<PAGE>
As filed with the Securities and Exchange Commission on August 1, 1994
REGISTRATION NO. 33-33252
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE AMENDMENT NO. 6
To
Form S-l
Registration Statement
Under
The Securities Act Of 1933
----------------
MONTGOMERY WARD HOLDING CORP.
(Exact name of registrant as specified in its charter)
5300 DELAWARE 36-3571585
(Primary Standard (State or other (I.R.S. Employer
Industrial jurisdiction Identification No.)
Classification Code of incorporation or
Number) organization)
Montgomery Ward Plaza
Chicago, Illinois 60671-0042
(312) 467-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------------
Spencer H. Heine, Esq.
Executive Vice President, Secretary
and General Counsel
Montgomery Ward Holding Corp.
Montgomery Ward Plaza
Chicago, Illinois 60671-0042
(312) 467-2000
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
John E. Lowe, Esq.
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
(312) 715-4020
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MONTGOMERY WARD HOLDING CORP.
REGISTRATION STATEMENT ON FORM S-1
Cross Reference Sheet Furnished Pursuant to Item 501(b) of Regulation S-K
Showing the Location in the Prospectus of the Information Required by Part 1 of
Form S-l.
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN
FORM S-1 LOCATION IN PROSPECTUS
-------------------------- ----------------------
<S> <C>
1. Forepart of the Forepart of the Registration Statement and
Registration Statement and Outside Front Cover Page of Prospectus
Outside Front Cover Page
of Prospectus.............
2. Inside Front and Outside Inside Front and Outside Back Cover Pages of
Back Cover Pages of Prospectus; Available Information
Prospectus................
3. Summary Information, Risk Prospectus Summary; Summary Financial
Factors and Ratio of Information; The Company; Risk Factors;
Earnings to Fixed Charges. Selected Financial Data
4. Use of Proceeds .......... Use of Proceeds
5. Determination of Offering Outside Front Cover Page of Prospectus;
Price..................... Determination of Offering Price
6. Dilution.................. Not Applicable
7. Selling Security Holders.. Selling Shareholders
8. Plan of Distribution...... Outside Front Cover Page of Prospectus; Plan of
Distribution
9. Description of Securities Description of Equity Securities
to be Registered..........
10. Interests of Named Experts Experts; Legal Opinions
and Counsel...............
11. Information with Respect Outside Front Cover Page of Prospectus;
to the Registrant......... Prospectus Summary; The Company; Risk Factors;
Use of Proceeds; Dividends; The Voting Trust
Agreement; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Properties; Management; Principal
Shareholders; Description of Equity
Securities; Index to Consolidated Financial
Statements
12. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............... Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
MONTGOMERY WARD HOLDING CORP.
3,000,000 SHARES
CLASS A COMMON STOCK, SERIES 1
($.01 PAR VALUE)
AND
VOTING TRUST CERTIFICATES REPRESENTING
3,000,000 SHARES
CLASS A COMMON STOCK, SERIES 1
($.01 PAR VALUE)
----------------
This Prospectus covers 3,000,000 shares of Class A Common Stock, Series 1,
par value $.01 per share, of Montgomery Ward Holding Corp., a Delaware
corporation (the "Company"), and voting trust certificates ("Voting Trust
Certificates") issued in exchange therefor, to be sold by holders of such
shares pursuant to the Stockholders' Agreement, dated as of June 17, 1988, as
amended from time to time (the "Stockholders' Agreement"), or pursuant to the
Montgomery Ward & Co., Incorporated Stock Ownership Plan Terms and Conditions
(the "Terms and Conditions"), which contain substantially similar provisions as
the Stockholders' Agreement with respect to the purchase of such shares from
such holders, to Designated Management Optionees (as defined herein) designated
pursuant to the terms of the Stockholders' Agreement or the Terms and
Conditions or to persons designated pursuant to agreements with the Committee
(as defined herein) requiring sales in substantially the same manner; or to be
sold by the Company or Bernard F. Brennan ("Brennan") after purchase by the
Company or Brennan of such shares upon exercise of options under the
Stockholders Agreement or the Terms and Conditions or in consensual
transactions upon terms similar to such options. A copy of the Stockholders'
Agreement as in effect on the date hereof, including certain amendments
contemplated as of the date hereof, is attached hereto as Annex 1. The shares
of Class A Common Stock, without regard to series, and Voting Trust
Certificates issued in exchange therefor are collectively referred to herein as
the "Shares" except where the context otherwise requires. Shares acquired by
the holder thereof pursuant to awards ("Awards"), options ("Options") and
purchase rights ("Purchase Rights") under the Montgomery Ward & Co.,
Incorporated Stock Ownership Plan (the "Stock Ownership Plan") and such Shares
held by certain permitted transferees of such acquiror, are collectively
referred to herein as "Plan Shares." The Company will receive no proceeds from
the sale of Shares by holders thereof.
The Company is the issuer of the Shares. The Voting Trustee ("Voting
Trustee") under the Voting Trust Agreement, dated as of June 21, 1988 ("Voting
Trust Agreement"), a copy of which is attached hereto as Annex 2, is the issuer
of the Voting Trust Certificates. See "THE VOTING TRUST AGREEMENT."
INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK. THERE IS NO PUBLIC
MARKET FOR THE SHARES OR ANY OTHER EQUITY SECURITY OF THE COMPANY. SHOULD A
PUBLIC MARKET DEVELOP, THE SHARES COULD TRADE AT A PRICE SUBSTANTIALLY LESS
THAN THE PURCHASE PRICE PAID HEREUNDER.
PURCHASERS OF SHARES HEREUNDER (THE "PURCHASERS") WILL PURCHASE SUCH SHARES
SUBJECT TO THE TERMS OF THE STOCKHOLDERS' AGREEMENT AND WILL BE REQUIRED TO
EXECUTE AN AGREEMENT TO JOIN AS PARTIES TO THE STOCKHOLDERS' AGREEMENT, IF THEY
ARE NOT ALREADY PARTIES, OR TO SIGN AN INSTRUMENT ACKNOWLEDGING THAT THE SHARES
PURCHASED HEREUNDER ARE SUBJECT TO
(Cover continued on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
(Cover continued from previous page)
THE STOCKHOLDERS' AGREEMENT. THE STOCKHOLDERS' AGREEMENT INCLUDES SIGNIFICANT
RESTRICTIONS ON TRANSFER AND RIGHTS OF REFUSAL WITH RESPECT TO TRANSFERS OTHER
THAN TO CERTAIN "PERMITTED TRANSFEREES". THE STOCKHOLDERS' AGREEMENT ALSO
INCLUDES AN AGREEMENT TO GIVE A COMMITTEE OF THREE MANAGEMENT SHAREHOLDERS (THE
"COMMITTEE"), INCLUDING BRENNAN AS A MEMBER THEREOF, THE RIGHT TO DESIGNATE
CERTAIN PERSONS (THE "DESIGNATED MANAGEMENT OPTIONEES") TO REPURCHASE THE
SHARES IN CERTAIN INSTANCES. THE DESIGNATED MANAGEMENT OPTIONEES MAY INCLUDE A
MEMBER OF THE COMMITTEE (OR A MEMBER OF HIS FAMILY) UPON THE AFFIRMATIVE VOTE
OF ALL OTHER MEMBERS OF THE COMMITTEE. THE COMPANY WILL ALSO HAVE A RIGHT TO
REPURCHASE THE SHARES IN CERTAIN CIRCUMSTANCES. THE PRICE FOR PURCHASES OF
SHARES WHICH HAVE NOT BECOME VESTED IN ACCORDANCE WITH THE STOCKHOLDERS'
AGREEMENT ("NON-VESTED SHARES") WILL GENERALLY BE THE PRICE PAID FOR SUCH
SHARES BY THE PURCHASER UPON ISSUANCE OR RESALE BY THE COMPANY, WHICH IS
GENERALLY $.20 PER SHARE, AND THE PRICE FOR PURCHASES OF SHARES WHICH HAVE
BECOME SO VESTED ("VESTED SHARES") WILL GENERALLY BE THE FAIR MARKET VALUE
THEREOF DETERMINED IN ACCORDANCE WITH THE STOCKHOLDERS' AGREEMENT. SEE "THE
STOCKHOLDERS' AGREEMENT." ACCORDINGLY, UNDER CERTAIN CIRCUMSTANCES, PURCHASERS
COULD BE REQUIRED TO SELL THEIR SHARES TO DESIGNATED MANAGEMENT OPTIONEES OR TO
THE COMPANY AT PRICES THAT ARE SUBSTANTIALLY BELOW THE FAIR MARKET VALUE FOR
SUCH SHARES. PURCHASERS WILL GENERALLY BE PURCHASING SHARES OF CLASS A COMMON
STOCK WHICH WERE PREVIOUSLY REQUIRED TO BE DEPOSITED IN THE VOTING TRUST (THE
"VOTING TRUST") CREATED BY THE VOTING TRUST AGREEMENT AND WHICH WILL CONTINUE
TO BE HELD IN THE VOTING TRUST FOLLOWING SUCH PURCHASE. THUS, PURCHASERS WILL
BE PURCHASING THE BENEFICIAL INTEREST IN SHARES WHICH ARE HELD OF RECORD BY THE
VOTING TRUSTEE AS TRUSTEE. UNDER THE VOTING TRUST AGREEMENT, BRENNAN, OR HIS
SUCCESSOR, AS VOTING TRUSTEE, HAS FULL AND EXCLUSIVE POWER TO VOTE THE SHARES.
SEE "THE VOTING TRUST AGREEMENT." THE PURCHASE OF SHARES IS SUITABLE ONLY FOR
PERSONS WHO HAVE NO NEED FOR LIQUIDITY WITH RESPECT TO THEIR INVESTMENT.
THE DATE OF THIS PROSPECTUS IS AUGUST 1, 1994
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission").
The Company has filed with the Commission a registration statement under the
Securities Act of 1933, as amended, (the "Act") with respect to the Shares and
the Voting Trust Certificates representing such Shares being offered hereby
(the "Registration Statement"). This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain items of which are contained in
schedules and exhibits to the Registration Statement as permitted by the rules
and regulations of the Commission under the Act. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference should be made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. A copy of any and all of the information that has
been incorporated by reference in this Prospectus (not including exhibits to
the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this
Prospectus incorporates) is available without charge to each person to whom
this Prospectus is delivered, upon written or oral request of such person to
Spencer H. Heine, Esq., Executive Vice President, Secretary and General
Counsel, Montgomery Ward Holding Corp., Montgomery Ward Plaza, Chicago,
Illinois 60671, Telephone No. (312) 467-2000. Items of information omitted from
this Prospectus but contained in the Registration Statement and the proxy
statements, reports and other information filed by the Company may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the
following regional offices of the Commission: Northwestern Atrium Center, 500
West Madison, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can be obtained
by mail upon written request from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington,
D.C. 20549 at prescribed rates.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Prospectus and is qualified in its entirety by
reference to the more detailed information and financial statements, including
the notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
The Company through its subsidiary Montgomery Ward & Co., Incorporated, an
Illinois corporation ("Montgomery Ward"), is one of the nation's largest retail
merchandising organizations. Montgomery Ward conducts its merchandising
operations through its Montgomery Ward and Lechmere stores. Montgomery Ward,
which operated 366 stores as of April 2, 1994, offers a broad range of quality
national brands and proprietary brands as well as its own private label goods
in the areas of apparel including jewelry, electronics, automotive, appliances
and home furnishings. On March 30, 1994, Montgomery Ward acquired all of the
outstanding stock of LMR Acquisition Corporation ("LMR"), which owns 100% of
the stock of Lechmere, Inc. ("Lechmere"). As of that date, Lechmere operated 24
high volume stores in the northeast United States. Lechmere stores carry a
broad range of quality name brand products in the following categories:
consumer electronics, home office and entertainment software, appliances,
housewares, photography, and recreation and leisure. The Company also offers
life and health insurance, revolving credit insurance, club products and other
consumer services through Montgomery Ward's subsidiary, Signature
Financial/Marketing, Inc., a Delaware corporation ("Signature"), and through
Signature's subsidiaries (collectively with Signature, the "Signature Group").
See "THE COMPANY," "SELECTED FINANCIAL DATA," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "BUSINESS" and
"PROPERTIES."
RISK FACTORS
The purchase of Shares involves a high degree of risk. See "RISK FACTORS."
THE OFFERING
SECURITIES OFFERED
3,000,000 shares of Class A Common Stock, Series 1, par
value $.01 per share, and Voting Trust Certificates
representing beneficial ownership of such 3,000,000
shares of Class A Common Stock, Series 1. As of July 2,
1994, 2,673,700 shares of Class A Common Stock, Series
1 have been transferred pursuant to this Registration
Statement. See "THE VOTING TRUST AGREEMENT" and "DE-
SCRIPTION OF EQUITY SECURITIES."
USE OF PROCEEDS
The Company will receive no proceeds from the sale of
Shares by holders of Shares. Cash proceeds from the
sale of Shares by the Company will be used for general
corporate purposes. The purpose of this registration is
to facilitate the transfer of Shares among current and
former employees (employees are hereinafter referred to
as "associates") of the Company and certain other hold-
ers that may be designated pursuant to the Stockhold-
ers' Agreement and to permit certain other sales on
substantially similar terms. See "PLAN OF DISTRIBU-
TION."
4
<PAGE>
RESTRICTIONS ON
TRANSFER OF SHARES, All Purchasers will purchase the Shares subject to sig-
RIGHTS OF REFUSAL AND nificant restrictions on the transfer of Shares, rights
REPURCHASE RIGHTS of refusal in the event of certain proposed transfers
and certain obligations or options to sell the Shares
as stated in the Stockholders' Agreement. A copy of the
Stockholders' Agreement, as in effect on the date here-
of, with certain amendments thereto contemplated as of
the date hereof, is attached as Annex 1 hereto. See
"THE STOCKHOLDERS' AGREEMENT." Plan Shares owned by
Purchasers who are or become subject to the Stockhold-
ers' Agreement will also be covered by the Stockhold-
ers' Agreement, except as provided otherwise in the no-
tice of grant under the Stock Ownership Plan provided
to a particular Purchaser. Plan Shares which are not
subject to the Stockholders' Agreement are subject to
the Terms and Conditions. Although the descriptions set
forth herein of the treatment of Shares pursuant to the
Stockholders' Agreement are not applicable to such Plan
Shares, the Terms and Conditions and the Stockholders'
Agreement contain terms substantially similar to each
other with respect to the subject of this discussion.
The descriptions of the treatment of Plan Shares herein
refer to Plan Shares subject to the Stockholders'
Agreement, unless otherwise indicated.
In the event of the death, total permanent disability
or termination of employment of a Purchaser with the
Company, Montgomery Ward and its subsidiaries (collec-
tively, the "Ward Group") for any reason, the Desig-
nated Management Optionees and the Company will have
the option to purchase (a "call option") the Shares of
such Purchaser and persons who constitute his or her
Permitted Transferees under the Stockholders' Agree-
ment. In the event of the death or total permanent dis-
ability of a Purchaser while such Purchaser is an asso-
ciate of the Ward Group, that Purchaser or his or her
personal representative or Permitted Transferees, also
will have the option to sell his or her Shares (a "put
option"); such Shares shall be purchased by any Desig-
nated Management Optionees to the extent any such Des-
ignated Management Optionees exercise an option to make
such purchases and by the Company to the extent they do
not. To the extent the put option is not exercised, any
Designated Management Optionees and the Company will
have an option to purchase those Shares. In the event
of the death of a Purchaser after termination of his or
her employment with the Ward Group, any Designated Man-
agement Optionees and the Company will also have a call
option on any such Shares not previously purchased. The
put option described above will terminate if and when
the Public Offering Termination Date occurs. The "Pub-
lic Offering Termination Date" is defined as the date
when, and if, as a result of the sale or issuance of
shares of common stock of the Company pursuant to one
or more registration statements under the Act (other
than pursuant to the Stock Ownership Plan or this Reg-
istration Statement) and under Rule 144 promulgated by
the Commission under the Act, 25% or more of the out-
standing shares of the voting stock of the Company con-
sists of shares which have been so issued or sold.
Under the Stockholders' Agreement, all Shares are ei-
ther vested or non-vested. Purchasers of Shares offered
hereby will be "Management Shareholders" (as defined in
the Stockholders' Agreement). The Stockholders' Agree-
ment classifies all Management Shareholders as either
Type 1 Man
5
<PAGE>
agement Shareholders ("Type 1 Management Shareholders")
or Type 2 Management Shareholders ("Type 2 Management
Shareholders"). All Shares owned by a Type 1 Management
Shareholder are Vested Shares. All Shares owned by a
Type 2 Management Shareholder vest as described below.
It is currently anticipated that Brennan, outside di-
rectors and holders who may receive shares in connec-
tion with the purchase by Montgomery Ward of Lechmere
will be the only Type 1 Management Shareholders, al-
though others may become Type 1 Management Sharehold-
ers. It is currently anticipated that all other Manage-
ment Shareholders, including all of the Purchasers of
Shares in the offering made hereby, will be Type 2 Man-
agement Shareholders. All Vested Shares purchased by a
Designated Management Optionee shall continue to be
Vested Shares in the hands of such Purchaser.
All Non-Vested Shares purchased by a Designated Manage-
ment Optionee, who was not a shareholder prior to such
purchase, will be Non-Vested Shares as of the date of
such purchase and will become Vested Shares as de-
scribed below. Non-Vested Shares purchased by a Desig-
nated Management Optionee, who was a shareholder prior
to such purchase, will also become Vested Shares as de-
scribed below. Except to the extent a vesting schedule
is accelerated by the Designator (as defined below), at
its discretion, generally, 20% of all Non-Vested Shares
(which are not Plan Shares) held or acquired by a Des-
ignated Management Optionee will be treated as Vested
Shares as of, and become Vested Shares on, each of the
first five anniversaries of the date of the earliest
acquisition of any shares by such Designated Management
Optionee. Generally, the vesting period for Plan Shares
received pursuant to an Award and Plan Shares purchased
upon the exercise of a Purchase Right begins with the
date of the grant of the Award or the exercise of the
Purchase Right, respectively. The vesting period for
Plan Shares purchased upon the exercise of an Option
begins with the date of the grant of such Option, but
no such Plan Shares shall be vested prior to purchase.
Subject to the limitations stated with respect to Plan
Shares subject to an Option in the preceding sentence,
20% of the Plan Shares with respect to a given Award,
Purchase Right or Option will vest on each of the first
five anniversaries of the beginning of the applicable
vesting period with respect thereto, provided that, un-
less otherwise determined in writing by the Designator,
Plan Shares subject to purchase upon exercise of an Op-
tion become Vested Shares upon such purchase.
All Non-Vested Shares (including Plan Shares) will be-
come Vested Shares on the Public Offering Termination
Date, other than for purposes of the call options which
arise upon death following termination of employment.
All Non-Vested Shares (including Plan Shares) of a Type
2 Management Shareholder who shall have died or become
totally permanently disabled while an associate of the
Ward Group shall become Vested Shares as of the date of
such death or disability. A substantial portion of the
Outstanding Shares became Vested Shares on or before
June 23, 1993. If a Purchaser's employment with the
Ward Group is terminated for Cause (as defined herein),
his or her shares, including Plan Shares but excluding
Shares that were Vested Shares in the hands of any per-
son who transferred such Shares to such terminated as-
sociate, will be treated as Non-Vested Shares.
6
<PAGE>
The description of the treatment of Plan Shares above
refers to Plan Shares subject to the Stockholders'
Agreement. The treatment of Plan Shares subject to the
Terms and Conditions is substantially similar.
The purchase price for any Shares purchased by a Desig-
nated Management Optionee or the Company pursuant to
the Stockholders' Agreement is (a) the Fair Market
Value (as defined below) for all Vested Shares and (b)
for Non-Vested Shares, the lower of the Fair Market
Value of such Shares or the price which was paid to the
Company upon the issuance or reissuance of such Shares.
Such Fair Market Value will be calculated on a fully-
diluted basis and will be based on the fair market
value of the Company's consolidated common equity de-
termined annually by the Board of Directors of the Com-
pany ("Board of Directors") (as of the beginning of the
fiscal year in which such determination occurs), as
thereafter periodically adjusted as described below.
The fair market value of the common equity as so deter-
mined by the Board of Directors will be adjusted by
adding:
(i) an amount equal to the Fair Market Value at the
date of grant for the shares of Class A Common
Stock underlying all outstanding and unexpired
Options, Purchase Rights or other options or
rights to acquire shares of Common Stock (as
defined below);
(ii) the amount of cash and other consideration
(including any difference between the Fair
Market Value at the date of grant and the
exercise price) received or receivable by the
Company during the then-current fiscal year on
account of the exercise of any Options,
Purchase Rights, or other options or rights to
acquire shares of Common Stock; and
(iii) the aggregate consideration received by the
Company for shares of Common Stock issued in
the then-current fiscal year not accounted
for in either (i) or (ii) above;
and by subtracting:
(i) the aggregate amount of dividends paid or
payable on Common Stock in the then-current
fiscal year; and
(ii) the aggregate amount paid by the Company to
redeem, repurchase or otherwise acquire for
consideration shares of Common Stock during
the then-current fiscal year.
Based upon the calculation of the fair market value of
the common equity as set forth above, the fair market
value per share of Class A Common Stock ("Fair Market
Value"), taking into account all outstanding Options
and allocating dilution therefrom between the holders
of the Class A Common Stock, $.01 par value (without
regard to series) (the "Class A Common Stock"), and the
Class B Common Stock, $.01 par value (the "Class B Com-
mon Stock"), as set forth in the Stockholders' Agree-
ment, will be calculated on the date as specified in
the Stockholders' Agreement; provided, however, that no
adjustment to the Fair Market Value as calculated as of
the first day of the then-current fiscal year will be
required unless such adjustment would result in an in-
crease or a decrease of at least 1% from the amount as
so determined as of the beginning of the then-current
fiscal year.
7
<PAGE>
THE DESIGNATOR AND
THE COMMITTEE Under the Stockholders' Agreement, a person or the Com-
mittee (collectively, the "Designator") has the right,
among other rights, to designate the Designated Manage-
ment Optionees. Prior to the occurrence of an Event (as
defined below), for all purposes other than designating
(and in connection with the designation of) Designated
Management Optionees, the Designator is Brennan. At all
times for purposes of (and in connection with) the des-
ignation of Designated Management Optionees, and from
and after the occurrence of an Event for all purposes
(including, without limitation, the designation (and in
connection with the designation) of Designated Manage-
ment Optionees), the Designator is the Committee which
is made up of three shareholders. The Committee, except
as provided below, will be comprised of Brennan, Edwin
G. Pohlmann ("Pohlmann") and Myron Lieberman ("Lieber-
man"). Brennan is currently Chairman and Chief Execu-
tive Officer and a director of the Company, Pohlmann is
currently Executive Vice President of the Company and
Lieberman is currently a director of the Company. Prior
to the occurrence of an Event, if any member of the
Committee resigns from the Committee or ceases to be a
Qualified Management Shareholder (as defined below),
then such person will cease to be a member of the Com-
mittee and the remaining members of the Committee will,
as soon as practicable, appoint a Qualified Management
Shareholder as a member of the Committee and thereby
fill the vacancy on the Committee so created. From and
after the occurrence of an Event, the Committee will be
comprised of Spencer H. Heine ("Heine") (currently Ex-
ecutive Vice President, Secretary and General Counsel
and a director of the Company), Pohlmann and Lieberman
(each of Heine, Pohlmann and Lieberman being a "Contin-
uing Member" and collectively being the "Continuing
Members") so long as each is a Qualified Management
Shareholder. As the Continuing Members cease to be
Qualified Management Shareholders or resign from the
Committee, they will generally be replaced on the Com-
mittee first by the Management Shareholder owning the
largest number of Shares, second by the Management
Shareholder owning the second largest number of Shares
and third by the Management Shareholder owning the
third largest number of Shares, in each case from time
to time.
