW agrees to pay on demand all costs and expenses of GE Capital in connection with the preparation, execution and delivery of this Amendment and the Letter Agreement, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for GE Capital with respect thereto. 16. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which, when so executed and delivered, shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 17. This Amendment shall be governed by, construed and enforced in accordance with the laws of the State of New York, without regard to the principles thereof regarding conflict of laws. 18. Except as amended hereby, the Program Agreement shall remain in full force and effect. 14 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written. GENERAL ELECTRIC CAPITAL CORPORATION By: --------------------------------- Name: Title: MONTGOMERY WARD & CO., INCORPORATED By: --------------------------------- Name: Title: LECHMERE, INC. By: --------------------------------- Name: Title: 15 EX-10.(IV)(D)(1) 22 FIRST AMENDMENT TO RETIREMENT SECURITY MONTGOMERY WARD & CO., INCORPORATED First Amendment to the Montgomery Ward & Co., Incorporated Retirement Security Plan Dated: October 9, 1995 WHEREAS, Montgomery Ward & Co., Incorporated, an Illinois corporation ("Ward"), maintains the Montgomery Ward & Co., Incorporated Retirement Security Plan ("Plan"); and WHEREAS, pursuant to Section 17.1 POWER TO AMEND, the power to amend the Plan is reserved to the Board of Directors of Montgomery Ward & Co., Incorporated ("Board"); and WHEREAS, the Board desires to amend the Plan. NOW, THEREFORE, the Plan is amended effective October 1, 1995, in the following manner: 1. Addendum A is added to the Plan to read in its entirety as attached hereto. 2. In all other respects, the Plan shall continue in full force and effect. MONTGOMERY WARD & CO., INCORPORATED By: /s/ Robert A. Kasenter ------------------------------------- Its: EVP Human Resources ------------------------------------ ATTEST: By: /s/ Philip Delk -------------------------------- Its: VP & Deputy General Counsel ------------------------------- ADDENDUM A MONTGOMERY WARD & CO., INCORPORATED RETIREMENT SECURITY PLAN A-1 PURPOSE. The purpose of this Addendum A is to provide for participation in the Plan by eligible employees of Montgomery Ward (Hong Kong) Limited. A-2 USE OF TERMS. Except where the context of this Addendum A expressly indicates to the contrary, terms used and defined in the Plan shall have the same meanings for purposes of this Addendum A. As used in this Addendum A, the term this "Addendum A" shall include only this Addendum A, and the references to the "Plan" shall include all provisions of the Plan but shall not include this Addendum A. A-3 CONFLICTS BETWEEN PLAN AND THIS ADDENDUM A. This Addendum A, together with the Plan, comprises the Plan with respect to Participants under this Addendum A. In case of any conflict between the provisions of the Plan and this Addendum A, the terms and the provisions of this Addendum A shall govern to the extent necessary to eliminate such conflict. A-4 PARTICIPANTS. Nonresident aliens employed by Montgomery Ward (Hong Kong) Limited shall be considered "Employees", "Associates", and "Hong Kong Associates" for purposes of the Plan and this Addendum A. Hong Kong Associates employed by Montgomery Ward (Hong Kong) Limited on October 1, 1995 who have completed one Year of Service by October 1, 1995 participate in the Plan as of October 1, 1995. Each other Hong Kong Associate who both attains age 21 and completes one Year of Service shall become a Participant under the Plan on the first day of the month following the month in which the Hong Kong Associate meets the eligibility requirements. A-5 VESTING. If a Hong Kong Associate completes five Years of Service, such Hong Kong Associate shall be Vested (have a nonforfeitable right to a Retirement Benefit) in the Hong Kong Associate's Retirement Benefit. Each Hong Kong Associate employed by Montgomery Ward (Hong Kong) Limited on October 31, 1995 who has completed two years of service with Montgomery Ward (Hong Kong) Limited but has not yet completed five Years of Service shall be Vested (have a nonforfeitable right to a Retirement Benefit) in the Retirement Benefit to which the Associate would have been entitled if the Associate terminated employment with Montgomery Ward (Hong Kong) Limited on October 31, 1995. A-6 FINAL MONTHLY SALARY. For purposes of this Addendum A, "Final Monthly Salary" means annual base salary or pay preceding the date of termination of Service by a Hong Kong Associate, calculated in Hong Kong Dollars, divided by fourteen (14). A-7 RETIREMENT BENEFIT. If a Participant who is a Hong Kong Associate Retires on the Participant's Normal Retirement Date, the amount of the Retirement Benefit shall be the Actuarial Equivalent of a lump sum expressed in Hong Kong Dollars determined by multiplying the participant's Final Monthly Salary by the Participant's years of Service (calculated to the nearest month). Sections 9.1, 9.2, 9.3, 10.1, 10.2 and 10.3 of the Plan do not apply to Participants who are Hong Kong Associates. Except as otherwise provided in Article IX and Section 11.4 of the Plan, a Participant who is a Hong Kong Associate who Retires on the Participant's Normal Retirement Date shall be eligible for the Retirement Benefit defined in this paragraph A-7 or an Actuarial Equivalent benefit thereto as provided for herein. A-8 OPTIONAL METHODS OF PAYMENT. In lieu of the Qualified Joint and Survivor Benefit payable to a married Participant or the single life annuity payable to an unmarried Participant, a Participant who is a Hong Kong Associate may elect, subject to Sections 11.3 and 11.4 of the Plan, to receive the Actuarial Equivalent of the Retirement Benefit to which the Participant is entitled under the Plan in one lump sum payment in Hong Kong Dollars or in installments over five quarterly payments in Hong Kong Dollars. Any such election shall comply with the spousal consent requirements of Section 11.5 of the Plan. Section 11.2 of the Plan does not apply to Participants who are Hong Kong Associates. A-9 TERMINATION OF SERVICE BY A VESTED PARTICIPANT. If the Service of a Participant who is a Hong Kong Associate and who is Vested terminates prior to Retirement, such Participant may elect, subject to the spousal consent requirements of Section 11.5 of the Plan, a Retirement Benefit commencing on the first day of any month within nine months after the Participant's termination of Service and prior to the Participant's Normal Retirement Date or on the Participant's Normal Retirement Date. Section 13.2 of the Plan does not apply to Participants who are Hong Kong Associates. A-10 DEATH BENEFITS. In lieu of the Pre-Retirement Death Benefit described in Section 12.1, the spouse of a Participant who died while employed as a Hong Kong Associate or within the first nine months after the Participant's termination of Service may elect to receive (i) a lump sum amount equal to the lump sum amount which would have been payable to the Participant if the Participant had terminated Service on the earlier of the date of the Participant's death or the Participant's prior termination of Service or (ii) five quarterly installments equal to the quarterly installment amount which would have been payable to the Participant if the Participant had terminated Service on the earlier of the date of the Participant's death or the Participant's prior termination of Service. 2 A-11 ACTUARIAL EQUIVALENT. For purposes of this Addendum, "Actuarial Equivalent" shall mean the lesser of (i) Actuarial Equivalent as otherwise defined in the Plan and (ii) Actuarial Equivalent computed as otherwise defined in the Plan but using a 5% interest rate. 3 EX-10.(IV)(D)(2) 23 SECOND AMENDMENT TO RETIREMENT SECURITY MONTGOMERY WARD & CO., INCORPORATED Second Amendment to the Montgomery Ward & Co., Incorporated Retirement Security Plan Dated: October 31, 1996 WHEREAS, Montgomery Ward & Co., Incorporated, an Illinois corporation ("Ward"), maintains the Montgomery Ward & Co., Incorporated Retirement Security Plan ("Plan"); and WHEREAS, pursuant to Section 17.1 POWER TO AMEND, the Benefit Plans Committee ("Committee") has reserved the power to amend the Plan under certain circumstances; and WHEREAS, the Committee desires to amend the Plan. NOW, THEREFORE, the Plan is amended effective January 1, 1996, in the following manner: 1. Section 2.13 "Credited Service" is amended by deleting the third and fourth sentences thereof, and inserting the following in lieu thereof: "Effective January 1, 1989, Credited Service shall include any period of disability leave of absence provided that the Associate was a Participant immediately prior to such leave or became eligible while on such leave and further provided that (i) the Participant is receiving long-term disability benefits from a plan sponsored by the Company, or a Disability Retirement Benefit from this Plan and (ii) the number of years of Credited Service credited pursuant to this Section 2.13 does not exceed the number of years of Credited Service prior to the disability. Effective January 1, 1994, credit under the Plan for the period of disability leave of absence during which the Participant is receiving long-term disability benefits from a plan sponsored by the Company shall be limited to (i) the duration of the disability leave of absence; (ii) the period prior to the Participant's Normal Retirement Date; (iii) one year if the Participant has less than ten years of continuous service; or (iv) two years if the Participant has ten or more years of continuous service prior to such disability leave of absence, whichever is less." In addition, Section 2.13 "Credited Service" is amended by adding the following as the last paragraph thereof: "For purposes of determining the Associate's eligibility under the Plan under Article IV ELIGIBILITY, for purposes of determining the Associate's eligibility for a Retirement Benefit under Article X ELIGIBILITY FOR RETIREMENT BENEFIT or for purposes of determining both the Associate's eligibility under the Plan and eligibility for a Retirement Benefit, Credited Service shall include any service an Associate was credited with as an employee of any organization which operated any trade or business, or any separate unit of a trade or business substantially acquired by the Company, but only to the extent so provided by appropriate action of the Committee." 2. Sections 2.14(1), 2.14(2) and 2.14(3) are added to the Plan immediately following Section 2.14 as follows: "2.14(1) 'Disability Participant' means each Associate or former Associate who is entitled to receive Disability Retirement Benefit payments hereunder in accordance with an election made pursuant to Section 5.1 hereof. 2.14(2) 'Disability Plan' means the Montgomery Ward & Co., Incorporated Long-Term Disability Plan, as amended (except as otherwise stated herein), through the date of the Disability Participant's election to receive a Disability Retirement Benefit under this Plan pursuant to Section 5.1 hereof. 2.14(3) 'Disability Retirement Benefit' means a Disability Participant's monthly annuity benefit determined in accordance with Section 9.3(1)(a) and (b) hereof upon the Disability Participant's election pursuant to Section 5.1 hereof and payable in accordance with Section 11.8 hereof." 3. Section 2.55 is hereby amended by adding the following to the end thereof: "For purposes of determining Years of Service under ARTICLE IV ELIGIBILITY and under Section 2.51 regarding vesting of benefits, each Participant who was employed by Amoco Oil Company or its affiliates on December 31, 1995 and who became an Associate of Montgomery Ward Life Insurance Company, also known as "Signature", on January 1, 1996 in connection with the Stock Purchase Agreement by and between Amoco Oil Company, Amoco Oil Holding Company, Montgomery Ward & Co., Incorporated and Signature Financial/Marketing, Inc., dated December 29, 1995 shall have all years of service with Amoco Oil Company or its affiliates treated as Years of Service with the Company. Also, for purposes of determining Years of Service under ARTICLE IV ELIGIBILITY and under Section 2.51 regarding vesting of benefits, each Participant who was an employee of Emanacom Data Services, Inc. on July 16, 1996 and who became an Associate of Signature on July 16, 1996 shall have all years of service with Emanacom Data Services, Inc. treated as Years of Service with the Company." 4. ARTICLE IV ELIGIBILITY is hereby amended by adding the following to the end thereof: "Each Associate or former Associate who became 'Totally Disabled' (as such term was defined by the Disability Plan as in effect at such time) on or before October 1, 1990; is entitled to receive the full Disability Benefit (as that term is defined in the Disability Plan); and elects to receive a Disability Retirement Benefit under this Plan shall be eligible to participate in this Plan as a Disability Participant. Notwithstanding the foregoing, each participant in the Amoco Employee Savings Plan ("Amoco Plan") on December 31, 1995 and each participant in the Amoco Oil Company Retirement Plan ("Amoco Oil Plan") on December 31, 1995 who became an Associate of Signature on January 1, 1996 (or, with respect to a participant in the Amoco Plan or the Amoco Oil Plan on December 31, 1995 who on January 1, 1996 was on medical, military, personal, educational or family leave status from Amoco Oil Company or its affiliates, who became an Associate of Signature on any date prior to January 1, 1997), shall become a Participant in the Plan as of the first day of the first month following the date he becomes an Associate of Signature even if such Associate shall have had less than one Year of Service, in which case such Associate shall be granted one Year of Service credit 2 for purposes of eligibility and shall be deemed to be age 21 for eligibility purposes, unless such Associate is a Highly Compensated Associate. Notwithstanding the foregoing, each employee of Emanacom Data Services, Inc. on July 16, 1996 who became an Associate of Signature on July 16, 1996 shall become a Participant in the Plan as of the first day of the first month following July 16, 1996." 5. Section 5.1 ENROLLMENT is amended by adding the following at the end thereof: "Each Associate or former Associate who is eligible to become a Disability Participant under the Plan and elects to receive a Disability Retirement Benefit shall become a Disability Participant on a date determined by the Administrative Director, but no later than ninety (90) days following the Associate's or former Associate's submission of an election, in such form as may be prescribed by the Committee, to receive a Disability Retirement Benefit under this Plan." 6. Article VIII RETIREMENT DATES is amended by adding the following Section 8.4 at the end thereof: "8.4 DISABILITY RETIREMENT DATE. A Disability Participant's Disability Retirement Date shall be the date on which the Disability Participant became a Disability Participant pursuant to Section 5.1 hereof." 7. The title of Article IX AMOUNT OF RETIREMENT BENEFIT is amended by inserting the phrase "OR DISABILITY RETIREMENT BENEFIT" at the end thereof. 8. Article IX AMOUNT OF RETIREMENT BENEFIT OR DISABILITY RETIREMENT BENEFIT is amended by adding the following Section immediately following Section 9.3: "Section 9.3(1) DISABILITY RETIREMENT BENEFIT PAYABLE AT DISABILITY RETIREMENT DATE. (a) A Disability Participant who makes an election to receive the Disability Retirement Benefit under this Plan shall receive a monthly annuity in an amount, determined as of the Disability Participant's Disability Retirement Date, equal to sixty percent (60%) of the Disability Participant's Covered Earnings (as defined by the Disability Plan as in effect on the Disability Participant's Retirement Date); provided that such amount shall not exceed SIX THOUSAND DOLLARS ($6,000) prior to reduction for any other benefits payable as described in Subsection (b) below. (b) The monthly amount of the Disability Retirement Benefit shall be reduced by the amount payable from the following sources determined as of the Disability Participant's Retirement: (i) Any applicable worker's compensation or occupational diseases law, (ii) the Social Security Act (including any portion attributable to dependents), and 3 (iii) any state disability benefit law or no-fault insurance in lieu thereof; provided that the amount of any benefit referred to in clause (ii) above shall not be taken into account to the extent it is attributable to any cost-of-living increase two years or more after commencement of the benefits to the Disability Participant under the Disability Plan. Reduction shall be made whether or not a Disability Participant applied for and actually received any such other benefit to which he is or may be entitled. The amount of the benefits payable referred to in paragraphs (i), (ii) and (iii) of this Subsection and such reduction shall be determined by the Committee, in its sole discretion. (c) A Disability Participant who becomes a Disability Participant on or before November 1, 1996 shall be entitled to the lump sum benefit described in this Subsection. The amount of the lump sum benefit shall be equal to the present value, determined as of the Disability Participant's Disability Retirement Date, of the Disability Retirement Benefit payable to the Disability Participant under this Plan, multiplied by twelve and one-half percent (12 1/2%). For the purpose of determining the amount of the lump sum benefit under this Subsection, the present value of the Disability Participant's Disability Retirement Benefit shall be determined using the interest rate and mortality assumptions used under the Plan to determine Actuarial Equivalent and by assuming that the Disability Participant will continue to receive such monthly annuity benefit until the earlier of the Disability Participant's death or attainment of age sixty-five (65.)" 9. Section 9.4 OFFSET OF RETIREMENT BENEFIT is amended for purposes of clarification by deleting the last sentence thereof and inserting the following in lieu thereof: "The Retirement Benefit payable to associates of Montgomery Ward Insurance Company shall be reduced by the current annuity rates of a legal reserve life insurance company chosen by the Committee of that portion of the annuity that could be purchased with the Transferred Contributions and their contributions prior to January 1, 1984 (or October 1, 1984 for certain associates) under the Savings and Profit Sharing Plan." 10. Section 9.6 RETIREMENT BENEFIT PAYABLE UPON RETIREMENT FOLLOWING REEMPLOYMENT AFTER TERMINATION OF SERVICE is amended by adding the following words immediately after the words "(after applying the offset": "of the actuarial equivalent of any Retirement Benefit paid to the Participant." 11. Section 10.4 LONG-TERM DISABILITY BENEFITS is amended by adding the following to the end thereof: "During any period that a Disability Retirement Benefit would otherwise be payable under this Plan, no Retirement Benefit will be payable under this Plan unless the Participant ceases to receive the Disability Retirement Benefit under this Plan." 12. Article XI METHODS OF PAYMENT is amended by adding the following Section 11.8 to the end thereof: 4 "11.8 DISABILITY RETIREMENT BENEFIT. A Participant's Disability Retirement Benefit shall only be paid in the form of a monthly annuity benefit the amount of which is determined in accordance with Section 9.3(1)(a) and (b) payable commencing with the Participant's Disability Retirement Date and ending on the first day of the month in which the Disability Participant attains age sixty-five, dies, begins to receive a Retirement Benefit under the terms of this Plan, whichever is the first to occur. The lump sum benefit, if any, to which a Disability Participant is entitled pursuant to Section 9.3(1)(c) shall be paid within a reasonable period of time following the month in which the Associate or former Associate first became a Disability Participant." 13. The text of Section 11.5 WRITTEN EXPLANATION OF SURVIVOR BENEFIT is hereby deleted in its entirety and the following is inserted in lieu thereof: "(a) The Committee shall furnish or cause to be furnished to each married Participant explanations of the Qualified Joint and Survivor Benefit and Pre-Retirement Death Benefit in Section 12.1(a) under procedures developed by the Committee in accordance with the Code and Regulations. Specifically, with respect to the election to waive a Qualified Joint and Survivor Benefit, the Committee shall furnish or cause to be furnished to the Participant the written explanation of the Qualified Joint and Survivor Benefit, as described in Subsection (b) below. If the Participant, after having received the written explanation described in Subsection (b) below, affirmatively elects in writing to receive the Participant's Retirement Benefit in one of the optional forms described in Section 11.2 in lieu of a Qualified Joint and Survivor Benefit with the consent of the Participant's spouse, if necessary, such optional form of distribution may commence no less than seven (7) days after the written explanation described in Subsection (b) below is provided to the Participant. A Participant is permitted to revoke an affirmative distribution election up until the date payment of the Participant's Retirement Benefit commences, or, if later, at any time prior to the expiration of the seven (7) day period that begins the date after the explanation in Subsection (b) below is provided to the Participant. (b) Other than as described in Subsection (a) above, with regard to the election to waive a Qualified Joint and Survivor Benefit, the Committee shall furnish or cause to be furnished to the Participant no less than thirty (30) days and no more than ninety (90) days prior to the date payment of the Participant's Retirement Benefit commences written explanation of: (i) the terms and conditions of the Qualified Joint and Survivor Benefit; (ii) the Participant's right to make, and the effect of, an election to waive the Qualified Joint and Survivor Benefit; (iii) the right of the Participant's spouse to consent to any election to waive the Qualified Joint and Survivor Benefit; (iv) the right of the Participant to revoke such election, and the effect of such revocation; and 5 (v) the right of the Participant to consider whether to waive the Qualified Joint and Survivor Benefit for at least thirty (30) days prior to the date payment of the Participant's Retirement Benefit commences. (c) A married Participant may elect in writing to waive the Qualified Joint and Survivor Benefit. Such election must be consented to by the Participant's spouse. If the Participant elects a Ten Years Certain and Continuous Benefit, the election and the spouse's consent thereto must designate specific beneficiary(ies) including any class of beneficiaries or any alternate beneficiaries, and, with respect to a Qualified Joint and Survivor Benefit, the form of benefits that the designated beneficiary (ies) shall receive, which designations may not be changed without spousal consent unless the spouse expressly permits designations by the Participant, without any further spousal consent. Such spouse's consent must acknowledge the effect of such election and be witnessed by a Plan representative or a notary public. Such consent shall not be required if it is established to the satisfaction of the Committee that the required consent cannot be obtained because there is no spouse, the spouse cannot be located, or other circumstances that may be prescribed by the Regulations. The election made by the Participant and consented to by the Participant's spouse may be revoked by the Participant in writing without the consent of the spouse at any time prior to the distribution of the Participant's Retirement Benefit. Any new election must comply with the requirements of this Subsection (c). A former spouse's waiver shall not be binding on a new spouse." 14. In all other respects, the Plan, as amended, shall continue in full force and effect. 6 EX-10.(IV)(H)(1) 24 FIRST AMENDMENT TO SAVINGS AND PROFIT SHARING PLAN MONTGOMERY WARD & CO., INCORPORATED First Amendment to the Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan Dated: October 31, 1996 WHEREAS, Montgomery Ward & Co., Incorporated, an Illinois corporation ("Ward"), maintains the Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan ("Plan"); and WHEREAS, pursuant to Section 18 AMENDMENT OR TERMINATION OF THE PLAN AND TRUST, the Benefit Plans Committee ("Committee") has reserved the power to amend the Plan under certain circumstances; and WHEREAS, the Committee desires to amend the Plan. NOW, THEREFORE, the Plan is amended effective January 1, 1996, unless otherwise indicated, in the following manner: 1. Section 2.23 "Hours of Service" is amended by adding the following to the end thereof: "For purposes of determining the Associate's membership under Section 3. MEMBERSHIP, for purposes of determining the Associate's nonforfeitable interest in amounts under Section 11. ELIGIBILITY FOR BENEFITS or for purposes of determining both the Associate's eligibility for membership and nonforfeitable interest in amounts, an Associate shall be entitled to be credited with Hours of Service to which the Associate was credited as an employee of any organization which operated any trade or business, or any separate unit of a trade or business, substantially acquired by the Company, but only to the extent so provided by appropriate action of the Committee." 2. The following Section is hereby added immediately following Section 2.41 "Retirement Security Plan": "2.41A "Rollover Contribution" and "Rollover Contribution Account" means those contributions made pursuant to Section 10.6 and that portion of the Member's Account to which such contributions are credited." 