In all cases, the Committee will act by the vote of a
majority of its members; provided, however, that nei-
ther a member of the Committee nor a member of his Fam-
ily (as defined in the Stockholders Agreement) may be
designated as a Designated Management Optionee except
upon the affirmative vote of all other members of the
Committee.
A "Qualified Management Shareholder" is each of Lieber-
man and any other person who is a Management Share-
holder and employed by a member of the Ward Group. A
person will cease to be a Qualified Management Share-
holder if he or she (i) ceases to be a Management
Shareholder, (ii) dies, (iii) is adjudicated incompe-
tent, (iv) in the case of Lieberman, ceases to be a di-
rector of the Company or (v) in the case of any Manage-
ment Shareholder other than Lieberman, ceases to be em-
ployed by one or more members of the Ward Group so that
thereafter no member of the Ward Group employs such
Management Shareholder.
8
<PAGE>
An "Event" means that Brennan has either resigned from
the Committee or ceased to be a Qualified Management
Shareholder.
AUTHORIZED STOCK As of July 2, 1994, the Company had authorized
25,000,000 shares of Class A Common Stock, Series 1,
par value $0.01 per share ("Class A Common Stock, Se-
ries 1"), of which 19,326,202 shares were outstanding,
and 5,412,000 shares of Class A Common Stock, Series 2,
par value $0.01 per share ("Class A Common Stock, Se-
ries 2"), of which 150,104 shares were outstanding. All
Management Shareholders who have purchased Shares and
persons who have purchased or been awarded Plan Shares,
other than Brennan and a trust for the benefit of mem-
bers of his family, have exchanged such Class A Common
Stock for Voting Trust Certificates. The Company has
authorized, but not outstanding, 400,000 shares of
Class A Common Stock, Series 3, par value $0.01 per
share ("Class A Common Stock, Series 3"). The Company
also currently has outstanding 25,000,000 shares of
Class B Common Stock, par value $0.01 per share, and
750 shares of Senior Preferred Stock with a liquidation
value of $100,000 per share (the "Senior Preferred
Stock"), all of which are owned by General Electric
Capital Corporation, a New York corporation ("GE Capi-
tal"). See "DESCRIPTION OF EQUITY SECURITIES" and
"PRINCIPAL SHAREHOLDERS." The Class A Common Stock and
the Class B Common Stock are collectively referred to
as "Common Stock". As of July 2, 1994, there were out-
standing but unexercised options to purchase 800,000
shares of Class A Common Stock, Series 1 and 4,676,142
shares of Class A Common Stock, Series 2.
VOTING RIGHTS
Each share of Class B Common Stock entitles the holder
thereof to one vote. Each share of Class A Common Stock
entitles the holder thereof to one vote so long as the
number of outstanding shares of Class A Common Stock,
irrespective of series (the "Outstanding Amount"), is
less than or equal to 25,000,000. So long as the Out-
standing Amount is greater than 25,000,000, each share
of Class A Common Stock, irrespective of series, will
entitle the holder thereof to a fraction of a vote per
share, the numerator of which is 25,000,000 and the de-
nominator of which is the Outstanding Amount. The Out-
standing Amount as of July 2, 1994 was 19,476,306. See
"DESCRIPTION OF EQUITY SECURITIES--Common Stock--Voting
Rights." However, the Shares purchased by Purchasers
will be voted by the Voting Trustee (currently, Brennan)
during the term of the Voting Trust unless such Shares
are released from the Voting Trust by the Voting Trustee
in his sole discretion. In addition, Purchasers will be
required to agree to vote any Shares released from the
Voting Trust in the same manner as Brennan votes his
shares of Common Stock until June 17, 1998. See "THE
VOTING TRUST AGREEMENT" and "THE STOCKHOLDERS'
AGREEMENT." Under certain circumstances, holders of
Senior Preferred Stock may have the right to elect one
director to the Board of Directors of the Company. See
"DESCRIPTION OF EQUITY SECURITIES--Senior Preferred
Stock."
VOTING TRUST
Purchasers will be purchasing beneficial interests in
Shares deposited in the Voting Trust which will expire
June 21, 1998 in accordance with the terms
9
<PAGE>
of the Voting Trust Agreement. Currently, Brennan is
the Voting Trustee of the Voting Trust. EXCEPT IN VERY
LIMITED CIRCUMSTANCES, THE VOTING TRUSTEE HAS SOLE VOT-
ING POWER AND CONTROL OVER ALL MATTERS ON WHICH SUCH
HOLDERS OF THE SHARES ARE ENTITLED TO VOTE OR CONSENT
WITH RESPECT TO THE SHARES DEPOSITED IN THE VOTING
TRUST. See "THE VOTING TRUST."
DIVIDENDS
If and when declared by the Board of Directors of the
Company (the "Board of Directors"), after payment in
full of dividends with respect to Senior Preferred
Stock of the Company then outstanding, including any
arrearages thereon, the aggregate amount of dividends
(other than stock dividends) payable to holders of Com-
mon Stock, without distinction as to class or series,
shall be allocated among the classes and series of Com-
mon Stock, as follows:
(i) If the Outstanding Amount is less than or equal
to 25,000,000, then such dividends are payable
to holders of Class A Common Stock in
proportion to their respective holdings of
shares of Common Stock, without distinction as
to class or series;
(ii) If the Outstanding Amount is greater than
25,000,000, but the Outstanding Amount less
the number of shares of Class A Common Stock,
Series 3 outstanding (the "Non-Series 3
Outstanding Amount") is less than or equal to
25,000,000 then such dividends shall be
payable to the holders of Class A Common Stock
as follows:
(A) The portion of such dividends which is
payable to the holders of Class A Common
Stock, as a class, and without distinction
as to series shall be the product of:
(x) the aggregate amount of such dividends
which would have been paid to such
holders if the Outstanding Amount were
equal to 25,000,000 multiplied by
(y) a fraction, the numerator of which is the
Outstanding Amount and the denominator of
which is the sum of 25,000,000 plus 50%
of the amount by which the Outstanding
Amount exceeds 25,000,000; and
(B) Such portion of such dividends which is
payable to the holders of the Class A Common
Stock shall be allocated among such holders
in proportion to their respective holdings
of shares of Class A Common Stock, without
distinction as to series;
(iii) If the Outstanding Amount is greater than
25,000,000 and the Non-Series 3 Outstanding
Amount is greater than 25,000,000, then such
dividends shall be payable to the holders of
Class A Common Stock as follows:
(A) The portion of such dividends which is
payable to the holders of Class A Common
Stock, as a class, and without distinction
as to series shall be the product of:
(x) the aggregate amount of such dividends
which would have been paid to such
holders if the Outstanding Amount were
equal to 25,000,000; multiplied by
10
<PAGE>
(y) a fraction, the numerator of which is the
Non-Series 3 Outstanding Amount and the
denominator of which is the sum of
25,000,000 plus 81.5% of the amount by
which the Non-Series 3 Outstanding Amount
exceeds 25,000,000; and multiplied by
(z) a fraction, the numerator of which is the
Outstanding Amount and the denominator of
which is the sum of the Non-Series 3
Outstanding Amount plus 50% of the number
of shares of Class A Common Stock, Series
3, outstanding on the date of
determination; and
(B) Such portion of such dividends which is
payable to the holders the Class A Common
Stock shall be allocated among such holders
in proportion to their respective holdings
of shares of Class A Common Stock, without
distinction as to series; and
(iv) The portion of such dividends which is payable
to the holders of Class B Common Stock, as a
class, shall be the remainder of the total
amount of such dividends after payment to the
holders of Class A Common Stock in accordance
with paragraph (i), (ii) or (iii) above, as
applicable; and such portion of such dividends
which is payable to the holders of the Class B
Common Stock shall be allocated among such
holders in proportion to their respective
holdings of shares of Class B Common Stock.
Agreements governing indebtedness for borrowed money of
Montgomery Ward contain limitations on the ability of
Montgomery Ward to pay dividends or make other distri-
butions to the Company. Such limitations will have the
effect of restricting the ability of the Company to pay
dividends on its Common Stock. See "DESCRIPTION OF EQ-
UITY SECURITIES" and "RISK FACTORS--Financing Restric-
tions and Dividend Payment Restrictions."
LIQUIDATION
Upon a liquidation, dissolution or winding up of the
Company, subject to prior rights of creditors and hold-
ers of any Senior Preferred Stock of the Company then
outstanding, the holders of Common Stock will be enti-
tled to receive any assets remaining available for dis-
tribution to stockholders in the same proportions as
those in which they are entitled to receive dividends.
CERTAIN FEDERAL
INCOME TAX ASPECTS The purchase of Shares hereunder by an associate or
prospective associate of the Ward Group is subject to
special rules concerning the transfer of property to
any person in connection with the performance of serv-
ices by such person and may result in compensation be-
ing includable in the Purchaser's gross income for fed-
eral income tax purposes. The amount and timing of such
compensation income, if any, may be dependent in part
on whether the Purchaser, within 30 days after purchas-
ing Shares, files with the Internal Revenue Service an
election to be taxed currently with respect to such
purchase under section 83(b) of the Internal Revenue
Code of 1986, as amended (the "Code"). See "CERTAIN
FEDERAL INCOME TAX ASPECTS."
11
<PAGE>
NONCOMPETITION
AGREEMENT The Stockholders' Agreement contains a general non-com-
petition restrictive covenant. The Stockholders' Agree-
ment provides that the noncompetition agreement shall
not apply to any person who, (i) if their initial pur-
chase of Shares occurred on or prior to June 15, 1991,
at no time owned 5,000 or more Shares, or (ii) if their
initial purchase of Shares occurred after June 15,
1991, at no time owned 25,000 or more Shares. Brennan's
noncompetition agreement expired on June 23, 1993. For
purposes of the foregoing calculations, Plan Shares,
whether or not subject to the Stockholders' Agreement,
are included.
12
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following is a summary of certain financial information relating to the
Company as of and for each of the five fiscal years in the period ended January
1, 1994 and for the thirteen-week periods ended April 3, 1993 and April 2,
1994. It has been derived from the Consolidated Financial Statements of the
Company. Such information for each fiscal year should be read in conjunction
with the Consolidated Financial Statements and notes thereto and the reports of
Arthur Andersen & Co. appearing elsewhere in this Prospectus. The summary data
for the thirteen-week periods are unaudited and include, in the opinion of
management, all normal recurring adjustments necessary for a fair presentation
of the financial position and results of operations for such periods. Certain
prior period amounts have been reclassified to be comparable with current
period presentation.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" and the Consolidated Financial Statements and notes thereto
(including the Notes to Consolidated Condensed Financial Statements) included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE
--------------------------------------------------------------------------
13-WEEK PERIOD
52-WEEK PERIOD ENDED ENDED
-------------------------- -----------------
53-WEEK 52-WEEK
DEC. 30, DEC. 29, DEC. 28, PERIOD ENDED PERIOD ENDED APRIL 3, APRIL 2,
1989 1990 1991 JAN. 2, 1993 JAN. 1, 1994 1993 1994
-------- -------- -------- ------------ ------------ -------- --------
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenues.......... $5,461 $5,584 $5,654 $5,781 $6,002 $1,248 $1,318
Net Income(a)........... 151 153 135 100 101 10 10
Net Income Applicable to
Common Shareholders(a). 138 140 122 92 101 10 10
Net Income per Class A
Common Share(a)........ 2.71 2.79 2.40 2.01 2.29 .21 .23
Total Assets............ 3,837 3,906 3,948 3,485 3,835 3,533 4,167
Short-Term Borrowings... -- -- -- -- -- 228 367
Long-Term Debt.......... 729 651 521 125 213 222 402
Obligations Under Capi-
tal Leases............. 119 111 104 95 89 94 87
Redeemable Preferred
Stock.................. 90 90 90 -- -- -- --
Total Shareholders' Eq-
uity................... 287 421 520 553 607 562 626
Cash Dividends per
Common Share........... -- -- -- .25 .50 -- --
</TABLE>
- --------
(a) Amounts for the 53-week period ended January 2, 1993 are presented before
cumulative effect of changes in accounting principles. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
for a discussion of the significant impact of these changes.
13
<PAGE>
THE COMPANY
The Company is a Delaware corporation which was formed in February, 1988,
under the name "BFB Acquisition Corp.", solely for the purpose of acquiring
Montgomery Ward from Marcor Inc., a Delaware corporation ("Marcor"), a wholly-
owned subsidiary of Mobil Corporation, a Delaware corporation ("Mobil"). The
acquisition of Montgomery Ward by the Company (the "Acquisition") was
consummated (the "Closing") on June 23, 1988 (the "Closing Date"). The
Company's financial condition during the foreseeable future will be entirely
dependent upon the results of operations of Montgomery Ward and Montgomery
Ward's subsidiaries.
Founded in 1872, Montgomery Ward is one of the nation's largest retail
merchandising organizations. As of January 1, 1994, Montgomery Ward operated
364 retail stores in 39 states with approximately 28 million square feet of
selling space. In addition, Montgomery Ward operated 17 liquidation centers
which sell overstock merchandise, 21 distribution facilities and 117 product
service centers. See "BUSINESS" and "PROPERTIES."
During the 52-week period ended January 1, 1994, Montgomery Ward had
consolidated net sales of approximately $5.6 billion and had the equivalent of
approximately 51,350 full-time associates. Montgomery Ward offers a broad range
of quality national brands and proprietary brands as well as its own private
label goods in the areas of apparel including jewelry, electronics, automotive,
appliances and home furnishings. Montgomery Ward's retail business is seasonal,
with one-third of the sales traditionally occurring in the fourth quarter. See
"SELECTED FINANCIAL DATA" and "BUSINESS."
On March 30, 1994, Montgomery Ward acquired all of the outstanding stock of
LMR, which owns 100% of the stock of Lechmere. As of that date, Lechmere
operated 24 high volume stores in the northeast United States. Lechmere stores
carry a broad range of quality name brand products in the following categories:
consumer electronics, home office and entertainment software, appliances,
housewares, photography, and recreation and leisure.
Montgomery Ward offers life and health insurance, revolving credit insurance,
club products and other consumer services through the Signature Group.
Signature is one of the largest direct marketing companies in the United
States. See "BUSINESS--Direct Marketing."
The Company's principal executive offices are located at Montgomery Ward
Plaza, Chicago, Illinois 60671, and its telephone number at such offices is
(312) 467-2000.
RISK FACTORS
THE PURCHASE OF THE SHARES OFFERED HEREBY INVOLVES A NUMBER OF SIGNIFICANT
RISKS. PROSPECTIVE PURCHASERS SHOULD CONSIDER, AMONG OTHER RISKS, THE
FOLLOWING:
LACK OF PUBLIC MARKET; INABILITY OF THE COMPANY TO PAY CASH FOR SHARES ON
EXERCISE OF A PUT OR CALL OPTION; USE OF A NOTE; DELAY IN EXERCISE OF CALL
OPTIONS. There is no existing market for the Shares. Additionally, the
Stockholders' Agreement contains significant restrictions on transfer, rights
of refusal with respect to transfers other than to Permitted Transferees and
put and call options.
The purchase price for Shares purchased under the Stockholders' Agreement,
for reasons other than voluntary termination of Purchaser's employment (other
than by reason of normal retirement in accordance with the Ward Group
retirement policies) or such Purchaser's termination for Cause, may be paid 25%
at the time of the purchase with the balance payable in three equal
installments, together with interest, on the first three anniversaries of the
purchase. The purchase price paid to purchase Shares as a result of the
voluntary termination of Purchaser's employment (other than by reason of normal
retirement in accordance with the Ward Group retirement policies) or
termination of Purchaser's employment for Cause may be paid 16 2/3% at the time
of the purchase with the balance payable in five equal installments, together
with interest, on the first five anniversaries of the purchase. In either case,
the balance of the purchase price will be
14
<PAGE>
evidenced by a note and secured by a pledge of Voting Trust Certificates
representing Shares having a Fair Market Value (as defined herein) (determined
as of the date of closing of the purchase) equal to the balance of the purchase
price.
Under the Stockholders' Agreement, the Company's obligations to purchase
Shares and to make cash installment payments for Shares purchased will be
suspended for up to one year if payments resulting from such purchase or such
installment payments, as the case may be, would exceed certain specified
amounts for the fiscal year in which the payments are to be made or would
violate any applicable provision of the General Corporation Law of the State of
Delaware or such payments or dividends from Montgomery Ward to the Company to
fund such payments would violate any material agreement to which any member of
the Ward Group is a party. To the extent that after the expiration of such one-
year period, (i) the Company remains unable to make any portion or all of such
repurchase without causing such a violation, the Company will be relieved of
such repurchase obligation and the Shares not so repurchased will remain
subject to all applicable provisions of the Stockholders' Agreement or (ii) the
Company remains unable to make any portion or all of such installment payments
without causing such a violation, the Company will not be required to make such
payments and the holder of the note with respect thereto shall have the right
to foreclose on the collateral securing such note, but any other claims that
the holder of such note may have will be subordinated to the most junior
indebtedness for money borrowed of the Ward Group and all indebtedness for
money borrowed senior thereto.
FINANCING RESTRICTIONS AND DIVIDEND PAYMENT RESTRICTIONS. Montgomery Ward's
financing agreements impose various restrictions on Montgomery Ward, including
the satisfaction of certain financial tests and restrictions on the ability to
pay dividends or make any other distributions to the Company or redeem any
common stock of Montgomery Ward (including, without limitation, whether or not
any of such actions are sought to be taken in connection with the repurchase of
Shares pursuant to the terms of the Stockholders Agreement). See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
Discussion of Financial Condition," for a description of such restrictions. In
addition, holders of Senior Preferred Stock will have a prior right to dividend
payments before any dividends can be declared or paid on Common Stock. See Note
17 to the Consolidated Financial Statements for restrictions on dividends which
may be paid by the insurance subsidiaries of Signature.
UNCERTAINTIES OF THE ECONOMY. The results of Montgomery Ward's operations are
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 businesses could also be
affected by future price changes, legislation, taxes, labor conditions,
unseasonable or unusual weather conditions and transportation regulations.
Additionally, because Montgomery Ward sells merchandise to "middle America",
results may be significantly impacted by slowdowns affecting that segment of
the general economy. See "BUSINESS--Merchandising."
NEW STORE LOCATIONS. Montgomery Ward has a growth strategy for the next
several years. As a key part of this strategy, Montgomery Ward anticipates
opening a number of new full-line stores which encompass Montgomery Ward's
specialty store concept. Montgomery Ward seeks to open several of such new
stores in or near existing Montgomery Ward markets to further leverage
advertising expenditures, existing distribution facilities and the corporate
administrative structure. In addition, Montgomery Ward has announced plans to
open six Electric Avenue & More stores in 1994. These specialty stores will be
opened in markets with populations of 150,000 to 200,000, where full-line
stores have not traditionally operated and in multi-store markets in which
Montgomery Ward cannot find suitable locations for additional full-line stores.
The ability to open new stores is dependent upon, among other things,
sufficient capital to fund the acquisitions and the availability of locations
in areas desired by Montgomery Ward, neither of which is entirely within the
control of the Company or Montgomery Ward.
TRANSFER RESTRICTIONS. The Shares covered hereby are subject to the
Stockholders' Agreement. Pursuant to the terms of the Stockholders' Agreement,
Purchasers are designated as either Type 1 Management Shareholders or Type 2
Management Shareholders. Although designated "Management Shareholders," the
Stockholders Agreement does not require that Type 1 Management Shareholders or
Type 2 Management
15
<PAGE>
Shareholders be associates of the Ward Group. Purchasers are Type 2 Management
Shareholders unless otherwise specifically designated by the Designator with
the consent of GE Capital. A Type 2 Management Shareholder generally may not
sell, assign, pledge, encumber or otherwise transfer to any person the Shares
for a period of three years after the date of his or her first purchase of any
shares of the Common Stock, without distinction as to class or series. Certain
transfers, such as those made with the approval of the Board of Directors or to
certain family members or other Permitted Transferees will be permitted during
that three-year period. See "THE STOCKHOLDERS' AGREEMENT--Restrictions on
Transfer". Except for certain limited permitted transfers, no transfer may be
made of Non-Vested Shares and only specified percentages of Vested Shares may
be transferred in the fourth and fifth years after the date of a Management
Shareholder's first acquisition of any shares of the Common Stock, without
distinction as to class or series. For an indefinite period of time after the
Shares become Vested Shares and until the date, if any, when the Public
Offering Termination Date occurs, all such transfers by Purchasers will only be
permitted subject to rights of first refusal held by the Designated Management
Optionees, the Company and GE Capital. If and when the Public Offering
Termination Date occurs, the restrictions on transfers of Shares by persons
owning less than 1% of the voting power and dividend and liquidation rights of
the Common Stock will be eliminated. Purchasers may have only limited
opportunities to dispose of their Shares for a substantial period of time,
except for mandatory dispositions made as a result of termination of
employment.
All of the shares of Class B Common Stock and virtually all of the
outstanding shares of Class A Common Stock are eligible for transfer, subject
to the rights of first refusal described above. The restrictions contained in
the Montgomery Ward financing agreements may significantly limit the Company's
ability to exercise its right of first refusal with respect to the transfer of
any such Shares.
CALL OF SHARES UPON TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. If a Type
2 Management Shareholder's employment is terminated for any reason including
his or her death or total permanent disability, and upon the death of a Type 2
Management Shareholder following termination of employment, the Designated
Management Optionees and the Company will have the right to purchase all or any
portion of that Type 2 Management Shareholder's Shares (a "call"). The purchase
price of Non-Vested Shares will generally be the lesser of the price paid for
them upon their issuance or reissuance by the Company or their "Fair Market
Value" determined in accordance with the terms of the Stockholders' Agreement.
The purchase price for Shares which are vested for purposes of the
Stockholders' Agreement will be their Fair Market Value as so determined.
Generally, 20% of the shares (which are not Plan Shares) will become Vested
Shares on each of the first five anniversaries of the date of the initial
purchase of any shares of Common Stock, without distinction as to class or
series, by a Type 2 Management Shareholder, 20% of Plan Shares will become
Vested Shares on each of the first five anniversaries of the beginning of the
applicable vesting period with respect thereto, provided that, unless otherwise
determined in writing by the Designator, Plan Shares subject to purchase upon
exercise of an Option become Vested Shares upon such purchase, and 100% of a
Management Shareholder's shares will become Vested Shares upon the death or
total permanent disability of such Management Shareholder while he or she is an
associate of the Ward Group. If a Purchaser's employment with the Ward Group is
terminated for Cause, such Purchaser's shares (excluding Shares which were
Vested when purchased as a Designated Management Optionee) will be treated as
Non-Vested Shares. See "THE STOCKHOLDERS' AGREEMENT".
FAIR MARKET VALUE. In the absence of a public market, "Fair Market Value" for
purposes of the Stockholders' Agreement is based upon the fair market value of
the consolidated common equity of the Company as determined annually by the
Board of Directors. The fair market value of the common equity as so determined
by the Board of Directors will be adjusted by adding:
(i) an amount equal to the Fair Market Value at the date of grant of the
shares underlying all outstanding and unexpired Options, Purchase
Rights or other options or rights to acquire shares of Common Stock;
(ii) the amount of cash and other consideration (including any difference
between the Fair Market Value at the date of grant and the exercise
price) received or receivable by the Company during the
16
<PAGE>
then-current fiscal year on account of the exercise of any Options,
Purchase Rights, or other options or rights to acquire shares of Common
Stock; and
(iii) the aggregate consideration received by the Company for shares of
Common Stock issued in the then-current fiscal year not accounted for in
either (i) or (ii) above;
and by subtracting:
(i) the aggregate amount of dividends paid or payable on Common Stock in
the then-current fiscal year; and
(ii) the aggregate amount paid by the Company to redeem, repurchase or
otherwise acquire for consideration shares of Common Stock during the
then-current fiscal year.