3. Section 2.53 is hereby amended by adding the following to the end thereof: "For purposes of determining Years of Service under SECTION 3. MEMBERSHIP and SECTION 11. ELIGIBILITY FOR BENEFITS, each Member who was employed by Amoco Oil Company or its affiliates on December 31, 1995 and who became an Associate of Montgomery Ward Life Insurance Company, also known as "Signature", on January 1, 1996 in connection with the Stock Purchase Agreement By and Between Amoco Oil Company, Amoco Oil Holding Company, Montgomery Ward & Co., Incorporated and Signature Financial/Marketing, Inc., dated December 29, 1995 shall have all years of service with Amoco Oil Company or its affiliates treated as Years of Service with the Company. Also, for purposes of determining Years of Service under SECTION 3. MEMBERSHIP and SECTION 11. ELIGIBILITY FOR BENEFITS, each Member who was an employee of Emanacom Data Services Inc. on July 16, 1996 and who became an Associate of Signature on July 16, 1996 shall have all years of service with Emanacom Data Services Inc. treated as Years of Service with the Company." 4. The following subsection is added immediately following subsection 3.1(c) to read as follows: "(d) Notwithstanding the foregoing, each participant in the Amoco Employee Savings Plan ("Amoco Plan") on December 31, 1995 and each participant in the Amoco Oil Company Retirement Plan ("Amoco Oil Plan") on December 31, 1995 who became an Associate of Signature on January 1, 1996 (or, with respect to a participant in the Amoco Plan or the Amoco Oil Plan on December 31, 1995 who on January 1, 1996 was on medical, military, personal, educational or family leave status from Amoco Oil Company or its affiliates, who became an Associate of Signature on any date prior to January 1, 1997), shall be eligible to become a Member in the Plan as of the first day of the first month following the date he becomes an Associate of Signature even if such Associate shall have had less than one Year of Service, in which case such Associate shall be granted one Year of Service credit for purposes of eligibility and shall be deemed to be age 21 for purposes of SECTION 3. MEMBERSHIP, unless such Associate is a Highly Compensated Associate. Notwithstanding the foregoing, each employee of Emanacom Data Services Inc. on July 16, 1996 who became an Associate of Signature on July 16, 1996 shall become a Member in the Plan as of the first day of the first month following July 16, 1996." 5. Section 10.6 is added immediately after Section 10.5 to read as follows: "10.6 Notwithstanding anything herein to the contrary, the Committee, in its sole discretion in connection with the Company's acquisition of businesses, may authorize an Associate to transfer to the Trust, to be held as part of the Associate's Rollover Contribution Account, cash received by the Associate in one or more distributions together constituting, under the Code, an eligible rollover distribution from or under another qualified trust or qualified plan. The Committee may, in its sole discretion, develop procedures for rolling over eligible distributions to the Plan. The interest of an Associate with respect to a Rollover Contribution to the Trust, together with earnings thereon, shall be fully vested, and the assets attributable thereto shall be held, invested and distributed pursuant to the terms of the Plan governing the Associate's After-Tax Supplemental Contribution Account; provided, however, that the interest of an Associate with respect to Rollover Contributions shall be segregated for accounting and reporting purposes." 6. Effective July 1, 1994, Section 11.2 is amended to clarify an administrative practice by adding the following to the end thereof: "If a Member has received a distribution of less than 100% of the Member's Account and is subsequently rehired before incurring five (5) consecutive one (1) year Breaks in 2 Service, he may repay the amount of the distribution to the Trust before the earlier of five (5) years after the first day the Associate is rehired, or the close of the first period of five (5) consecutive one (1) year Breaks in Service commencing after the distribution. If upon termination of a Member's Service the balance of his nonforfeitable Account is zero, the Member shall be deemed to have received a distribution of such nonforfeitable Account upon termination of his Service. If a Member is deemed to have received a distribution, he may notify the Committee of his return to Service and his desire to have his account reinstated before the close of the first period of five (5) consecutive one (1) year Breaks in Service commencing after the deemed distribution ("Committee Notification"). Upon such repayment or Committee Notification, the Member shall be credited on the vesting schedule with all previous Years of Service, and the Member's Account will be credited with the amount of his Account which was not vested at the time of the termination of his Service. No additional Years of Service shall be credited, however, until the Member shall have completed one thousand (1,000) Hours of Service in any Plan Year ending after re-employment by the Company. The amount credited to the Account of a rehired Associate upon repayment of a distribution or Committee Notification will be restored from the following sources, to the extent necessary, in the order listed: (1) Forfeitures for the Plan Year; (2) Company contributions; (3) Trust earnings or gains. In the event that the amount derived from the foregoing sources shall not be sufficient to restore the amount credited to the Member's Account upon repayment or Committee Notification, the Company shall be obligated to make an additional contribution to the Trust to the extent required. A Member who has received a distribution or is deemed to have received a distribution of his vested interest and either elects not to make repayment of such amount or elects not to perform Committee Notification and who has incurred (5) consecutive one (1) year Breaks in Service, shall not be entitled to an increase in the Member's pre-Break in Service credit based upon any post-Break in Service credit, but in determining the Member's post-Break in Service credit all of his pre-Break in Service and post-Break in Service credit shall be aggregated. If a termination of a Member's Service shall occur prior to the vesting of any of the Member's interest in his Account and if he is subsequently rehired, his pre-Break in Service and post-Break in Service credit will be aggregated if the period of his absence does not exceed the greater of five (5) consecutive one (1) year Breaks in Service or his Years of Service with the Company. If the Member's period of absence does exceed the greater of five (5) consecutive one (1) year Breaks in Service or his Years of Service with the Company, his pre-Break in Service credit shall not be considered in determining his vested interest." 7. Section 12.3 is hereby amended by adding the following immediately after the words "that no such consent is required).": 3 "If a distribution is one to which the qualified joint and survivor and qualified preretirement survivor annuity rules do not apply and the Committee informs the Member that the Member has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution or a particular distribution option, and the Member, after receiving such notice, affirmatively elects a distribution, the Committee may authorize the commencement of such distribution to begin as soon as administratively feasible." 8. In all other respects, the Plan shall continue in full force and effect. 4 EX-10.(V) 25 EMPLOYMENT AGREEMENT (GODDU) EXECUTION COPY EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into on the 20th day of December, 1996 (the "Effective Date"), by and among Montgomery Ward & Co., Incorporated, an Illinois corporation (together with its successors and assigns permitted under this Agreement, the "Company"), Montgomery Ward Holding Corp., a Delaware corporation ("Holding") and Roger V. Goddu (the "Executive"). W I T N E S S E T H WHEREAS, the Company desires to employ the Executive and the Executive desires to accept such employment, subject to the terms and provisions of this Agreement; NOW THEREFORE, in consideration of the mutual covenants and premises contained herein, the parties hereto agree as follows: 1. DEFINITIONS. As used herein, the following terms shall have the following meanings: (a) "Affiliate" of a person or other entity shall mean a person or other entity that directly or indirectly controls, is controlled by, or is under common control with, the person or other entity specified. (b) "Base Salary" shall mean the salary provided for in Section 4 herein. (c) "Board" shall mean the Board of Directors of any one or more of the Company, Holding and each Subsidiary, as the context may provide. (d) "Cause" shall mean any one or more of the following: (i) the Executive is convicted of a felony involving moral turpitude or any other felony if in the case of such other felony the Executive is unable to show that he (A) acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, Holding or any Subsidiary or (B) had no reason to believe his conduct was unlawful; (ii) a majority of the Company's Board, consisting of at least a 2/3 majority of the non-management directors, determines that: (A) the Executive has engaged in illegal conduct which is materially injurious to the Company; (B) the Executive has engaged in conduct that constitutes willful or gross misconduct in carrying out his duties under this Agreement; or (C) the Executive has neglected or refused, after written notice from the Board of the Company, to attend to the material duties assigned to him by such Board, provided that such duties are consistent with his position, duties and responsibilities as set forth in Section 3 herein. (e) A "Change in Control" shall mean (i) any sale, lease, license, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the business and/or assets of the Company or Holding or (ii) the possession by any person or entity (other than Holding, General Electric Capital Corporation or an Affiliate of either of them) of beneficial ownership (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of either (A) a number of securities carrying a greater voting power than General Electric Capital Corporation and its Affiliates taken together or (B) over 50% of the then outstanding voting securities of the Company; PROVIDED, that in the case of either (A) or (B), no Change in Control shall be deemed to occur unless and until, after the occurrence of such event, a majority of the members of the Board of the Company or Holding are removed or replaced within six months following any event described in either (A) or (B) above. (f) "Constructive Termination" shall mean a termination of the Executive's employment at his initiative within six months following the occurrence (except in consequence of a prior termination), without the Executive's prior written consent, of one or more of the following -2- events, in each such case after the Executive shall have given the Company (A) prior written notice reasonable in the circumstances and (B) an opportunity to cure reasonable in the circumstances: (i) a reduction in the Executive's then current Base Salary or Annual Bonus opportunity (as described in Section 5 herein) or the termination or material reduction of any material employee benefit or perquisite enjoyed by him (other than as part of an across-the-board reduction of such benefit or perquisite applicable to all executive officers of the Company); (ii) reduction by overt action of the Board in the scope of the responsibilities and authority assigned to the position held by the Executive or a removal of the Executive from any of the positions (including any directorship) described in Section 3(a) herein (other than in connection with or as a result of the sale, transfer or dissolution of any Subsidiary) or the creation of a position (other than member of a Board) in the Company of equal or superior rank to the highest position then held by the Executive in the Company; (iii) the failure of the Company or Holding, as appropriate, to obtain the assumption in writing of its obligation to perform this Agreement by any successor to the Company, Holding or their business within 15 days after the occurrence of the transaction which results in such person or entity becoming a successor to the Company, Holding or their business; or (iv) a Change in Control. (g) "Current Employer" shall mean Toys "R" Us, Inc. and any subsidiary thereof. (h) "Disability" shall mean the Executive's inability to substantially perform his duties and responsibilities under this Agreement by reason of any physical or mental incapacity, as determined by a majority of the Company's Board, consisting of a least a 2/3 majority of the non-management directors, for 90 days in any period of 180 consecutive days. (i) "ERISA" shall mean the Employee Retirement Income Security Act of 1974. -3- (j) "Fair Market Value Per Share" shall mean the fair market value of a share of Class A Common Stock of Holding as determined in accordance with Article III of the Stockholders' Agreement. (k) "Plan" shall mean the Montgomery Ward & Co., Incorporated Stock Ownership Plan. (l) "Start Date" shall mean January 6, 1997. (m) "Stock" shall mean all capital stock of Holding. (n) "Stockholders' Agreement" shall mean that certain Stockholders' Agreement, dated as of June 18, 1988, as amended through December 10, 1996. (o) "Subsidiary" shall mean any corporation in which the Company or Holding owns, directly or indirectly, more than 50% of the outstanding voting securities of such corporation entitled to vote in the election of directors. 2. AGREEMENT TERM AND EMPLOYMENT PERIOD. The Company hereby employs the Executive, and the Executive hereby accepts such employment, pursuant to the terms and conditions set forth in this Agreement. The term of this Agreement shall commence on the date hereof and shall end on December 31, 2001. The employment period shall commence on the Start Date and end on the earlier of (i) the effective date of any terminations of employment and (ii) December 31, 2001 (the "Employment Period"). This Agreement is void if the Executive has not submitted his written resignation to Current Employer by the close of business on December 20, 1996 and delivered a copy thereof to the Company. 3. POSITION, DUTIES AND RESPONSIBILITIES. (a) During the Employment Period, the Executive shall be employed and serve as the Chairman of the Board and Chief Executive Officer of the Company and the Chief Executive Officer of Holding (or such other position or positions as may be agreed upon in writing by the Executive and the Company). The Executive's services shall be performed in Chicago, Illinois and the Executive shall not be transferred outside that area without his consent, other than for normal business travel and temporary assignments. In addition, Executive is entering into this Agreement on the basis that, pursuant to the terms of the Stockholders' -4- Agreement the Executive and a designee of the Executive shall be elected a member of the Board of Holding and the Company and, following such election, each shall be nominated and recommended for election to each such Board at each annual meeting of such entity held during the Employment Period. The Executive shall report only to the Board of the Company and the Board of Holding, or a duly organized committee thereof, and shall be a member of any Board committee directed to formulate the strategic direction to be taken by the Company or Holding. The Executive shall make, at his earliest convenience, a recommendation to the Board of the Company and Holding, or such committee, as to all strategic planning issues for the Company. (b) The Executive shall perform such duties and carry out such responsibilities incident to his position as may be determined from time to time by the Board of the Company, which shall be consistent with the duties and responsibilities customarily performed by persons in a similar executive capacity. Subject to periods of vacation, sick leave, and the like to which he may be entitled, the Executive shall devote all of his business time, attention and skill to the performance of such duties and responsibilities, and shall use his best efforts to promote the interests of the Company. (c) Notwithstanding anything to the contrary contained herein, nothing shall preclude the Executive from (i) serving on the boards of trade associations and/or charitable organizations (subject to the reasonable approval of the Board of the Company), (ii) engaging in charitable activities and community affairs, and (iii) managing his personal investments and affairs, provided that such activities individually or collectively do not interfere with the proper performance of his duties and responsibilities hereunder. (4) BASE SALARY. During the Employment Period, the Company shall pay to the Executive for the services to be rendered by the Executive hereunder a base salary at the rate of One Million Dollars ($1,000,000) per annum ("Base Salary"), increasing at the rate of $50,000 per year in each successive year ("Minimum Increase"). Base Salary shall be reviewed at least once each year and may be increased in excess of the Minimum Increase at any time from time to time in the discretion of the Board of the Company, and shall be payable in accordance with the Company's customary payroll -5- practices applicable for senior-level executives generally. After any increase in Base Salary (whether as a result of a Minimum Increase or otherwise), Base Salary shall not thereafter be reduced. 5. ANNUAL BONUS; RELOCATION; SUPPLEMENTAL PENSION PAYMENTS. (a) In addition to the Base Salary and any other benefits or emoluments received from the Company, Holding or any Affiliate thereof, the Executive shall be eligible to receive an annual cash bonus in an amount equal to not more than 50% of the Base Salary (as the same may be increased from time to time) (the "Annual Bonus"), payable within the first fiscal quarter following the close of each of the Company's fiscal years during the Employment Period. The Annual Bonus shall be based on performance targets to be established from time to time by the Board of the Company (or any committee thereof appointed for such purpose); provided that for the fiscal years ending in 1997, 1998 and 1999, the Annual Bonus will not be less than $350,000 for each of such years without regard to such performance targets. The Annual Bonus may be increased by up to an additional 50% of the Base Salary (as the same may change from time to time), based on the achievement of exceptional performance against the aforementioned targets, as determined by the Board of the Company in the good faith exercise of its business judgment. (b) The Company and the Executive shall, simultaneously with execution and delivery of this Agreement, execute and deliver the Relocation Agreement attached hereto as Exhibit A. (c) The Company shall provide for a supplemental pension benefit on the same terms and conditions as Executive's current pension arrangement with an actuarial present value at age 60 of $3.9 million subject to the Executive's providing to the Company W-2 Forms for the five years ending on December 31, 1995 or an earnings history from Current Employer for the same period. 6. STOCK OPTION AWARDS. (a) Holding shall, as promptly as possible following the Effective Date, receipt of shareholder approval pursuant to Section 6(g) hereof and the execution by the Executive of the Stockholders' Agreement (subject to -6- certain amendments as agreed in that certain letter agreement dated the date hereof among the Executive, Holding, General Electric Capital Corporation and Bernard F. Brennan), grant to the Executive non-qualified stock options (the "Options"), pursuant to the Plan, to purchase that number of shares of Class A Common Stock Series 3 of Holding equal to 5% of the issued and outstanding shares of Stock on a fully diluted basis after giving effect to the Options granted hereunder, as of the date of this Agreement. For purposes of this calculation, the number of shares of Stock underlying the Options shall be adjusted upwards from time to time until the last day of the fiscal year of the Company ending on or about December 31, 1998, to give effect to the grant of stock options during such period to management employees of the Company covering up to 10% of the outstanding shares of Stock (the "Management Options") on a fully diluted basis after giving effect to such grants. Such Options shall be granted pursuant to the terms and conditions of the Plan and such additional terms and conditions as may be customary or appropriate in the circumstances. (b) Subject to the terms of this Agreement and the provisions of the Plan, the Options shall (i) have a per share exercise price equal to the Fair Market Value Per Share as of December 29, 1996 (i.e. the first day of the 1997 fiscal year) and (ii) become vested on the basis of cumulative installments of 25% of the underlying shares on each of December 31, 1997 and the last day of each successive fiscal year of the Company until the Option is 100% vested; PROVIDED HOWEVER, that an Option will not vest unless the Executive is at the applicable date of determination, and has been at all times since the date of grant of the Option, employed by the Company. Only Options which are vested may be exercised. (c) Once any Option becomes vested, it shall remain exercisable until (i) three (3) months after the date of cessation of the Executive's employment with the Company, if such cessation occurs due to the Executive's voluntary termination as provided under Section 9(e) or termination for Cause as provided under Section 9(c), or (ii) the third anniversary of the date of cessation of the Executive's employment with the Company for any other reason. (d) The Options contemplated hereby (and the underlying shares of Stock) and the Management Options shall equally dilute all holders of Stock then outstanding (taking -7- into account the impact of then outstanding stock options of Holding). (e) Subject to the Executive's put rights described in Section 6(f), Holding shall have the right to repurchase any shares of Stock, (the "Call Shares") acquired by the Executive pursuant to the exercise by the Executive of his vested Options in accordance with the terms of this Agreement, at any time and from time to time during the period beginning on the date of termination of the Executive's employment hereunder and ending on the date that is 90 days after the expiration of all of the Executive's rights to exercise his vested Options. The purchase price (the "Call Purchase Price") for such Call Shares shall be equal to the Fair Market Value per Share as of the first day of the fiscal year in which the Closing Date (as defined below) occurs determined in accordance with Section 3.10 of the Stockholders' Agreement, multiplied by the number of Call Shares being purchased by Holding. Holding shall exercise its rights hereunder by delivering a written notice to the Executive setting forth the number of Call Shares it is purchasing and the expected date of closing, which shall be no later than 10 days after the date of such written notice (the "Closing Date"). On the Closing Date, the Executive shall deliver to Holding stock certificates representing the Call Shares being purchased by Holding free and clear of any and all liens, claims or encumbrances of any kind in exchange for the Call Purchase Price by check or wire transfer in immediately available funds. (f) The Executive shall have the right, at any time and from time to time during the period beginning on December 31, 1997 and ending on the date that is 90 days after the expiration all of the Executive's rights to exercise his vested Options, to request Holding to repurchase any shares of Stock (the "Put Shares") acquired by the Executive pursuant to the exercise by the Executive of any vested Option in accordance with the terms of this Agreement. The purchase price (the "Put Purchase Price") for each such Put Share shall be equal to the Fair Market Value Per Share as of the first day of the fiscal year of the Company in which the Executive Notice is given, determined in accordance with Section 3.10 of the Stockholders Agreement, multiplied by the number of Put Shares being purchased by Holding. The Executive may exercise his rights hereunder by delivering a written notice (the "Executive Notice") to Holding setting forth (i) the number of Put Shares it is requesting Holding to purchase; -8- and (ii) the date ("Put Closing Date") upon which the purchase of such Put Shares shall occur, which shall not be less than 30 nor more than 90 days after the Executive Notice. Holding shall, within 10 days of receipt of such Executive Notice, provide the Executive written notice stating whether it can repurchase all or part of such Put Shares. If Holding determines that it cannot repurchase all the Put Shares, it shall so specify in its notice and set forth the reasons therefor; provided, that the only reason Holding may decline to purchase such Put Shares will be the Limitations (as defined and applied in Article IV of the Stockholders Agreement). In such event, however, Holding will purchase Put Shares to the extent permitted by the Limitations (as defined and applied in Article IV of the Stockholders Agreement). If Holding fails to provide such notice, it will be deemed to have given notice that it will repurchase all of the Put Shares covered by the Executive Notice subject to the Limitations (as defined and applied in Article IV of the Stockholders Agreement). On the Put Closing Date, the Executive shall deliver to Holding stock certificates representing the Put Shares being purchased by Holding free and clear of any and all liens, claims or encumbrances of any kind in exchange for the Put Purchase Price which shall be payable as provided in section 3.9 of the Stockholders Agreement in 25% cash and 75% promissory notes. The obligation of Holding provided hereunder to purchase Put Shares shall not exceed a total of $15,000,000 in the aggregate in any fiscal year of the Company, beginning with the 1998 fiscal year (and, to the extent purchases are less than $15,000,000 in any such fiscal year, such unutilized portion shall be rolled over to the next fiscal year on a cumulative basis), up to an aggregate amount of $75,000,000 for all such purchases of Put Shares, such amounts to be determined on a cashless exercise basis (i.e. the spread of the Fair Market Value Per Share paid over the exercise price for such option shares). (g) Promptly after the Effective Date, Holding shall seek all approvals of its stockholders necessary to effectuate the terms of the Options reflected in this Agreement, including without limitation any necessary amendments to the certificate of incorporation of Holding or the Plan, and any such amendments as are necessary to comply with the provisions of this Section 6, and shall recommend such approval to its stockholders. -9- 7. EMPLOYEE BENEFIT PROGRAMS. During his employment with the Company, the Executive shall be entitled to participate in all employee pension and welfare benefit plans and programs made available to the Company's senior-level executives or its employees generally, as such plans or programs may be in effect from time to time, including, without limitation, pension, profit sharing, savings and other retirement plans or programs, medical, dental, hospitalization, short-term and long-term disability and life insurance plans, accidental death and dismemberment protection, travel accident insurance, and any other pension or retirement plans or programs and any other employee welfare benefit plans or programs that may be sponsored by the Company from time to time, including any plans that supplement the above-listed types of plans or programs, whether funded on unfunded. The Executive shall be entitled to post-retirement welfare benefits, if any, as are made available by the Company to its senior-level executives generally. 