Based upon the calculation of the fair market value of the common equity as set
forth above, the Fair Market Value per share of Class A Common Stock (taking
into account all outstanding Options and allocating dilution therefrom between
the holders of the Class A Common Stock and the Class B Common Stock as set
forth in the Stockholders Agreement) will be calculated on the date as
specified in the Stockholders' Agreement; provided, however, that no adjustment
to such Fair Market Value per share as calculated as of the first day of the
then-current fiscal year will be required unless such adjustment would result
in an increase or a decrease of at least 1% from the amount as so determined as
of the beginning of the then-current fiscal year.
The fair market value of the consolidated common equity of the Company as
determined by the Board of Directors was $1,260 million as of January 2, 1994,
and the amount as so adjusted was $1,336 million at that date. Therefore, for
purposes of the Stockholders' Agreement, the Fair Market Value per share of
Class A Common Stock outstanding at that date was $26.50. Absent a trading
market, there is no assurance that the determination by the Board of Directors
as so adjusted will reflect the actual fair market value of Shares at the time
Purchaser sells such Shares pursuant to a put or call right. See "THE
STOCKHOLDERS' AGREEMENT--Ownership of Shares."
CONTROL OF THE COMPANY. Pursuant to the Voting Trust Agreement, until June
21, 1998 the Voting Trustee will have the power to exercise voting control over
all of the outstanding shares of Class A Common Stock, other than such shares
owned by Brennan and certain trusts established for the benefit of members of
his family. Consequently, the owners of such shares will have no voting power
with respect to the election of the Board of Directors or other matters during
such period. In the event that the Voting Trust is not in effect or, in the
event shares are not subject to the Voting Trust, all shares held by
shareholders, except those shares held by Brennan and certain trusts for the
benefit of members of his family, are subject to an agreement (contained in the
Stockholders' Agreement) pursuant to which shareholders agree to vote their
shares in the same manner Brennan votes his shares.
Pursuant to the Stockholders' Agreement and the By-Laws of the Company, the
Board of Directors will consist of five persons designated by the Designator
and four persons designated by GE Capital. See "MANAGEMENT". See "THE
STOCKHOLDERS' AGREEMENT," and "THE VOTING TRUST AGREEMENT." The holders of
Senior Preferred Stock have the right to elect an additional director to the
Board of Directors (a) during the period following a default in the payment of
accrued dividends on the Senior Preferred Stock for four consecutive quarters
until such accrued dividends shall have been paid in full and (b) during the
period following any failure to make a mandatory redemption of Senior Preferred
Stock until such failure shall have been cured. See "DESCRIPTION OF EQUITY
SECURITIES--Senior Preferred Stock--Voting Rights."
If GE Capital and its affiliates cease to own more than 50% of the number of
shares of Common Stock initially purchased by them, the number of directors
which the Designator is permitted to designate will be increased by one and the
number of directors which GE Capital may designate will be reduced by one. If
GE Capital and its affiliates cease to own 20% or more of such shares of Common
Stock, except as described below, GE Capital will have no right to designate
any directors. In that event, the number of directors will
17
<PAGE>
be reduced to seven, five of whom will be elected by the holders of Class A
Common Stock, voting as a class, and two of whom will be elected by the holders
of Class B Common Stock, voting as a class; provided that, so long as the
Account Purchase Agreement remains in effect and GE Capital or any of its
affiliates owns any shares of Class B Common Stock, GE Capital will be entitled
to elect one of the directors to be elected by holders of Class B Common Stock.
INTEREST RATE SENSITIVITY. Under the Restated Credit Agreement, the Short
Term Agreement and the Term Loan Agreement (each as herein defined), Montgomery
Ward may select among several interest rate options, including a rate
negotiated with one or more of the various lenders. The interest rates for the
aforementioned bank borrowings are based on market rates and significant
increases in market interest rates will increase interest payments required. In
addition, Montgomery Ward's obligations under the Account Purchase Agreement
are also interest rate sensitive. Under the Account Purchase Agreement,
Montgomery Ward is required to pay to Montgomery Ward Credit the excess
interest costs on a monthly basis if a blended interest rate applicable to
Montgomery Ward Credit's finance costs with respect to the receivables exceeds
10%. To date, such blended interest rate has not exceeded 10%. See "BUSINESS--
Account Purchase Agreement."
THE STOCKHOLDERS' AGREEMENT
GENERAL
All of the current holders of Class A Common Stock, Series 1 and Class B
Common Stock are parties to (and all Purchasers hereunder will be required to
become subject to) the Stockholders' Agreement. The summary which follows is
qualified in its entirety by reference to the Stockholders' Agreement which, as
in effect on the date hereof and as contemplated to be amended as of the date
hereof, is attached hereto as Annex 1. In this section of this Prospectus
(under the caption "THE STOCKHOLDERS' AGREEMENT") the word "Shares" is used to
refer to shares of Class A Common Stock, Series 1, Series 2 and Series 3 and
Class B Common Stock and includes Voting Trust Certificates. "Shareholders"
refers to holders of Shares as so defined. Plan Shares which are not subject to
the Stockholders' Agreement are subject to the Terms and Conditions. Although
the descriptions set forth herein of the treatment of Shares pursuant to the
Stockholders' Agreement is not applicable to such Plan Shares, the Terms and
Conditions and the Stockholders' Agreement contain terms substantially similar
to each other with respect to the subject of this discussion. The descriptions
of the treatment of Plan Shares herein refer to Plan Shares subject to the
Stockholders' Agreement, unless otherwise indicated.
OWNERSHIP OF SHARES
CLASSIFICATION OF MANAGEMENT SHAREHOLDERS. The Stockholders' Agreement
classifies the Management Shareholders as Type 1 Management Shareholders and
Type 2 Management Shareholders. There is no requirement in the Stockholders'
Agreement that Type 1 Management Shareholders or Type 2 Management Shareholders
be associates of the Ward Group. All Shares purchased by a Type 1 Management
Shareholder are Vested Shares at the time of purchase of his or her Shares. A
Type 2 Management Shareholder's Shares (other than Plan Shares) will generally
become Vested Shares (unless they are Vested Shares when acquired) over a five-
year period beginning on the date of the earliest acquisition of any Shares,
without distinction as to class or series, by the applicable Management
Shareholder. Prior to an Event, Brennan as Designator, and from and after the
occurrence of an Event, the Committee as Designator, determines whether a
Management Shareholder is a Type 1 Management Shareholder or a Type 2
Management Shareholder, subject to the consent of GE Capital as long as GE
Capital owns at least 20% of the Shares initially purchased by GE Capital. All
of the members of Montgomery Ward's management who are currently Shareholders
(other than Brennan) are Type 2 Management Shareholders. Brennan, Silas S.
Cathcart and Myron Lieberman are currently the only Type 1 Management
Shareholders. Purchasers of Shares will be classified as Type 1 Management
Shareholders or Type 2 Management Shareholders upon entering into the
Stockholders' Agreement. However, it is currently anticipated that all
Management Shareholders, other than current Type 1 Management Shareholders and
certain individuals and entities who may receive Shares in connection with the
purchase by Montgomery Ward of Lechmere, will be classified as Type 2
Management Shareholders.
18
<PAGE>
THE DESIGNATOR AND THE COMMITTEE. Prior to the occurrence of an Event, for
all purposes other than designating (and in connection with the designation of)
Designated Management Optionees, the Designator is Brennan. At all times for
purposes of (and in connection with) the designation of Designated Management
Optionees, and from and after the occurrence of an Event for all purposes
(including, without limitation the designation (and in connection with the
designation) of Designated Management Optionees), the Designator is the
Committee (which is made up of three Management Shareholders). The Committee,
except as provided below, will be comprised of Brennan, Pohlmann and Lieberman.
Brennan is currently Chairman and Chief Executive Officer and a director of the
Company, Pohlmann is currently Executive Vice President of the Company and
Lieberman is currently a director of the Company. Prior to the occurrence of an
Event, if any member of the Committee resigns from the Committee or ceases to
be a Qualified Management Shareholder, then such person will cease to be a
member of the Committee and the remaining members of the Committee will, as
soon as practicable, appoint a Qualified Management Shareholder as a member of
the Committee and thereby fill the vacancy on the Committee so created. From
and after the occurrence of an Event, the Committee will be comprised of Heine
(currently Executive Vice President, Secretary and General Counsel and a
director of the Company), Pohlmann and Lieberman (each of Heine, Pohlmann and
Lieberman being a Continuing Member and collectively being the Continuing
Members) so long as each is a Qualified Management Shareholder; provided,
however, that at any time from and after the occurrence of an Event (i) if one,
but only one, Continuing Member has resigned from the Committee or has ceased
to be a Qualified Management Shareholder, then the Committee will be comprised
of the two remaining Continuing Members who have not resigned and are Qualified
Management Shareholders and the Largest Management Shareholder (as defined
below) (but the Second Largest Management Shareholder (as defined below) shall
be such replacement member of the Committee if the Largest Management
Shareholder is one of such remaining Continuing Members, and the Third Largest
Management Shareholder (as defined below) shall be such replacement member of
the Committee if both the Largest Management Shareholder and the Second Largest
Management Shareholder are such remaining Continuing Members), (ii) if each of
two, but only two, of the Continuing Members has either resigned from the
Committee or ceased to be a Qualified Management Shareholder, then the
Committee will be comprised of the remaining Continuing Member who has not
resigned and is a Qualified Management Shareholder, the Largest Management
Shareholder and the Second Largest Management Shareholder (but the Second
Largest Management Shareholder and the Third Largest Management Shareholder
shall be such replacement members of the Committee if the Largest Management
Shareholder is such Continuing Member, and the Largest Management Shareholder
and the Third Largest Management Shareholder shall be such replacement members
of the Committee if the Second Largest Management Shareholder is such
Continuing Member), and (iii) if each of the Continuing Members has either
resigned from the Committee or ceased to be a Qualified Management Shareholder,
then the Committee will be comprised of the Largest Management Shareholder, the
Second Largest Management Shareholder and the Third Largest Management
Shareholder.
In all cases, the Committee will act by the vote of a majority of its
members; provided, however, that neither a member of the Committee nor a member
of his Family (as defined in the Stockholders' Agreement) may be designated as
a Designated Management Optionee except upon the affirmative vote of all other
members of the Committee.
A "Qualified Management Shareholder" is each of Lieberman and any other
person who is a Management Shareholder and employed by a member of the Ward
Group. A person will cease to be a Qualified Management Shareholder if he (i)
ceases to be a Management Shareholder, (ii) dies, (iii) is adjudicated
incompetent, (iv) in the case of Lieberman, ceases to be a director of the
Company or (v) in the case of any Management Shareholder other than Lieberman,
ceases to be employed by one or more members of the Ward Group so that
thereafter no member of the Ward Group employs such Management Shareholder.
An "Event" means that Brennan has either resigned from the Committee or
ceased to be a Qualified Management Shareholder.
19
<PAGE>
The "Largest Management Shareholder" is the Management Shareholder (other
than Brennan and any Management Shareholder who is not willing or able to serve
on the Committee) who, from time to time, is employed by a member of the Ward
Group and is the owner of the largest number of Shares as compared to each
other Management Shareholder (other than Brennan and any Management Shareholder
who is not willing or able to serve on the Committee) and who is willing and
able to serve as a member of the Committee.
The "Second Largest Management Shareholder" is the Management Shareholder
(other than Brennan, the Largest Management Shareholder and any Management
Shareholder who is not willing or able to serve on the Committee) who, from
time to time, is employed by a member of the Ward Group and is the owner of the
largest number of Shares as compared to each other Management Shareholder
(other than Brennan, the Largest Management Shareholder and any Management
Shareholder who is not willing or able to serve on the Committee) and who is
willing and able to serve on the Committee.
The "Third Largest Management Shareholder" is the Management Shareholder
(other than Brennan, the Largest Management Shareholder, the Second Largest
Management Shareholder and any Management Shareholder who is not willing or
able to serve on the Committee) who, from time to time, is employed by a member
of the Ward Group and is the owner of the largest number of Shares as compared
to each other Management Shareholder (other than Brennan, the Largest
Management Shareholder, the Second Largest Management Shareholder and any
Management Shareholder who is not willing or able to serve on the Committee)
and who is willing and able to serve on the Committee.
For the purposes of determining the Largest Management Shareholder, the
Second Largest Management Shareholder and the Third Largest Management
Shareholder, a Management Shareholder is deemed to own all Shares owned by his
or her Permitted Transferees. In the event that two or more persons own the
same number of Shares so that each, in the absence of the other (or others, as
the case may be) would be the Largest Management Shareholder, the Second
Largest Management Shareholder or the Third Largest Management Shareholder (as
the case may be), then the remaining member (or members, as the case may be) of
the Committee from time to time shall determine which of such person or persons
shall be deemed to be the Largest Management Shareholder, the Second Largest
Management Shareholder or the Third Largest Management Shareholder, as the case
may be.
RESTRICTIONS ON TRANSFER BY MANAGEMENT SHAREHOLDERS. The Stockholders'
Agreement contains important restrictions on transfers of Shares. Certain
transfers, such as those made with the approval of the Board of Directors, by
Brennan to other Management Shareholders, by other Management Shareholders to
Brennan, by a Management Shareholder to a bank to secure a loan to purchase
such Shares and to family members and other Permitted Transferees are
permitted. No other transfers by a Management Shareholder of Shares will be
permitted for a period of three years from the date such Management Shareholder
first acquired any Shares, without distinction as to class or series, except
after the earlier occurrence of the Public Offering Termination Date. After
such three-year period (or earlier occurrence of the Public Offering
Termination Date) other transfers may be made, but only of Vested Shares and
subject to rights of first refusal and to limits on the amount of Vested Shares
that may be transferred by a Management Shareholder and his or her Permitted
Transferees of 1/3 and 1/2, respectively, of the Vested Shares held at the
beginning of each year during the first and second years after the expiration
of such three-year period. Generally, no Management Shareholder is permitted to
make such transfers unless he, she or it has received a written offer to
purchase from a third party. In any event, transferees will be subject to the
reasonable approval of the Board of Directors of the Company. If the transferor
is a Management Shareholder, any Designated Management Optionees will have the
first right of refusal, the Company will have a second right of refusal, and GE
Capital will have the third right of refusal to purchase the Shares on the
terms of the proposed transfer.
RESTRICTIONS ON TRANSFERS BY GE CAPITAL AND ITS AFFILIATES. The Stockholders'
Agreement grants a first right of offer in favor of the Designated Management
Optionees and a second right of offer in favor of the Company in connection
with transfers by GE Capital and its affiliates.
20
<PAGE>
PURCHASE OF SHARES UPON TERMINATION OF EMPLOYMENT OF A TYPE 2 MANAGEMENT
SHAREHOLDER. Upon (or in certain cases following) the termination of a Type 2
Management Shareholder's employment with all members of the Ward Group for any
reason other than death or total permanent disability, any Designated
Management Optionees will have an option to purchase all or any portion of the
Shares owned by such Type 2 Management Shareholder and each of his or her
Permitted Transferees and, to the extent that those options are not exercised,
the Company will have an option to purchase all or any portion of such Shares.
PURCHASE OF SHARES UPON THE DEATH OR TOTAL PERMANENT DISABILITY OF A TYPE 2
MANAGEMENT SHAREHOLDER DURING EMPLOYMENT. Upon the death of a Type 2 Management
Shareholder while such Type 2 Management Shareholder is an associate of any
member of the Ward Group, or upon (or in certain cases following) the
termination of employment of a Type 2 Management Shareholder with any member of
the Ward Group by reason of total permanent disability, the personal
representative of the deceased or totally disabled Type 2 Management
Shareholder or the totally disabled Type 2 Management Shareholder and each
Permitted Transferee of the deceased or totally disabled Type 2 Management
Shareholder, will each have a 90-day option to sell all or any portion of the
Shares then owned by such respective Shareholders. Any Designated Management
Optionees will have the option to purchase all or any portion of the Shares as
to which the options to sell were exercised, and the Company will be required
to purchase the Shares as to which the options to sell were exercised and which
were not purchased by any Designated Management Optionee. Any Designated
Management Optionees will also have the option to purchase all or any portion
of the Shares as to which the options to sell were not exercised, and the
Company will have the option to purchase the Shares as to which the options to
sell were not exercised and which were not purchased by any Designated
Management Optionee. Such 90-day options to sell will terminate upon the Public
Offering Termination Date.
PURCHASE OF SHARES UPON THE DEATH OF A TYPE 2 MANAGEMENT SHAREHOLDER
FOLLOWING TERMINATION OF EMPLOYMENT. Upon the death of a Type 2 Management
Shareholder following termination of the Type 2 Management Shareholder's
employment with all members of the Ward Group, if that Type 2 Management
Shareholder and his or her Permitted Transferees did not previously sell all
Shares owned by them pursuant to the Stockholders Agreement, any Designated
Management Optionees will have an option to purchase all or any portion of the
Shares owned by such Type 2 Management Shareholder at the time of death and
each of his or her Permitted Transferees, and the Company will have an option
to purchase all or any portion of the Shares which are not purchased by any
such Designated Management Optionees.
PURCHASE OF SHARES UPON THE TERMINATION OF BRENNAN'S EMPLOYMENT WITHOUT
CAUSE. Upon (or in certain cases following) the termination of Brennan's
employment with all members of the Ward Group which occurs by reason of the
Ward Group's termination of Brennan's employment without Cause, Brennan and
each of his Permitted Transferees will have the option from time to time, to
sell to the Company at Fair Market Value all or any portion of the Shares then
owned by such respective Shareholders.
PURCHASE OF SHARES UPON THE TERMINATION OF BRENNAN'S EMPLOYMENT BY REASON OF
HIS DEATH OR TOTAL PERMANENT DISABILITY. Upon (or in certain cases following)
the termination of Brennan's employment with the Ward Group by reason of his
death or total permanent disability, in each case before the Public Offering
Termination Date, Brennan or his personal representative (as the case may be)
and each of his Permitted Transferees will have the option from time to time
for up to five years to sell to the Company all or any portion of the Shares
then owned by such respective Shareholders and the Company will have the option
to purchase from such Shareholders all or any portion of the Shares then owned
by such Shareholders as to which they did not theretofore exercise their
respective options to sell, provided that the number of Shares as to which the
Company may exercise such options, when added to the number of Shares as to
which Brennan or his personal representative and his Permitted Transferees have
theretofore exercised their options, may not exceed 35% of the Shares (as
adjusted for stock dividends and split-ups) which Brennan and his Permitted
Transferees purchased in connection with the acquisition of Montgomery Ward.
For all such purchases, the purchase price will be the Fair Market Value of the
Shares purchased.
21
<PAGE>
PURCHASE OF SHARES UPON THE DEATH OF BRENNAN FOLLOWING THE TERMINATION OF HIS
EMPLOYMENT WITH THE WARD GROUP. Upon the death of Brennan following the
termination of his employment with the Ward Group and prior to the Public
Offering Termination Date, Brennan's personal representative, and each of his
Permitted Transferees, shall have the option from time to time for up to five
years after Brennan's death to sell to the Company at Fair Market Value all or
any portion of the Shares then owned by such respective Shareholders.
PURCHASE OF SHARES UPON THE DEATH OF A TYPE 1 MANAGEMENT SHAREHOLDER OTHER
THAN BRENNAN. In the event of the death of any Type 1 Management Shareholder
other than Brennan before the Public Offering Termination Date, the personal
representative of the deceased Type 1 Management Shareholder, and each
Permitted Transferee of the deceased Type 1 Management Shareholder will each
have a 90-day option to sell at Fair Market Value all or any portion of the
Shares then owned by such respective Shareholders. Any Designated Management
Optionees will have the option to purchase all or any portion of the Shares as
to which the options to sell were exercised, and the Company will be required
to purchase the Shares as to which the options to sell were exercised and which
were not purchased by any Designated Management Optionees.
PURCHASE PRICE OF SHARES. Generally the purchase price ("Purchase Price") of
Shares to be purchased from Type 2 Management Shareholders and their Permitted
Transferees under the provisions described above will be the Fair Market Value
for Vested Shares and the lesser of the Fair Market Value and the acquisition
price upon issuance or resale by the Company (or $.01 per share in the case of
an Award) for Non-Vested Shares. If options are exercised for less than all of
the Shares owned by a Type 2 Management Shareholder and his Permitted
Transferees, in determining the Purchase Price, the Non-Vested Shares will be
deemed to have been purchased or sold first. The Purchase Price of Non-Vested
Shares that are purchased as a result of the death of a Type 2 Management
Shareholder following termination of employment will be increased by a simple
interest factor of 8% per annum calculated from the date of termination of
employment until the purchase is consummated, provided that the Purchase Price,
as so increased, will not exceed the Fair Market Value.
VESTING OF SHARES. All Shares are classified as either Vested Shares or Non-
Vested Shares under the Stockholders' Agreement. All Shares held by any Type 1
Management Shareholder are Vested Shares. Shares held by a Type 2 Management
Shareholder (other than Plan Shares) are Vested Shares and Non-Vested Shares as
follows. All Vested Shares purchased by a Type 2 Management Shareholder shall
continue to be Vested Shares in the hands of such Purchaser. All Non-Vested
Shares purchased by a Type 2 Management Shareholder, who was not a holder of
Shares prior to such purchase, will be Non-Vested Shares as of the date of such
purchase and will become Vested Shares as described below. Non-Vested Shares
purchased by a Type 2 Management Shareholder, who was a holder of Shares prior
to such purchase, will be Vested Shares to the extent of such Type 2 Management
Shareholder's Vested Percentage, such Vested Percentage being equal to the
percentage of Shares which would have been Vested Shares as of the date of such
purchase if such Type 2 Management Shareholder had owned such Shares since the
date such Type 2 Management Shareholder first acquired any Shares, without
distinction as to class or series. Except to the extent a vesting schedule is
accelerated by the Designator at its discretion, generally, 20% of all Non-
Vested non-Plan Shares held by a Type 2 Management Shareholder will become
Vested Shares on each of the first five anniversaries of the date of the
earliest acquisition of any non-Plan Shares, without distinction as to class or
series, by such Type 2 Management Shareholder. Plan Shares acquired by a Type 2
Management Shareholder pursuant to Awards, or upon exercise of Purchase Rights
or Options shall be Vested Shares and Non-Vested Shares as follows. The vesting
period for Plan Shares received pursuant to an Award or purchased upon the
exercise of a Purchase Right begins with the date of the grant of the Award or
the exercise of the Purchase Right, respectively. The vesting period for Plan
Shares purchased upon the exercise of an Option begins with the date of the
grant, but no such Plan Shares shall be vested prior to purchase. Subject to
the limitations stated with respect to Plan Shares subject to an Option, 20% of
the Plan Shares granted pursuant to an Award, Purchase Right or Option will
vest on each of the first five anniversaries of the beginning of the applicable
22
<PAGE>
vesting period with respect thereto, provided that, unless otherwise determined
in writing by the Designator, Plan Shares subject to purchase upon exercise of
an Option become Vested Shares upon such purchase. As is the case with Non-
Vested Shares which are not Plan Shares, the Designator may accelerate the
vesting of Non-Vested Plan Shares. All Non-Vested Shares will become Vested
Shares on the Public Offering Termination Date, other than for purposes of the
call options which arise upon death following termination of employment. All
Non-Vested Shares of a Type 2 Management Shareholder who shall have died or
become totally permanently disabled while an associate of the Ward Group shall
become Vested Shares as of the date of such death or disability. All Shares,
whether Vested Shares or Non-Vested Shares, held by an associate of the Ward
Group shall become Non-Vested Shares upon the termination of such associate's
employment with the Ward Group for Cause, other than Shares that were Vested
Shares when acquired by such associate other than through application of such
associate's Vested Percentage.
MANNER OF PAYMENT. Except as described below, the Purchase Price will
generally be paid 25% in cash at the closing of the purchase with the balance
payable in three equal annual installments on the first, second and third
anniversaries of such closing. The Company will be permitted to offset such
cash payment and any principal and interest payments due thereunder against any
amount due under the Line of Credit Program (as hereinafter defined) and to
make payments to a Bank (as hereinafter defined) on behalf of such selling
shareholder in lieu of paying a like amount to said shareholder. If certain
life insurance proceeds are obtained by any member of the Ward Group and the
Company is purchasing Shares of a deceased Management Shareholder or his or her
Permitted Transferees, the portion of the purchase price to be paid in cash
shall be increased by the amount of available proceeds. However, in the event
of a purchase of Shares following the voluntary termination of employment of a
Type 2 Management Shareholder with all members of the Ward Group (other than by
reason of normal retirement in accordance with the Ward Group's applicable
retirement policies), or the termination of employment of such Management
Shareholder with a member of the Ward Group for Cause, the amount which shall
be paid at closing will generally be 16 2/3% of the Purchase Price, and the
balance of the Purchase Price will be paid in five equal annual installments on
the first through fifth anniversaries of such closing. In such cases, the
Company may offset payments to, or make payments on behalf of, such selling
shareholder in the manner described above for the three-year installments. In
all cases the balance of the Purchase Price will be evidenced by a note of the
type described in the Stockholders Agreement and secured in the manner
described therein.
POSSIBLE DELAY IN PURCHASE OF SHARES OR PAYMENT FOR SHARES PURCHASED BY THE
COMPANY. Under certain circumstances, the Company is given up to one year to
complete a purchase of Shares (or make an installment payment for Shares
previously purchased) it could not otherwise make because of applicable
corporate law, cash payment limitations set forth in the Stockholders'
Agreement or because the payment by the Company with respect to such purchase
or such installment payment, as the case may be, or a payment or dividend from
Montgomery Ward to the Company to fund such payment would constitute a breach
of a material contract to which any member of the Ward Group is a party. To the
extent that after the expiration of such one-year period, (i) the Company
remains unable to make any portion or all of such repurchase without causing
such a violation, the Company will be relieved of such repurchase obligation
and the Shares not so repurchased will remain subject to all applicable
provisions of the Stockholders' Agreement or (ii) the Company remains unable to
make any portion or all of such installment payments without causing such a
violation, the Company will not be required to make such payments and the
holder of the note with respect thereto shall have the right to foreclose on
the collateral securing such note, but any other claims that the holder of such
note may have will be subordinated to the most junior indebtedness for money
borrowed of the Ward Group and all indebtedness for money borrowed senior
thereto. In connection with the foregoing, the Company is conditionally
permitted to exercise options to purchase Shares from Type 2 Management
Shareholders in which case the purchase of such Shares may be delayed for up to
one year.
CONTROL MATTERS
VOTING OF SHARES. So long as the Voting Trust is in effect, all Shares
deposited therein will be voted by the Voting Trustee (currently Brennan). All
Class A Shares, other than those held by Brennan and certain
23
<PAGE>
trusts for the benefit of members of his family, are currently deposited in the
Voting Trust. In the event that the Voting Trust is not in effect or in the
event Shares deposited therein are not subject to the Voting Trust, all Class A
Shares held by the Shareholders, except those Shares held by Brennan and
certain trusts for the benefit of members of his family, are subject to a
voting agreement under which the holders agree to vote their Shares in the same
way Brennan votes his Shares until June 17, 1998.
DIRECTORS. The Board of Directors consists of nine members. The Stockholders'
Agreement requires the parties thereto to elect all such directors, five to be
designated, prior to the occurrence of an Event, by Brennan as Designator, and
from and after the occurrence of an Event, by the Committee as Designator, and
four to be designated by GE Capital. See "MANAGEMENT--Directors and Executive
Officers."
If GE Capital and its affiliates cease to own more than 50% of the number of
shares of Common Stock initially purchased by them, the number of directors
which, prior to the occurrence of an Event, Brennan as Designator, and from and
after the occurrence of an Event, the Committee as Designator, is permitted to
designate will be increased by one, and the number of directors which GE
Capital may designate shall be reduced by one. If GE Capital and its affiliates
cease to own 20% or more of such shares of Common Stock, except as described
below, GE Capital shall have no right to designate any directors, and the
number of directors shall be reduced to seven, five of whom will be elected by
the holders of Class A Common Stock, voting as a class, and two of whom will be
elected by the holders of Class B Common Stock, voting as a class; provided
that, so long as the Account Purchase Agreement (as herein defined) remains in
effect, and GE Capital or any of its affiliates owns any Shares, without
distinction as to class or series, GE Capital will be entitled to elect one of
the two directors to be elected by the holders of Class B Common Stock.
The holders of the Senior Preferred Stock have the right to elect one
director to be an additional member of the Board of Directors (a) during the
period following a default in the payment of accrued dividends on the Senior
Preferred Stock for four consecutive quarters until such accrued dividends
shall have been paid in full and (b) during the period following any failure to
make a mandatory redemption of Senior Preferred Stock until such failure shall
have been cured.
The Stockholders' Agreement requires that the Company's by-laws contain
supermajority provisions which require that certain actions, such as mergers,
substantial asset sales, certain amendments to the Company's Certificate of
Incorporation or By-laws, payment of dividends and redemption of Shares other
than in accordance with the terms of the Stockholders Agreement, public
offerings and certain other major corporate transactions be undertaken only
upon the approval of two-thirds of the directors of the Company. See
"DESCRIPTION OF EQUITY SECURITIES--By-Laws; Certain Matters Requiring the Vote
of Two- Thirds of the Directors."
REGISTRATION RIGHTS
The Stockholders' Agreement grants to certain Shareholders who are parties
thereto certain registration rights. Such registration rights do not inure to
the benefit of and are not applicable to any Management Shareholder who (a)
first became a party to the Stockholders Agreement after June 15, 1991 and (b)
at the time he seeks to assert any rights thereunder owns less than 10,000
Shares (including, for this purpose, Plan Shares). When available, such
registration rights provide in substance that the Management Shareholders (as
one "Group" directed exclusively, prior to the occurrence of an Event, by
Brennan as Designator, and from and after the occurrence of an Event, by the
Committee as Designator, in its sole discretion) and GE Capital and its present
and former affiliates (as the other "Group") may demand, on two separate
occasions for each Group, that the Company register with federal and state
authorities such Group's Shares (including, for this purpose, Plan Shares) for
sale to the public, all at the Company's expense. Additional registrations can
be demanded if the registration statement is not maintained continuously
effective for 120 days and an unlimited number of demands for registration on
Form S-3 under the Act are permitted at any time when the Company is eligible
to register shares on Form S-3. In each such case all Shareholders may
participate pro rata in the public offerings, subject to "cutback" if deemed
necessary by the managing underwriter(s), provided that they elect to
participate within certain time limits. In addition to such demand registration
rights each Group will be entitled to "piggyback" for an unlimited number of
occasions as selling shareholders in any public offerings
24
<PAGE>
of stock initiated by the Company, other than registrations on Form S-4 or S-8
under the Act or any form substituting therefor or any registration statement
filed in connection with an offering of securities or granting of options
primarily to associates of any member of the Ward Group or the registration
statement of which this prospectus is a part (or any similar registration
statement in connection with the Stockholders' Agreement). Such "piggyback"
rights are subject to "cutback" if deemed necessary by the managing
underwriters, and eligible Shareholders must elect whether to participate
within certain time limits. The Company will not be required to include any
Shares as a result of the "piggyback" rights if it obtains the opinion of
counsel reasonably satisfactory to the Shareholders seeking to exercise such
rights that such registration is not required for the proposed sale or that a
post-effective amendment to an existing registration statement filed
simultaneously with the proposed sale would be sufficient to permit the sale,
and the Company files the post-effective amendment. In no event can any
Management Shareholder's Shares be sold in any demand or "piggyback"
registrations unless the Voting Trustee shall, in his sole discretion, have
released such Shares to be registered from the Voting Trust and all such Shares
must be Vested Shares. Purchasers should be aware that the exercise of such
registration rights can subject the Company to substantial expense. As a
condition to their exercise of the registration rights, selling Shareholders
are required to provide certain information and to indemnify the Company and
the underwriter(s) against certain liabilities, including liabilities for
violation of securities laws. The Stockholders Agreement prohibits the Company
from granting any registration rights to others on a parity with, or senior to,
the registration rights provided in the Stockholders' Agreement. The
"piggyback" rights will expire on June 17, 1998.
NONCOMPETITION; DEFINITION OF CAUSE
Except as provided below, each Management Shareholder (other than Brennan)
who was an associate of the Ward Group, during the time he or she is employed
by a member of the Ward Group and for a period of three years following the
termination of such employment for any reason, other than discharge without
Cause, may not directly or indirectly own, manage, operate, join, control or
participate in the ownership, management, operation or control of, any
Competing Business (as hereinafter defined) in any of the states of the United
States or any foreign countries in which any member of the Ward Group was so
engaged during the period of his or her employment and continues to be so
engaged at the time of the complained of act (subject only to certain
exceptions such as passive ownership of less than 2% of a public company).
These limitations may be waived by a vote of not less than two-thirds of the
directors of the Company. In addition, the Stockholders' Agreement provides
that the noncompetition provision shall not apply to any person who, (i) if his
or her initial purchase of Shares occurred on or prior to June 15, 1991, at no
time owned 5,000 or more Shares, or (ii) if his or her initial purchase of
Shares occurred after June 15, 1991, at no time owned 25,000 or more Shares.
For purposes of the foregoing calculations, Plan Shares, whether or not subject
to the Stockholders' Agreement, are included.
A Competing Business is defined as any person or entity engaged, in any area
of the world, directly or indirectly, in any retail merchandising business
conducted from multiple retail locations, of a type engaged in by any member of
the Ward Group, or any business of the type engaged in by Signature or any of
its subsidiaries (as long as Signature or such subsidiary is a member of the
Ward Group), other than the insurance business, as of the time of the
complained of act.
Cause is defined as (i) the commission of any crime, whether or not involving
any member of the Ward Group, which constitutes a felony in the jurisdiction
involved; (ii) the sale, use or possession on the premises of any member of the
Ward Group of a controlled substance whose sale, use or possession is illegal
in the manner used or possessed and in the jurisdiction involved; (iii) the
repeated consumption of drugs or alcohol that interferes with the associate's
ability to discharge his assigned responsibilities; (iv) an intentional
violation of the section of the Stockholders' Agreement containing the
noncompetition agreement and the agreement not to divulge confidential
information; (v) in the case of a Type 2 Management Shareholder who is employed
by the Ward Group, the intentional and repeated failure on the part of such
associate to perform such duties as may be delegated to him or her which are
commensurate with his or her employment position and in the case of Brennan,
the intentional repeated refusal, after repeated written notices thereof from
the Board of Directors, to perform such duties at the Company's executive
offices in Chicago, Illinois as may be delegated
25
<PAGE>
to him which are commensurate with his position as chief executive officer of
the Company; or (vi) the unlawful taking or misappropriation of any property
belonging to any member of the Ward Group or in which any member of the Ward
Group has an interest. The vote of two-thirds of the Board of Directors is
required for the termination of Brennan's employment for Cause.
In addition to other remedies available to the Company upon violation of the
noncompetition agreement by a Type 2 Management Shareholder, the Purchase Price
for all Shares previously sold by the Type 2 Management Shareholder and his or
her Permitted Transferees upon the exercise of options under the Management
Stockholders Agreement will be reduced to the amount which would have been paid
to such parties if the Type 2 Management Shareholder had been terminated for
Cause, and, if payments in excess of the reduced Purchase Price were previously
made, the sellers will be required to refund the excess payments.
TERMINATION AND AMENDMENT
The Stockholders' Agreement may be terminated only by the Company with the
approval of the Board of Directors and the written consent of the beneficial
owners of 66 2/3% of the outstanding Shares of each class or upon the sale by
the Ward Group of all or substantially all of its aggregate assets (other than
an intercompany sale within the Ward Group) to a single purchaser or a related
group of purchasers as a single transaction or a related group of transactions,
or upon a merger or consolidation of the Company as a result of which the
percentage of ownership of the surviving or resulting entity held in the
aggregate by the Management Shareholders, Permitted Transferees, GE Capital, GE
Capital affiliates and any person owning Shares who is no longer a GE Capital
affiliate but who was a GE Capital affiliate at the time such person first
acquired Shares, is less than 50% of their percentage of ownership of the
Company immediately prior to such merger or consolidation, or upon the sale, to
a single purchaser or a related group of purchasers, in a single transaction or
a related series of transactions, of not less than 66 2/3% of the outstanding
shares of Common Stock of the Company of each class. Termination of the
Stockholders' Agreement will not affect any rights which arose prior to
termination or the registration rights provisions or the noncompetition and
confidentiality agreements contained therein.
The Stockholders' Agreement may be amended with the consent of holders of not
less than 66 2/3% of the outstanding shares of each class of Common Stock. As
long as the Voting Trust is in effect, the Voting Trustee, and once the Voting
Trust is no longer in effect, the Designator, will have the power, as attorney
in fact, to act for each of the Management Shareholders and each Permitted
Transferee in amending the Stockholders' Agreement; provided, however, that any
amendment with respect to a matter that relates exclusively to the rights of
holders of Shares whose Shares are being sold pursuant to a registration
statement, that relates to the Shares being so sold and that does not directly
or indirectly affect the rights of the other holders of Shares or Shares not
being sold thereunder, must be approved by holders of a majority of the Shares
being sold by such shareholders; further provided that no amendment regarding
indemnity and contribution in connection with the registration of any Shares
under the Act (other than any registrations on Form S-4 or S-8 or any form
substituting therefor or any registration statement filed in connection with an
offering of securities or granting of options primarily to associates of any
member of the Ward Group or any registration statement filed to register Shares
primarily or exclusively for transfer upon exercise of options pursuant to the
Stockholders Agreement or in connection therewith), is effective with respect
to any such registration against any holder of Shares who participated in such
registration and is entitled to its protection unless such shareholder
consented thereto in writing.
CERTAIN FEDERAL INCOME TAX ASPECTS
The following summary describes the material federal income tax aspects of
the purchase of Shares hereunder. The federal income tax laws are technical and
complex whereas the discussion herein is in general terms. The following
discussion is not tax advice but is instead a guide to assist parties to the
Stockholders' Agreement and their advisors. Furthermore, the tax laws are
subject to change (even retroactively) by legislation, administrative rulings
and regulations and judicial decisions. This discussion has been prepared by
and constitutes the opinion of the law firm of Altheimer & Gray, Chicago,
Illinois.
26
<PAGE>
Shares purchased hereunder by associates or prospective associates of the
Company will be considered transferred in connection with the performance of
services. Special rules apply to stock which is transferred to any person in
connection with the performance of services by such person. These special rules
make a distinction in the tax consequences depending on whether or not the
stock so transferred is "transferable" or "not subject to a substantial risk of
forfeiture" for purposes of the federal income tax laws. Stock is generally
considered subject to a substantial risk of forfeiture if rights with respect
to the stock are conditioned upon the future performance of substantial
services. Stock is treated as nontransferable unless the rights in such stock
of any transferee will not be subject to a substantial risk of forfeiture.
Because of the restrictions applicable to the Shares (described under "THE
STOCKHOLDERS' AGREEMENT"), it is anticipated that Non-Vested Shares purchased
pursuant to the offering made hereunder will be considered nontransferable and
subject to a substantial risk of forfeiture upon purchase for purposes of the
federal income tax laws.
Subject to the effect of an election under section 83(b) of the Code,
discussed below, as long as the Shares purchased are nontransferable and
subject to substantial risk of forfeiture, they will, in effect, be treated as
not having been transferred to the Purchaser. Thus, for example, dividends on
such Shares will be treated as compensation and the sale of such Shares will
give rise to ordinary income. When such Shares become transferable or not
subject to a substantial risk of forfeiture they will, in effect, be treated as
having been transferred at such time, and the amount of taxable compensation,
if any, deemed to be paid by a member of the Ward Group to the Purchaser will
be equal to the excess, if any, of the fair market value (determined without
regard to any lapse restriction) of such Shares at such time over the amount
paid for the Shares. (A "lapse restriction" is any restriction, such as a
vesting requirement, whether imposed by agreement or by law, other than a
restriction which by its terms will never lapse.) The Purchaser will include
such compensation as ordinary income and the appropriate member of the Ward
Group will be entitled to a deduction for compensation paid. The tax basis for
such Shares will be the amount paid for such Shares plus the amount of such
compensation, if any, included as income. The holding period for long-term
capital gain purposes will commence on the next day after the date the Shares
become transferable or are not subject to a substantial risk of forfeiture. Any
appreciation or decline in value of Shares after they become transferable or
not subject to a substantial risk of forfeiture generally will be taxed as a
capital gain or loss (either short-term or long-term, as applicable) upon a
sale, exchange or other taxable disposition of such Shares.
As an alternative to the foregoing tax consequences, a Purchaser within 30
days after the purchase of Shares which are nontransferable and subject to
substantial risk of forfeiture may file an election under section 83(b) of the
Code, to treat the acquisition of such Shares as a taxable compensation event.
If the Purchaser files such election he or she will include in his or her gross
income as compensation for the year of the purchase of Shares the excess, if
any, of the fair market value of such Shares (determined without regard to any
lapse restriction) over the amount he or she paid therefor, and the appropriate
member of the Ward Group will be entitled to a compensation deduction in the
amount of such excess. In determining the fair market value of Shares
(determined without regard to any lapse restriction) for the purpose of
computing the amount of compensation includable in a Purchaser's gross income,
the IRS will not be bound by the fair market value as determined by any other
party and may consider all the facts and circumstances. See "RISK FACTORS--Fair
Market Value."
A disadvantage of a section 83(b) election is that if such Shares are
subsequently forfeited or disposed of in a transaction that is in substance a
forfeiture while such Shares are in fact nontransferable and subject to a
substantial risk of forfeiture, then no loss or other deduction will be allowed
for the amount, if any, included as compensation at the time of the transfer.
Except for such limitation, if the Shares are subsequently sold, the Purchaser
generally will recognize capital gain or loss (either short-term or long-term,
as applicable) on such sale equal to the difference between the sales price and
the tax basis of the Shares, i.e., the fair market value of the Shares
(determined without regard to any lapse restriction) at the time of the
purchase of Shares.
Vested Shares, although subject to numerous restrictions under the
Stockholders Agreement, will probably not be considered nontransferable and
subject to substantial risk of forfeiture for purposes of the federal income
tax laws. Accordingly, to the extent the fair market value of such Shares
exceeds the amount paid therefor, such excess shall constitute compensation
income to the Purchaser.
27
<PAGE>
In general, amounts treated as compensation income to a Purchaser (including
amounts treated as compensation upon the making of a Section 83(b) election)
constitute wages subject to withholding of income taxes and social security
taxes.
EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS OR HER OWN TAX ADVISORS AS TO
THE FEDERAL AND OTHER TAX CONSEQUENCES WHICH MAY ARISE WITH RESPECT TO THE
SHARES.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of Shares by Shareholders.
The cash proceeds from the sale of Shares by the Company will be used for
general corporate purposes. The purpose of this registration is to facilitate
the transfer of Shares among current and former associates of the Company and
other Designated Management Optionees. See "PLAN OF DISTRIBUTION."
DIVIDENDS
Montgomery Ward will be restricted in providing funds to the Company for the
payment of dividends on Common Stock under the terms of Montgomery Ward's
current financing agreements. The Company has not formulated a policy with
respect to payment of dividends on Common Stock after such restrictions are
removed. The payment of future dividends, if any, will be dependent upon the
earnings and financial requirements of the Company (which in turn are dependent
on the earnings and financial requirements of Montgomery Ward) and other
factors deemed relevant by its Board of Directors.
The Company paid a dividend of $.25 per share of Common Stock on June 24,
1992, a dividend of $.50 per share of Common Stock on August 6, 1993 and a
dividend of $.50 per share of Common Stock on June 23, 1994.
28
<PAGE>
THE VOTING TRUST AGREEMENT
This section of the Prospectus summarizes certain significant provisions of
the Voting Trust Agreement in a Question and Answer format. The summary of such
provisions is qualified in its entirety by reference to the copy of the Voting
Trust Agreement which is attached hereto as Annex 2.
QUESTIONS & ANSWERS
I. GENERAL INFORMATION ABOUT THE VOTING TRUST
1.Q. WHO IS THE VOTING TRUSTEE OF THE VOTING TRUST?
A. Brennan is the Voting Trustee under the Voting Trust Agreement. In
the event that Brennan shall (i) cease to be a Management
Shareholder, (ii) die, (iii) resign as Voting Trustee or (iv) be
adjudicated incompetent (each of the foregoing being hereinafter
referred to as a "Terminating Event"), the Management Shareholder
who from time to time after the first such Terminating Event owns
the largest number of Shares and is an associate of the Ward Group
shall be the successor Voting Trustee until the first anniversary of
such Terminating Event. Thereafter, the successor Voting Trustee
shall consist of a committee comprised of said Management
Shareholder and the two most senior officers from time to time of
Montgomery Ward (other than said Management Shareholder) who are
Management Shareholders. Said committee shall act by the majority of
its members. So long as Brennan is serving as the Voting Trustee, he
will be permitted to rescind, alter or amend, in whole or from time
to time in part, any of the provisions described in this paragraph
by written notice to the holders of Voting Trust Certificates.
2.Q. HOW MANY YEARS WILL THE VOTING TRUST REMAIN IN EXISTENCE?
A. The Voting Trust will continue in effect until June 21, 1998 unless
sooner terminated upon (i) the election of the Voting Trustee to
terminate the Voting Trust Agreement by written notice to the
holders of Voting Trust Certificates at any time or (ii) if there
shall be no Voting Trustee, the failure of a Voting Trustee to serve
or be designated for a period of 120 consecutive days.
II. VOTING TRUST CERTIFICATES
3.Q. WHOSE NAME WILL APPEAR ON THE BOOKS OF THE COMPANY AS THE OWNER OF
THE SHARES WHICH I PURCHASE?
A. Shares deposited in the Voting Trust are registered on the books of
the Company in the name of "Bernard F. Brennan, as Voting Trustee."
The Voting Trustee will hold such Shares, as stockholder of record,
subject to the terms and conditions of the Voting Trust Agreement.
4.Q. WHAT EVIDENCE OF MY INVESTMENT WILL I RECEIVE?
A. You will receive a Voting Trust Certificate representing your
ownership of a beneficial interest in the Voting Trust, which will
correspond to the number of Shares purchased by you.
5.Q. OTHER THAN VOTING, WILL I HAVE ALL OF THE SAME RIGHTS, POWERS AND
PRIVILEGES OF A HOLDER OF CLASS A COMMON STOCK, EVEN THOUGH MY
SHARES HAVE BEEN DEPOSITED IN THE VOTING TRUST?
A. Except as otherwise provided in the Voting Trust Agreement, all
options, rights of purchase and other powers and privileges
affecting the Shares represented by the Voting Trust Certificates
attach to the Voting Trust Certificates which represent such Shares.
The Stockholders' Agreement will impose significant restrictions on
such rights, powers and privileges including the right to transfer
such Shares or Voting Trust Certificates. See "THE STOCKHOLDERS'
AGREEMENT."