8. REIMBURSEMENT OF BUSINESS EXPENSES; PERQUISITES; VACATION. (a) The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement and the Company or Holding, as appropriate, shall promptly reimburse him for all such expenses, subject to documentation in accordance with its Company's policy. (b) During the Employment Period, the Executive shall be entitled to participate in any of the Company's executive fringe benefits (including any benefits relating to tax and financial planning services), in accordance with the terms and conditions of such arrangements as are in effect from time to time for the Company's senior-level executives generally. (c) During the Employment Period, the Executive shall be entitled to four weeks paid vacation per year in accordance with the policies of the Company as in effect from time to time with respect to senior executives of the Company. (d) The Company shall pay to the Executive on or before January 6. 1997 the amount of $2,221,948 as compensation for benefits which have been accrued with the Executive's present employer and which shall be lost upon -10- Executive's acceptance of employment with the Company pursuant to this Agreement. (e) On or before January 6, 1997, the Company shall loan to Executive the principal amount of $2,000,000, which loan ("Loan") shall be due and payable 5 years from the date said loan is made, with interest accruing annually at Libor plus 25 basis points (.25%) and payable annually in arrears on each January 6 during the loan term and shall be evidenced by a promissory note in substantially the form attached as Exhibit B. (f) Nothing herein shall be construed to prevent the Company from amending, altering, eliminating or reducing any plans, benefits or programs so long as the Executive continues to have the opportunity to receive compensation and benefits consistent with Sections 8(a) through (c). 9. TERMINATION OF EMPLOYMENT. (a) TERMINATION DUE TO DEATH. In the event the Executive's employment is terminated due to his death, then, this Agreement shall terminate without further obligation of the Company or Holding under this Agreement to the Executive's legal representatives other than those accrued hereunder or under the terms of applicable Company plans or programs which take effect at the date of his death or those obligations provided in this Section 9(a). Provided the lawful representative of the Executive's estate shall have executed an employment release as mutually agreed by the parties at the time of execution (the "Employment Release"), such estate shall be entitled to: (i) all unpaid Base Salary through the end of the month in which the death occurs; (ii) in lieu of any Annual Bonus, an amount equal to 50% of the Base Salary in effect on the date of death; (iii) the right to exercise the Options to the extent vested pursuant to the vesting schedule set forth in Section 6(b), but, as provided in Section 6(c), only until the third anniversary of the Executive's death; (iv) the Loan shall be amended and restated to provide a maturity date of the third anniversary of the date of death; -11- (v) any amount earned, accrued or owing to the Executive but not yet paid under Section 8 herein; and (vi) other or additional benefits in accordance with the plans and programs of the Company referred to in Section 7 herein, and reimbursement of any employee benefit contribution paid by the Executive's family pursuant to the Consolidated Omnibus Budget Reconciliation Act ("COBRA"). (b) TERMINATION DUE TO DISABILITY. In the event the Executive's employment is terminated due to his Disability, then, provided the Executive or his legal representative shall have executed the Employment Release, the Executive shall be entitled to: (i) all unpaid Base Salary through the date of termination due to Disability; (ii) in lieu of any Annual Bonus, an amount equal to 50% of the Base Salary in effect at the date of such termination; (iii) the benefits due him under any then current disability program of the Company; (iv) the right to exercise the Options to the extent vested pursuant to the vesting schedule set forth in Section 6(b), but, as provided in Section 6(c), only until the third anniversary of the date of the Executive's termination due to his Disability; (v) the Loan shall be amended and restated to provide a maturity date of the third anniversary of the date of termination due to Disability; (vi) any amount earned, accrued or owing to the Executive but not yet paid under Section 8 herein; and (vii) other or additional benefits in accordance with the plans and programs of the Company referred to in Section 7 herein, and reimbursement of any employee benefit contribution paid by the Executive or Executive's family pursuant to COBRA. In no event shall a termination of the Executive's employment for Disability occur unless the party terminating -12- his employment gives written notice to the other party in accordance with Section 21 herein. (c) TERMINATION BY THE COMPANY FOR CAUSE. (i) A termination for Cause shall not take effect unless the provisions of this clause (i) are complied with. The Executive shall be given written notice by the Board of the Company of its intention to terminate him for Cause, such notice (A) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (B) to be given within six (6) months of the Board of the Company learning of such act or acts or failure or failures to act. The Executive shall have ten (10) days after the date that such written notice has been given to the Executive in which to cure such conduct, to the extent such cure is possible. If he fails to cure such conduct, the Executive shall then be entitled to written notice by the Board of the Company confirming that, in their judgment, grounds for Cause on the basis of the original notice exist, at which time his employment with the Company shall thereupon be terminated for Cause. (ii) In the event the Company terminates the Executive's employment for Cause, then, provided the Executive shall have executed the Employment Release, the Executive shall be entitled to: (A) all unpaid Base Salary through the date of termination of his employment for Cause; (B) the right to exercise the Options to the extent vested pursuant to the vesting schedule set forth in Section 6(b), but, as provided in Section 6(c), only until the end of the third month after the date of the Executive's termination; (C) any amounts earned, accrued or owing to the Executive but not yet paid under Section 8 herein; and (D) other or additional benefits in accordance with the plans or programs of the Company referred to in Section 7 herein. (iii) If the Executive is terminated for Cause pursuant to Section 9(c) the Loan shall become due and -13- payable, including any interest accrued, 90 days after such termination. (iv) If the Executive is terminated for Cause solely as the result of being convicted of a felony, which conviction is ultimately reversed on appeal, the Executive shall be deemed to have been terminated without cause and shall be entitled to the benefits provided under Section 9(d) to the extent such benefits are greater than those received by the Executive in accordance with Section 9(c), provided, that the date of termination shall be deemed to be the date of the original termination. (d) TERMINATION WITHOUT CAUSE OR CONSTRUCTIVE TERMINATION. In the event the Executive's employment is terminated without Cause, other than due to Disability or death, or in the event there is a Constructive Termination, then, provided the Executive shall have executed the Employment Release, the Executive shall be entitled to: (i) all unpaid Base Salary and a prorated Annual Bonus for the fiscal year of the date of termination through the date of termination based on the prior year's Annual Bonus; (ii) the Base Salary, at the annualized rate in effect on the date of termination of the Executive's employment (or in the event a reduction in Base Salary is the basis for a Constructive Termination, then the annualized rate of the Base Salary in effect immediately prior to such reduction), for a period of twenty-four (24) months following the date of such termination and, in lieu of any further Annual bonus, and amount equal to $700,000, in each case in substantially equal installments payable not less frequently than semi-monthly in arrears; PROVIDED, that the Company may at any time and from time to time pay the Executive the present value of such salary continuation payments in a lump sum (using as the discount rate the applicable Federal rate for short-term Treasury obligations as published by the Internal Revenue Service for the month in which such termination occurs); and PROVIDED FURTHER, that if a Change in Control is the basis for a Constructive Termination, the salary continuation payments shall be paid in a lump sum without any discount; (iii) the right to exercise the Options to the extent vested pursuant to the vesting schedule set forth in Section 6(b), but as provided in Section 6(c), only -14- until the third anniversary of the date of the Executive's termination without Cause (other than due to Disability or death) or the Executive's Constructive Termination, as the case may be; (iv) cancellation without further payment by the Executive of his obligation to pay the principal and all unpaid accrued interest thereon under the loan; (v) any amount earned, accrued or owing to the Executive but not yet paid under Section 8 herein; (vi) other or additional benefits in accordance with the plans and programs of the Company referred to in Section 7 herein; and (vii) until the earlier of (1) the third anniversary of the date of termination or (2) the date the Executive accepts other employment: (A) reimbursement for any employee benefit contribution paid by the Executive or the Executive's family pursuant to COBRA; (B) out placement services at the expense of the Company commensurate with those provided to terminated executives of comparable level and made available through and at the facilities of a reputable and experienced vendor; and (C) use of personal, financial and legal counseling services through the vendor engaged by the Executive and paid for by the Company, up to a maximum of $20,000 per year. If it is determined that any payment or distribution by the Company to the Executive pursuant to Section 9(d) (determined without regard to any additional payments required pursuant to this sentence) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or by similar provisions of state or local tax laws applicable to the Executive or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax and similar provisions, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive with respect to each Payment an -15- additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (e) VOLUNTARY TERMINATION. In the event of a termination of employment by the Executive on his own initiative ("Voluntary Termination"), other than a termination due to death or Disability or a Constructive Termination, then, provided the Executive shall have executed the Employment Release, the Executive shall be entitled to: (i) the Base Salary through the date of termination of his employment; (ii) the right to exercise the Options to the extent vested pursuant to the vesting schedule set forth in Section 6(b), but as provided in Section 6(c), only for a period ending three (3) months after the effective date of the Executive's voluntary termination; (iii) any amounts earned, accrued or owing to the Executive but not yet paid under Section 8 herein; and (iv) other or additional benefits in accordance with the plans or programs of the Company referred to in Section 7 herein. In the event of a Voluntary Termination, the Loan shall become due and payable, including any interest accrued, 90 days after such termination. (f) EXPIRATION OF TERM. If the Executive continues to be employed by the Company until the expiration of the Term of this Agreement, but does not continue to be employed by the Company after such time, the Executive shall receive as salary continuation payments (i) the Base Salary, at an annualized rate in effect on the date of the expiration of the Term of this Agreement, for a period of twenty-four (24) months following such expiration and (ii) in lieu of any Annual Bonus an amount equal to $700,000, in each case payable in substantially equal installments not -16- less frequently than semi-monthly in arrears; PROVIDED, that the Company may at any time and from time to time pay the Executive the present value of such salary continuation payments in a lump sum (using as the discount rate the then applicable Federal rate for short-term Treasury obligations as published by the Internal Revenue Service for the month in which such termination occurs). In addition, the Loan shall be forgiven without further obligation on the part of the Executive to pay the principal and all unpaid accrued interest thereon. The expiration of the Term of this Agreement shall not constitute termination of the Executive's employment with the Company under any of Sections 9(a), 9(b), 9(c), 9(d) or 9(e) herein and, other than as set forth in this Section 9(f), the Executive shall not be entitled to any other compensation or benefits provided for in this Agreement. (g) OFFSETS. In the event of any termination of employment under this Section 9, (i) any remuneration attributable to any subsequent employment with a Direct Competitor that the Executive may obtain and (ii) any amounts due the Company under any claim the Company may have against the Executive may, at the option of the Company, be applied to reduce any amounts due the Executive under this Agreement. (h) NATURE OF PAYMENTS. Any amounts due under this Section 9 are in the nature of severance or salary continuation payments considered to be reasonable by the Company and are not in the nature of a penalty. (i) ASSIGNMENT. The severance or salary continuation payments hereunder may not be transferred, assigned or encumbered in any manner, either voluntarily or involuntarily, without the prior written consent of the Company. (j) EXCLUSIVITY OF SEVERANCE OR SALARY CONTINUATION PAYMENTS. Upon termination of the Executive's employment, he shall not be entitled to any severance or salary continuation payments or benefits from the Company or Holding or any payments by the Company or Holding on account of any claim by him of wrongful termination, including claims under any federal, state or local human and civil rights or labor laws, common law, other than the payments and benefits provided under paragraphs 9(a) through (e) of this Section 9 depending on the factual circumstances of the termination hereunder. -17- (k) TERMINATION AT WILL. Notwithstanding anything herein to the contrary, the Executive's employment with the Company is terminable at will with or without Cause; PROVIDED that the Executive's entitlement to payments and benefits following such termination will depend on the type of termination and therefore be governed by the other provisions of this Section 9. (l) BOARD RESIGNATION. Upon the Executive's cessation of employment with the Company for any reason whatsoever, the Executive shall thereupon be deemed to have resigned from the Board of Holding, the Company and of every Subsidiary on which he shall then be serving, and of any other company in which the Executive is then serving as a director at the request of the Company or Holding, in each case effective as of the date of cessation. 10. NON-COMPETITION, NON-SOLICITATION AND PROTECTION OF TRADE SECRETS. (a) By and in consideration of the substantial compensation and benefits to be provided by the Company and Holding hereunder, and in further consideration of the Executive's exposure to the proprietary information of the Company, Holding and/or any Affiliate of either of them, the Executive agrees that he shall not, during the Employment Period and for a period equal to the greater of (i) the period during which he is receiving salary continuation payments (or in respect of which a lump-sum salary continuation payment is made) pursuant to this Agreement or (ii) one (1) year after the Employment Period, directly or indirectly own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of or be connected in any manner, including but not limited to holding the positions of officer, director, shareholder, consultant, independent contractor, employee, partner, or investor, with any Direct Competitor (as defined below); PROVIDED, HOWEVER, that the Executive may invest in stocks, bonds, or other securities of any corporation or other entity (but without participating in the business thereof) if such stocks, bonds, or other securities are listed for trading on a national securities exchange or NASDAQ and the Executive's investment does not exceed 1% of the issued and outstanding shares of capital stock, or in the case of bonds or other securities, 1% of the aggregate principal amount thereof issued and outstanding. "Direct Competitor" shall mean any of Kmart Corporation, Wal-Mart -18- Stores, Inc., Sears Roebuck and Co., Dayton Hudson Corp., or Current Employer or any Affiliate of any of them; PROVIDED, that Current Employer and Affiliates thereof shall only be deemed to be Direct Competitors in the event of a Voluntary Termination. (b) The Executive recognizes that the services to be performed by him hereunder are special, unique and extraordinary and that, by reason of his employment hereunder, he may acquire confidential information and trade secrets concerning the operations of the Company, Holding and/or any Affiliate of either of them. Accordingly, the Executive agrees that he will not, except in the good faith performance of his duties on behalf of the Company or Holding, and not inconsistent with his fiduciary duties owed to the Company or Holding, disclose on or after the date hereof any secret or confidential information that he has learned by reason of his association with the Company, Holding and any Subsidiary, or use any such information to the detriment of the Company, Holding and any Subsidiary, so long as such confidential information or trade secrets have not become generally known through no fault of the Executive, provided that, if required to be disclosed pursuant to a court order or legal process, the Executive shall give the Company timely notice of such order or process and cooperate with the Company to avoid or limit such disclosures. (c) The Executive further agrees that he will not, at any time during the Employment Period, and for a period of two years thereafter, directly or indirectly solicit or induce any of the employees of the Company, Holding or any Subsidiary to terminate their employment with the Company, Holding or any Subsidiary. (d) The Executive agrees that any material breach of the terms of this Section would result in irreparable injury and damage to the Company, Holding or any Subsidiary for which the Company, Holding or any Subsidiary would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any reasonable threat of material breach, the Company, Holding or any Subsidiary shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive. The terms of this paragraph shall not prevent the Company, Holding or any Subsidiary from pursuing any -19- other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages. The Executive, Holding and the Company agree that the provisions of this Section are reasonable. Should a court or arbitrator determine, however, that any provision of this Section is unreasonable, either in period of time, geographical area, or otherwise, the parties hereto agree that this Section shall be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. (e) The provisions of this Section 10 shall survive any termination of this Agreement, and the extension of any claim or cause of action by the Executive against the Company, Holding or any Subsidiary, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company, Holding or any Subsidiary of the covenants and agreements of this Section. 11. REPRESENTATIONS OF THE EXECUTIVE. The Executive represents and warrants that he is free to enter into this Agreement and to perform the duties required hereunder, and that there is no agreement or understanding, written or oral, between the Executive and Current Employer pertaining to employment non-competition, disclosure of confidential information and/or trade secrets or other restrictions preventing the performance of his duties hereunder. 12. EFFECT OF AGREEMENT ON OTHER BENEFITS. Except as specifically provided in this Agreement, the existence of this Agreement shall not prohibit or restrict the Executive's entitlement to full participation in the employee benefit and other plans or programs in which senior-level executives of the Company are eligible to participate generally (PROVIDED, however, that notwithstanding anything to the contrary in this Agreement, the Executive may not participate in any such plans or programs pertaining to severance or salary continuation payments, or stock options, stock awards or other equity-based forms of compensation). 13. ASSIGNABILITY; BLINDING NATURE. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs (in the case of the Executive) and assigns. No right or obligation of the Company or Holding, as the case may be, under this Agreement may be assigned or transferred by the -20- Company or Holding, as the case may be, except that such right or obligation may be assigned or transferred pursuant to a merger or consolidation in which the Company or Holding, as the case may be, is not the continuing entity, or pursuant to the sale or liquidation of all or substantially all of the assets or business of the Company or Holding, as the case may be, provided that the assignee or transferee is the successor to all or substantially all of the assets or business of the Company or Holding, as the case may be, and such assignee or transferee assumes the liabilities, obligations and duties of the Company or Holding, as the case may be, as contained in this Agreement, either contractually or as a matter of law. Each of the Company and Holding further agrees that, in the event of a sale of assets or liquidation as described in the preceding sentence, it shall exercise reasonable efforts to cause such assignee or transferee to expressly assume the liabilities, obligations and duties of the Company and Holding hereunder. No right or obligation of the Executive under this Agreement may be assigned or transferred by the Executive other than his rights to compensation and benefits, which may be transferred only by will or operation of the law, except as provided herein. Nothing in this Section 14 shall be deemed to affect the Executive's rights under this Agreement following a Change in Control. 14. REPRESENTATIONS OF THE COMPANY. Each of Holding and the Company represents and warrants that it is fully authorized and empowered by action of its Board or a duly authorized committee thereof to enter into this Agreement, that the Agreement is the valid and binding obligation of the Company enforceable against the Company in accordance with the terms herein, subject to applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and other laws of general application affecting creditors' rights generally and by equitable principles and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 15. ENTIRE AGREEMENT. This Agreement contains the entire understanding and agreement between the parties hereto concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto. -21- 16. AMENDMENT OR WAIVER. No provision in this Agreement may be amended unless such amendment is agreed to in writing and signed by the Executive and an authorized officer of each of the Company and Holding. No waiver by either party of any breach by the other party of any condition or provision contained in this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the Executive or an authorized officer of the Company or Holding, as the case may be. 17. SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, in any jurisdiction the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law in such jurisdiction, and such invalidity or unenforceability shall have no effect in any other jurisdiction. 