29
<PAGE>
6.Q. CAN I REQUIRE THE COMPANY TO PURCHASE MY VOTING TRUST CERTIFICATES
AND MY INTEREST IN THE SHARES REPRESENTED THEREBY?
A. You may require such a purchase only upon your death or total
permanent disability during employment with the Ward Group as
provided in the Stockholders' Agreement.
III. VOTING OF SHARES BY VOTING TRUSTEE; POWERS OF VOTING TRUSTEE
7.Q. WHAT VOTING POWERS DOES THE VOTING TRUSTEE HAVE?
A. Until the termination of the Voting Trust, except as noted below,
the Voting Trustee has full and exclusive power and authority to
vote in person or by proxy the Shares held subject to the Voting
Trust at all meetings of the stockholders of the Company with no
obligation to consult with any Voting Trust Certificate holders. In
addition, the Voting Trustee is authorized to give written consents
in lieu of voting such Shares in respect of any and all matters on
which such Shares are entitled to vote, including, without
limitation, the election of directors. The manner in which the
Voting Trustee may exercise his powers to vote or give consents
pursuant to the Voting Trust Agreement is restricted by the terms of
the Stockholders' Agreement. See "THE STOCKHOLDERS' AGREEMENT--
Termination and Amendment." The Voting Trustee's power to vote and
give consents pursuant to the Voting Trust Agreement is irrevocable
for the term of the Voting Trust Agreement and the Voting Trustee
will have the right to waive notice of any meetings of stockholders
of the Company. The Voting Trustee may exercise any power or perform
any act under the Voting Trust Agreement by any agent or attorney
duly authorized and appointed by him.
8.Q. CAN THE VOTING TRUSTEE SERVE AS AN OFFICER OR DIRECTOR OF THE
COMPANY?
A. Yes. The Voting Trustee may serve as an officer or director of the
Company, or in any other capacity, and receive compensation
therefor.
IV. RECEIPT OF CASH DIVIDENDS; ADDITIONAL SHARES
9.Q. WHAT HAPPENS IF THE COMPANY PAYS ANY CASH DIVIDENDS OR OTHER
DISTRIBUTIONS ON THE SHARES HELD IN THE VOTING TRUST?
A. If the Company pays any dividends on the Shares, it will pay such
dividends to the Voting Trustee, as the record owner of the Shares
subject to the Voting Trust. The Voting Trustee, in turn will
promptly distribute such dividends among the holders of then
outstanding Voting Trust Certificates in proportion to the number of
Shares represented by their Voting Trust Certificates. See "RISK
FACTORS--Payment of Dividends Restricted" and "DIVIDENDS."
10.Q. WHAT HAPPENS IF THE COMPANY PAYS ANY STOCK DIVIDENDS ON, OR ISSUES
ADDITIONAL SHARES WITH RESPECT TO, THE SHARES HELD IN THE VOTING
TRUST?
A. In the event that the Voting Trustee receives any shares of stock of
the Company or a successor or successors of the Company issued by
way of dividend, split-up, recapitalization, reorganization, merger,
consolidation or any other change or adjustment in respect of the
shares held by him pursuant to the Voting Trust Agreement, the
Voting Trustee will hold the stock certificates representing such
additional or changed shares, to the extent that such shares have
voting rights, subject to the terms of the Voting Trust Agreement.
The Voting Trustee will issue Voting Trust Certificates representing
such changed or additional stock certificates to the respective
holders of the then outstanding Voting Trust Certificates entitled
thereto. Any stock certificates of the Company or any successor or
successors of the Company issued to the Voting Trustee with respect
to the shares that are subject to the Voting Trust Agreement which
do not have any voting rights will be delivered to the respective
registered holders of then outstanding Voting Trust Certificates in
proportion to the number of shares respectively represented by their
Voting Trust Certificates.
30
<PAGE>
V. VOTING TRUSTEE COMPENSATION; EXPENSES; INDEMNIFICATION
11.Q. WILL THE VOTING TRUSTEE BE COMPENSATED FOR SERVING AS VOTING
TRUSTEE?
A. No. The Voting Trustee will serve without compensation, but will be
entitled to reimbursement from the Company (which right of
reimbursement shall be secured by a lien on distributions, if any,
on the Shares held therein) for expenses and charges which may be
incurred in acting as Voting Trustee, including, but not limited to,
costs incurred in the employment of a custodian and such other
agents, attorneys and counsel as the Voting Trustee may deem
necessary and proper for the carrying out of the Voting Trust
Agreement and for taxes and other governmental charges paid or
incurred in the transfer or issuance of any Class A Common Stock or
Voting Trust Certificates or in respect of the ownership of the
Class A Common Stock held by him as trustee or in respect of any
dividends, distributions, or other rights in respect of such stock.
12.Q. WILL THE VOTING TRUSTEE BE LIABLE FOR ANY MATTERS ARISING OUT OF OR
IN RELATION TO THE VOTING TRUST AGREEMENT?
A. The Voting Trustee will not be liable by reason of any matter
arising out of or in relation to the Voting Trust Agreement, except
for such loss or damage as the holders of Voting Trust Certificates
may suffer by reason of the Voting Trustee's willful misconduct,
and, without limiting the generality of the foregoing, the Voting
Trustee will not be liable for any action taken, or omitted to be
taken, by the Voting Trustee in reliance upon or in conformity with
the advice of counsel, or by reason of any error of judgment or
mistake of law or other mistake, or for any act or omission of any
agent or attorney, or for any misconstruction of the Voting Trust
Agreement, or for any action believed by the Voting Trustee to be in
accordance with the provisions or intent of the Voting Trust
Agreement. In addition, the Voting Trustee will be indemnified by
the Company from and against all liabilities, costs, claims, suits,
and proceedings (including reasonable attorneys' fees) arising out
of the Voting Trustee's actions pursuant to the Voting Trust
Agreement, except for any acts of willful misconduct.
31
<PAGE>
SELECTED FINANCIAL DATA
The following is a summary of certain financial information relating to the
Company as of and for each of the five fiscal years in the period ended January
1, 1994 and for the thirteen-week periods ended April 3, 1993 and April 2,
1994. It has been derived from the Consolidated Financial Statements of the
Company. Such information for each fiscal year should be read in conjunction
with the Consolidated Financial Statements and notes thereto and the reports of
Arthur Andersen & Co. appearing elsewhere in this Prospectus. The summary data
for the thirteen-week periods are unaudited and include, in the opinion of
management, all normal recurring adjustments necessary for a fair presentation
of the financial position and results of operations for such periods. Certain
prior period amounts have been reclassified to be comparable with current
period presentation.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" and the Consolidated Financial Statements and Notes thereto
(including the Notes to Consolidated Condensed Financial Statements) included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE
----------------------------------------------------------------
53-WEEK 52-WEEK 13-WEEK PERIOD
52-WEEK PERIOD ENDED PERIOD PERIOD ENDED
-------------------------- ENDED ENDED -----------------
DEC. 30, DEC. 29, DEC. 28, JAN. 2, JAN. 1, APRIL 3, APRIL 2,
1989 1990 1991 1993 1994 1993 1994
-------- -------- -------- ------- ------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenues.......... $5,461 $5,584 $5,654 $5,781 $6,002 $1,248 $1,318
Net Income(a)........... 151 153 135 100 101 10 10
Net Income applicable to
Common Shareholders(a). 138 140 122 92 101 10 10
Net Income per Class A
Common Share(a)........ 2.71 2.79 2.40 2.01 2.29 .21 .23
Total Assets............ 3,837 3,906 3,948 3,485 3,835 3,533 4,167
Short-Term Borrowings... -- -- -- -- -- 228 367
Long-Term Debt.......... 729 651 521 125 213 222 402
Obligations Under
Capital Leases......... 119 111 104 95 89 94 87
Redeemable Preferred
Stock.................. 90 90 90 -- -- -- --
Total Shareholders'
Equity................. 287 421 520 553 607 562 626
Cash Dividends per
Common Share........... -- -- -- .25 .50 -- --
</TABLE>
- --------
(a) Amounts for the 53-week period ended January 2, 1993 are presented before
cumulative effect of changes in accounting principles. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
for a discussion of the significant impact of these changes.
32
<PAGE>
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 the first fiscal quarter of 1994 to the first fiscal quarter
of 1993, fiscal year 1993 to fiscal year 1992, and fiscal year 1992 to fiscal
year 1991. Montgomery Ward is on a 52- or 53-week fiscal year basis. As a
result, 1992 was a 53-week year, with 1991 and 1993 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 one-third of the sales
traditionally occurring in the fourth quarter.
RESULTS OF OPERATIONS
First Quarter 1994 Compared with First Quarter 1993
Consolidated net income for the first quarter of 1994 was $10, which was even
with the prior year.
Consolidated total revenues (net sales and direct response marketing
revenues, including insurance) were $1,318 compared with $1,248 in 1993.
Apparel and domestics sales increased 7% and hardlines sales increased 5%.
While apparel sales benefitted from the pre-Easter selling period as a result
of the earlier holiday in 1994, all categories were negatively impacted by the
Los Angeles earthquake. Sales on a comparable store basis, which reflects only
the stores in operation for both the first quarter of 1994 and 1993, increased
3%. Direct response marketing revenues increased $10, or 10%, to $107. The
increase was primarily due to increased club membership levels.
Gross margin (net sales less cost of goods sold) dollars were $285, an
increase of $2, or 1%, from the first quarter of last year. This increase was
due to the gross margin impact of the increased sales ($18), partially offset
by the decrease in the margin rate on sales ($13) and increased occupancy costs
related to new stores ($3). Benefits, losses and expenses of direct response
operations increased $8, or 11% over the first quarter of last year. The
increase was primarily due to increased expenses as a result of increased club
memberships.
Operating, selling, general and administrative expenses increased $1 from the
prior year. This increase was attributable to the impact of new store openings
of $11, offset by decreased advertising and other promotional costs of $4 and
decreased store payroll and other costs of $6.
Net interest expense increased $2, or 22%, from the prior year primarily due
to increased interest expense on borrowings under the Note Purchase Agreements.
The borrowings were outstanding for the entire first quarter of 1994 compared
to a portion of the first quarter in 1993.
Income tax expense increased by $1 or 20% due to the combined impact of the
increase in pretax earnings and the increase in the effective income tax rate.
The increased effective income tax rate is due to Federal income tax rate
increase enacted during the third quarter of 1993.
1993 Compared with 1992
Net income applicable to common shareholders before applying the cumulative
impact of accounting changes on retained earnings as of December 29, 1991
increased by $9, or 10%. Consolidated net income in 1993 was $101, an increase
of $41, or 68%, from the prior year. Net income for 1992 reflects a charge of
$40 for the cumulative effect of changes in accounting principles as a result
of adoption of Financial Accounting Standards Board (FASB) Statements No. 106,
"Employers' Accounting for Postretirement Benefits other than Pensions" and No.
109, "Accounting for Income Taxes". Income tax expense of $59 increased $9, or
18%,
33
<PAGE>
from 1992, of which $2 was due to the impact of the increase in the federal
income tax rate from 34% to 35%.
Consolidated total revenues (net sales and direct response marketing
revenues, including insurance) were $6,002 compared with $5,781 in 1992. Net
sales increased $200, or 4%, over 1992, with an increase of $301, or 6%, from
prior year net of the impact of the 53rd week in 1992. Apparel sales increased
1%, and hardlines sales experienced increases of 6%. Net of the impact of the
53rd week in 1992, apparel sales increased 2%, and hardlines sales increased
8%. Management believes merchandise sales increases reflect the positive impact
of new strategic programs implemented throughout Montgomery Ward. See
"BUSINESS--Merchandising-- Expansion and New Retail Formats." Sales on a
comparable store basis, which reflect only the stores in operation for 1993 and
1992, increased 2%. Direct response marketing revenues increased $21, or 6%, to
$400. The increase was primarily due to increased club membership levels.
Gross margin dollars (net sales less cost of goods sold) were $1,377, a
decrease of $7, or 1%, from last year. This decrease was primarily due to the
decrease in the margin rate on sales ($57) and increased occupancy costs
primarily as a result of new store openings ($10), partially offset by the
gross margin impact of the increased sales ($62). The strong sales increase in
Electric Avenue of 11% had an impact on the overall Company margin rate as
Electric Avenue generally has lower margin rates than other merchandise
categories. Benefits, losses and expenses of direct response operations
increased $14, or 5%, over last year. The increase was primarily due to
increased costs as a result of increased club memberships.
Operating, selling, general and administrative expenses decreased $8, or 1%,
from the prior year. This decrease was attributable to decreased advertising
and other promotional costs of $27, decreased health care and insurance costs
of $21 and increased product service income of $10. These decreases were
partially offset by the impact of new store openings of $33 and the increased
provision for estimated costs to be incurred in connection with the Account
Purchase Agreement of $17.
Net interest expense of $43 decreased $2, or 4%, from the prior year. The
decrease in interest expense due to lower interest rates on borrowings was
offset by decreased investment income due to lower investment balances and
rates.
There was no preferred stock dividend requirement in 1993 as all then-
outstanding preferred stock was redeemed at face value on September 30, 1992.
1992 Compared with 1991
Consolidated net income before the cumulative effect of changes in accounting
principles was $100 for 1992, compared with net income of $135 in 1991.
Effective December 29, 1991, the Company adopted Financial Accounting Standards
Board Statements No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions" ("FAS 106") and No. 109, "Accounting for Income Taxes"
("FAS 109"). The cumulative effect of these changes was a charge of $40 which
resulted in net income of $60 in 1992. The adoption of FAS 109 caused the
effective tax rate to increase 10% or $15 in 1992.
Consolidated total revenues were $5,781, compared with $5,654 in 1991. Net
sales increased $108, or 2% from 1991, $101 of which was the impact of the 53rd
week in 1992. Sales on a comparable store basis, which reflects only those
stores in operation for all of 1992 and 1991, remained even with 1991. The
Company believes "big ticket" sales such as appliances, furniture and jewelry
are sensitive to general economic conditions and were negatively impacted in
1992 due to the uncertain economy. Sales results in 1992 continued to be
unfavorably impacted by California's severe economic downturn. Sales in
California represent a significant portion of Montgomery Ward's revenues.
Further, sales of seasonal items were depressed by the unseasonably cool
weather during most of 1992. In addition, automotive revenues were negatively
impacted by the settlements of actions taken by various state regulatory
authorities for unfair practices against a major competitor. In response to
these issues, Montgomery Ward embarked on a new strategy in Electric Avenue
34
<PAGE>
and instituted a program in Auto Express focusing on brand name tires and
batteries and delivery of outstanding customer service. Direct response
marketing revenues increased $19, or 5%, to $379. The increase was primarily
due to increases in club memberships and dues.
Gross margin dollars were $1,384, an increase of $12, or 1%, from 1991. This
increase was due to the gross margin impact of the increase in sales ($34) and
a decreased LIFO provision ($9). These increases were partially offset by the
decrease in the margin rate on sales ($11), and increased occupancy charges
primarily as a result of new store openings ($20). Benefits, losses and
expenses of direct response operations increased $11, or 4%, to $286, primarily
due to increased expenses of $17 as a result of increased club memberships,
partially offset by the impact of reduced insurance benefit levels and other
items of $6.
Operating, selling, general and administrative expenses increased $56, or 5%,
from 1991. This increase was primarily due to the impact of new store openings
of $39, decreased income as a result of the 1991 gain on sale of the investment
in Office Max, Inc. of $17, increased advertising and other promotional costs
of $12 and increased operating and other administrative costs of $4. Due to
improved operating efficiencies in existing stores, these increases were
partially offset by decreased store payroll costs of $13 and the decreased
provision for estimated costs to be incurred in connection with the Account
Purchase Agreement of $3.
Net interest expense decreased $11, or 20%, from the prior year due to a $24
decrease in interest expense incurred on decreased borrowings combined with
favorable interest rates in 1992 and the impact of the debt restructuring which
occurred in September 1992. These decreases were partially offset by a decrease
in investment income due to lower investment balances combined with lower
interest rates in 1992 of $13.
DISCUSSION OF FINANCIAL CONDITION
Montgomery Ward is the only direct subsidiary of the Company and therefore
Montgomery Ward and its subsidiaries are its sole source of funds.
Montgomery Ward has entered into an Amended and Restated Credit Agreement
dated as of September 22, 1992, as amended, (the "Restated Credit Agreement")
with various lenders. The Restated Credit Agreement, which expires September
23, 1996, provides for a revolving facility in the principal amount of $350. As
of April 2, 1994, $242 is outstanding under the Restated Credit Agreement.
Concurrently, Montgomery Ward also entered into a Short Term Credit Agreement
dated as of September 22, 1992, as amended, (the "Short Term Agreement") with
various lenders. The Short Term Agreement, which expires September 22, 1994,
provides for a revolving facility in the principal amount of $200. As of April
2, 1994, $125 is outstanding under the Short Term Agreement. The Company
currently anticipates that it will file a request for extension of the term of
the Short Term Agreement shortly. It is also anticipated that this request for
extension will be granted. Borrowings to date under the Restated Credit
Agreement and the Short Term Agreement have been used for working capital
purposes, to retire certain indebtedness of Montgomery Ward, to redeem
outstanding Junior and Senior Preferred Stock of the Company and to partially
finance the acquisition of Lechmere. The aforementioned borrowings are
unsecured.
During the first quarter of 1994, Montgomery Ward borrowed the entire amount
available under a Term Loan Agreement dated as of November 24, 1993 with
various banks (the "Term Loan Agreement"). Borrowings under the Term Loan
Agreement are payable upon the fifth anniversary of the Term Loan Agreement and
under the same interest rate options as the Restated Credit Agreement. This
loan was used to partially finance the acquisition of Lechmere as discussed
below. As of April 2, 1994, $165 was outstanding under the Term Loan Agreement.
Under the Restated Credit Agreement, the Short Term Agreement and the Term
Loan Agreement, Montgomery Ward may select among several interest rate options,
including a rate negotiated with one or more of the various lenders. The
interest rates for the aforementioned bank borrowings are based on market rates
and significant increases in market interest rates will increase interest
payments required. A commitment
35
<PAGE>
fee is payable based upon the unused amount of each facility, although under
certain circumstances, an additional fee may be payable to lenders not
participating in a negotiated rate loan.
Montgomery Ward also has Note Purchase Agreements outstanding involving the
private placement of $100 of Senior Notes which have maturities of from five to
twelve years from their March 1, 1993 issue date at fixed interest rates
varying from 7.07% to 8.18%.
The Restated Credit Agreement, the Short Term Agreement, the Term Loan
Agreement (collectively, the "Agreements") and the Note Purchase Agreements
impose various restrictions on Montgomery Ward, including the satisfaction of
certain financial tests which include restrictions on payment of dividends. To
date, Montgomery Ward has been in compliance with all such financial tests.
Under the terms of the Agreements, which currently are the most restrictive of
the financing agreements as to dividends, distributions and redemptions,
Montgomery Ward may not pay dividends or make any other distributions to the
Company or redeem any common stock of Montgomery Ward in excess of (1) $50 on a
cumulative basis, plus (2) 50% of Consolidated Net Income of Montgomery Ward
(as defined in the Agreements) after December 28, 1991, plus (3) $90, which
represents a distribution made by Montgomery Ward for the purpose of redeeming
the preferred stock of the Company outstanding on September 30, 1992, plus (4)
capital contributions received by Montgomery Ward after December 28, 1991, plus
(5) net proceeds received by Montgomery Ward from (a) the issuance of capital
stock including treasury stock but excluding Debt-Like Preferred Stock (as
defined in the Agreements), or (b) any indebtedness which is converted into
shares of capital stock other than Debt-Like Preferred Stock, after December
28, 1991, plus (6) an adjustment of $45 for 1994 through 1996, $30 for 1997 and
$15 for 1998.
Montgomery Ward acquired in a merger transaction all the stock of LMR, which
owns 100% of the stock of Lechmere, on March 30, 1994. The aggregate purchase
price was comprised of an estimated price of $113 and a contingent purchase
price payable in 1995 of up to $20 in cash and the issuance of up to 400,000
shares of Class A Common Stock, Series 1 (or at the option of Montgomery Ward,
up to 400,000 shares of Class A Common Stock, Series 3). The exact amount, if
any, of the contingent price to be paid is dependent on Lechmere achieving or
exceeding a specified gross margin amount during the period commencing February
27, 1994 and ending February 25, 1995.
The closing price included a $10 promissory note (the "Note") of Montgomery
Ward, which bears interest at a rate of 4.87% per annum. Seventy-five percent
of the accrued interest on and principal of the Note are payable 540 days after
the date of the Note and the balance is payable three years after the date of
the Note. The Note, which is secured by a standby letter of credit, is to be
reduced upon the occurrence of certain specified circumstances.
As part of the closing, Montgomery Ward advanced approximately $88 and
assumed $3 of obligations to enable Lechmere to retire its outstanding bank
debt and subordinated debt. The purchase of and advances to Lechmere were
financed by the proceeds from borrowings under the Agreements.
On April 27, 1994, the Company issued 750 shares of a new series of Senior
Preferred Stock to GE Capital in exchange for $75 in cash. See "DESCRIPTION OF
EQUITY SECURITIES--Senior Preferred Stock." The Company used the proceeds to
acquire preferred stock of Montgomery Ward (the "Montgomery Ward Preferred")
from Montgomery Ward. The Montgomery Ward Preferred has terms substantially the
same as the terms of the Senior Preferred Stock, with the exceptions that (i)
Montgomery Ward will be required to redeem the Montgomery Ward Preferred upon
two months prior written notice from the Company, provided that such redemption
cannot occur until the first day following the fifteenth anniversary of the
issuance of the Montgomery Ward Preferred; (ii) the holders of the Montgomery
Ward Preferred will not have any voting rights; and (iii) the terms of the
Montgomery Ward Preferred will specifically provide that (A) the restrictions
on payments to holders of capital stock of Montgomery Ward which are junior to
the Montgomery Ward Preferred shall not apply to payments made pursuant to any
tax sharing or tax allocation arrangement and (B) without limitation, the
Montgomery Ward Preferred is subordinate and
36
<PAGE>
junior in right of payment to indebtedness for borrowed money of Montgomery
Ward upon the occurrence and continuance of an event of default, as defined in
the Agreements. Montgomery Ward used the proceeds from the issuance of the
Montgomery Ward Preferred to reduce borrowings under the Restated Credit
Agreement and the Short Term Agreement. The Montgomery Ward Preferred
constitutes Debt-Like Preferred Stock for purposes of the dividend restrictions
under the Agreements.
The Company has repurchased 3,987,550 Class A 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 $44. As of July 2, 1994, the outstanding balance of
these notes was $29. See Note 15 to the Consolidated Financial Statements.
These installment notes bear interest at varying rates, are payable over a
multi-year period (generally three to five years) and are secured by Voting
Trust Certificates representing shares of Common Stock, the fair market value
of which is equal to the outstanding principal amount under each note. Under
the Agreements, Montgomery Ward expects to be able to advance the Company
sufficient funds to allow the Company to make the required installment payments
in 1994.
Currently available external sources of funds include $550 in multi-year
revolving loan commitments which were obtained in September 1992, of which $200
will expire on September 22, 1994 and $350 will expire on September 23, 1996.
During 1993, the average daily balance of borrowings under these commitments
was $248. All such borrowings were repaid as of January 1, 1994. As of April 2,
1994, an aggregate amount of $367 of borrowings was outstanding under these
commitments. For the first quarter of 1994, the weighted average interest rate
applicable to borrowings under the Restated Credit Agreement and the Short Term
Agreement was 3.8%.
Under the laws and regulations applicable to insurance companies, some
subsidiaries of Signature are limited in the amount of dividends they may pay.