18. BENEFICIARIES/REFERENCES. The Executive shall be entitled, to the extent permitted under applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death by giving the Company and Holding written notice thereof. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. 19. GOVERNING LAW/JURISDICTION. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Illinois without reference to principles of conflict of laws. 20. CONFIDENTIALITY; PRESS RELEASE. The Executive shall not disclose the contents of this Agreement to Current Employer or to any other potential employer except as may be required by enforceable legal process or to the extent there is public disclosure made by the Company or Holding of such matters. The Executive shall use his best efforts to arrange an opportunity for the Company or its designee to coordinate any press release with his present employer. -22- 21. NOTICES. Any notice given to a party shall be in writing and shall be deemed to have been given when delivered personally or, if sent by certified or registered mail, postage prepaid, return receipt requested, five days after being sent duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently give such notice. If to the Company or Holding: Montgomery Ward & Co., Incorporated Montgomery Ward Plaza Chicago, IL 60671 Attention: General Counsel If to the Executive: Roger V. Goddu 930 Olentangy Road Franklin Lakes, New Jersey 07417 With a copy to : Buchalter, Nemer, Fields & Younger 601 S. Figueroa Street Suite 2400 Los Angeles, CA 90017 Attention: Stuart D. Buchalter, Esq. 22. WITHHOLDING. All amounts required to be paid by the Company herein shall be subject to reduction in order to comply with applicable Federal, state and local tax withholding requirements. 23. HEADINGS. The headings of the sections contained in this Agreement are for convenience of reference only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. 24. COUNTERPARTS. THis Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. -23- IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first written above. MONTGOMERY WARD & CO., INCORPORATED _________________ By:__________________________ Witness Name: Title: MONTGOMERY WARD HOLDING CORP. _________________ By:__________________________ Witness Name: Title: _________________ __________________________ Witness Roger V. Goddu EX-10.(VI) 26 RELATIONSHIP AGREEMENT RELATIONSHIP AGREEMENT This Relationship Agreement is being entered into as of the 10th day of December by and among Bernard F. Brennan ("BFB"), Montgomery Ward Holding Corp. ("HOLDING"), Montgomery Ward & Co., Incorporated (the "RETAILER") and General Electric Capital Corporation ("GECC"). It is intended to implement the understandings reached among the parties with respect to BFB's ongoing relationship with Holding and the Retailer and to agree upon the further actions that must be taken with respect to such understandings. NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the parties agree as follows: 1. NEW CEO. A new Chairman and Chief Executive Officer (the "NEW CEO") for the Retailer will be recruited and will report to the board of the Retailer. The New CEO will have senior direct responsibility for the Retailer and such additional duties as are assigned from time to time by the board of the Retailer. 2. NEW CEO SELECTION PROCESS. BFB will be involved in the selection process for the New CEO as a member of a board subcommittee consisting of Denis J. Nayden, Silas Cathcart and BFB, but such subcommittee shall have the power to act by the vote of a majority of its members. 3. PRO RATA DILUTION. Shares of Holding stock or options for such shares will be issued or granted in order to attract and incentivize the New CEO and the management team for the Retailer. Such stock and options will dilute equally all holders of all stock of Holding then outstanding on a fully diluted basis (taking into account all shares issuable upon outstanding options) up to maximum dilution of 15% in the aggregate. 4. BFB TERMINATION OF EMPLOYMENT. Pursuant to the understandings reached among the parties, upon the date of the appointment of an operating committee (members of which need not be directors of the Retailer) by the board of directors of the Retailer to report directly to such board of directors with respect to the direction of the day-to-day affairs, activities and operations of the Retailer ("TERMINATION DATE"), BFB's employment with Holding and each of its subsidiaries will be deemed terminated by Holding and each of such subsidiaries without cause for all purposes, including, without limitation, for purposes of Article III of the Stockholders' Agreement dated as of June 17, 1988 and amended and restated as of December 29, 1994 (the "STOCKHOLDERS AGREEMENT"). Effective on the Termination Date, BFB shall cease to be a director of each subsidiary of the Retailer that is not a Significant Ward Group Member (as defined in the Amendment Agreement referred to in paragraph 14 below (the "AMENDMENT AGREEMENT"), it being understood that he shall continue as a director of Holding, the Retailer and each Significant Ward Group Member to the extent set forth in the Stockholders Agreement as amended by the Amendment Agreement but shall not serve as chairman of the board of any such company other than Holding to the extent set forth in paragraph 9 below. The parties hereto agree to use their best efforts to cause the Termination Date to occur on the date of execution of this Agreement or as soon thereafter as is practicable, but in any event prior to the end of the seven day period referred to in paragraph 24 below. BFB acknowledges that he has had a draft of the Agreement and notice of his termination of employment and the terms thereof for more than 21 days prior to the date hereof. 5. PAYMENT OF LOAN AMOUNT. Holding shall loan $12.5 million in cash (the "LOAN AMOUNT") to BFB on or after the Termination Date on the last to occur of (i) the execution by BFB of the Amendment Agreement, (ii) the expiration of the seven day period referred to in paragraph 24 below without BFB having revoked this Agreement and (iii) the Termination Date. The Loan Amount shall be paid by wire transfer of immediately available funds to an account designated by BFB. No interest shall accrue on or be payable with respect to the Loan Amount. Holding's sole recourse for the repayment of the Loan Amount shall be the Holding stock owned by BFB and his Permitted Transferees on the date hereof and any Holding stock issued with respect thereto in any stock split, stock dividend or other recapitalization (the "BFB HOLDING STOCK") and the Proceeds Amount and neither BFB nor any of his Permitted Transferees shall pledge any shares of the BFB Holding Stock other than one or more pledges of up to 50% of the BFB Holding Stock solely for the purpose of obtaining one or more loans to be used solely for the purpose of financing one or more charitable contributions ("CHARITY LOANS"), so long as the aggregate amount of the Charity Loans never exceeds at any one time $10 million. The lesser of the Loan Amount or any Proceeds Amount shall be repaid to Holding without interest within five business days after BFB or any of his Permitted Transferees sells any Holdings stock or receives any proceeds with respect to such stock other than as a result of a Charity Loan; provided, however, that if such sale is to Holding pursuant to a sale of BFB Holding Stock under Article III of the Stockholders Agreement or any successor provision, (a) BFB or his Permitted Transferees shall be deemed to have tendered to Holding a portion of any promissory notes issued to them as payment for the Put price equal to the lesser of the face amount of such notes or the then outstanding balance of the Loan Amount, and such amount shall be applied, to such extent, to reduce the Loan Amount and (b) BFB and his Permitted Transferees shall be entitled to keep 25% of the total amount of any Put payment (i.e., the cash portion of any Put payment) and shall not be obligated to repay the Loan Amount with such amount; provided, further, that in no event shall BFB be required to repay an amount in excess of the Proceeds Amount; and provided, further, that the Loan Amount, if not paid sooner, shall be due and payable on the last to occur of the deaths of each of BFB, his wife and his children. The term "Proceeds Amount" shall mean the amount paid in cash (whether upon sale of such stock or upon payments under any notes issued in respect of such stock) for BFB Holding Stock until the Loan Amount is reduced to zero, or in the event that the consideration for the BFB Holding Stock is stock or other securities, the Fair Market Value of any such stock or securities received in the disposition of BFB Holding Stock; -2- provided, however, that if BFB Holding Stock is sold for stock or other securities in a transaction approved by the board of directors of Holding or in a transaction in which more than 50% of all of the common capital stock of Holding is sold in exchange for stock or other securities (a "SALE OF THE COMPANY"), then there shall be no Proceeds Amount as a result thereof and the stock or other securities received by BFB or his Permitted Transferees in the Sale of the Company shall be deemed to be BFB Holding Stock such that upon its sale it will give rise to a Proceeds Amount. If BFB desires to make a gift of any shares of BFB Holding Stock to a charity or educational institution, Holding and GECC agree to discuss and cooperate in good faith to structure such a gift so long as such a gift can be done on terms that are acceptable to each of BFB, Holding and GECC. The term "PERMITTED TRANSFEREES" shall have the meaning assigned in the Stockholders Agreement. The term "FAIR MARKET VALUE" shall mean as to any security the average of the closing prices of such security's sales on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the Nasdaq System as of 4:00 P.M., New York time, on such day, or, if on any day such security is not quoted in the Nasdaq System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "Fair Market Value" is being determined and the 20 consecutive business days prior to such day; provided that if such security is listed on any domestic securities exchange the term "business days" as used in this sentence means business days on which such exchange is open for trading. If at any time such security is not listed on any domestic securities exchange or quoted in the Nasdaq System or the domestic over-the-counter market, the "Fair Market Value" shall be the fair value thereof determined jointly by Holding and BFB; provided that if they fail to reach an agreement within 30 days, such fair value shall be determined by an appraiser jointly selected by Holding and BFB. The determination of such appraiser shall be final and binding on the parties and the fees and expenses of such appraiser shall be paid by Holding. 6. CONSULTING ARRANGEMENT. From and after the Termination Date through the earlier of the fifth anniversary of the Termination Date or the date (the "STOCK LIQUIDATION DATE") on which BFB and his Permitted Transferees no longer own any BFB Holding Stock (the "CONSULTING PERIOD"), BFB shall be available from time to time at mutually acceptable times and places (and for up to 20 hours per month) to advise Holding and the Retailer with respect to strategic issues, planning, acquisitions, merchandising -3- strategies and operational issues. As payment for BFB's commitment to provide such services and devote his time to enhance the value of Holding and the Retailer, in lieu of any severance payment that might otherwise be payable to BFB, from and after the Termination Date, the Retailer and Holding shall be jointly and severally obligated to make an annual cash consulting payment to BFB of $1.5 million payable in substantially equal installments in arrears not less frequently than semi-monthly until the end of the Consulting Period. The payments shall be made regardless of whether BFB dies or becomes disabled and regardless of the extent to which Holding and the Retailer request BFB to perform the services outlined in this paragraph 6. 7. CONSEQUENCES OF CERTAIN COMPETITIVE ACTIVITIES. The parties agree that nothing in this Agreement or the agreements and instruments contemplated hereby or any other agreements, arrangements or relationships between or among BFB and the other parties hereto shall limit in any way the right of BFB to make any investment or participate in any business (as an employee, director, consultant, advisor or otherwise) of any kind whatsoever with the exception that if BFB becomes an employee or director of, or paid consultant or advisor to, Sears, Roebuck & Co., J.C. Penny Company, Inc., Wal-Mart Stores, Inc., Kmart Corporation or Dayton Hudson Corporation, he shall notify Holding of his taking such position and, regardless of whether he so notifies Holding, shall cease to be the chairman of the board of Holding and shall forfeit his right to any payment under paragraph 6 hereof which would accrue after the date of such employment and the right to any benefits under paragraph 10 hereof which would accrue after the date of such employment. 8. MAINTENANCE OF LIFE INSURANCE. Holding and the Retailer agree that until the fifth anniversary of the date hereof, they shall pay all premiums payable with respect to, and take all actions necessary to keep in full force and effect, at their respective present face values, those certain life insurance policies which are the subject of, and are identified in, that certain Split Dollar Agreement dated November 28, 1995 between the Brennan 1995 Irrevocable Trust and Holding and keep in full force and effect and fully perform all of Holding's obligations under such Split Dollar Agreement. 9. CHAIRMAN OF BOARD. From and after the Termination Date through the earlier of the Stock Liquidation Date, the fifth anniversary of the Termination Date or the date BFB otherwise ceases to hold such office (including pursuant to paragraph 7 above or as a result of his voluntary resignation from such office), BFB shall serve as the non-employee Chairman of the board of Holding. Holding and the Retailer shall promptly reimburse BFB for any expenses reasonably incurred by him in connection with his service in such capacity. 10. CONTINUING BENEFITS. From and after the Termination Date through the fifth anniversary of the Termination Date, Holding and the Retailer shall provide BFB the following: -4- a. Appropriate office space, parking and furnishings for BFB in the United States city of BFB's choice (but outside of the Retailer's corporate complex); b. Reasonable operating expenses for such offices for utilities, telephone, supplies, postage and other customary expenses (all of which shall be paid directly by the Retailer); c. Continued use of corporate jet aircraft, when available in accordance with the scheduling practices in effect as of the date hereof for business use and for personal use (subject to reimbursement by BFB for such personal use in accordance with the Retailer's customary reimbursement policies), it being understood that (i) business use shall mean any travel by BFB at the request of the board of directors of Holding or the Retailer or by the CEO of the Retailer and (ii) BFB's personal use of such aircraft shall not exceed 30 flight hours during any year, treating each anniversary of the Termination Date as the termination of a year for such purpose unless such aircraft is made available to him by Holding for more than 30 flight hours and he agrees to pay the actual out-of-pocket per hour charge to Holding or the Retailer for all such hours over 30; d. Continuation of all executive benefits and perquisites, including health care, pension and dental coverage as such may apply from time to time to senior executives of the Retailer; and e. A full time administrative assistant of BFB's choice (such assistant to be employed by the Retailer and to receive compensation and benefits consistent with competitive executive assistant pay levels). 11. CONTINUATION OF LIABILITY INSURANCE AND INDEMNIFICATION. For a period of six years after the last day on which BFB or any of his board designees serves as a director of Holding, the Retailer or any of their subsidiaries, Holding and the Retailer shall (and shall cause each such subsidiary to) retain in full force and effect to the extent permitted by applicable law all indemnification and limitation of liability provisions (and all related liability insurance to the extent available at commercially reasonable rates) currently in effect with respect to officers and directors of Holding, the Retailer or such subsidiaries. The parties acknowledge that BFB and his board designees shall have these indemnification rights as a matter of contract. 12. TAX GROSS UP. In the event that any portion of any payment made to BFB under paragraphs 5 or 6 above is treated as an excess parachute payment under Section 4999 of the Internal Revenue Code or any state or local equivalent other than as a result of any change of control transaction caused by BFB or his Permitted Transferees, the Retailer will transfer an additional payment to BFB sufficient to place BFB in the same after tax economic position that he would have been in if Section -5- 4999 had not applied to any such payment and no gross up payment had been made hereunder. GECC and BFB hereby, in their capacities as stockholders of Holding, approve the payments to be made under paragraphs 5 and 6. In addition, Holding, in its capacity as the sole stockholder of the Retailer, hereby approved such payments. 13. LEGAL FEES AND EXPENSES. In recognition of the fact that BFB had to restain special counsel in connection with the negotiation and execution of this Agreement and the Amendment Agreement, that such negotiation took place in the context of a dispute regarding certain prior actions and agreements for which BFB had to prepare to defend his position and that BFB's counsel has taken responsibility for drafting initial drafts of, and revising all subsequent drafts of, this Agreement and the Amendment Agreement, Holding and the Retailer shall pay all of the fees and expenses of counsel incurred by BFB in connection with the negotiation and execution of the relationship set forth herein up to an aggregate amount of $100,000. 14. AMENDMENTS TO STOCKHOLDERS AGREEMENT, CHARTER AND BYLAWS. The Stockholders Agreement shall be amended pursuant to the Amendment Agreement being executed on the date hereof and the parties shall take whatever action is necessary to amend the charter and bylaws of Holding and the Retailer to be consistent with the Stockholders Agreement as so amended. 15. NO SET-OFF RIGHTS. The obligations of Holdings, the Retailer and GECC hereunder, including, without limitation, payment obligations, shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which any or all may have against BFB or others other than the right of Holding and the Retailer to set off, on a dollar- for-dollar basis, payments due hereunder to BFB or his Permitted Transferees in response to a failure by BFB to make any payments he is obligated to make to Holding or the Retailer hereunder. In no event shall BFB be obligated to seek employment or take any other action by way of mitigation of the amounts payable to BFB under this Agreement and such amounts shall not be reduced whether or not BFB obtains any such employment. 16. DISPARAGING REMARKS. BFB agrees, subject to any obligations under applicable law, that he will not make or cause to be made any disparaging or inimical statements intended by him for publication in the media about GECC, Holding or the Retailer, of any of their respective affiliates, agents, officers, directors or employees. GECC, Holding and the Retailer agree, subject to any obligations under applicable law, not to, and to cause their respective affiliates, agents, officers, directors and employees not to make or cause to be made any disparaging or inimical statements intended by any of them for publication in the media about BFB. 17. WAIVER BY GECC, HOLDING AND THE RETAILER. Effective on the date hereof GECC, Holding and the Retailer, on behalf of themselves and each of their affiliates and their respective successors (collectively, the "RELEASING COMPANIES"), hereby waive and -6- release any and all claims any of them has or may have (in any capacity, including as a stockholder) against BFB and his estate for obligations or liabilities (whether known or unknown, accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due and regardless of when asserted) arising out of or relating to BFB's status as an employee, director or stockholder of Holding, the Retailer or any of their affiliates or the termination of his employment or any transaction entered into or occurring at or prior to such date, or out of any action or inaction or any state of facts existing or event occurring at or prior to such date, of any nature whatsoever, other than any claims against BFB for expenses incurred by Holding or any of its subsidiaries on BFB's behalf for which he has customarily reimbursed Holding or its subsidiaries in the ordinary course. 18. WAIVER BY BFB. Effective on the date hereof BFB hereby waives and releases any and all claims he has or may have (in any capacity including as a stockholder) against any of the Releasing Companies (including their respective officers, directors and employees to the extent acting in such capacity) for obligations or liabilities (whether known or unknown, accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due and regardless of when asserted) arising out of or relating to BFB's status as an employee, director or stockholder of Holding, the Retailer or any of their affilates or the termination of his employment or any transaction entered into or occurring at or prior to such date, or out of any action or inaction or any state of facts existing or event occurring at or prior to such date, of any nature whatsoever (including any such obligations or liabilities arising under Title VII or the Civil Rights Act of 1964. as amended, the Americans With Disabilities Act, the Age Discrimination in Employment Act of 1974, as amended by various congressional enactments, including the Older Workers Benefit Protection Act of 1990, any state or local laws or regulations similar to any of the foregoing and any common law claims or causes of action), other than any claims against any of the Releasing Companies (i) for indemnification or insurance coverage under the charter or bylaws of, or any contract with, Holding, the Retailer or any of their affilates or successors, (ii) against Holding, the Retailer or any of their affilates or successors arising out of any rights (that are now vested or will become vested in the future notwithstanding the termination of BFB's employment) under written employee benefit, retirement or compensation plans or arrangements (including accrued salary and vacation), whether applying to BFB or to employees of the Retailer generally, other than any claims for severance payments which are hereby specifically waived and released by BFB and (iii) any claims by BFB for reimbursement of expenses incurred by him for which he has customarily been reimbursed by Holding or its subsidiaries in the ordinary course. 19. NO STRICT CONSTRUCTION. Each of the parties hereto have been represented by counsel and has participated in the drafting of this Agreement and the agreements contemplated hereby and the language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule -7- of strict construction or rule of presumption against the drafting party will be applied against any person. 20. NO CIRCUMVENTION. Where any provision in this Agreement refers to action to be taken by any person, or which such person is prohibited from taking, such provision shall be applicable whether the action in question is taken directly or indirectly by such person (including indirectly through any subsidiary or through any transaction or series of transactions, or through any scheme, artifice, device or contrivance, no matter how structured or labeled). The parties agree that the waivers and releases in paragraphs 17 and 18 above shall not in any way limit any party's ability to enforce the terms and provisions of this Agreement, the Stockholders Agreement or the Amendment Agreement. 21. COUNTERPARTS; DELIVERY BY FACSIMILE. This Agreement may be executed in two or more counterparts, any one of which need not contain the signatures of more than one party, but all of such counterparts taken together shall constitute one and the same instrument. This Agreement and any amendments hereto, to the extent delivered by means of a facsimile machine, shall be treated in all manner and respects as an original agreement and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request any party hereto, each other party hereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto shall raise the use of a facsimile machine or the fact that any signature was transmitted or communicated through the use of a facsimile machine as a defense to the formation of a contract and each such party forever waives any such defense. 22. GOVERNING LAW. The internal law, not the law of conflicts, of the State of Illinois will govern all questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement. 