For information concerning limitations on the amount of dividends Signature may
pay, see Note 17 to the Consolidated Financial Statements. During 1993,
Signature paid dividends aggregating $35.
Future cash needs are expected to be provided by ongoing operations, the sale
of customer receivables to Montgomery Ward Credit, borrowings under the
Restated Credit Agreement and the Short Term Agreement, and the disposition of
capital assets related to facility closings. See "BUSINESS--Account Purchase
Agreement" for a discussion of the terms of the sales of customer receivables
by Montgomery Ward to Montgomery Ward Credit.
Montgomery Ward regularly reviews opportunities for acquisitions and joint
ventures and regards acquisitions and joint ventures as a possible source for
future growth. If any additional acquisitions are made in the future,
indebtedness may be increased.
Montgomery Ward's capital expenditures of $142 for 1993 were primarily
related to opening 14 new stores, closing six stores, relocating two stores and
implementing specialty-store conversion strategies in conventional retail
stores and various merchandise fixture and presentation programs. Capital
expenditures of $12 during the first three months of 1994 were primarily
related to expenditures for opening one full-line retail store and several
merchandise fixture and presentation programs. Montgomery Ward is not
contractually committed to spend all of the capital appropriations unexpended
at January 1, 1994, but generally expects to do so.
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Total Capital Expenditures............................. $142 $146 $128
Capital appropriations authorized during the year...... $149 $154 $180
Cancellations of prior year's appropriations........... $(23) $(62) $(55)
Unexpended capital appropriations at year-end.......... $143 $159 $213
</TABLE>
The Company paid a dividend of $.25 per share of Common Stock on June 24,
1992, a dividend of $.50 per share of Common Stock on August 6, 1993 and a
dividend of $.50 per share of Common Stock on June 23, 1994.
37
<PAGE>
BUSINESS
GENERAL
The Company was incorporated in 1988 and does business through Montgomery
Ward and its subsidiaries, which are engaged in retail merchandising and
direct response marketing (including insurance) in the United States. See Note
22 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 January 1,
1994, Montgomery Ward operated 364 retail stores in 39 states with
approximately 28 million square feet of selling space. In addition, Montgomery
Ward operated 17 liquidation centers which sell overstock merchandise, 21
distribution facilities and 117 product service centers.
Montgomery Ward's retail operations are supported by its corporate buying
division which has its principal office in Chicago, and includes foreign
purchasing offices in Italy, Hong Kong, Taiwan, Japan, Indonesia, Thailand,
Singapore and Korea. In addition to its buying staff, the corporate buying
division employs designers and technical teams to ensure quality control of
its merchandise.
Montgomery Ward offers life and health insurance, revolving credit
insurance, club products and other consumer services through the Signature
Group. Signature is one of the largest direct marketing companies in the
United States. See "Signature Financial/Marketing, Inc."
MERCHANDISING
The Company conducts its merchandising operations through Montgomery Ward
and Montgomery Ward's subsidiary Lechmere.
Montgomery Ward's retail business, including Lechmere, is seasonal, with
one-third of the sales traditionally occurring in the fourth quarter. The
results of Montgomery Ward's operations also are 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.
Specialty Store Strategy.
Montgomery Ward offers a broad range of quality national brands and
proprietary brands as well as its own private label goods in the following
specialty categories:
<TABLE>
<CAPTION>
PRODUCT CATEGORY SPECIALTY STORE NAME
---------------- --------------------
<S> <C>
Appliances and electronics... Electric Avenue
Home furnishings............. Home Ideas, including Rooms & More
Automotive................... Auto Express
Apparel...................... The Apparel Store, including The Kids Store
Jewelry...................... Gold 'N Gems
</TABLE>
Each specialty concept combines a focus on specific customer needs, a
dominant merchandise assortment, updated presentation and marketing
strategies. During 1993, several programs were initiated to generate future
sales increases as well as to improve profitability.
Electric Avenue. Electric Avenue has a significant national brand name
presence including Sony electronics, Maytag appliances, General Electric
electronics and appliances, Panasonic products and Nintendo and Sega games.
The Home Office assortment has been expanded and now includes IBM, Apple,
Packard Bell and Compaq products. To complement the national brands,
Montgomery Ward offers electronics and appliances featuring the Admiral name
and electronics featuring the Bell & Howell name under trademark licensing
agreements.
38
<PAGE>
Rooms & More. Montgomery Ward is one of the three largest furniture retailers
in the United States. The Rooms & More strategy initiated in 1993 features
presentation of grouped and accessorized settings. The groups offer a full
array of styles and simplify coordinating home furnishings for customers. For
added customer appeal, tiered discounts are offered on the purchase of multiple
pieces. Bassett, Simmons, La-Z-Boy and Lane are part of a broad name brand
selection. Montgomery Ward is dominant in sales of brand name mattresses and is
one of the few retailers who carry the four "S's" in bedding (Sealy, Simmons,
Serta and Spring Air).
Auto Express. Auto Express offers brand name tires such as Michelin, B.F.
Goodrich and Bridgestone as well as private label tires under the Road Tamer
name. Montgomery Ward sells replacement parts and accessories including NAPA
auto parts, Monroe shock absorbers and Champion batteries. In addition to the
sale of tires and parts, Montgomery Ward offers prompt installation and minor
repair service and promotes services such as "59 minute installation of tires".
The Apparel Store. Significant progress has recently been made in Montgomery
Ward's apparel offering through acquisition and expansion of "department store"
brand names such as Lee, Bugle Boy, Danskin, Villager, Cherokee, Ship 'N Shore
Sport and Botany 500. During 1993, Montgomery Ward purchased the rights to the
Ship 'N Shore trademark. A product development organization formed in late 1992
continues to develop proprietary products such as Evenflo. This product
sourcing organization coordinates activities among Montgomery Ward's import
organization, foreign buying offices, quality control and logistics functions.
Distribution.
The Company considers logistics to be important to its operations and
continued to invest in logistics during 1993. A state-of-the-art distribution
center in Tampa, Florida was opened to service Montgomery Ward's eastern
territory. The new Tampa facility, along with the facilities opened in
Baltimore, Maryland in 1992 and Chino, California in 1991, incorporates new
distribution management systems which are more dynamic in tracking merchandise
and facilitating inventory planning and customer service. The Company opened a
new distribution facility in Phoenix, Arizona in May 1994.
Management.
In order to execute Montgomery Ward's strategic initiatives for expansion
through new market areas, new retail formats and expansion of name brands,
Bernard W. Andrews rejoined the senior management team in early 1994 as
President and Chief Operating Officer of Montgomery Ward, and Robert F.
Connolly rejoined as Executive Vice President, Apparel. See "MANAGEMENT--
Directors and Executive Officers."
Expansion and New Retail Formats.
New Stores. The Company has opened 67 stores over the last six years. These
new stores represent 18% of the Company's total stores. The considerable cash
flow generated by Montgomery Ward's operations and the real estate
opportunities resulting from consolidation in the department store industry
have allowed the Company to greatly improve its locations and position the
chain for future growth. Montgomery Ward anticipates opening a number of new
full-line stores which encompass the specialty store strategies. Several of the
new stores will be opened in or near existing Montgomery Ward markets to
further leverage advertising expenditures, existing distribution facilities and
the corporate administrative structure.
Lechmere. Montgomery Ward acquired Lechmere on March 30, 1994. As of that
date, Lechmere operated 24 superstores located in Massachusetts, New Hampshire,
Rhode Island, Connecticut and New York offering extensive selections of
hardline merchandise in seven major home-oriented product categories. Lechmere
stores, which average approximately 50,000 square feet of selling space, carry
a broad range of
39
<PAGE>
quality brand name products in the following categories: consumer electronics,
home office and entertainment software, appliances, housewares, photography,
and recreation and leisure. Lechmere has built a strong customer franchise and
is believed to be the market share leader in the greater Boston area for many
of the products it sells.
Lechmere offers a comprehensive selection of nationally recognized brands in
each of its seven major product categories. It carries a wide range of price
points for each product, with its greatest depth in more fully featured
products. It also stocks a wide variety of accessories and other complementary
products. Like Montgomery Ward, Lechmere has a strong value orientation in its
pricing strategy and customer service.
Lechmere's merchandising format and strategies have enabled it to perform
well and add stores during a recessionary period in the Northeast. Lechmere's
revenues grew at a 10% compound annual rate over the last three years, reaching
$824 million in fiscal 1993. Lechmere opened six new stores over the last three
years, increasing its store base by 33%. In addition to investments in new
stores and upgrades of existing stores, Lechmere made significant investments
in management information systems and advertising production systems.
Montgomery Ward's acquisition of Lechmere will add substantial volume to a
highly successful specialty segment of the company's business. Lechmere's
strong regional presence will significantly improve Montgomery Ward's market
share in an area where Montgomery Ward stores were previously located only on
the perimeter. Since Electric Avenue and Lechmere carry many of the same key
brand names, the acquisition will enhance buying leverage. Yet, Lechmere's
greater emphasis in upper end price points will broaden the company's targeted
consumer group and provide alternative specialty concepts for future expansion.
Leverage opportunities resulting from Montgomery Ward's acquisition of Lechmere
should reduce combined expenses.
Electric Avenue & More. Montgomery Ward has announced plans to open six
Electric Avenue & More stores in 1994. The new Electric Avenue & More stores
combine the company's electronics, appliances and home furnishings specialty
businesses into a home specialty store which will be introduced in mid-size
markets with populations of 150,000 to 200,000, where full-line stores have not
traditionally operated and in multi-store markets in which Montgomery Ward
cannot find suitable locations for additional full-line stores. Each store will
have at least 45,000 square feet of selling space and feature presentation of
complete rooms of furniture, home accessories, electronics and major
appliances. Consumers will be offered dominant assortments of a broad range of
name brand and proprietary brand merchandise. In the mid-sized markets, more
limited competition combined with Montgomery Ward's buying power and low
operating costs present the opportunity to offer consumers exceptional values
on home products and generate margins attractive to the company.
Acquisitions. Montgomery Ward considers acquisitions, particularly those that
would have synergies with existing businesses, to be an area of growth for the
Company and is actively seeking such opportunities. On March 30, 1994,
Montgomery Ward acquired Lechmere.
DIRECT MARKETING
Montgomery Ward offers life and health insurance, revolving credit insurance,
club products and other consumer services through its subsidiary, Signature.
Signature is one of the largest direct marketing companies in the United
States.
Signature's club products include auto clubs (one of which is the third
largest in the United States), a credit card registration plan, a home
protection plan, a senior citizen club, travel services, a dining card, a
dental services plan and a legal services plan (the largest of its kind in the
United States). Signature solicits business primarily through direct mail,
telemarketing and customer statement inserts by segmenting lists and targeting
specific customers. During 1993, Signature sent out over 300 million pieces of
mail and made approximately 50 million outbound calls from its 12 telemarketing
centers located throughout the United
40
<PAGE>
States. Customer service is a key to success in this business. Accordingly,
Signature operates a 24-hour a day, 365-day a year service for its products for
which emergency help (e.g., emergency road service) is a necessary component.
Signature also provides other credit card enhancement programs to Montgomery
Ward's credit cardholders, who comprise the majority of Signature's customers.
Signature has a total of 8.2 million promotable accounts on file to which it
markets its products. These accounts, which are its best targets for direct
marketing, provide Signature with significant marketing opportunities. The size
and customer dynamics of the Montgomery Ward credit cardholder file have
allowed Signature to attain economies of scale which have lowered its marketing
and operating costs.
Effective April 1, 1994, Signature acquired Greater California Dental Plan
Services, Inc. and National Dental Services, Inc., which are dental referral
services. Through acquisition of these companies, Signature will be able to
expand its customer base into new demographic and geographic markets.
Signature also markets its products and services to the customers of more
than 50 other entities providing an additional 28.2 million promotable
accounts, including some of the nation's largest financial institutions, oil
companies and retailers. Clients include Citibank, American Express and Mobil
Oil Company. With its economies of scale, Signature can offer its products and
services to customers of its third party clients at competitive values and pay
third party clients attractive commissions. Revenues from third party clients
were 31% of Signature's total volume in 1993.
Under the terms of a letter agreement dated June 24, 1988 among Signature,
Montgomery Ward Credit and Montgomery Ward, Montgomery Ward Credit purchases
the customer accounts receivable of Signature on terms similar to those
contained in the Account Purchase Agreement, except for certain fees. In 1993,
approximately $5 million was paid by Signature to Montgomery Ward Credit for
administrative services provided by Montgomery Ward Credit in connection with
Signature products. The term of the servicing agreement will continue until
December 31, 2004 and from year to year thereafter subject to termination upon
ten years prior written notice effective on December 31, 2004 or any December
31 thereafter.
See Note 17 to the Consolidated Financial Statements for restrictions on
dividends which may be paid by the insurance subsidiaries of Signature.
SPECIALTY CATALOG
In 1991, Montgomery Ward, through two newly formed subsidiaries, became a 50%
partner in Montgomery Ward Direct L.P. ("MW Direct"), a specialty catalog
business. The other 50% partners are subsidiaries of Fingerhut Companies, Inc.
MW Direct generated $116 million in revenues in 1993, compared to $46 million
in 1992, an increase of 152%. These revenues are not included in the Company's
revenues.
COMPETITION AND REGULATION
The sale of merchandise by Montgomery Ward, directly and through Lechmere, is
conducted under highly competitive conditions. Buying and selling are each done
in open competitive markets. Montgomery Ward's stores are in competition with
specialty stores, department stores and other types of retail outlets in the
areas in which they operate. The Company believes that dominance of merchandise
assortments, brand names, competitive pricing and availability of services such
as credit, delivery, installation and repair differentiate competitors. The
Company believes that it is able to compete in every respect despite strong
competitive pressures. To meet competition, Montgomery Ward is continuously
striving to improve the efficiency and effectiveness of its operations and to
modernize and specialize its facilities.
Signature's insurance operations are a highly regulated business conducted
under highly competitive conditions. Insurance companies operate pursuant to
specific state statutes as well as rules and regulations promulgated by various
state insurance departments and are required to file reports with such agencies
at least quarterly.
41
<PAGE>
The requirements of environmental protection laws and regulations have not
had a material effect upon Montgomery Ward's operations. Compliance may, in
certain cases, lengthen the lead time of expansion plans and could increase
construction and operating costs.
ACCOUNT PURCHASE AGREEMENT
Montgomery Ward extends credit to its customers under an open-end revolving
credit plan. Montgomery Ward's private label credit card sales were 57.4% and
54.0% of total sales for 1993 and 1992, respectively. Bankcard sales were an
additional 13.3% and 13.8% of total sales for 1993 and 1992, respectively.
Montgomery Ward finances the receivables under its revolving credit plan by the
sale of such receivables to Montgomery Ward Credit Corporation ("Montgomery
Ward Credit"), a Delaware corporation which is a wholly-owned subsidiary of GE
Capital.
In June, 1988, Montgomery Ward and Montgomery Ward Credit entered into an
Account Purchase Agreement (the "Account Purchase Agreement") pursuant to which
Montgomery Ward Credit purchases receivables from time to time and provides
services to Montgomery Ward. Under this agreement, Montgomery Ward Credit has
the exclusive right to operate the Montgomery Ward private label credit card
system and the obligation to purchase for their face value (and Montgomery Ward
is obligated to sell) all the receivables generated by the Montgomery Ward
private label credit card system including those generated through MW Direct,
up to $6 billion at any time outstanding. If Montgomery Ward desires to sell
its customer receivables to Montgomery Ward Credit at a time when Montgomery
Ward Credit owns $6 billion or more of such receivables, alternative
arrangements, such as the sale of receivables to banks or other financial
institutions, would be required unless Montgomery Ward Credit agrees to
purchase the excess. As of January 1, 1994, there were $4.9 billion of
Montgomery Ward private label credit card receivables owned by Montgomery Ward
Credit.
Pursuant to the Account Purchase Agreement, Montgomery Ward Credit bears
certain credit promotion expenses, while Montgomery Ward retains certain
specified in-store service responsibilities with respect to credit operations.
Decisions regarding certain credit matters are determined by a management
committee with representatives from each party. Under the Account Purchase
Agreement, Montgomery Ward is required to pay Montgomery Ward Credit the excess
interest costs on a monthly basis if a blended interest rate applicable to
Montgomery Ward Credit's finance costs with respect to the receivables exceeds
10% per annum. To date, the blended interest rate has been less than 10%.
The risk of credit losses is shared by Montgomery Ward and Montgomery Ward
Credit. Montgomery Ward Credit bears the risk up to 3.9% of average gross
receivables (the prime layer), Montgomery Ward bears the risk in excess of such
prime layer up to 5%, Montgomery Ward and Montgomery Ward Credit equally share
losses between 5% and 8%, and Montgomery Ward Credit bears the losses in excess
of 8% of average gross receivables. Actual credit losses decreased to 5.5% of
average gross receivables for 1993, from the 5.8% experienced in 1992. The
decrease in credit losses was caused by an 11.9% decrease in bankruptcy charge-
offs. However, the significance of Montgomery Ward's California customer base
and the economic difficulties experienced in that region contributed to a
significant portion of the charge-offs.
Under the terms of the Account Purchase Agreement, a portion of Montgomery
Ward's 1991 liability for credit losses and, at Montgomery Ward's election, its
liabilities for credit losses for 1992 through 1997 are payable to Montgomery
Ward Credit in early 1998 with interest payable at a rate similar to rates paid
on comparable borrowings of Montgomery Ward. In early 1994, the Account
Purchase Agreement was amended to incorporate the 1997 liabilities. In exchange
for Montgomery Ward's agreement to allow Montgomery Ward Credit to increase
finance charge rates in selected states, Montgomery Ward receives a share of
incremental finance charges resulting from such increases, which is available
for offset against amounts due for credit losses and earns interest at the same
rate. Incremental finance charges are generated only on purchases subsequent to
the date such finance charge rates are increased. The Company has executed
notes for the credit losses which totalled $108 million at the end of 1993. The
finance charge offset for 1993 was $9
42
<PAGE>
million. Under the agreement, the notes payable to Montgomery Ward Credit are
limited to $300 million at any time, with any excess to be paid currently in
cash. The Company does not expect credit losses for the period through 1997 to
exceed the $300 million limitation. In the event that, due to the increase in
finance charge rates, any refunds are required to be made, Montgomery Ward and
Montgomery Ward Credit have agreed to share the financial risk. Legislation has
from time to time been introduced in certain states which, if enacted, may
require rescinding all or a portion of such rate increases, in which case,
Montgomery Ward's share of rate increases may be substantially reduced. See
Note 3 to the Consolidated Financial Statements.
Montgomery Ward Credit has the right of first refusal to implement certain
new financing programs proposed by Montgomery Ward.
The Account Purchase Agreement will be in effect until December 31, 2004 and
thereafter from year to year unless either party gives the other not less than
ten years prior notice of its election to terminate. Except upon the occurrence
of certain events of default, the Account Purchase Agreement may not be
terminated by either party prior to December 31, 2004. GE Capital has
guaranteed Montgomery Ward Credit's obligations under the Account Purchase
Agreement.
LEGAL PROCEEDINGS
The Company and its subsidiaries are engaged in various litigation matters
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, Hammond District and
an Amended Complaint was filed in January 1984. This suit is against Standard T
Chemical Company, Inc., a Delaware corporation and wholly-owned subsidiary of
Montgomery Ward ("Standard T"), and others involving two waste disposal sites
and seeks reimbursement for the cost of surface clean-up, investigation studies
concerning possible contamination of the soil and ground water and remedial
action. In January 1990, the United States filed a second Amended Complaint
seeking inter alia, treble damages and monetary sanctions. Standard T has
signed a consent decree, entered by the Court, whereby it was obligated to
provide a financial assurance up to $3,370,000 for remediation of the site and
was assessed civil penalties in the amount of $74,000. The Company currently
anticipates that its obligation will not exceed those amounts.
In 1985, the New York Environmental Protection Agency brought an action for
remediation of a site in Staten Island, New York against the owner of the
property. The owner asserted that Montgomery Ward and Standard T, among others,
generated wastes that were disposed of at the site. Standard T is in the
process of completing the cleanup of this site and has purchased the site from
the owner for $1,450,000.
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 in Griffith, Indiana under authority
vested in it by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980. Standard T and the Montgomery Ward paint factory were
each identified as a Potentially Responsible Party (a "PRP"), under the terms
of the Act because of their alleged status as generators of hazardous waste
which ultimately was 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. property. 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.
43
<PAGE>
On or about December 10, 1990, the Company was served with a Complaint and
Notice of Opportunity for Hearing (the "Complaint"), alleging certain
violations by the Company of the Federal Toxic Substances Control Act. The
Complaint contains twenty-two counts and alleges that the Company violated
various regulations concerning the use, disposal, storage and marking of
polychlorinated biphenyls (PCBs) at a warehouse facility located in Kansas
City, Missouri. The Complaint seeks a total civil penalty of $.3 million.
Standard T and Montgomery Ward are also involved in various stages with
several other sites where they have been notified or sued as a PRP.
ASSOCIATES
At January 1, 1994, Montgomery Ward employed the equivalent of approximately
51,350 full-time associates. During certain seasons, temporary associates are
added and peak employment is approximately 63,900 associates during the
Christmas season. Approximately 2,800 associates are covered by various
collective bargaining agreements expiring at various times during the next
three years. Montgomery Ward has experienced no major labor-related
interruption or curtailment of operations during the last 15 years and
considers its labor relations to be good.
PROPERTIES
At April 2, 1994, 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 57 million square feet.
These properties are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE TOTAL
USE LOCATIONS SQUARE FEET
- --- --------- -----------------
<S> <C> <C>
Montgomery Ward Retail Stores:
Full Line......................................... 337 43,714,000
Limited Line...................................... 29 1,139,000
Lechmere Retail Stores.............................. 24 2,192,000
Corporate Office Complex............................ 1 2,975,000
Miscellaneous Operating Locations................... 107 7,477,000
--- ----------
Total Locations................................. 498 57,497,000
=== ==========
</TABLE>
Owned and leased retail stores include approximately 28 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.
44
<PAGE>
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
retail stores as of April 2, 1994 is indicated in the following table:
<TABLE>
<CAPTION>
STATE TOTAL
----- -----
<S> <C>
Alabama............................................................. 3
Arizona............................................................. 11
Arkansas............................................................ 5
California.......................................................... 57
Colorado............................................................ 13
Florida............................................................. 21
Georgia............................................................. 3
Idaho............................................................... 1
Illinois............................................................ 36
Indiana............................................................. 8
Iowa................................................................ 5
Kansas.............................................................. 6
Kentucky............................................................ 1
Louisiana........................................................... 6
Maryland............................................................ 16
Michigan............................................................ 15
Minnesota........................................................... 10
Missouri............................................................ 10
Montana............................................................. 2
Nebraska............................................................ 2
Nevada.............................................................. 3
New Hampshire....................................................... 3
New Mexico.......................................................... 3
New York............................................................ 12
North Carolina...................................................... 3
North Dakota........................................................ 1
Ohio................................................................ 5
Oklahoma............................................................ 6
Oregon.............................................................. 8
Pennsylvania........................................................ 14
South Carolina...................................................... 2
Tennessee........................................................... 2
Texas............................................................... 44
Vermont............................................................. 1
Virginia............................................................ 18
Washington.......................................................... 3
West Virginia....................................................... 5
Wisconsin........................................................... 1
Wyoming............................................................. 1
---
366
===
</TABLE>
Lechmere's stores are located in the northeast United States, an area in
which Montgomery Ward stores have not traditionally operated. As of April 2,
1994, there were twelve Lechmere stores in Massachusetts, six in New York,
three in New Hampshire, two in Connecticut and one in Rhode Island.
45
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company consists of nine persons, five of whom
are designated by Brennan and four of whom are designated by GE Capital.
Subject to the right of those parties to continue to designate directors as
stated, directors are elected annually by the Company's stockholders at each
annual meeting, and serve until the next annual meeting and until their
successors are elected and shall have qualified. The party designated above as
having the right to designate a director has the right to fill a vacancy in
that directorship and the right to remove, with or without a cause, a director
who has been so designated. In certain cases, GE Capital's right to designate
directors will be reduced or terminated. Under certain circumstances, the
holders of Senior Preferred Stock will have the right to elect an additional
director to the Board of Directors. See "THE STOCKHOLDERS AGREEMENT" and
"DESCRIPTION OF EQUITY SECURITIES--Common Stock--Voting Rights, and--Senior
Preferred Stock--Voting Rights."
Officers of the Company serve at the discretion of its Board of Directors.
Officers of Montgomery Ward serve at the discretion of its Board of Directors
and all the directors of the Company are currently serving as directors of
Montgomery Ward.
The names and ages of the directors and executive officers of the Company as
of July 2, 1994 are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Bernard F. Brennan............ 55 Chairman and Chief Executive Officer and a
Director(1)
Richard Bergel................ 59 Vice Chairman and a Director(1)
Bernard W. Andrews............ 52 President and a Director(1)
Spencer H. Heine.............. 51 Executive Vice President, Secretary and
General Counsel and a Director(1)
Robert A. Kasenter............ 47 Executive Vice President
Edwin G. Pohlmann............. 47 Executive Vice President
Robert R. Schoeberl........... 58 Executive Vice President
John L. Workman............... 42 Executive Vice President, Chief Financial
Officer and Assistant Secretary
Tommy T. Cato................. 52 Executive Vice President--(on leave of
absence)
Richard C. Rusthoven.......... 53 Executive Vice President--(on leave of
absence)
Carol J. Harms................ 40 Vice President and Treasurer
Robert F. Connolly............ 50 Executive Vice President, Apparel of
Montgomery Ward
Gene C. McCaffrey............. 48 Executive Vice President, Marketing of
Montgomery Ward
G. Joseph Reddington.......... 52 Chairman and Chief Executive Officer of
Signature
Myron Lieberman............... 63 Director(1)
Silas S. Cathcart............. 68 Director(2)
David D. Ekedahl.............. 59 Director(2)
Denis J. Nayden............... 40 Director(2)
James A. Parke................ 48 Director(2)
</TABLE>
- --------
(1) Designated by Bernard F. Brennan.
(2) Designated by GE Capital.
46
<PAGE>
Mr. Brennan has been Chief Executive Officer and a director of the Company
since February 9, 1988, has been Chairman since June 17, 1988 and was President
from February 9, 1988 through September 10, 1992. Mr. Brennan has been Chief
Executive Officer and a director of Montgomery Ward since May 13, 1985 and
became Chairman of Montgomery Ward on June 24, 1988. He served as President of
Montgomery Ward from May 13, 1985 through September 10, 1992. Mr. Brennan has
been a director of Itel Corporation since 1988 and a director of ANTEC
Corporation since October 1993.
Mr. Bergel has been Vice Chairman of the Company since June 25, 1993. Prior
thereto, he was an Executive Vice President of the Company from June 17, 1988
through June 24, 1993. Mr. Bergel has been a director of the Company since June
24, 1988. Mr. Bergel has been Vice Chairman--Operations and Catalog of
Montgomery Ward since June 25, 1993 and served as Executive Vice President and
President of Specialty Catalogs of Montgomery Ward from June 16, 1991 through
June 24, 1993. Prior thereto, he was President of Store Operations of
Montgomery Ward since March 3, 1989, and was Executive Vice President--
Operations of Montgomery Ward from December 16, 1987 through March 2, 1989. Mr.
Bergel has served as Chief Executive Officer of Lechmere since March 30, 1994.
From October 21, 1991 through March 29, 1994, Mr. Bergel served as Chief
Executive Officer of MW Direct. Mr. Bergel also serves as a director of MW
Direct.
Mr. Andrews has been President, Chief Operating Officer and a director of the
Company since January 28, 1994. Mr. Andrews has been President and Chief
Operating Officer of Montgomery Ward since January 28, 1994. Prior thereto he
served as Executive Vice President of Operations of Circuit City Stores,
Incorporated ("Circuit City") from March 1991 to January 1994, and Executive
Vice President of Marketing of Circuit City from October 1990 to February 1991.
He was Executive Vice President and President of Marketing of Montgomery Ward
from May 18, 1990 through June 16, 1990 and Executive Vice President and
President of Home and Automotive Group from August 18, 1986 to May 17, 1990.
Mr. Heine has been an Executive Vice President, Secretary and General Counsel
of the Company since September 30, 1991 and a director since May 15, 1992.
Prior thereto, he was Senior Vice President, Secretary and General Counsel of
the Company from June 17, 1988 through September 29, 1991. Mr. Heine has been
Executive Vice President, Legal and Financial Services of Montgomery Ward since
September 30, 1991. He served as Senior Vice President--Legal and Real Estate
of Montgomery Ward from March 28, 1990 through September 29, 1991 and was named
a Senior Vice President of Montgomery Ward on March 1, 1988. Mr. Heine served
as Chairman and Chief Executive Officer of Signature from March 8, 1993 until
April 11, 1994. Prior thereto, he also served as President of Signature from
September 30, 1991.
Mr. Kasenter has been an Executive Vice President of the Company since
February 21, 1992. Prior thereto, he was a Senior Vice President of the Company
since June 17, 1988. Mr. Kasenter has served as Executive Vice President, Human
Resources of Montgomery Ward since January 27, 1992 and was Senior Vice
President--Human Resources and Customer Satisfaction of Montgomery Ward from
June 23, 1988 to January 26, 1992.
Mr. Pohlmann has been an Executive Vice President since September 30, 1991
and served as Chief Financial Officer of the Company from September 30, 1991 to
August 30, 1992. Prior thereto, he was Senior Vice President and Chief
Accounting Officer from May 18, 1990 to September 29, 1991, and Senior Vice
President--Finance from June 17, 1988 through May 17, 1990. Mr. Pohlmann has
been Executive Vice President, Merchandise and Store Operations of Montgomery
Ward since November 16, 1993. Prior thereto, he was Executive Vice President,
Merchandise Control from June 25, 1993 through November 15, 1993, Executive
Vice President, Stores and Finance from January 27, 1992 through June 24, 1993
and prior thereto, Executive Vice President and Chief Financial Officer of
Montgomery Ward since September 30, 1991. He served as Senior Vice President--
Store Operations of Montgomery Ward from June 16, 1991 through September 29,
1991, and was Senior Vice President--Finance of Montgomery Ward from March 1,
1988 through June 15, 1991.
47
<PAGE>
Mr. Schoeberl has been an Executive Vice President of the Company since June
24, 1992. Prior thereto, he served as Vice President from June 24, 1988 to June
23, 1992. Mr. Schoeberl has been Executive Vice President--Home and Auto of
Montgomery Ward since September 9, 1993, Executive Vice President--Electric
Avenue and Auto Express from June 24, 1992 through September 8, 1993, Senior
Vice President--Electric Avenue from February 20, 1992 to June 23, 1992 and
Senior Vice President--Auto Express from July 3, 1991 to February 19, 1992.
Prior thereto, he served as Vice President and General Merchandise Manager,
Auto Express from May 18, 1990 to July 2, 1991 and Vice President and General
Merchandise Manager, Auto Express and Four Seasons from June 4, 1989 to May 17,
1990.
Mr. Workman has been Executive Vice President, Chief Financial Officer and
Assistant Secretary of the Company since January 28, 1994. Prior thereto, he
served as Senior Vice President, Chief Financial Officer and Assistant
Secretary of the Company since August 31, 1992 and Vice President and Assistant
Secretary of the Company since May 15, 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. Rusthoven served as an Executive Vice President of the Company from May
15, 1992 until his current leave of absence which began on November 1, 1992.
Mr. Rusthoven was Executive Vice President--Apparel of Montgomery Ward since
February 20, 1992, and was Senior Vice President--Apparel of Montgomery Ward
from July 3, 1991 to February 19, 1992. Mr. Rusthoven served as Vice President
and General Merchandise Manager, Men's Apparel, Footwear and Accessories from
June 6, 1990 to July 2, 1991. Prior thereto, he served as President and Chief
Operating Officer of Baddour, Inc., parent company of Fred's Dollar Stores in
Memphis, Tennessee from March, 1990 to June, 1990. Mr. Rusthoven is also
currently on a leave of absence from Montgomery Ward.
Mr. Cato served as an Executive Vice President of the Company from May 15,
1992 until his current leave of absence which began on February 4, 1994. Mr.
Cato was Executive Vice President--Logistics and Product Service of Montgomery
Ward from November 8, 1990 until February 4, 1994 and was Senior Vice
President--Logistics from March 3, 1989 until November 7, 1990. Mr. Cato is
also on a leave of absence from Montgomery Ward.
Ms. Harms has been a Vice President and Treasurer of the Company since
January 1, 1989. Ms. Harms has been Vice President and Treasurer of Montgomery
Ward since May 1, 1988.
Mr. Connolly has been Executive Vice President, Apparel of Montgomery Ward
since February 2, 1994. Prior thereto, he was Senior Vice President and General
Merchandise Manager, Women's and Intimate Apparel, Accessories, Health and
Beauty Aids and Sundries of Wal-Mart Stores, Incorporated from August 1989 to
December 1993. He served as Vice President and General Merchandise Manager,
Women's Apparel of Montgomery Ward from December 1987 to July 1989.
Mr. McCaffrey has been Executive Vice President, Marketing of Montgomery Ward
since August 4, 1992. Mr. McCaffrey served as Senior Vice President-Advertising
of Montgomery Ward from November 11, 1991 to August 3, 1992, Senior Vice
President and General Merchandise Manager, Intimates, Footwear and Accessories
of Montgomery Ward from September 19, 1991 to November 10, 1991 and Senior Vice
President-Merchandise Planning of Montgomery Ward from July 3, 1991 to
September 18, 1991. Prior thereto, he served as Vice President-Merchandise
Planning of Montgomery Ward from February 19, 1991 to July 2, 1991, Vice-
President-Apparel Planning and Field Merchandising of Montgomery Ward from
October 11, 1990 to February 18, 1991, Vice President-Apparel Planning and
Product Development of Montgomery Ward from July 28, 1989 to October 10, 1990
and Vice President-Apparel Marketing, Planning and Development of Montgomery
Ward from January 4, 1989 to July 27, 1989. Mr. McCaffrey was named Vice
Chairman of Signature on April 12, 1994.
48
<PAGE>
Mr. Reddington has been Chairman and Chief Executive Officer of Signature
since April 25, 1994. Prior thereto, he was President and Chief Executive
Officer of Sears Canada, Inc. from 1989 until his retirement in December 1993.
Mr. Lieberman has been a director of the Company since June 25, 1988, is a
senior partner in the law firm of Altheimer & Gray and has practiced law in
Chicago, Illinois since 1954.
Mr. Cathcart has been a director of the Company since June 25, 1988. In
January, 1990, Mr. Cathcart, who is retired, resigned as Chairman of Kidder,
Peabody Group Inc., a position he held since January, 1989. Mr. Cathcart has
been a director of Illinois Tool Works, Inc. since 1964 and a director of
General Electric Financial Services, Inc. and GE Capital since 1987. He is also
a director of Quaker Oats Company, Baxter International and General Electric
Company.
Mr. Ekedahl has been a director of the Company since June 25, 1988. He became
a Vice President of General Electric Company and Senior Vice President and
General Manager--Retailer Financial Services of GE Capital in March 1989.
Mr. Nayden has been a director of the Company since June 25, 1988. He has
been President and Chief Operating Officer of Kidder, Peabody Group, Inc. since
June 22, 1994. Prior thereto, Mr. Nayden was an Executive Vice President of GE
Capital from February, 1989 to June 1994. Mr. Nayden is a director of General
Electric Financial Services, Inc., GE Capital and Penske Truck Leasing.
Mr. Parke has been a director of the Company since April 27, 1990. He has
been Senior Vice President-- Finance of General Electric Financial Services,
Inc. since November, 1989. He was Vice President--Finance and Information
Systems, Aircraft Engines of General Electric Company from January, 1989 to
November, 1989. Mr. Parke is a director of FGIC Corporation, Polaris Holding
Co., Kidder, Peabody Group, Inc., GE Credit International, N.Y., and Financial
Guaranty Insurance Co.
49
<PAGE>
EXECUTIVE COMPENSATION
The Company had no employees and paid no compensation in 1993. The following
information details compensation accrued by Montgomery Ward and its
subsidiaries to executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------------
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING LTIP COMPEN-
NAME AND PRINCIPAL COMPENSATION OPTIONS PAYOUT SATION
POSITION YEAR SALARY ($) BONUS ($) ($)/1/ (#) ($) ($)/2/
- ------------------ ---- ---------- --------- ------------ ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bernard F. Brennan 1993 1,052,500 400,000 3,747,054 -- 732,555 2,936
Chairman and Chief Ex- 1992 1,017,500 354,200 1,497,488 -- 587,777 2,884
ecutive Officer 1991 993,333 364,210 -- -- 591,894 2,800
Richard Bergel 1993 404,167 130,000 279,336 -- 200,700 2,936
Vice Chairman 1992 350,000 125,000 136,993 -- 132,510 2,884
1991 283,958 69,000 -- -- 99,801 2,800
Robert R. Schoeberl 1993 312,500 71,557 65,612 50,000 112,153 2,936
Executive Vice Presi- 1992 264,167 49,850 25,309 -- 82,168 2,884
dent 1991 216,667 61,800 -- -- 79,704 2,683
Leslie A. Ball/3/ 1993 450,000 150,000 1,413,040 -- 194,423 --
1992 112,500 125,000 307,832 100,000 107,565 --
Spencer H. Heine 1993 279,167 75,000 59,196 -- 101,775 2,936
Executive Vice Presi- 1992 223,750 68,304 22,460 -- 72,870 2,694
dent, 1991 181,667 60,000 -- -- 67,687 2,415
Secretary and General
Counsel
Harold D. Kahn/4/ 1993 598,958 200,000 3,139,277 -- 270,031 --
1992 208,333 100,000 308,294 300,000 149,396 --
</TABLE>
- --------
1 Includes company paid legal fees, taxes paid on stock transfers and
purchases of Company stock at below-market prices. With respect to such
legal fees, see "--Certain Transactions" below. Also includes executive
perquisites for Mr. Bergel (primarily a living expense allowance of $27,201
and $25,708 and a cash bonus equal to related income taxes of $21,160 and
$14,732 for 1993 and 1992, respectively). No other named executive officer
received perquisites exceeding $50,000 or 10% of salary and bonus.
Information is given for 1993 and 1992 only pursuant to the proxy rule
transitional provisions applicable to this column.
2 Represents Company matching contributions to the Savings and Profit Sharing
Plan.
3 Mr. Ball joined the Company on September 18, 1992 as Executive Vice
President, Apparel of Montgomery Ward and resigned from the Company
effective January 31, 1994.
4 Mr. Kahn joined the Company on September 11, 1992 as President and resigned
from the Company effective December 15, 1993.
Option Grants and Exercises. The following tables set forth summaries of the
terms of stock options granted to Mr. Schoeberl during the Company's 1993
fiscal year and the value of unexercised options held by him and Messrs. Ball
and Kahn as of January 1, 1994. No other named executive officer received
options during the 1993 fiscal year. None of the named executive officers
exercised any stock options during the 1993 fiscal year. No stock appreciation
rights ("SARs") were granted to or exercised by any of the named executive
officers during the 1993 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
-------------------------------------------------- -----------------
NUMBER OF
SECURITIES
UNDERLYING PERCENTAGE OF TOTAL EXERCISE
OPTIONS OPTIONS GRANTED OR BASE
GRANTED TO ASSOCIATES PRICE EXPIRATION
NAME (#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ------------------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Schoeberl..... 50,000 2.5% 22.50 9/30/2003 708,750 1,788,750
====== ==== ===== ========= ======= =========
</TABLE>
50
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert R. Schoeberl......... 0 50,000 0 0
Harold D. Kahn.............. 150,000 150,000 $562,500 $562,500
Leslie A. Ball.............. 50,000 50,000 $187,500 $187,500
======= ======= ======== ========
</TABLE>
Long Term Incentive Plan Awards. Certain Montgomery Ward executives
recommended by Montgomery Ward's Chief Executive Officer (the "CEO") formerly
participated in the Long Term Incentive Plan. The Long Term Incentive Plan
consisted of three-year cycles that were initiated annually. If specific
corporate, financial, strategic and operational objectives approved by the CEO
were achieved for any designated cycle, cash was awarded under the Long Term
Incentive Plan to each participant based upon the average base salary of such
participant if, in the judgment of the CEO, such participant contributed
substantially and positively to Montgomery Ward's overall corporate
performance. Target payouts, which were 50% of average base salary for each of
the named executive officers, could be adjusted with the approval of the CEO
upward or downward by 40% based upon the results of Montgomery Ward against its
objectives for the cycle, and no award would be given for performance below
minimum performance levels. Mr. Brennan participated in a long term incentive
plan which is the same as the Long Term Incentive Plan, except that his maximum
award was 75% of his current base salary.
The following table sets forth information regarding the participation of
Messrs. Brennan, Bergel, Schoeberl, Ball, Heine, and Kahn and in the three-year
award cycle under the Long Term Incentive Plan commencing in the Company's 1993
fiscal year. On May 20, 1994, the shareholders of the Company approved a new
plan, the Executive Long-Term Incentive Plan, under which senior executives of
Montgomery Ward, including all named executive officers, will receive future
benefits, rather than under the Long Term Incentive Plan.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE
NUMBER OF OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
SHARES, UNITS PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
OR OTHER MATURATION OR ---------------------------------------------
NAME RIGHTS (#)/1/ PAYOUT THRESHOLD ($)/2/ TARGET ($)/3/ MAXIMUM ($)/4/
---- ------------- ------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Bernard F. Brennan...... 712,500 1995 427,500 712,500 997,500
Richard Bergel.......... 225,000 1995 135,000 225,000 315,000
Robert R. Schoeberl..... 175,000 1995 105,000 175,000 245,500
Leslie A. Ball/5/....... -- -- -- -- --
Spencer H. Heine........ 200,000 1995 120,000 200,000 280,000
Harold D. Kahn/6/....... -- -- -- -- --
</TABLE>
- --------
1 Units each represent one dollar of target payout, based on a target of 50% of
current base salary for Messrs. Bergel, Schoeberl, Ball, Heine and Kahn and
75% of current base salary for Mr. Brennan.
2 Threshold amounts are 60% of target payouts, representing payout for
accomplishment of minimum performance levels.
3 Target levels are based on the attainment of performance goals, with no
adjustment to the payout made by the CEO.
4 Maximum levels represent 140% of target payouts, comprising the maximum
upward adjustment possible under the Long Term Incentive Plan.
5 Mr. Ball resigned as an officer of the Company effective January 31, 1994. He
will receive no further payouts under the Long Term Incentive Plan. Had he
not resigned, Mr. Ball would have been eligible to receive from a threshold
level of $135,000 to a maximum payout of $315,000.
6 Mr. Kahn resigned as an officer of the Company effective December 15, 1993.
He will receive no further payouts under the Long Term Incentive Plan. Had he
not resigned, Mr. Kahn would have been eligible to receive from a threshold
level of $187,500 to a maximum payout of $437,500.
51
<PAGE>
Pension Plan. Executive officers of Montgomery Ward, in addition to many
other associates, participate in a pension plan (the "Pension Plan"), which
provides benefits defined by formulae based primarily on a participant's annual
compensation offset by benefits provided by associates' Basic Contribution and
Transferred Contribution accounts in the Savings and Profit Sharing Plan
("Savings Plan"). From 1989 through 1993, no more than $200,000, as adjusted
annually under Section 401(a)(17) of the Internal Revenue Code of 1986, as
amended (the "Code"), of any participant's annual compensation was considered
for any purpose, including for purposes of the formulae, under the Pension
Plan. Beginning in 1994, no more than $150,000, as adjusted annually under
Section 401(a)(17) of the Code, of any participant's compensation per year is
considered for any purpose, including for purposes of the formulae, under the
Pension Plan. The monthly pension benefit to which current associates are
entitled under the Pension Plan at normal retirement age (65 years old) is
generally based on benefit formulae that are applicable to different years of
service. The formula for service after 1988 applies to credited service, as
defined in the Pension Plan, earned after 1988 while making contributions to
the Savings Plan and is based on "career earnings". A participant's annual
benefit under the post-1988 formula is 1.5% of the participant's eligible pay
for each year of credited service after 1988. The Pension Plan formulae benefit
is determined by adding the benefit under the post-1988 formula to the
participant's accrued benefit under the Pension Plan as of December 31, 1988,
as determined under the formulae in effect prior to 1988. A participant's
benefit determined under the Pension Plan is reduced by an amount equivalent to
an annuity which could be purchased with the participant's Basic Contribution
and Transferred Contribution accounts in the Savings Plan.
The following table sets forth the estimated annual benefits (calculated on a
straight life annuity basis) upon retirement at age 65 under the Pension Plan,
which is the only defined benefit plan under which associates of Montgomery
Ward can currently accrue a benefit, to Mr. Brennan and the other named
executive officers of the Company (calculated on the basis of estimated years
of service at retirement age; levels of compensation paid in calendar year 1993
(including compensation pursuant to the Performance Management Program),
assuming 6% annual increases; and without regard to any reduction for benefits
under the Savings Plan):
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
NAME OF PARTICIPANT PENSION AT RETIREMENT
------------------- ---------------------
<S> <C>
Bernard F. Brennan.................................. $107,185
Richard Bergel...................................... 98,173
Robert R. Schoeberl................................. 84,913
Leslie A. Ball...................................... N/A
Spencer H. Heine.................................... 98,399
Harold D. Kahn...................................... N/A
</TABLE>
Messrs. Ball and Kahn have resigned from the Company and will receive no
payments under the Pension Plan.
Director Compensation Arrangements. Messrs. Cathcart and Lieberman are paid
director fees of $6,000 per fiscal quarter, plus $1,500 for each meeting such
director attends of the Board of Directors of the Company and Montgomery Ward,
plus $1,500 for each meeting such director attends of a committee of the
Company and Montgomery Ward of which such director is a member, provided that
if a meeting of the Board of Directors of the Company is held jointly with or
immediately prior to or following a meeting of the Board of Directors of
Montgomery Ward, the aggregate fees for such meetings shall be $1,500, and
provided further if a meeting of a committee of the Company is held jointly
with or immediately prior to or following a meeting of a committee of
Montgomery Ward, the aggregate fees for such meetings shall be $1,500. Such
directors fees may be converted into Series 1 Shares or Series 2 Shares
pursuant to the Directors Fee Plan described below. Directors of the Company
who are also executive officers of Montgomery Ward currently receive no
directors fees or other compensation for their service as directors of the
Company. Likewise, directors of the Company who are executive officers of GE
Capital currently receive no directors fees or other compensation for their
service as directors of the Company.
52
<PAGE>
In December, 1990, the Board of Directors adopted a plan, which was approved
by the shareholders in May, 1991, allowing Messrs. Cathcart and Lieberman to
elect to receive all or any portion of the fees for their services as directors
of the Company and Montgomery Ward in Series 1 Shares. In May, 1991, the Board
of Directors amended and restated the plan as the Directors Plan (the
"Directors Fee Plan") to permit (a) the participation of additional directors,
(b) the receipt of Series 2 Shares as well as Series 1 Shares and (c) the
establishment of a committee (the "Directors Fee Plan Committee") to (i)
administer the plan, (ii) estimate director fees payable to directors for the
fiscal year and (iii) permit directors to elect to receive Class A Shares with
a value determined by the Directors Fee Plan Committee not to exceed the
estimated fees. The Directors Fee Plan as so amended and restated was approved
by the shareholders on May 17, 1991.