23. SUCCESSORS. This Agreement shall be binding on Holding, the Retailer and GECC and their respective successors in interest and on BFB and, to the extent set forth herein, on his Permitted Transferees. Each of Holdings and the Retailer will require any proposed successor (whether by purchase, merger, consolidation, spin off or otherwise) to all or substantially all of its business and/or assets to, as a condition to such succession, assume expressly and agree to perform this Agreement (including, without limitation, the obligations under this paragraph) in the same manner and to the same extent as Holdings and the Retailer would be required to perform this Agreement if no such succession had taken place. 24. RIGHT OF BFB TO REVOKE. BFB may revoke this Agreement in writing within seven days of signing it. If BFB revokes this Agreement, he shall give written notice to GECC and to Holding and all of the provision hereof shall be void and unenforceable. -8- 25. NOTICES. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given (i) when delivered, if personally, delivered, (ii) when receipt is electronically confirmed, if faxed or (iii) one day after deposit with a reputable overnight courier, in each case addressed to the intended recipient as set forth below: If to Holding or the Retailer: ------------------------------ Montgomery Ward Holding Corp. Montgomery Ward & Co., Incorporated Montgomery Ward Plaza Chicago, IL 60671 Attention: General Counsel Telecopy #: (312) 467-3545 with a copy (which shall not constitute notice) ----------------------------------------------- to: --- Altheimer & Gray 10 South Wacker Drive Chicago, IL 60606 Attention: Myron Lieberman Peter Lieberman Telecopy #:(312) 715-4150 If to GECC: ----------- General Electric Capital Corporation 260 Long Ridge Road Stamford, CT 06927 Attention: Edward Stewart Brian McAnaney Telecopy #: (203) 357-6487 with a copy (which shall not constitute notice) to: --------------------------------------------------- Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 Attention: Ted S. Waksman Telecopy #: (212) 310-8007 -9- If to BFB: ---------- Bernard F. Brennan 568 West Hawthorne Place Chicago, IL 60657 Telecopy #: (312) 477-7919 with a copy (which shall not constitute notice) to: --------------------------------------------------- Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attention: Frank Cicero, Jr., P.C. Mark B. Tresnowski Telecopy #: (312) 861-2200 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. Montgomery Ward Holding Corp. By: ------------------------------ Its: ------------------------------ Montgomery Ward & Co., Incorporated By: ------------------------------ Its: ------------------------------ General Electric Capital Corporation By: ------------------------------ Its: ------------------------------ ----------------------------------- Bernard F. Brennan -10- EX-10.(VII) 27 EMPLOYMENT AGREEMENT (DONOHO) EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into on the __ day of January, 1997 (the "Effective Date"), by and among Montgomery Ward & Co., Incorporated, an Illinois corporation (together with its successors and assigns permitted under this Agreement, the "Company"), Montgomery Ward Holding Corp., a Delaware corporation ("Holding") and Burnett Donoho (the "Executive"). W I T N E S S E T H WHEREAS, the Company desires to employ the Executive and the Executive desires to accept such employment, subject to the terms and provisions of this Agreement; NOW THEREFORE, in consideration of the mutual covenants and premises contained herein, the parties hereto agree as follows: 1. DEFINITIONS. As used herein, the following terms shall have the following meanings: (a) "Affiliate" of a person or other entity shall mean a person or other entity that directly or indirectly controls, is controlled by, or us under common control with, the person or other entity specified. (b) "Base Salary" shall mean the salary provided for in Section 4 herein. (c) "Board" shall mean the Board of Directors of any one or more of the Company, Holding and each Subsidiary, as the context may provide. (d) "Cause" shall mean any one or more of the following: (i) the Executive is convicted of a felony involving moral turpitude or any other felony if in the case of such other felony the Executive is unable to show that he (A) acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, Holding or any Subsidiary or (B) had no reason to believe his conduct was unlawful; (ii) a majority of the Company's Board, consisting of at least a 2/3 majority of the non-management directors, determines that: (A) the Executive has engaged in illegal conduct which is materially injurious to the Company; (B) the Executive has engaged in conduct that constitutes willful or gross misconduct in carrying out his duties under this Agreement; or (C) the Executive has neglected or refused, after written notice from the Board of the Company, to attend to the material duties assigned to him by such Board, provided that such duties are consistent with his position, duties and responsibilities as set forth in Section 3 herein. (e) A "Change in Control" shall mean (i) any sale, lease, license, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the business and/or assets of the Company or Holding or (ii) the possession by any person or entity (other than Holding, General Electric Capital Corporation or an Affiliate of either of them) of beneficial ownership (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of either (A) a number of securities carrying a greater voting power than General Electric Capital Corporation and its Affiliates taken together or (B) over 50% of the then outstanding voting securities of the Company; PROVIDED, that in the case of either (A) or (B), no Change in Control shall be deemed to occur unless and until, after the occurrence of such event, a majority of the members of the Board of the Company or Holding are removed or replaced within six months following any event described in either (A) or (B) above. (f) "Constructive Termination" shall mean a termination of the Executive's employment at his initiative within six months following the occurrence (except in consequence of a prior termination), without the Executive's prior written consent, of one or more of the following events, in each such case after the Executive shall have given the Company (A) prior written notice reasonable in the circumstances and (B) an opportunity to cure reasonable in the circumstances: (i) a reduction in the Executive's then current Base Salary or Annual Bonus opportunity (as described in Section 5 herein) or the termination or material reduction of any material employee benefit or perquisite enjoyed by him (other than as part of an across-the-board reduction of such benefit or perquisite applicable to all executive officers of the Company); (ii) reduction by overt action of the Board in the scope of the responsibilities and authority assigned to the position held by the Executive or a removal of the Executive from any of the positions (including any directorship) described in Section 3(a) herein (other than in connection with or as a result of the sale, transfer or dissolution of any Subsidiary) or the creation of a position (other than member of a Board) in the Company of equal or superior rank to the highest position then held by the Executive in the Company; (iii) the failure of the Company or Holding, as appropriate, to obtain the assumption in writing of its obligation to perform this Agreement by any successor to the Company, Holding or their business within 15 days after the occurrence of the transaction which results in such person or entity becoming a successor to the Company, Holding or their business; or 2 (iv) a Change of Control. (g) "Disability" shall mean the Executive's inability to substantially perform his duties and responsibilities under this Agreement by reason of any physical or mental incapacity, as determined by a majority of the Company's Board, consisting of at least a 2/3 majority of the non-management directors, for 90 days in any period of 180 consecutive days. (h) "ERISA" shall mean the Employee Retirement Income Security Act of 1974. (i) "Fair Market Value Per Share" shall mean the fair market value of a share of Class A Common Stock of Holding as determined in accordance with Article III of the Stockholders' Agreement. (j) "Plan" shall mean the Montgomery Ward & Co., Incorporated Stock Ownership Plan. (k) "Start Date" shall mean . (l) "Stock" shall mean all capital stock of Holding. (m) "Stockholders' Agreement" shall mean that certain Stockholders' Agreement, dated as of June 18, 1988, as amended through December 10, 1996. (n) "Subsidiary" shall mean any corporation in which the Company or Holding owns, directly or indirectly, more than 50% of the outstanding voting securities of such corporation entitled to vote in the election of directors. 2. AGREEMENT TERM AND EMPLOYMENT PERIOD. The Company hereby employs the Executive, and the Executive hereby accepts such employment, pursuant to the terms and conditions set forth in this Agreement. The term of this Agreement shall commence on the date hereof and shall end on January 31, 2000. The employment period shall commence on the Start Date and end on the earlier of (i) the effective date of any termination of employment and (ii) January 31, 2000 (the "Employment Period"). 3. POSITION, DUTIES AND RESPONSIBILITIES. (a) During the Employment Period, the Executive shall be employed and serve as the Vice Chairman and Chief Operating Officer of the Company and the Chief Operating Officer of Holding (or such other position or positions as may be agreed upon in writing by the Executive and the Company). The Executive's services shall be performed in Chicago, Illinois and the Executive shall not be transferred outside that area without his consent, other than for normal business travel and temporary assignments. In addition, Executive is entering into this Agreement on the basis that, pursuant to the terms of the Stockholders' 3 Agreement the Executive shall be elected a member of the Board of Holding and the Company and, following such election, shall be nominated and recommended for election to each such Board at each annual meeting of such entity held during the Employment Period. The Executive shall report to the Chairman and Chief Executive Officer of the Company and the Chief Executive Officer of the Board of Holding, or a duly organized committee thereof. (b) The Executive shall perform such duties and carry out such responsibilities incident to his position as may be determined from time to time by the Chairman and Chief Executive Officer of the Company, which shall be consistent with the duties and responsibilities customarily performed by persons in a similar executive capacity. Subject to periods of vacation, sick leave, and the like to which he may be entitled, the Executive shall devote all of his business time, attention and skill to the performance of such duties and responsibilities, and shall use his best efforts to promote the interests of the Company. (c) Notwithstanding anything to the contrary contained herein, nothing shall preclude the Executive from (i) serving on the boards of trade associations and/or charitable organizations (subject to the reasonable approval of the Chairman and Chief Executive Officer of the Company), (ii) engaging in charitable activities and community affairs, and (iii) managing his personal investments and affairs, provided that such activities individually or collectively do not interfere with the proper performance of his duties and responsibilities hereunder. 4. BASE SALARY. During the Employment Period, the Company shall pay to the Executive for the services to be rendered by the Executive hereunder a base salary at the rate of Seven hundred thousand dollars ($700,000) per annum ("Base Salary"). Base Salary shall be reviewed at least once each year and may be increased at any time from time to time in the discretion of the Board of the Company, and shall be payable in accordance with the Company's customary payroll practices applicable for senior-level executives generally. After any increase in Base Salary, Base Salary shall not thereafter be reduced without the consent of the Executive. 5. ANNUAL BONUS; RELOCATION; SUPPLEMENTAL PENSION PAYMENTS. (a) In addition to the Base Salary and any other benefits or emoluments received from the Company, Holding or any affiliate thereof, the Executive shall be eligible to receive an annual cash bonus in an amount equal to not more than 40% of the Base Salary (the "Annual Bonus"), payable within the first fiscal quarter following the close of each of the Company's fiscal years during the Employment Period. The Annual Bonus shall be based on performance targets to be established from time to time by the Board of the Company (or any committee thereof appointed for such purpose); provided that for the fiscal years ending in 1997, and 1998, the Annual Bonus will be not less than $250,000 for each of such years without regard to such performance targets. The Annual Bonus may be increased based on 4 the achievement of exceptional performance against the aforementioned targets, as determined by the Board of the Company in the good faith exercise of its business judgement. (b) The Company will provide executive with a relocation plan that includes interim living expense for up to six months, movement of household goods and payment of closing costs for home purchase in the Chicago area. Additionally, Company will pay executive a one-time payment of $50,000 upon the completion of his relocation to the Chicago area. (c) The Company will provide Executive with a Special Retention Plan that provides Executive a cash award of $100,000 for every full six months of Executive's active service with the Company up to a maximum of $500,000 total, all or any earned part of which will be paid on December 31, 1999. 6. STOCK OPTION AWARDS. (a) Holding shall, as promptly as possible, grant to the Executive non-qualified stock options (the "Options"), pursuant to the Plan, to purchase one million (1,000,000) shares of Class A Common Stock Series 3 of Holding. Such Options shall be granted pursuant to the terms and conditions of the Plan and such additional terms and conditions as may be customary or appropriate in the circumstances. (b) Subject to the terms of this Agreement and the provisions of the Plan, the Options shall (i) have a per share exercise price equal to the Fair Market Value Per Share as of the first day of the 1997 fiscal year and (ii) become vested on the basis of cumulative installments of: 400,000 - February 1, 1998 300,000 - February 1, 1999 300,000 - February 1, 2000 PROVIDED, HOWEVER, that an Option will not vest unless the Executive is at the applicable date of determination, and has been at all times since the date of grant of the Option, employed by the Company. Only Options which are vested may be exercised. These options will have a ten year term from the grant date, after which they will expire if not exercised. (c) Once any Option becomes vested, it shall remain exercisable until (i) three (3) months after the date of cessation of the Executive's employment with the company, if such cessation occurs due to the Executive's voluntary termination as provided under Section 9(e) or termination for Cause as provided under Section 9(c), or (ii) the third anniversary of the date of cessation of the Executive's employment with the Company for any other reason. (d) The Options contemplated hereby (and the underlying shares of Stock) and the Management Options shall equally dilute all holders of Stock then outstanding (taking into account the impact of then outstanding stock options of Holding). 5 7. EMPLOYEE BENEFIT PROGRAMS. During his employment with the Company, the Executive shall be entitled to participate in all employee pension and welfare benefit plans and programs made available to the Company's senior level executives or its employees generally, as such plans or programs may be in effect from time to time, including, without limitation, pension, profit sharing, savings and other retirement plans or programs, medical, dental, hospitalization, short-term and long-term disability and life insurance plans, accidental death and dismemberment protection, travel accident insurance, and any other pension or retirement plans or programs and any other employee welfare benefit plans or programs that may be sponsored by the Company from time to time, including any plans that supplement the above-listed types of plans or programs, whether funded or unfunded. The Executive shall be entitled to post-retirement welfare benefits, if any, as are made available by the Company to its senior level executives generally. 8. REIMBURSEMENT OF BUSINESS EXPENSES; PERQUISITES; VACATION. (a) The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement and the Company or Holding, as appropriate, shall promptly reimburse him for all such expenses, subject to documentation in accordance with its company's policy. (b) During the Employment Period, the Executive shall be entitled to participate in any of the Company's executive fringe benefits (including any benefits relating to tax and financial planning services), in accordance with the terms and conditions of such arrangements as are in effect from time to time for the Company's senior level executives generally. (c) During the Employment Period, the Executive shall be entitled to four weeks paid vacation per year in accordance with the policies of the Company as in effect from time to time with respect to senior executives of the Company. (d) Nothing herein shall be construed to prevent the Company from amending, altering, eliminating or reducing any plans, benefits or programs so long as the Executive continues to have the opportunity to receive compensation and benefits consistent with Sections 8(a) through (c). 9. TERMINATION OF EMPLOYMENT. (a) TERMINATION DUE TO DEATH. In the event the Executive's employment is terminated due to his death, then, this Agreement shall terminate without further obligation of the Company or Holding under this Agreement to the Executive's legal representatives other than those accrued hereunder or under the terms of applicable Company plans or programs which take effect at the date of his death or those obligations provided in this Section 9 (a). Provided the lawful representative of the Executive's estate shall have executed an employment 6 release as mutually agreed by the parties at the time of execution (the "Employment Release"), such estate shall be entitled to: (i) all unpaid Base Salary through the end of the contract employment period. (ii) any Annual Bonus, that would have been paid during the contract employment period except that the target bonus amount of $250,000 will be used to calculate the bonus amount. (iii) the right to exercise all Options set forth in Section 6(b); (iv) any amount earned, accrued or owing to the Executive but not yet paid under Section 8 herein; and (v) other or additional benefits in accordance with the plans and programs of the Company referred to in Section 7 herein. (b) TERMINATION DUE TO DISABILITY. In the event the Executive's employment is terminated due to his Disability, then, provided the Executive or his legal representative shall have executed the Employment Release, the Executive shall be entitled to: (i) all unpaid Base Salary through the date of termination due to Disability; (ii) in lieu of any Annual Bonus, an amount equal to 30% of the Base Salary in effect as the date of such termination; (iii) the benefits due him under any then current disability program of the Company; (iv) the right to exercise the Options to the extent vested pursuant to the vesting schedule set forth in Section 6(b) for the period of three (3) years following the termination date; (v) any amount earned, accrued or owing to the Executive but not yet paid under Section 8 herein; and (vi) other or additional benefits in accordance with the plans and programs of the Company referred to in Section 7 herein. In no event shall a termination of the Executive's employment for Disability occur unless the party terminating his employment gives written notice to the other party in accordance with Section 21 herein. 7 (c) TERMINATION BY THE COMPANY FOR CAUSE. (i) A termination for Cause shall not take effect unless the provisions of this clause (i) are complied with. The Executive shall be given written notice by the Board of the Company of its intention to terminate him for Cause, such notice (A) to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based and (B) to be given within six (6) months of the Board of the Company learning of such act or acts or failure or failures to act. The Executive shall have ten (10) days after the date that such written notice has been given to the Executive in which to cure such conduct, to the extent such cure is possible. If he fails to cure such conduct, the Executive shall then be entitled to written notice by the Board of the Company confirming that, in their judgement, grounds for Cause on the basis of the original notice exist, at which time his employment with the Company shall thereupon be terminated for Cause. (ii) In the event the Company terminates the Executive's employment for Cause, then, provided the Executive shall have executed the Employment Release, the Executive shall be entitled to: (A) all unpaid Base Salary through the date of termination of his employment for Cause; (B) the right to exercise the Options to the extent vested pursuant to the vesting schedule set forth in Section 6(b), but, as provided in Section 6(c), only until the end of the third month after the date of the Executive's termination; (C) any amounts earned, accrued or owing to the Executive but not yet paid under Section 8 herein; and (D) other or additional benefits in accordance with the plans or programs of the Company referred to in Section 7 herein. (iii) If the Executive is terminated for Cause solely as the result of being convicted of a felony, which conviction is ultimately reversed on appeal, the Executive shall be deemed to have been terminated without Cause and shall be entitled to the benefits provided under Section 9(d) to the extent such benefits are greater than those received by the Executive in accordance with Section 9(c), provided, that the date of termination shall be deemed to be the date of the original termination. (d) TERMINATION WITHOUT CAUSE OR CONSTRUCTIVE TERMINATION. In the event the Executive's employment is terminated without Cause, other than due to Disability or death, or in the event there is a Constructive Termination, then, provided the Executive shall have executed the Employment Release, the Executive shall be entitled to: 8 (i) all unpaid Base Salary and a prorated Annual Bonus for the fiscal year of the date of termination through the date of termination based on the prior year's Annual Bonus; (ii) the Base Salary, at the annualized rate in effect on the date of termination of the Executive's employment (or in the event a reduction in Base Salary is the basis for a Constructive Termination, then the annualized rate of the Base Salary in effect immediately prior to such reduction), for a period of twenty-four (24) months following the date of such termination and, in lieu of any further Annual Bonus, an amount equal to the greater of two years actual bonus award using the last paid award or $500,000, in each case in substantially equal installments payable not less frequently than semi-monthly in arrears; PROVIDED, that the Company may at any time and from time to time pay the Executive the present value of such salary continuation payments in a lump sum (using as the discount rate the applicable Federal rate for short-term Treasury obligations as published by the Internal Revenue Service for the month in which such termination occurs); (iii) the right to exercise the Options to the extent vested pursuant to the vesting schedule set forth in Section 6(b), but as provided in Section 6(c), only until the third anniversary of the date of the Executive's termination without Cause (other than due to Disability or death) or the Executive's Constructive Termination, as the case may be; (iv) any amount earned, accrued or owing to the Executive but not yet paid under Section 8 herein; (v) other or additional benefits in accordance with the plans and programs of the Company referred to in Section 7 herein; and (vi) until the earlier of (1) the second anniversary of the date of termination or (2) the date the Executive accepts other employment: (A) reimbursement for any employee benefit contribution paid by the Executive or the Executive's family pursuant to COBRA; (B) outplacement services at the expense of the Company commensurate with those provided to terminated executives of comparable level and made available through and at the facilities of a reputable and experienced vendor; and (C) use of personal, financial and legal counseling services through the vendor engaged by the Executive and paid for by the Company, up to a maximum of $10,000 per year. If it is determined that any payment or distribution by the Company to the Executive pursuant to Section 9(d) (determined without regard to any additional payments required pursuant to this sentence) (a "Payment") would be subject to the excise tax imposed 9 by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or by similar provisions of state or local tax laws applicable to the Executive or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax and similar provisions, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive with respect to each Payment an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (e) TERMINATION DUE TO CHANGE OF CONTROL. If Executive's employment is terminated due solely to a Change of Control as defined in Section 1(e), Executive will receive the same entitlements as Section 9(d) except that the salary continuation payments shall be paid in a lump sum without any discount. (f) VOLUNTARY TERMINATION. In the event of a termination of employment by the Executive on his own initiative ("Voluntary Termination"), other than a termination due to death or Disability or a Constructive Termination, then, provided the Executive shall have executed the Employment Release, the Executive shall be entitled to: (i) the Base Salary through the date of termination of his employment; (ii) the right to exercise the Options to the extent vested pursuant to the vesting schedule set forth in Section 6(b), but as provided in Section 6(c), only for a period ending three (3) months after the effective date of the Executive's Voluntary Termination; (iii) any amounts earned, accrued or owing to the Executive but not yet paid under Section 8 herein; and (iv) other or additional benefits in accordance with the plans or programs of the company referred to in Section 7 herein. (g) EXPIRATION OF TERM. If the Executive continues to be employed by the Company until the expiration of the Term of this Agreement, but does not continue to be employed by the Company after such time, the Executive shall receive as salary continuation payments (i) the Base Salary, at an annualized rate in effect on the date of the expiration of the Term of the Agreement, for a period of twenty-four (24) months following such expiration, in substantially equal installments not less frequently than semi-monthly in arrears; PROVIDED, that the Company may at any time and from time to time pay the Executive the present value of such salary continuation payments in a lump sum (using as the discount rate the then applicable 10 Federal rate for short-term Treasury obligations as published by the Internal Revenue Service for the month in which such termination occurs). The expiration of the Term of this Agreement shall not constitute termination of the Executive's employment with the Company under any of Sections 9(a), 9(b), 9(c), 9(d) or 9(e) herein and, other than as set forth in this Section 9(f), the Executive shall not be entitled to any other compensation or benefits provided for in this Agreement. (h) OFFSETS. In the event of any termination of employment under this Section 9, (i) any remuneration attributable to any subsequent employment with a Direct Competitor that the Executive may obtain and (ii) any amounts due the Company under any claim the Company may have against the Executive may, at the option of the Company, be applied to reduce any amounts due the Executive under this Agreement. (i) NATURE OF PAYMENTS. Any amounts due under this Section 9 are in the nature of severance or salary continuation payments considered to be reasonable by the Company and are not in the nature of a penalty. (j) ASSIGNMENT. The severance or salary continuation payments hereunder may not be transferred, assigned or encumbered in any manner, either voluntarily or involuntarily, without the prior written consent of the Company. (k) EXCLUSIVITY OF SEVERANCE OR SALARY CONTINUATION PAYMENTS. Upon termination of the Executive's employment, he shall not be entitled to any severance or salary continuation payments or benefits from the Company or Holding or any payments by the Company or Holding on account of any claim by him of wrongful termination, including claims under any federal, state or local human and civil rights or labor laws, common law, other than the payments and benefits provided under paragraphs 9(a) through (e) of this Section 9 depending on the factual circumstances of the termination hereunder. (l) TERMINATION AT WILL. Notwithstanding anything herein to the contrary, the Executive's employment with the Company is terminable at will with or without Cause; PROVIDED, that the Executive's entitlement to payments and benefits following such termination will depend on the type of termination and therefore be governed by the other provisions of this Section 9. (m) BOARD RESIGNATION. Upon the Executive's cessation of employment with the Company for any reason whatsoever, the Executive shall thereupon be deemed to have resigned from the Board of Holding, the Company and of every Subsidiary on which he shall then be serving, and of any other company in which the Executive is then serving as a director at the request of the Company or Holding, in each case effective as of the date of cessation. 10. NON-COMPETITION, NON-SOLICITATION AND PROTECTION OF TRADE SECRETS. 11 (a) By and in consideration of the substantial compensation and benefits to be provided by the Company and Holding hereunder, and in further consideration of the Executive's exposure to the proprietary information of the Company, Holding and/or any Affiliate of either of them, the Executive agrees that he shall not, during the Employment Period and for a period equal to the greater of (i) the period during which he is receiving salary continuation payments pursuant to this Agreement or (ii) one (1) year after the Employment Period, directly or indirectly own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of or be connected in any manner, including but not limited to holding the positions of officer, director, shareholder, consultant, independent contractor, employee, partner, or investor, with any Direct Competitor (as defined below); PROVIDED, HOWEVER, that the Executive may invest in stocks, bonds, or other securities of any corporation or other entity (but without participating in the business thereof) if such stocks, bonds, or other securities are listed for trading on a national securities exchange or NASDAQ and the Executive's investment does not exceed 1% of the issued and outstanding shares of capital stock, or in the case of bonds or other securities, 1% of the aggregate principal amount thereof issued and outstanding. "Direct Competitor" shall mean any of Kmart Corporation, Wal-Mart Stores, Inc., Sears Roebuck and Co., Dayton Hudson Corp., or J. C. Penney or any Affiliate of any of them. (b) The Executive recognizes that the services to be performed by him hereunder are special, unique and extraordinary and that, by reason of his employment hereunder, he may acquire confidential information and trade secrets concerning the operations of the Company, Holding and/or any Affiliate of either of them. Accordingly, the Executive agrees that he will not, except in the good faith performance of his duties on behalf of the Company or Holding, and not inconsistent with his fiduciary duties owed to the Company or Holding, disclose on or after the date hereof any secret or confidential information that he has learned by reason of his association with the Company, Holding and any Subsidiary, or use any such information to the detriment of the Company, Holding and any Subsidiary, so long as such confidential information or trade secrets have not become generally known through no fault of the Executive, provided that, if required to be disclosed pursuant to a court order or legal process, the Executive shall give the Company timely notice of such order or process and cooperate with the Company to avoid or limit such disclosures. (c) The Executive further agrees that he will not, at any time during the Employment Period, and for a period of two years thereafter, directly or indirectly solicit or induce any of the employees of the Company, Holding or any Subsidiary to terminate their employment with the Company, Holding or any Subsidiary. (d) The Executive agrees that any material breach of the terms of this Section would result in irreparable injury and damage to the Company, Holding or any Subsidiary for which the Company, Holding or any Subsidiary would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any reasonable threat of material breach, the Company, Holding or any Subsidiary shall be entitled to seek an 12 immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive. The terms of this paragraph shall not prevent the Company, Holding or any Subsidiary from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages. The Executive, Holding and the Company agrees that the provisions of this Section are reasonable. Should a court or arbitrator determine, however, that any provision of this Section is unreasonable, either in period of time, geographical area, or otherwise, the parties hereto agree that this Section shall be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. (e) The provisions of this Section 10 shall survive any termination of this Agreement, and the extension of any claim or cause of action by the Executive against the Company, Holding or any Subsidiary, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company, Holding or any Subsidiary of the covenants and agreements of this Section. 11. REPRESENTATIONS OF THE EXECUTIVE. The Executive represents and warrants that he is free to enter into this Agreement and to perform the duties required hereunder, and that there is no agreement or understanding, written or oral, between the Executive and any Employer pertaining to employment non-competition, disclosure of confidential information and/or trade secrets or other restrictions preventing the performance of his duties hereunder. 12. EFFECT OF AGREEMENT ON OTHER BENEFITS. Except as specifically provided in this Agreement, the existence of this Agreement shall not prohibit or restrict the Executive s entitlement to full participation in the employee benefit and other plans or programs in which senior-level executives of the Company are eligible to participate generally (PROVIDED, however, that notwithstanding anything to the contrary in this Agreement, the Executive may not participate in any such plans or programs pertaining to severance or salary continuation payments, or stock options, stock awards or other equity-based forms of compensation). 13. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs (in the case of the Executive) and assigns. No right or obligation of the Company or Holding, as the case may be, under this Agreement may be assigned or transferred by the Company or Holding, as the case may be, except that such right or obligation may be assigned or transferred pursuant to a merger or consolidation in which the Company or Holding, as the case may be, is not the continuing entity, or pursuant to the sale or liquidation of all or substantially all of the assets or business of the Company or Holding, as the case may be, provided that the assignee or transferee is the successor to all or substantially all of the assets or business of the Company or Holding, as the case may be, and such assignee or transferee assumes the liabilities, obligations and duties of the Company or Holding, as the case may be, as contained in this Agreement, either contractually or as a matter of law. Each of the Company and Holding further agrees 13 that, in the event of a sale of assets or liquidation as described in the preceding sentence, it shall exercise reasonable efforts to cause such assignee or transferee to expressly assume the liabilities, obligations and duties of the Company and Holding hereunder. No right or obligation of the Executive under this Agreement may be assigned or transferred by the Executive other than his rights to compensation and benefits, which may be transferred only by will or operation of law, except as provided herein. Nothing in this Section 13 shall be deemed to affect the Executive's rights under this Agreement following a Change in Control. 14. REPRESENTATIONS OF THE COMPANY. Each of Holding and the Company represents and warrants that it is fully authorized and empowered by action of its Board or a duly authorized committee thereof to enter into this Agreement, that the Agreement is the valid and binding obligation of the Company enforceable against the Company in accordance with the terms herein, subject to applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and other laws of general application affecting creditors' rights generally and by equitable principles and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. 15. ENTIRE AGREEMENT. This Agreement contains the entire understanding and agreement between the parties hereto concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto. 16. AMENDMENT OR WAIVER. No provision in this Agreement may be amended unless such amendment is agreed to in writing and signed by the Executive and an authorized officer of each of the Company and Holding. No waiver by either party of any breach by the other party of any condition or provision contained in this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the Executive or an authorized officer of the Company or Holding, as the case may be. 17. SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, in any jurisdiction the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law in such jurisdiction, and such invalidity or unenforceability shall have no effect in any other jurisdiction. 18. BENEFICIARIES/REFERENCES. The Executive shall be entitled, to the extent permitted under applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death by giving the Company and Holding written notice thereof. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. 14 19. GOVERNING LAW/JURISDICTION. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Illinois without reference to principles of conflict of laws. 20. CONFIDENTIALITY; PRESS RELEASE. The Executive shall not disclose the contents of this Agreement to anyone except as may be required by enforceable legal process or to the extent there is a public disclosure made by the Company or Holding of such matters. The Executive shall use his best efforts to arrange an opportunity for the Company or its designee to coordinate any press release. 21. NOTICES. Any notice given to a party shall be in writing and shall be deemed to have been given when delivered personally or, if sent by certified or registered mail, postage prepaid, return receipt requested, five days after being sent duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently give such notice. If to the Company or Holding: Montgomery Ward & Co., Incorporated Montgomery Ward Plaza Chicago, IL 60671 Attention: General Counsel If to the Executive: Burnett Donoho 9 West County Line Road Barrington, Illinois 60010 With a copy to: _______________________________ _______________________________ _______________________________ Attention: ____________________ 22. WITHHOLDING. All amounts required to be paid by the Company herein shall be subject to reduction in order to comply with applicable Federal, state and local tax withholding requirements. 15 23. HEADINGS. The headings of the sections contained in this Agreement are for convenience of reference only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. 24. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first written above. MONTGOMERY WARD & CO., INCORPORATED By: /s/ Roger V. Goddu - - - ------------------------------ -------------------------------------- Witness Name: Title: MONTGOMERY WARD HOLDING CORP. By: /s/ Robert A. Kasenter - - - ------------------------------ -------------------------------------- Witness Name: Title: /s/ Burnett Donoho - - - ------------------------------ ----------------------------------------- Witness BURNETT DONOHO 16 17 EX-10.(VIII) 28 LINE OF CREDIT AGREEMENT LINE OF CREDIT AGREEMENT BETWEEN MONTGOMERY WARD & CO., INCORPORATED AND THE NORTHERN TRUST COMPANY AS OF DECEMBER 19, 1996 INDEX PAGE 1. ADOPTION OF RECITALS.................................................... 1 2. DEFINITIONS............................................................. 2 a. "Associate"........................................................ 2 b. "Average Closing Price"............................................ 2 c. "Bank"............................................................. 2 d. "Borrowers"........................................................ 2 e. "Call Right"....................................................... 2 f. "Callable Loan".................................................... 2 g. "Ceiling Amount"................................................... 2 h. "Collateral"....................................................... 2 i. "Collateral Insufficiency Notice".................................. 2 j. "Company".......................................................... 2 k. "Credit Agreement.................................................. 2 l. "Fair Market Value per Share"....................................... 3 m. "First Chicago".................................................... 3 n. "Holding Corp.".................................................... 3 o. "Line"............................................................. 3 p. "Line Amount"...................................................... 3 q. "Line of Credit Program"........................................... 3 r. "Lines"............................................................ 3 s. "Loan"............................................................. 3 t. "1991 Line of Credit Agreement".................................... 3 u. "Note"............................................................. 3 v. "Notice"........................................................... 4 w. "Outstanding Amount"............................................... 4 x. "Pledge Agreement"................................................. 4 y. "Program Committee"................................................ 4 z. "Program Term"..................................................... 4 aa. "Put Right"........................................................ 4 bb. "Putable Loan"..................................................... 4 cc. "Shares"........................................................... 4 dd. "Stockholders Agreement"........................................... 4 ee. "Title 11"......................................................... 4 ff. "Vested Shares".................................................... 4 gg. "Voting Trust Agreement"........................................... 4 i INDEX PAGE hh. "Voting Trust Certificates"........................................ 4 3. LINES OF CREDIT......................................................... 5 a. Terms of the Lines................................................. 5 b. Note and Pledge Agreement.......................................... 6 c. Charges to Borrowers............................................... 6 4. COVENANTS AND AGREEMENT................................................. 6 a. Establishment of Lines............................................. 6 b. Acceleration of Lines.............................................. 7 c. Change in Fair Market Value per Share.............................. 7 d. Death or other Cessation of Employment of a Borrower............... 7 e. Provision of Certain Financial Data................................ 7 f. Secretary's Certificate............................................ 7 5. BANK'S RIGHT TO PUT A LOAN TO THE COMPANY............................... 7 a. Put Right.......................................................... 7 b. Survival of Put Rights............................................. 8 c. Closing............................................................ 8 d. Recovery of Deficiency by the Bank................................. 9 6. COMPANY'S RIGHT TO CALL A LOAN FROM THE BANK............................ 9 a. Call Right......................................................... 9 b. Survival of Call Rights............................................ 10 c. Closing............................................................ 10 d. Recovery of Deficiency by the Bank................................. 10 7. ASSIGNMENT BY THE COMPANY............................................... 10 8. APPLICATION OF STOCKHOLDERS AGREEMENT AND VOTING TRUST AGREEMENT; LETTER AGREEMENT........................................................ 10 a. Application........................................................ 10 b. Letter Agreement................................................... 11 9. PROGRAM COMMITTEE....................................................... 11 10. TERMINATION............................................................. 11 ii INDEX PAGE 11. FEES.................................................................... 11 12. TERMINATION OF THE BANK'S COMMITMENT TO MAKE LOANS...................... 11 a. Any Loans.......................................................... 11 b. Putable Loan....................................................... 12 c. Regulation U....................................................... 12 d. Updated Financial Information...................................... 12 e. Defaulted Loan..................................................... 12 13. MISCELLANEOUS........................................................... 12 a. Waiver............................................................. 12 b. Further Assurances................................................. 13 c. No Representations, Warranties or Guaranty......................... 13 d. Governing Law...................................................... 13 e. Remedy............................................................. 13 f. Notice............................................................. 13 g. Entire Agreement................................................... 14 h. Severability....................................................... 14 i. Headings........................................................... 15 j. Counterparts....................................................... 15 SCHEDULE I - Schedule of Borrowers and Ceiling Amounts iii LINE OF CREDIT AGREEMENT THIS LINE OF CREDIT AGREEMENT (the "Agreement") is entered into as of the 19th day of December, 1996, by and between MONTGOMERY WARD & CO., INCORPORATED (the "Company") and THE NORTHERN TRUST COMPANY (the "Bank"). R E C I T A L S A. The Company, the Bank and The First National Bank of Chicago ("First Chicago") have entered into a Line of Credit Agreement dated as of November 19, 1991 (the "1991 Line of Credit Agreement") providing for a line of credit program with a term of five years under which the Bank and First Chicago agreed to make available to certain Associates (as hereinafter defined) designated by the Company from time to time revolving lines of credit with the Bank and First Chicago in the aggregate amount of $10,000,000 secured by shares of Class A common stock ("Shares") of Montgomery Ward Holding Corp. ("Holding Corp.") pledged directly or through the pledge of Voting Trust Certificates (as hereinafter defined) representing an Associate's beneficial ownership of Shares; B. The Company desires to replace the expired line of credit program under the 1991 Line of Credit Agreement with a line of credit program under which revolving lines of credit (the "Lines") totaling an aggregate of $614,364.18 and secured by Shares of Holding Corp. pledged directly or through the pledge of Voting Trust Certificates are made available by the Bank to those Associates listed on SCHEDULE I hereto ("Borrowers") in order to provide liquidity for such Shares owned by each of the Borrowers (the "Line of Credit Program"); C. The Bank desires to participate in the Line of Credit Program as the lender; and D. The Bank and the Company desire to create certain put and call options contained herein with respect to each Loan (as hereinafter defined); A G R E E M E N T NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Bank agree as follows: 1. ADOPTION OF RECITALS. The parties hereto adopt the foregoing recitals and agree and affirm that construction of this Agreement shall be guided thereby. 2. DEFINITIONS. For purposes of this Agreement: a. "ASSOCIATE" shall mean an employee of the Company or any of its affiliates; b. "AVERAGE CLOSING PRICE" shall have the meaning ascribed to it in the Stockholders Agreement; c. "BANK" shall have the meaning ascribed to it in the heading of this Agreement; d. "BORROWERS" shall have the meaning ascribed to it in Recital B of this Agreement; e. "CALL RIGHT" shall have the meaning ascribed to it in Section 6a of this Agreement; f. "CALLABLE LOAN" shall have the meaning ascribed to it in Section 6a of this Agreement; g. "CEILING AMOUNT" shall mean the maximum amount available to an Associate under his or her Line, as specified for such Associate opposite his or her name on SCHEDULE I hereto, as such amount may be reduced from time to time by the Program Committee; PROVIDED, HOWEVER, that the consent of the Bank shall be required to reduce the Ceiling Amount of any Borrower below the greater of (i) $25,001 or (ii) the Outstanding Amount (as hereafter defined) for such Borrower; PROVIDED FURTHER, HOWEVER, that upon a default under any Borrower's Note, the Bank, in its sole discretion, may reduce such Borrower's Ceiling Amount; h. "COLLATERAL" shall mean either the Shares, or Voting Trust Certificates (as hereinafter defined) representing a Borrower's beneficial ownership of Shares, pledged to the Bank to secure the obligation to repay a Loan and any other property pledged to secure such repayment, including, without limitation, any promissory note pledged in accordance with Section 8a of this Agreement; i. "COLLATERAL INSUFFICIENCY NOTICE" shall have the meaning ascribed to it in Section 6a of this Agreement; j. "COMPANY" shall have the meaning ascribed to it in the heading of this Agreement; k. "CREDIT AGREEMENT" shall mean that certain Long Term Credit Agreement dated as of September 15, 1994 among the Company, various banks, First Chicago, 2 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 heretofore and hereafter amended, and any extensions or renewals thereof or any agreement under which indebtedness is issued that serves to refund or refinance the indebtedness thereunder; if indebtedness is issued on both a term and a revolving basis to refund or refinance such indebtedness, the agreement under which the revolving indebtedness is issued shall constitute the Credit Agreement, and if such indebtedness is paid in full and has not been refunded or refinanced and the commitments with respect thereto have been terminated, until such refunding or refinancing, for the purposes of this Agreement, the last Credit Agreement in effect at the time of such payment shall be deemed to constitute the Credit Agreement; l. "FAIR MARKET VALUE PER SHARE" shall have the meaning ascribed to it in the Stockholders Agreement, and is $17.00 as of the date of this Agreement; m. "FIRST CHICAGO" shall have the meaning ascribed to it in Recital A of this Agreement; n. "HOLDING CORP." shall have the meaning ascribed to it in Recital A of this Agreement; o. "LINE" shall mean a line of credit established with the Bank pursuant to the Line of Credit Program; p. "LINE AMOUNT" shall mean the maximum borrowings permitted under a Line which shall not exceed the Ceiling Amount; q. "LINE OF CREDIT PROGRAM" shall have the meaning ascribed to it in Recital B of this Agreement; r. "LINES" shall have the meaning ascribed to it in Recital B of this Agreement; s. "LOAN" shall mean the amount of money a Borrower borrows from the Bank pursuant to his or her Line; t. "1991 LINE OF CREDIT AGREEMENT" shall have the meaning ascribed to it in Recital A of this Agreement. u. "NOTE" shall have the meaning ascribed to it in Section 3b of this Agreement; 3 v. "NOTICE" shall have the meaning ascribed to it in Section 6a of this Agreement; w. "OUTSTANDING AMOUNT" shall mean the outstanding principal amount of a Loan, as the same may change from time to time; x. "PLEDGE AGREEMENT" shall have the meaning ascribed to it in Section 3b of this Agreement; y. "PROGRAM COMMITTEE" shall mean the program committee as empowered to act on behalf of the Company and Holding Corp. with respect to all matters concerning the Line of Credit Program; z. "PROGRAM TERM" shall mean the term commencing on the date hereof and ending on June 21, 1998; aa. "PUT RIGHT" shall have the meaning ascribed to it in Section 5a of this Agreement; bb. "PUTABLE LOAN" shall have the meaning ascribed to it in Section 5a of this Agreement; cc. "SHARES" shall have the meaning ascribed to it in Recital A of this Agreement and shall, unless the context otherwise requires, include Voting Trust Certificates issued in exchange therefor; dd. "STOCKHOLDERS AGREEMENT" shall mean that certain BFB Acquisition Corp. Stockholders Agreement dated June 17, 1988, between Bernard F. Brennan, General Electric Capital Corporation, and certain holders of Shares, as heretofore and hereafter amended; ee. "TITLE 11" shall mean Title 11 of the United States Code and any successor provision; ff. "VESTED SHARES" shall have the meaning ascribed to it in the Stockholders Agreement; gg. "VOTING TRUST AGREEMENT" shall mean that certain Voting Trust Agreement dated June 21, 1988 between Bernard F. Brennan, as the voting trustee, and certain holders of Shares; and 4 hh. "VOTING TRUST CERTIFICATES" shall mean voting trust certificates issued by the voting trustee pursuant to the Voting Trust Agreement. 3. LINES OF CREDIT. The Bank hereby covenants to and agrees with the Company as follows: a. TERMS OF THE LINES. The Bank covenants to and agrees with the Company that, during the Program Term, the Bank shall make available to Borrowers Lines in the aggregate amount of $614,364.18 and, in the case of each Borrower, a Line in an amount up to such Borrower's Ceiling Amount; PROVIDED, HOWEVER, that the Bank shall not be obligated to establish a Line in an amount less than $25,001. The Note and the Pledge Agreement shall establish the following requirements with respect to each Loan made thereunder: (1) the Collateral required for each Loan shall be a number of Shares which are Vested Shares owned by the Borrower equal to: (i) the Line Amount multiplied by two; and (ii) divided by the Fair Market Value per Share in effect at the date of such Loan; (2) at such times as the Fair Market Value per Share is reduced below the value at the date hereof or below the value in effect at the time of the most recent adjustment in accordance with this Section 3a(2) or Section 3a(3), the Collateral shall be adjusted such that the aggregate fair market value of the Collateral shall be equal to two (2) times the Line Amount, and the Borrower shall, within ten (10) days of such date: (i) make a prepayment of the Outstanding Amount of his or her Loan sufficient to effect such adjustment; or (ii) pledge additional Shares sufficient to effect such adjustment; PROVIDED, HOWEVER, that in making such adjustments, no adjustment shall be made for fractional Shares; (3) at such times as the Fair Market Value per Share is increased by ten percent (10%) or more over the value at the date hereof or over the value in effect at the time of the most recent adjustment in accordance with this Section 3a(3) or Section 3a(2), the Bank shall promptly, upon the Borrower's written request, return Shares to the Borrower sufficient to cause the fair market value of the Collateral to be equal to and not exceed two (2) times the Line Amount for such Borrower; PROVIDED, HOWEVER, that in making such adjustments, no adjustment shall be made for fractional Shares; 5 (4) the principal amount of each Loan, together with all accrued and unpaid interest, shall be payable at the end of the Program Term, except as otherwise provided in Sections 4a and 12b-e of this Agreement; PROVIDED, HOWEVER, that a Borrower shall be required to make prepayments on his or her Loan in accordance with Section 8a of this Agreement in the event that Collateral is purchased pursuant to exercise of options under the Stockholders Agreement; (5) the Outstanding Amount shall accrue interest at the Bank's prime rate, as the same may change from time to time; (6) accrued interest shall be payable monthly in arrears, except as otherwise provided in Sections 5a and 6a of this Agreement; (7) each Borrower shall be permitted to prepay his or her Loan in whole or in part at any time without premium or penalty; and (8) the Bank may not exercise any rights to foreclose on the Collateral or take any Collateral in lieu of foreclosure with respect to any Loan unless the Bank has exercised a Put Right (as hereinafter defined) with respect thereto and the Company has failed to perform its obligations with respect to closing the sale and purchase of such Loan in accordance with the terms of Section 5c of this Agreement. b. NOTE AND PLEDGE AGREEMENT. The Bank covenants to and agrees with the Company that, in connection with each Loan it initiates under the Line of Credit Program, a Borrower will be required to execute (i) a promissory note ("Note") in substantially the form attached hereto as EXHIBIT A and hereby made a part hereof, and (ii) a pledge agreement ("Pledge Agreement") in substantially the form attached hereto as EXHIBIT B and hereby made a part hereof, which Pledge Agreement shall (x) require each Borrower to agree that the Shares pledged thereunder constitute Vested Shares and (y) provide that such Pledge Agreement and all rights and obligations thereunder are subject to the terms and significant restrictions contained in each of this Agreement, the Voting Trust Agreement and the Stockholders Agreement; c. CHARGES TO BORROWERS. The Bank covenants to and agrees with the Company that the Bank shall not assess any charges against a Borrower in connection with a Loan except for the payment of principal and interest thereon in accordance with the terms of such Borrower's Note; PROVIDED, HOWEVER, that the Bank shall be permitted to provide in each Borrower's Note that costs of collection are borne by such Borrower. 6 4. COVENANTS AND AGREEMENTS. a. ACCELERATION OF LINES. The Bank covenants to and agrees with the Company that, without the express written consent of the Company, it shall not, prior to exercise of the Put Right with respect to a Borrower's Loan and breach by the Company of its obligation to purchase the Loan under Section 5c, accelerate such Borrower's Note or Pledge Agreement for any default thereunder; PROVIDED, HOWEVER, that this shall in no way limit the Bank's ability to exercise any Put Right; and PROVIDED FURTHER, HOWEVER, that the Company shall reimburse the Bank for any accrued interest in excess of one (1) year's interest on such Borrower's Loan if such excess arose as a result of the Company's failure to consent to acceleration thereof as a result of the death of the Borrower after request by the Bank for such consent. b. CHANGE IN FAIR MARKET VALUE PER SHARE. The Company covenants to and agrees with the Bank that it will notify the Bank of the Fair Market Value per Share within ten (10) business days of any change in the Fair Market Value per Share or, until such notice, as of the date of this Agreement; PROVIDED, HOWEVER, that the Company's obligation to notify the Bank of such change in Fair Market Value per Share shall terminate on the date a public market for the Shares exists, and the Fair Market Value per Share shall thereafter be the Average Closing Price. The notice required under this Section 4b shall be certified as complete and correct by the Chief Financial Officer on behalf of the Company. c. DEATH OR OTHER CESSATION OF EMPLOYMENT OF A BORROWER. The Company covenants to and agrees with the Bank that it will notify the Bank of the death or cessation of employment with the Company and its affiliates of any Borrower promptly after its knowledge of such death or cessation of employment. d. PROVISION OF CERTAIN FINANCIAL DATA. The Company acknowledges and agrees with the Bank that, as a condition to establishing a Line for any Borrower, such Borrower may be required to deliver to the Bank a recently prepared balance sheet and a copy of such Borrower's federal and state income tax returns as filed for the latest tax year. e. SECRETARY'S CERTIFICATE. The Company covenants to and agrees with the Bank that, as a condition to establishing the Line of Credit Program, the Company shall deliver to the Bank a certificate of the secretary or any assistant secretary of the Company certifying as to the adoption of resolutions of the Company authorizing the Company to enter into and deliver this Agreement and all other documents contemplated thereby. 7 5. BANK'S RIGHT TO PUT A LOAN TO THE COMPANY. a. PUT RIGHT. The Bank shall have the option to sell and require the Company to purchase (the "Put Right") a Borrower's Loan in whole or in part to the Company upon the occurrence of any of the following events: (i) nonpayment of interest on such Borrower's Loan which is uncured for ninety (90) days; (ii) the filing by such Borrower of a voluntary petition under Title 11; (iii) the commencement of a case against such Borrower under Title 11 (x) resulting in an order for relief which shall not have been stayed or dismissed within sixty (60) days or (y) in which an order for relief shall not have been entered and which shall not have been stayed or dismissed within sixty (60) days after the commencement thereof; (iv) failure by such Borrower to pay the Outstanding Amount at maturity or within thirty (30) days of acceleration in accordance with this Agreement; (v) the Company's breach of performance of its obligations in connection with a Put Right on any Loan, together with its failure to cure within ten (10) days of written notice of such default received by the Company from the Bank; (vi) failure by such Borrower to pledge additional Shares as Collateral when required to do so as a result of a decrease in the Fair Market Value per Share and failure to cure such default within ten (10) days of written notice of such default received by the Borrower from the Bank; or (vii) a default and acceleration of the indebtedness under the Credit Agreement or, at such time as the Credit Agreement indebtedness shall have been paid in full and not refunded or refinanced and the commitments with respect thereto have been terminated, an event shall have occurred which would have been a default under the deemed Credit Agreement and the expiration of all applicable periods of grace shall have occurred such that the lenders thereunder would have be permitted to accelerate the indebtedness thereunder (in the case of each of (i) - (vii), a "Putable Loan"). At the closing of a Put Right, subject to the provisions of Section 4a of this Agreement, the Company shall purchase the Putable Loan from the Bank for an amount equal to (i) the Outstanding Amount of the Putable Loan, plus (ii) interest accrued, through the date of purchase, on such Putable Loan not to exceed one year's interest; PROVIDED, HOWEVER, that if the principal amount of the Putable Loan exceeds the Ceiling Amount, the Company shall purchase the Putable Loan from the Bank for an amount equal to (i) the Ceiling Amount, plus (ii) interest accrued, through the date of purchase, on the Ceiling Amount not to exceed one year's interest. b. SURVIVAL OF PUT RIGHTS. The Company acknowledges that the Put Right with respect to a Borrower's Loan, and the Company's obligation to purchase thereunder, shall survive such Borrower's death or other termination of such Borrower's employment with the Company and its affiliates. The Company further acknowledges and agrees that no waiver or failure to exercise any right granted by this Agreement or any Note or Pledge Agreement or extension of the times set 8 forth herein for performance or amendment or modification in any respect with or without the consent of the Company of any provision of any of those agreements nor any forbearance by the Bank whatsoever with respect to any of those agreements shall release, discharge, modify or change the obligation of the Company hereunder. c. CLOSING. The Company shall purchase the Putable Loan within thirty (30) days of receipt by the Company of a written notice from the Bank which identifies the Putable Loan and states the Bank's intent to exercise the Put Right with respect thereto. At the closing, against delivery of the purchase price, the Bank shall deliver the Note, the Pledge Agreement and the Collateral to the Company and transfer to the Company all of its rights with respect to the Putable Loan, including, without limitation, an assignment of the applicable Note and Pledge Agreement and all rights thereunder, free and clear of any liens, claims or encumbrances created by or through the Bank, including, without limitation, under the Line of Credit Program, other than those assigned to the Company pursuant to this Agreement. The transfer of the Putable Loan by the Bank shall be without recourse or warranty except warranty of title to the Note. d. RECOVERY OF DEFICIENCY BY THE BANK. To the extent that the Company receives from a Borrower on account of his or her Note an amount in excess of the purchase price paid by the Company for such Borrower's Putable Loan under Section 5c of this Agreement, the Company shall promptly remit such amounts to the Bank. 6. COMPANY'S RIGHT TO CALL A LOAN FROM THE BANK. a. CALL RIGHT. The Bank shall promptly notify the Company in writing (the "Notice") in the event that a Borrower is ninety (90) days past due with respect to his or her interest payments under a Loan. The Bank shall also promptly notify the Company in writing (a "Collateral Insufficiency Notice") in the event that a Borrower fails to pledge additional Collateral when required to do so as a result of a decrease in the Fair Market Value per Share. The Company shall have the option to purchase and require the Bank to sell (the "Call Right") a Borrower's Loan in whole or in part from the Bank upon any of the following events: (i) receipt of a Notice with respect to such Borrower; (ii) failure of a Borrower to make the required reduction in his or her Outstanding Amount or to provide required additional Collateral within sixty (60) days of the date of a Collateral Insufficiency Notice; (iii) the filing by such Borrower of a voluntary petition under Title 11; (iv) the commencement of a case against such Borrower under Title 11; (v) death, Permanent Disability (as defined in the Stockholders Agreement), termination of employment for any reason or substantial reduction in the corporate responsibilities 9 of such Borrower; or (vi) delivery of written notice with respect thereto to the Bank by the Company (in the case of each of (i) - (vi), a "Callable Loan"). At the closing of a Call Right, the Company shall purchase such Borrower's Loan from the Bank for an amount equal to (i) the Outstanding Amount of such Callable Loan, plus (ii) interest accrued, through the date of purchase, on such Callable Loan not to exceed one year's interest; PROVIDED, HOWEVER, that if the principal amount of such Callable Loan exceeds the Borrower's Ceiling Amount, the Company shall purchase the Callable Loan from the Bank for an amount equal to (i) the Ceiling Amount, plus (ii) interest accrued, through the date of purchase, on the Ceiling Amount not to exceed one year's interest. b. SURVIVAL OF CALL RIGHTS. The Bank acknowledges that the Call Right with respect to a Borrower's Loan, and the Company's right to purchase thereunder, in addition to such rights created under Section 6a(v), shall survive the termination of such Borrower's employment with the Company and its affiliates. c. CLOSING. The Bank shall sell the Callable Loan to the Company within thirty (30) days of receipt by the Bank of a written notice from the Company which identifies the Callable Loan and states the Company's intent to exercise the Call Right with respect thereto. At the closing, against delivery of the purchase price, the Bank shall deliver the Note, the Pledge Agreement and the Collateral to the Company and transfer to the Company all of its rights with respect to the Callable Loan, including, without limitation, an assignment of the applicable Note and Pledge Agreement and all rights thereunder, free and clear of any liens, claims or encumbrances created by or through the Bank, including, without limitation, under the Line of Credit Program, other than those assigned to the Company pursuant to this Agreement. The transfer of the Callable Loan by the Bank shall be without recourse or warranty except warranty of title to the Note. d. RECOVERY OF DEFICIENCY BY THE BANK. To the extent that the Company receives from a Borrower on account of his or her Note an amount in excess of the purchase price paid by the Company for such Borrower's Callable Loan under Section 6c of this Agreement, the Company shall promptly remit such amounts to the Bank. 7. ASSIGNMENT BY THE COMPANY. The Company may from time to time assign any of its rights and obligations hereunder to Holding Corp.; PROVIDED, HOWEVER, that in the event of such assignment, the Company shall remain primarily liable to perform all of such obligations. 8. APPLICATION OF STOCKHOLDERS AGREEMENT AND VOTING TRUST AGREEMENT; LETTER AGREEMENT. 10 a. APPLICATION. The Collateral shall at all times remain subject to the terms and significant restrictions of each of the Stockholders Agreement and the Voting Trust Agreement as the same may be amended from time to time, including, without limitation, the right of Designated Management Optionees, as defined in the Stockholders Agreement, and Holding Corp. to purchase Shares subject thereto pursuant to the terms of such Stockholders Agreement, free and clear of all claims, liens and encumbrances created under or in connection with the Line of Credit Program and rights of refusal with respect to any transfer, including a transfer upon foreclosure on the Shares or taking the Shares in lieu of foreclosure. One-half (1/2) of all cash proceeds of any purchase of Shares included in the Collateral, including payments of principal of any promissory note issued to pay the purchase price for such purchase, up to the full amount of the applicable Loan, plus accrued interest, shall be applied to payment of the Loan by or on behalf of the applicable Borrower, with any excess being held by or returned to the Borrower, and any such promissory note shall be pledged as Collateral to secure the repayment of the Loan. The Company shall remain subject to Put Rights and retain Call Rights hereunder to the extent such proceeds are insufficient to repay the Loan. b. LETTER AGREEMENT. Concurrently with the execution of this Agreement, the Bank shall execute a letter agreement regarding the Stockholders Agreement in substantially the form contained in EXHIBIT C attached hereto and hereby made a part hereof. 9. PROGRAM COMMITTEE. The Bank shall be entitled to rely on the authority of the Program Committee with respect to all matters concerning the Line of Credit Program. The Program Committee presently consists of Bernard F. Brennan and Myron Lieberman, and the Bank shall be entitled to rely on their constituting the Program Committee until such time as the Company provides notice to the contrary. 10. TERMINATION. This Agreement shall terminate on the later of the end of the Program Term or at such time as there are no outstanding Lines or Loans. It is understood that all Loans are required to be paid on or before June 21, 1998. 11. FEES. The Company shall pay fees, in an amount mutually agreeable to the parties hereto, to the Bank in connection with the Line of Credit Program. 12. TERMINATION OF THE BANK'S COMMITMENT TO MAKE LOANS. a. ANY LOANS. The Bank's commitment to advance any additional funds pursuant to the Line of Credit Program shall terminate upon the occurrence of any of the following events: 11 (1) the filing by the Company or Holding Corp. of any voluntary petition under Title 11 or the commencement of a similar proceeding by the Company or Holding Corp. under any similar state or federal statute; (2) the commencement of a case against the Company or Holding Corp. under Title 11 by a third party: (i) resulting in an order for relief which shall not have been stayed or dismissed within sixty (60) days; or (ii) in which an order for relief shall not have been entered and which shall not have been stayed or dismissed within sixty (60) days after the commencement thereof; (3) any breach of the Stockholders Agreement, provided such breach has a material adverse effect on the Bank; (4) occurrence of a default and the expiration of all applicable periods of grace permitting the lenders thereunder to accelerate the indebtedness under the Credit Agreement; or (5) failure, as a result of breach by the Company, to close when required under Section 5c of this Agreement. b. PUTABLE LOAN. If a Borrower's Loan shall become a Putable Loan pursuant to Section 5a of this Agreement, the Bank shall not be under any obligation thereafter to make a Loan to such Borrower, and shall be permitted to terminate such Borrower's Line. c. REGULATION U. If the Shares shall become margin securities under Regulation U promulgated by the Federal Reserve Board, the Bank shall not be under any obligation thereafter to make a Loan to such Borrower, and shall be permitted to terminate such Borrower's Line if such Borrower does not provide the customary undertaking as to the use of such Borrower's Line within ten (10) days of the written request therefor by the Bank. d. UPDATED FINANCIAL INFORMATION. If a Borrower does not provide the Bank with annual updates to the financial information requested by the Bank pursuant to Section 4d of this Agreement, the Bank shall not be under any obligation thereafter to make a Loan to such Borrower, and shall be permitted to terminate such Borrower's Line. 12 e. DEFAULTED LOAN. If a Borrower defaults under the terms of the Note, the Bank shall not be under any obligation thereafter to make a Loan to such Borrower, and shall be permitted to terminate such Borrower's Line. 13. MISCELLANEOUS. a. WAIVER. The failure in any one or more instances of a party to insist upon performance of the terms, covenants or conditions of this Agreement, to exercise any right or privilege in this Agreement conferred, or the waiver by said party of any breach of any of the terms, covenants or conditions of this Agreement, shall not be construed as a subsequent waiver of any such terms, covenants, conditions, rights or privileges, but shall continue and remain in full force as if no such forbearance or waiver had occurred. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. b. FURTHER ASSURANCES. The Bank and the Company agree that they shall execute such further documents and do such other acts and things as may be necessary or proper to effectuate any transaction contemplated by this Agreement. c. NO REPRESENTATIONS, WARRANTIES OR GUARANTY. The Company shall not at any time be deemed to have made any representation or warranty, express or implied, with respect to the validity, enforceability or collectibility of any Loan or the creditworthiness of any Borrower. Under no circumstances shall the Company be deemed to be the guarantor of payment for any Loan. d. GOVERNING LAW. The validity, interpretation and performance of this Agreement shall be governed by and construed in accordance with the internal laws of the State of Illinois applicable to contracts made in that state, without giving effect to the conflict of laws principles thereof. e. REMEDY. Each of the parties hereto acknowledges and agrees that, in the event of a breach of this Agreement, the nonbreaching party will not have an adequate remedy in money or damages. Each party hereto agrees that in the event of a breach hereunder, the nonbreaching party shall be entitled to obtain an injunction, without notice or bond, against such breach from a court of competent jurisdiction, immediately upon request. f. NOTICE. Any notice required or permitted to be given under this Agreement shall be in writing and shall be delivered in person, sent by registered or certified mail, and addressed as specified below or to such other address as may be substituted by written notice from one party to the others, delivered by an air courier who guarantees next day delivery and so addressed or sent by telecopy to 13 the number specified below or to such other number as may be substituted by written notice from one party to the others with a copy of such telecopy to follow by United States mail, postage prepaid: (a) If to the Bank The Northern Trust Company as follows: 50 South LaSalle Street Chicago, Illinois 60675 Attn: Ms. Deborah A. Hopkins, Vice President Telecopy No. (312) 557-2964 Telephone No. (312) 444-3580 with a copy to: Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinois 60603 Attn: Thomas N. Jersild, Esq. Telecopy No. (312) 701-7711 Telephone No. (312) 701-7022 (b) If to the Company Montgomery Ward & Co., Incorporated as follows: One Montgomery Ward Plaza Chicago, Illinois 60610 Attn: Senior Vice President - Finance Telecopy No. (312) 467-7421 Telephone No. (312) 467-3242 with a copy to: Altheimer & Gray 10 South Wacker Drive Suite 4000 Chicago, Illinois 60606 Attn: John E. Lowe, Esq. Telecopy No. (312) 715-4800 Telephone No. (312) 715-4020 and such notice shall be conclusively deemed given when delivered in person, five (5) days after mailing same, one (1) day after delivery to the air courier for next day delivery, or if sent by telecopy, on the next business day after it was sent. 14 g. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement between the parties and supersedes all previous agreements and understandings, if any (whether written or oral, express or implied), between the parties hereto with respect to the subject matter hereof. No terms, conditions, understanding or agreement purporting to modify or amend the terms of this Agreement shall be binding unless such modification or amendment is made in writing, executed by the parties hereto, expressly refers to this Agreement and recites its intention to modify or amend this Agreement. h. SEVERABILITY. The invalidity of any provision of this Agreement or a portion of the provisions shall not affect the validity of any other provision of this Agreement or the remaining portion of the applicable provision. In the event any one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable, the parties consent that a court of competent jurisdiction may modify it so as to create the valid, legal and enforceable commitment which comes closest to the intention of the parties underlying the provision so modified. i. HEADINGS. The Section and subsection headings as to the content of particular Sections and subsections are for the convenience of the parties and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular Sections or subsections to which they refer. j. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute but one instrument. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. THE NORTHERN TRUST COMPANY By:________________________________________ Its:____________________________________ MONTGOMERY WARD & CO., INCORPORATED By:_________________________________________ Its:________________________________________ 15 SCHEDULE I BORROWER CEILING AMOUNT - - - -------- -------------- Irving P. Hammer $ 75,000.00 Carol J. Harms $ 29,837.42 Robert A. Kasenter $297,035.42 G. Tad Morgan $ 75,000.00 George C. Overholt, Jr. $ 74,439.91 James J. Poetz $ 63,051.43 EX-10.(IX) 29 LETTER TO ROBERT STEVENISH [LETTERHEAD] August 31, 1995 Robert J. Stevenish 106 Bremen Lane McMurray, Pa. 15317 Dear Bob: This letter confirms our offer to you as Executive Vice President, Operations, with responsibility for stores and distribution, reporting to Bernie Brennan, Chairman and Chief Executive Officer and serving as a member of the Executive Committee. Your compensation plan will include the following: 1) Base salary of $450,000 annually, paid semi-monthly. 2) Target bonus on the Performance Management Plan of $150,000. Based upon the achievement of specific objectives for the year, you have the opportunity to earn up to 150% of your target bonus. For fiscal 1995, your target bonus of $150,000 will be guaranteed. 3) Participation in the Montgomery Ward Long Term Incentive Plan. For the 1993-1995 cycle, you will participate at 50% of the normal award, with a target of $78,750. Thereafter, you will continue to participate at the full award level, which has a target level of 35% of your average base pay. 4) You will receive a hiring bonus of $50,000 within 30 days of employment to handle miscellaneous expenses of your move. This payment will not offset payments due in paragraph 6. 5) You will participate in the senior officer perquisites, including; financial counseling, tax assistance, executive medical, and annual physical examination. 6) Montgomery Ward will provide you with a full relocation plan, including movement of household goods, househunting trips, and home purchase option at 100% of appraised value. In addition, Montgomery Ward will pay your closing costs on your home purchase, plus up to two points on your financing of a new home. Your temporary housing expenses in the Chicago area for the first six months (or until relocation if sooner) will be paid by Montgomery Ward. Robert J. Stevenish August 31, 1995 Page Two 7) You will receive a stock option for 55,000 shares of Montgomery Ward Holding stock at the fair value of $24.50 as of the date of acceptance. These options will vest as follows: 25,000 Nov. 1, 1996 30,000 Nov. 1, 1997 All stock options in point 7 are subject to the Terms and Conditions of the Stockholders Agreement. (A copy of the current 10-Q is included.) 8) If Montgomery Ward initiates a separation of your employment prior to November 1, 1997 for any reason other than "Cause" as defined below, you will receive: A) The greater of your base salary and P.M.P. bonus through November 1, 1997 or one year's base salary. After November 1, 1997, you will participate in the normal Senior Officer Severance Plan of one year's base salary. B) The continuation of the vesting of your stock and stock options through November 1, 1997. "Cause" shall mean (i) your willful failure to substantially perform your duties hereunder, (ii) your willful failure to follow a written, lawful order or written directive from the Board of Directors or Chief Executive Officer of the company, or (iii) your conviction of any kind of felony or any misdemeanor involving moral turpitude. For purposes of this paragraph, no act, or failure to act, on your part shall be considered "willful" unless such act, or failure to act by you was not in good faith and was without reasonable belief that your action or omission was in the best interest of the Company. If you voluntarily leave Montgomery Ward, or are separated for "Cause", you will receive no severance payments, nor will your stock continue to vest beyond your separation date. Robert J. Stevenish August 31, 1995 Page Three I am happy that you are considering joining Montgomery Ward. If you are in agreement with this letter, please sign below and return it to me whereupon it will become our binding agreement. I am certain that your management ability can help move Montgomery Ward to the premier position in the Industry. Sincerely, /s/ Robert A. Kasenter - - - ------------------------------------ Robert A. Kasenter cc: Bernie Brennen /s/ Robert J. Stevenish ---------------------------- Robert J. Stevenish August 31, 1995* ---------------------------- Date *Employment to commence November 1, 1995 or any earlier date that I am released from my employment obligations to Hills' Stores Company. EX-10.(X) 30 GRIMES EMPLOYMENT AGREEMENT CONFIDENTIAL January 28, 1997 Tom Grimes c/o Tremmingham's 37 Front Street Hamilton, Bermuda Dear Tom: This letter confirms our offer to you as President, Hardlines for Montgomery Ward with responsibility for all merchandising activities for Electric Avenue, Auto Express, Soft Home and Furniture. Additionally, you will be the Chief Executive Officer for Lechmere Stores. You will report to Roger Goddu, Chairman and Chief Executive Officer and serve as a member of the Montgomery Ward Executive Committee. Your compensation plan will include the following: 1.) Base salary of $500,000 annually, paid semi-monthly. 2.) Target bonus on the Performance Management Plan of $200,000. Based upon the achievement of superior performance against specific objectives for the year, you have the opportunity to earn up to 150% of your target bonus. For fiscal 1997, your target bonus of $200,000 will be guaranteed. 3.) You will receive a hiring bonus of $50,000 within 30 days of employment to handle miscellaneous expenses of your move. 4.) You will participate in the senior officer perquisites, including; financial counselling, tax assistance, executive medical, and annual physical examination. 5.) Montgomery Ward will provide you with a relocation plan, including movement of household goods, househunting trips, and payment of your closing costs on your home purchase, plus up to two points on your financing of a new home. Your temporary housing expenses in the Chicago area for the first six months (or until relocation if sooner) will be paid by Montgomery Ward. Tom Grimes January 28, 1997 Page 2 6.) As soon as possible after your start date, you will receive a stock option for 500,000 shares of Montgomery Ward Holding stock at the 1997 fair market value as of December 29, 1996. These options will vest as follows: 200,000 - February 1, 1998 150,000 - February 1, 1999 150,000 - February 1, 2000 All stock options in point 6 are subject to the Stockholder's Agreement which you will be required to sign as a Type 2 Management Shareholder. (A copy of the current 10-Q and latest Prospectus are included). 7.) If Montgomery Ward initiates a separation of your employment prior to February 1, 2000 for any reason other than "Cause" as defined below, you will receive: A) Your base salary for twenty-four months. After February 1, 2000, you will participate in the normal Senior Officer Severance Plan that exists as of that date. B) The continuation of the vesting of your stock and stock options through February 1, 2000. "Cause" shall mean (i) your willful failure to substantially perform your duties hereunder, (ii) your willful failure to follow a written, lawful order or written directive from the Board of Directors or Chief Executive Officer of the company, or (iii) your conviction of any kind of felony or any misdemeanor involving moral turpitude. For purposes of this paragraph, no act, or failure to act, on your part shall be considered "willful" unless such act, or failure to act by you was not in good faith and was without reasonable belief that your action or omission was in the best interest of the Company. In the event of a Change of Control where the Company is sold to a third party you may elect to leave the Company upon thirty (30) days written notice to the Chairman and Chief Executive Officer. If you elect this separation reason, you will receive Tom Grimes January 28, 1997 Page 3 one year's base salary in a lump sum. All stock and stock options will vest in accordance with the normal terms of the Stockholder's Agreement and will NOT be accelerated. You must elect this option within thirty (30) days of the Change of Control or it will terminate as an option to you. If you voluntarily leave Montgomery Ward, or are separated for "Cause", you will receive no severance payments, nor will your stock continue to vest beyond your separation date. I am happy that you are considering joining Montgomery Ward. If you are in agreement with this letter, please sign below and return it to me whereupon it will become our binding agreement. I am certain that your management ability can help move Montgomery Ward to the premier position in the Industry. Sincerely, Robert A. Kasenter Executive Vice President Human Resources cc: Roger Goddu /s/ Tom Grimes ______________________________ Tom Grimes EX-10.(XI) 31 SEARLES EMPLOYMENT AGREEMENT [Letterhead] April 19, 1996 Mike Searles 64 Balfour Drive West Hartford, CT 07761 Dear Mike: This letter will confirm our offer to you to join Montgomery Ward as Executive Vice President Apparel and Gold 'N Gems. You will report to the Chairman and C.E.O. and become a member of the Executive Committee of Montgomery Ward Retail. Your compensation plan will be as follows: 1.) Base salary will be $500,000 annually, paid semi-monthly. 2.) Target bonus on the Short-Term Performance Management Plan will be $250,000 annually. Your objectives under this incentive plan will be set by the Board Committee on Senior Executive Compensation as required by the tax and S.E.C. regulations. Under the provisions of this plan, you can earn up to 150% of the target amount by exceeding the objectives. For 1996 and 1997, your target bonus of $250,000 will be guaranteed. 3.) You will participate in the Executive Long Term Incentive Plan with a target award of 50% of your average annual base salary for the three year cycle. For the 1994-1996 cycle, which ends in December of 1996, you will participate at a target amount of $150,000. Thereafter, you will participate at the full 50% target level for all cycles, including the 1995-1997 and 1996-1998 cycles. A copy of the plan description is attached. 4.) You will participate in all Senior Officer Perquisite Plans, including In-Town Limo Service, Financial Planning, Tax Preparation, Supplemental Medical and Life coverage and annual physicals. You will also participate in the Montgomery Ward Change of Control Security Plan for Senior Officers. Copies of these plans are attached. Mike Searles April 19, 1996 Page 2 5.) The Stock Ownership Committee will be requested (and endorsed by Bernie Brennan) to grant you options for 300,000 shares of Montgomery Ward Holding Stock at $24.50 per share. These options will have a ten year term and will vest as follows: 150,000 June 1, 1997 150,000 June 1, 1998 These Stock Options will be offered in accordance with the Terms and Conditions of the Stockholders Agreement. A copy of the current Prospectus is included. 6.) Montgomery Ward will provide you with a full relocation plan, including movement of household goods, househunting trips, and home purchase at 100% of the $1.5 million purchase value of your home in West Hartford. In addition, Montgomery Ward will pay your closing costs on your home purchase in the Chicago area, plus up to two points on your financing of a new home. Your temporary housing expenses in the Chicago area for the first four months (or until relocation if sooner) will be paid by Montgomery Ward. 7.) If Montgomery Ward initiates a separation of your employment for any reason other than "Cause" as defined below, or if you terminate your employment for "Good Reason" as defined below, you will receive the higher of either your base pay and most recent short term bonus award through May 31, 1998; the payments provided in the Montgomery Ward Change of Control Security Plan; or, 18 months base salary plus 1 1/2 times your most recent short term P.M.P. Award. (See attached plans.) Also, all stock options in point 5 above will immediately vest if you are separated by the Company without "Cause", or if you terminate your employment for "Good Reason" as defined below. Additionally, you will be permitted to retain your health care coverage at the associate rate for 18 months following termination. Mike Searles April 19, 1996 Page 3 "Cause" shall mean (i) your willful failure to substantially perform your duties hereunder and to remedy such failure within ninety (90) days after receiving notice from the Board of Directors of the Company or their representative specifying the details thereof, (ii) your willful failure to follow a written, lawful order or written directive from the Board of Directors or Chief Executive Officer of the Company or their representative and to remedy such failure within ninety (90) days after receiving notice from the Board of Directors of the Company or their representative specifying the details thereof, or (iii) your conviction of any kind of felony or your conviction of any misdemeanor involving moral turpitude that negatively reflects on the Company. For purposes of this paragraph, no act, or failure to act, on your part shall be considered "willful" unless such act, or failure to act by you was not in good faith and was without reasonable belief that your action or omission was in the best interest of the Company. NOTE: "Cause" does not include poor work performance. If you are not made President, Montgomery Ward Retail on or before January 1, 1998, or if another Executive is named President, Montgomery Ward Retail during that period, you may elect (within 90 days and with 90 days written notice) to treat your employment as separated without "Cause" and will receive a special severance plan equal to 18 months base salary plus 1 1/2 times your most recent short term P.M.P. Award in lieu of any other severance plan and your stock options in point 5 above will immediately vest. Additionally, you will be permitted to retain your health care coverage at the associate rate for the severance period. If you voluntarily leave Montgomery Ward without "Good Reason", or are separated for "Cause", you will receive no severance payments, nor will your stock or stock options (as the case may be) continue to vest beyond your separation date. "Good Reason" shall mean any action by Montgomery Ward which, without you prior written consent significantly reduces your job responsibilities, job title, compensation, or benefits. Mike Searles April 19, 1996 Page 4 If you are in agreement with the compensation plan as detailed above, please sign this letter below and return it to me. Mike, I am pleased that you will be joining Montgomery Ward and I look forward to working with you on moving our business to the next level. Sincerely, /s/ Robert A. Kasenter ________________________ Robert A. Kasenter Executive Vice President Human Resources cc: Bernie Brennan Silas Cathcart Dan Porter /s/ Michael S. Searles ________________________ Mike Searles 4/22/96 ________________________ Date EX-10.(XIII) 32 LETTER TO FREDERICK MEISER [LETTERHEAD] October 24, 1995 Frederick E. Meiser 100 Happy Trail San Antonio, Texas 78231 Dear Rick: This letter confirms our offer to you as Vice Chairman, Lechmere. Until his retirement on or before April 1, 1996, you will be reporting to Dick Bergel. After Dick's retirement, you will become the Chairman and CEO, Lechmere and you will report to the Chairman, Montgomery Ward Retail, who currently is Bernie Brennan. Your compensation plan will include the following: 1) Base salary of $400,000 annually, paid semi-monthly. 2) Target bonus on the Performance Management Plan of $200,000. Based upon the achievement of specific objectives for the year, you have the opportunity to earn up to 150% of your target bonus. For 1995, your bonus will be guaranteed at $100,000. 3) Participation in the Montgomery Ward Long Term Incentive Plan. For the 1994-1996 cycle, you will participate at 100% of the normal award, with a target of $80,000. Thereafter, you will continue to participate at the full award level, which has a target level of 20% of your average base pay. 4) You will receive a hiring bonus of $50,000 grossed up for federal and state income taxes only at 31% and 5.5% respectively within 30 days of employment to handle miscellaneous expenses of your move. 5) You will participate in the senior officer perquisites, including: financial counseling, tax assistance, executive medical, and annual physical examination. 6) Montgomery Ward will provide you with a full relocation plan, including movement of household goods, househunting trips, and home purchase at 100% of appraised value. In addition, Montgomery Ward will pay your closing costs on your home purchase, plus up to two points on your financing of a new home. Your temporary housing expenses in the Boston area for the first four months (or until relocation if sooner) will be paid by Montgomery Ward. Frederick E. Meiser October 24, 1995 Page Two 7) The Board Stock Ownership Committee will be asked to grant you a stock option for 100,000 shares of Montgomery Ward Holding stock at the fair value of $24.50 as of the date of acceptance of this offer. These options will vest as follows: 50,000 November 1, 1996 50,000 November 1, 1997 All stock options in point 7 are subject to the terms and conditions of both the Montgomery Ward Stock Option Plan and the Stockholders Agreement. (A copy of the current Prospectus is included.) Your acceptance of this letter shall be deemed a joinder in, and your agreement to be bound by such Stockholders Agreement. 8) If Montgomery Ward initiates a separation of your employment for any reason other than "Cause" as defined below, you will receive: A) The higher of either your base pay through November 1, 1997 or the Senior Officer Severance Plan of one year's base salary. (See attached plan.) B) The continuation of the vesting of your stock options through November 1, 1997. "Cause" shall mean (i) your willful failure to substantially perform your duties hereunder, (ii) your willful failure to follow a written, lawful order or written directive from the Board of Directors or Chief Executive Officer of the Company, or (iii) your conviction of any kind of felony or any misdemeanor involving morale turpitude. For purposes of this paragraph, no act, or failure to act, on your part shall be considered "willful" unless such act, or failure to act by you was not in good faith and was without reasonable belief that your action or omission was in the best interest of the Company. If you are not made C.E.O. Lechmere on or before April 1, 1996, you may elect (within 30 days thereafter) to treat your employment as separated without "Cause" as outlined above. Frederick E. Meiser October 24, 1995 Page Three If you voluntarily leave Montgomery Ward, or are separated for "Cause", you will receive no severance payments, nor will your stock or stock options (as the case may be) continue to vest beyond your separation date. I am happy that you are joining Lechmere. If you are in agreement with this letter, please sign below and return it to me. I am certain that your management ability can help move Lechmere to the premier position in the Industry. Sincerely, /s/ Robert A. Kasenter - - - --------------------------- Robert A. Kasenter cc: Bernie Brennan /s/ Frederick E. Meiser ---------------------------------- Frederick E. Meiser 10/26/95 ---------------------------------- Date EX-11 33 STATEMENT RE COMPUTATION OF PER SHARE ERNGS. EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS 52-WEEK PERIOD ENDED DECEMBER 28, 1996 Class A Class B ------------- ------------ Earnings Available for Common Shareholders (117,717,998) (131,205,047) Weighted Average of Shares Outstanding: Shares Outstanding 19,058,574 25,000,000 Shares Issued Upon Assumed Exercise of Stock Options -- -- Shares Assumed to be Repurchased Under Treasury Stock Method (At Fair Market Value of $17.00) -- -- Total Number of Options Considered As Common Stock Equivalents -- -- Total Weighted Average Number of Shares 19,058,574 25,000,000 Earnings Per Share (6.18) (5.25) EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS 52-WEEK PERIOD ENDED DECEMBER 30, 1995 Class A Class B ------------- ------------ Earnings Available for Common Shareholders (6,456,000) (7,073,000) Weighted Average of Shares Outstanding: Shares Outstanding 20,824,514 25,000,000 Shares Issued Upon Assumed Exercise of Stock Options -- -- Shares Assumed to be Repurchased Under Treasury Stock Method (At Fair Market Value of $24.50) -- -- Total Number of Options Considered As Common Stock Equivalents -- -- Total Weighted Average Number of Shares 20,824,514 25,000,000 Earnings Per Share (.31) (.28) EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS 52-WEEK PERIOD ENDED DECEMBER 31, 1994 Class A Class B ------------- ------------ Earnings Available for Common Shareholders 67,335,000 67,487,000 Weighted Average of Shares Outstanding: Shares Outstanding 19,481,364 25,000,000 Shares Issued Upon Assumed Exercise of Stock Options 5,434,576 -- Shares Assumed to be Repurchased Under Treasury Stock Method (At Fair Market Value of $26.50) (3,508,561) -- Total Number of Options Considered As Common Stock Equivalents 1,926,015 -- Total Weighted Average Number of Shares 21,407,379 25,000,000 Earnings Per Share 3.15 2.70 EX-18 34 EXHIBIT 18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Montgomery Ward Holding Corp: Re: Form 10-K Report for the year ended December 28, 1996 This letter is written to meet the requirements of Regulation S-K calling for a letter from a registrant's independent accountants whenever there has been a change in accounting principle or practice. As of December 28, 1996, the Company changed from the last-in, first-out ("LIFO") method of accounting for inventories to the first-in, first-out ("FIFO") method. According to the management of the Company, this change was made to better measure the current value of such inventories and provides for a more appropriate matching of current costs and current revenues consistent with the Company's merchandising strategy. A complete coordinated set of financial and reporting standards for determining the preferability of accounting principles among acceptable alternative principles has not been established by the accounting profession. Thus, we cannot make an objective determination of whether the change in accounting described in the preceding paragraph is to a preferable method. However, we have reviewed the pertinent factors, including those related to financial reporting, in this particular case on a subjective basis, and our opinion stated below is based on our determination made in this manner. We are of the opinion that the Company's change in method of accounting is to an acceptable alternative method of accounting, which, based upon the reasons stated for the change and our discussions with you, is also preferable under the circumstances in this particular case. In arriving at this opinion, we have relied on the business judgment and business planning of your management. ARTHUR ANDERSEN LLP Chicago, Illinois March 27, 1997 EX-23 35 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File No. 33-57075 and File No. 33-41161). Arthur Andersen LLP EX-27 36 FINANCIAL DATA SCHEDULE
5 1,000,000 2-MOS DEC-28-1996 DEC-28-1996 32 320 226 0 1545 0 2113 805 4879 0 0 175 0 1 432 4879 5879 6620 4869 4869 2015 0 111 (375) (138) (237) 0 0 0 (237) (6.18) (6.18)
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