Directors of the Company or Montgomery Ward other than members of the
Directors Fee Plan Committee are eligible to participate in the Directors Fee
Plan if designated by the Directors Fee Plan Committee. The Directors Fee Plan
Committee is comprised of not fewer than two directors who are appointed by the
Board of Directors and who serve at the pleasure of the Board of Directors. The
current members of the Directors Fee Plan Committee are Messrs. Brennan and
Heine. Of the seven eligible directors, the Directors Fee Plan Committee has
designated only Messrs. Cathcart and Lieberman as participants in the Directors
Fee Plan as of July 2, 1994. As of such date, Messrs. Cathcart and Lieberman
have acquired 5,322 and 6,282 Series 1 Shares, respectively, pursuant to rights
("Conversion Rights") under the Directors Fee Plan.
The Directors Fee Plan Committee decides based on the past service of the
director whether there should be an acceleration of the grant of Conversion
Rights based on an estimate of director fees for the fiscal year. If the grant
of Conversion Rights is accelerated by the Directors Fee Plan Committee, the
Directors Fee Plan Committee determines the number of Class A Shares to which
the Conversion Rights relate, the value of the Class A Shares, the duration of
the Conversion Rights and the limitations on the Class A Shares acquired
pursuant to the Conversion Rights. It is currently anticipated that any Class A
Shares acquired pursuant to accelerated Conversion Rights would be forfeited to
the extent a director does not earn the anticipated director fees for the
fiscal year.
Conversion Rights are automatically granted after the end of each fiscal
quarter of the Company to participating directors in a number determined by
dividing the director fees for the fiscal quarter by the fair market value per
share of the Company's Common Stock. The number of Class A Shares acquired
pursuant to accelerated Conversion Rights reduces the number of automatically
granted Conversion Rights.
The acquisition of Class A Shares by directors pursuant to Conversion Rights
does not require any direct payment by a director, but the director fees which
otherwise would be payable to the director are reduced by the fair market value
of the Class A Shares acquired. If directors acquire Class A Shares pursuant to
Conversion Rights, the Company will pay the directors an amount sufficient to
pay all applicable federal and state taxes payable by the directors with
respect to the Class A Shares acquired pursuant to Conversion Rights and the
amount attributable to this payment.
The Board of Directors may amend or terminate the Directors Fee Plan, except
that no such action by the Board of Directors may change the terms and
conditions of any Conversion Rights previously granted in a manner adverse to
the holder of the Conversion Right without the consent of such holder.
Shareholder approval of an amendment to the Directors Fee Plan is necessary if
required for compliance with Rule 16b-3 ("Rule 16b-3") promulgated under
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Act"),
and the timing of certain amendments may be limited by Rule 16b-3. The
Directors Fee Plan Committee has the right to make adjustments with respect to
Conversion Rights if Montgomery Ward or the Company dissolves or is liquidated
or upon the occurrence of a public offering of shares of the Company.
53
<PAGE>
Employment Contracts and Severance Arrangements
Executive Employment Agreements. In the course of recruiting new executives,
promoting existing associates to executive positions and increasing the
responsibilities of existing executives, Montgomery Ward frequently enters into
employment agreements which set forth the general terms of the compensation
arrangements for the executive. Such agreements typically set forth, among
other things, a recipient's base salary, the target bonus under the Performance
Management Program (the "PMP") (which links each executive's award to
individual and Company performance against a set of financial and other
strategic goals), the maximum percentage of the target bonus under the PMP that
can be earned, participation in the Long Term Incentive Plan with initial
target bonuses for applicable Plan cycles, the percentage of the executive's
base pay that can be earned annually through the Plan after the initial bonus
target period has run, bonus guarantees, if any, and the number of stock
options, if any, that will initially be granted to the executive in his or her
new position. Recent employment agreements provide for compensation
arrangements pursuant to the Senior Executive Performance Management Program
and the Executive Long-Term Incentive Plan, each of which was approved by the
Company's stockholders at the Company's May 20, 1994 annual meeting of
stockholders. Of the executive officers named in the Summary Compensation
Table, Mr. Bergel has an agreement of this type and Messrs. Kahn and Ball had
agreements of this type.
Mr. Kahn and Montgomery Ward entered into their agreement in connection with
Mr. Kahn's agreement to serve as President of Montgomery Ward; Mr. Bergel and
Montgomery Ward entered into their agreement in connection with Mr. Bergel's
appointment to the position of Chief Executive Officer of Lechmere; and Mr.
Ball and Montgomery Ward entered into their agreement when Mr. Ball was named
Executive Vice President, Apparel of Montgomery Ward. The agreement with Mr.
Bergel provides, and the agreements with Mr. Kahn and Mr. Ball provided, for,
respectively, (i) initial annual base salaries of $600,000, $625,000, and
$450,000; (ii) PMP target bonuses of $200,000 (guaranteed at 100% for 1994),
$200,000 (guaranteed at 50% for 1992 and 100% for 1993), and $150,000
(guaranteed at 83.33% for 1992 and 100% for 1993), in each case with
opportunities to earn up to 150% of such target bonuses; and (iii) Long Term
Incentive Plan participation at a target bonus level of base salary for each
executive of 50%. The agreements with Mr. Kahn and Mr. Ball stated that the
executive would receive options to purchase 300,000 and 100,000 Class A Shares,
respectively, with 25% of such options vesting immediately and 25% vesting each
year thereafter (which options were granted). The agreement with Mr. Bergel
stated that he would receive options to purchase 200,000 Class A Shares at
$22.50 per share, with such options vesting 100% on April 4, 1996. Mr. Bergel
was granted such option in July 1994. Each of the agreements also contained
certain severance arrangements. The severance arrangements with Mr. Bergel are
more fully described below. Each of Messrs. Kahn and Ball entered into a
General Release and Covenant Not to Sue (a "Release") with Montgomery Ward upon
the termination of the employment of such executive with Montgomery Ward. The
provisions of each Release expressly supersede the severance provisions in the
applicable agreement and are more fully described below.
Mr. Bergel's agreement also provides that, upon the occurrence of certain
events, including his separation from Lechmere before April 1, 1996, Mr. Bergel
may elect to retire upon thirty days notice. The agreement provides that upon
Mr. Bergel's retirement, he will be permitted to sell 25% of the Class A Shares
held by him to the Company for cash in each of the year of such retirement and
the next succeeding three (3) years. Also upon Mr. Bergel's retirement, the
Company will provide him with a 100% relocation package to move to any location
of his choice in the continental United States.
The Releases with Mr. Kahn and Mr. Ball provide for cash payments of a total
of $2,373,157 and $810,000, respectively, subsidization of each executive's
continuation of coverage in Montgomery Ward's health care plan through December
31, 1995 and January 31, 1995, respectively, and certain modifications of the
non-compete clauses in each executive's agreement. In addition, the Company
promised in each Release to pay the executive the "spread" between the exercise
price of all options held by the executive and $26.50 per share, the fair
market value of the Common Stock for the Company's 1994 fiscal year, as
determined pursuant to the Stockholders' Agreement. The Company also agreed to
purchase all vested stock held by each executive at $26.50 per share. In
connection with the foregoing, the executive in each Release discharged
Montgomery Ward and its officers, directors, agents, employees and affiliates
from all claims arising out of the executive's employment with Montgomery Ward.
Each Release also contains provisions relating to confidentiality of
information received in connection with the executive's employment.
54
<PAGE>
Senior Officer Severance Plan. The normal Severance Plan for certain senior
officers of Montgomery Ward provides that upon termination of a participating
officer's employment with Montgomery Ward, for reasons other than cause, death,
retirement or resignation, the senior officer will receive from Montgomery Ward
a payment equal to 12 months of his or her base pay. This payment is to be in
lieu of any other severance pay benefits available to the senior officer under
any other Montgomery Ward policy. The participants in this plan currently
consist of 22 senior officers of the Company.
Compensation Committee Interlocks and Insider Participation. Mr. Brennan,
Chief Executive Officer of the Company and of Montgomery Ward, serves as a
member of the Compensation Committee of Montgomery Ward's Board of Directors.
Robert A. Kasenter, Executive Vice President of the Company and Executive Vice
President, Human Resources of Montgomery Ward, serves as Secretary of the
Compensation Committee of Montgomery Ward's Board of Directors, although Mr.
Kasenter is not a director of the Company or of Montgomery Ward.
CERTAIN TRANSACTIONS
Under the terms of a line of credit agreement ("Line of Credit Agreement")
between Brennan and GE Capital, Brennan, at his option, had the right to borrow
up to $5 million to be secured by a pledge of Class A Shares owned by him. On
August 10, 1993, Mr. Brennan paid to GE Capital $2,495,657, in full payment of
all borrowings under the Line of Credit Agreement, the loan facility was
cancelled and all pledged shares were released.
In 1991, Montgomery Ward arranged lines of credit with the Northern Trust
Company and the First National Bank of Chicago (the "Banks") totaling an
aggregate of not more than $10,000,000 which is currently available to twenty-
four (24) associates, including directors who are associates of the Company and
executive officers of the Company (the "Line of Credit Program"). A committee
of the Board of Directors of the Company (consisting of Messrs. Brennan and
Lieberman) determines which associates are eligible to borrow money under the
Line of Credit Program and the maximum amounts which each, respectively, can
borrow. Any director or executive officer desiring to borrow money from a Bank
under the Line of Credit Program is required to pledge to such Bank as
collateral a number of Class A Shares of vested stock of the Company held by
the individual, the fair market value of which is equal to twice the amount the
individual desires to borrow. All loans are payable in five years with annual
interest payments. Any loan may be prepaid without penalty. Interest accrues at
the applicable Bank's prime rate. The Company has agreed with the Banks that,
in the event any individual should default upon his or her repayment
obligations, the Company will purchase the note from the Bank or purchase the
pledged stock from the Bank at the fair market value with the entire amount
defaulted upon to be paid by the Company if, and to the extent, the defaulted
amount exceeds the amount of the payment for the Class A Shares. As of January
1, 1994, two (2) loans in excess of $60,000 are outstanding to executive
officers of the Company under the Line of Credit Program: one to Mr. Schoeberl
for $150,000 and one to Mr. Kasenter for $130,730. No other loans under the
Line of Credit Program have been made to directors and executive officers of
the Company in an amount in excess of $60,000.
In 1992, the Company agreed to pay the reasonable legal fees and expenses of
Altheimer & Gray and Arnold & Porter in connection with their rendition of
services to stockholders of the Company who acquired Series 1 Shares in 1988
(the "Original Stockholders") in a controversy with the Internal Revenue
Service with respect to such acquisition. Such payment constitutes compensation
to all or a portion of the Original Stockholders, and has been and will be
prorated among such Original Stockholders based upon their relative
shareholdings. During 1993, the total amount of such compensation, including
tax gross-ups, to directors and executive officers which exceed $60,000 were as
follows: Mr. Brennan, $3,747,054; Mr. Andrews, $299,546; Mr. Bergel, $224,691;
Mr. Pohlmann, $224,691; Mr. Schoeberl, $63,353; and Mr. Cato, $60,049. On March
14, 1994, as one component of a settlement with the IRS, the IRS and each of
the Original Stockholders entered into a Stipulation of Settlement, pursuant to
which the IRS conceded that no tax
55
<PAGE>
deficiencies were due from the Original Stockholders. Accordingly, fees and
expenses relating to this matter and paid by the Company after March 1994
should be minimal. As another component of the settlement, the Company agreed
to pay the IRS the sum of $6,000,000.
As discussed elsewhere herein (see "BUSINESS--Account Purchase Agreement"),
Montgomery Ward extends credit to its customers under an open-end, revolving
credit plan and in connection therewith, Montgomery Ward and Montgomery Ward
Credit have entered into the Account Purchase Agreement pursuant to which
Montgomery Ward Credit purchases receivables from time to time and provides
services to Montgomery Ward. Under the terms of a letter agreement dated June
24, 1988 among Signature, Montgomery Ward Credit and Montgomery Ward,
Montgomery Ward Credit is purchasing the customer accounts receivable of
Signature on terms similar to those contained in the Account Purchase
Agreement. Set forth below is a description of various transactions entered
into in connection with the Account Purchase Agreement and in connection with
the letter agreement. Unless otherwise specified, information given is for
aggregate transactions under both the Account Purchase Agreement and the letter
agreement. As of January 1, 1994, there were $4.9 billion of Montgomery Ward
private label credit card receivables owned by Montgomery Ward Credit. During
each of the 1993, 1992 and 1991 fiscal years, Montgomery Ward Credit purchased
approximately $3.7 billion, $3.5 billion and $3.5 billion, respectively, of
such receivables from Montgomery Ward. As of July 2, 1994, Montgomery Ward
Credit has purchased approximately $1,751 million of such receivables from
Montgomery Ward during the current fiscal year. The Company anticipates
significant additional purchases under the Account Purchase Agreement during
the remainder of fiscal 1994. During the 1993, 1992 and 1991 fiscal years,
Montgomery Ward paid approximately $0, $30,000,000 and $18,700,000,
respectively, to Montgomery Ward Credit in payment of loss sharing under the
Account Purchase Agreement. In the first quarter of 1994, an additional
$35,000,000 was paid for 1993 losses incurred under the Account Purchase
Agreement. Presently, Montgomery Ward is maker on three notes outstanding
payable to Montgomery Ward Credit, one representing credit losses in fiscal
1991 for $18,000,000, one representing credit losses in fiscal 1992 for
$63,620,000 and one representing credit losses in fiscal 1993 for $25,507,000.
During 1992, Montgomery Ward finance charge rates were increased in certain
states effective July 1 and October 1 and Montgomery Ward is entitled to share
in such increased finance charges. Under the Account Purchase Agreement,
Montgomery Ward's share of such increases is available for offset against the
notes described above made by Montgomery Ward payable to Montgomery Ward
Credit. Such amount is evidenced by a note which bears interest at the same
rate and is due at the same time as the notes payable to Montgomery Ward
Credit. The finance charge offset applicable to those notes is $9,600,000.
Under the letter agreement, Montgomery Ward Credit also provides administrative
services in connection with Signature products. Fees paid by Signature to
Montgomery Ward Credit for such services in each of the Company's 1993, 1992
and 1991 fiscal years totaled approximately $5,000,000.
Montgomery Ward has entered into a Program Agreement dated October 12, 1989
with GE Capital by which GE Capital pays certain manufacturers and distributors
the invoice price of products acquired by Montgomery Ward, and whereby
Montgomery Ward reimburses GE Capital for such payments according to an agreed
upon schedule. The aggregate amount of outstanding payments and other amounts
payable under the Program Agreement is not to exceed $175 million at any one
time. During the Company's 1993 fiscal year, Montgomery Ward reimbursed
approximately $434 million to GE Capital under the Program Agreement, and as of
April 2, 1994, Montgomery Ward has reimbursed approximately $137 million under
the Program Agreement during the current fiscal year. The Company anticipates
continuing reimbursement obligations pursuant to the Program Agreement.
In September, 1992, Montgomery Ward repaid approximately $128 million of
borrowings under the Subordinated Loan Agreement dated as of June 23, 1988
between Montgomery Ward and GE Capital, as amended. The highest amounts of
principal due under the Subordinated Loan Agreement during the Company's 1992
and 1991 fiscal years were approximately $158 million and $170 million,
respectively. The Company paid GE Capital $8 million in interest payments under
the Subordinated Loan Agreement during 1992. During the Company's 1991 fiscal
year, Montgomery Ward paid approximately $17 million in interest, and
approximately $12 million in principal under the Subordinated Loan Agreement.
56
<PAGE>
On September 30, 1992, Montgomery Ward declared a $93 million dividend
payable to the Company, which the Company used to redeem its junior preferred
stock and senior preferred stock held by GE Capital, and to pay the accrued
dividends thereon. Total dividends paid by the Company to GE Capital on the
preferred stock during 1992 were approximately $7,912,000. Total dividends paid
to GE Capital on the preferred stock during the 1991 fiscal year were
approximately $13 million. The 500 shares of senior preferred stock and the 400
shares of junior preferred stock were each redeemed for their liquidation value
of $100,000 per share. On April 27, 1994, GE Capital purchased 750 shares of
Senior Preferred Stock from the Company for approximately $75 million. See
"DESCRIPTION OF EQUITY SECURITIES--Senior Preferred Stock."
General Electric Company, the parent of GE Capital, is, in the ordinary
course of its business, a major supplier of consumer goods to Montgomery Ward
for sale at Montgomery Ward stores and Lechmere stores in the ordinary course
of their businesses.
SELLING SHAREHOLDERS
Names of shareholders and the number of Shares being offered by such
shareholders will be identified from time to time by post-effective amendment
in accordance with applicable federal and state laws.
PRINCIPAL SHAREHOLDERS
CLASS A SHARES
The following table sets forth the beneficial ownership, as of July 2, 1994,
of Class A Shares (i) by each person who is a director of the Company (none of
whom except the individuals identified owns any shares of the Company's equity
securities), (ii) by each executive officer whose compensation is reflected in
the Summary Compensation Table (none of whom except the individuals identified
owns any shares of the Company's equity securities), (iii) by each person who
is known to be a holder of more than 5% of Class A Shares and (iv) by all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
INDIVIDUAL OR GROUP SHARES %
- ------------------- ---------- -----
<S> <C> <C>
Bernard F. Brennan (a)........................................ 17,276,306 88.7%
Myron Lieberman (b)........................................... 2,510,873 12.9%
Richard Bergel (c)(d)......................................... 852,500 4.4%
Spencer H. Heine (c).......................................... 251,250 1.3%
Bernard W. Andrews (c)(e)..................................... 350,000 1.8%
Silas S. Cathcart (c)(f)...................................... 15,605 0.0%
Robert R. Schoeberl (c)(g).................................... 228,333 1.2%
Tamara Brennan (h)............................................ 2,200,000 11.3%
All directors and executive officers as a group (19 persons)
(i).......................................................... 18,887,136 94.2%
</TABLE>
- --------
(a) Comprised of 13,025,750 Class A Shares (66.9% of the Class A Shares and
29.3% of the Common Stock outstanding as of July 2, 1994) owned of record
by Mr. Brennan and with respect to which Mr. Brennan has sole investment
and voting power, and 4,250,556 Class A Shares (21.8% of the Class A shares
and 9.6% of the Common Stock outstanding as of July 2, 1994) owned of
record by Mr. Brennan as voting trustee of the Voting Trust and with
respect to which Mr. Brennan has sole voting power as voting trustee but no
investment power. Does not include 2,200,000 Class A Shares (11.3% of the
Class A Shares and 4.9% of the Common Stock outstanding as of July 2, 1994)
which are owned by Myron Lieberman, as trustee of a trust (the "Family
Trust") for the benefit of members of Mr. Brennan's family with respect to
which Mr. Brennan has no voting or investment power, but with respect to
which Tamara Brennan, Mr. Brennan's wife, may acquire shared voting and
dispositive power. See Note (h) below. Mr. Brennan disclaims beneficial
ownership of such 2,200,000 Class A Shares. Does not include Class A Shares
which may be acquired by the holders of Options exercisable as of July 2,
1994 or which became exercisable within 60 days of the date hereof, which
Class A Shares will be required to be deposited by the holders thereof in
the Voting Trust upon exercise of such Options. Mr. Brennan's business
address is Montgomery Ward Plaza, Chicago, Illinois 60671.
57
<PAGE>
(b) Includes 294,250 Class A Shares represented by Voting Trust Certificates
owned by Lieberman Investment Limited Partnership, a limited partnership of
which Mr. Lieberman is the sole general partner. Also includes 2,200,000
Class A Shares with respect to which Mr. Lieberman has sole voting and
investment power as trustee of the Family Trust. Such 2,200,000 Class A
Shares are not deposited in the voting trust under which Mr. Brennan serves
as voting trustee. See Note (c) below. All shares other than the 2,200,000
Class A Shares as to which Mr. Lieberman has beneficial ownership are
represented by Voting Trust Certificates and such shares are held in a
voting trust as to which Mr. Brennan, as voting trustee, has sole voting
power. Includes 341 Class A Shares which Mr. Lieberman acquired on July 8,
1994 pursuant to Conversion Rights which arose on July 1, 1994 and which,
pursuant to a prior election by Mr. Lieberman, were automatically exercised
on July 8, 1994. Mr. Lieberman's business address is 10 South Wacker Drive,
Chicago, Illinois 60606.
(c) Represents ownership of Voting Trust Certificates with respect to Class A
Shares held in the Voting Trust or ownership of Options exercisable on the
date hereof or within sixty days of the date hereof with respect to Class A
Shares which will be required to be deposited in the Voting Trust upon
exercise of such Options, as to which Mr. Brennan, as voting trustee, has
or will have sole voting power and the persons indicated have or will have
sole investment power.
(d) Includes 60,000 Class A Shares with respect to which Mr. Bergel has sole
investment power as trustee of trusts for the benefit of members of the
family of Robert A. Kasenter, an officer of the Company. Does not include
90,000 Class A Shares with respect to which Mr. Kasenter, as trustee of a
trust for the benefit of members of Mr. Bergel's family, has sole
investment power, but with respect to which Mr. Bergel has no voting or
investment power.
(e) Includes 350,000 Class A Shares which may be acquired by Mr. Andrews
pursuant to options exercisable on July 2, 1994.
(f) Includes 283 Class A Shares which Mr. Cathcart acquired on July 8, 1994
pursuant to Conversion Rights which arose on July 1, 1994 and which,
pursuant to a prior election by Mr. Cathcart, were automatically exercised
on July 8, 1994.
(g) Does not include 26,667 Class A Shares with respect to which a trustee of a
trust for the benefit of members of Mr. Schoeberl's family has sole
investment power, but with respect to which Mr. Schoeberl has no voting or
investment power.
(h) Represents Class A Shares with respect to which Mrs. Brennan, if she were
to elect to become an advisor to the trustee of the Family Trust, may
acquire shared power to vote or direct the vote of, and shared power to
dispose or direct the disposition of, such shares. See Notes (a) and (b)
above.
(i) Represents all Class A Shares with respect to which executive officers and
directors have investment power, which is in each case sole investment
power. Does not include 1,162,694 Class A Shares with respect to which Mr.
Brennan has sole voting power as voting trustee, but with respect to which
neither he nor any other officer or director of the Company has investment
power. Includes 553,050 Class A Shares which may be acquired by executive
officers or directors at purchase prices ranging from $0.20 to $22.50 per
share pursuant to Options exercisable on July 2, 1994. Includes 624 Class A
Shares which were acquired by directors on July 8, 1994 pursuant to
Conversion Rights which arose on July 1, 1994 and which, pursuant to prior
elections by such directors, were automatically exercised on July 8, 1994.
Includes 19,850 Class A Shares which can be acquired pursuant to Options
which became exercisable on July 10, 1994 or become exercisable on August
13, 1994, August 15, 1994 and August 16, 1994 (all dates within 60 days of
the date hereof).
CLASS B SHARES; SENIOR PREFERRED STOCK
GE Capital owns 100% of the 25,000,000 Class B Shares currently outstanding.
Such shares represent 56.2% of the outstanding Common Stock. GE Capital also
owns 100% of the 750 shares of Senior Preferred Stock of the Company having a
liquidation value of $100,000 per share outstanding as of the date of this
Proxy Statement. Such shares represent 100% of the Company's outstanding
Preferred Stock. GE Capital's address is 260 Long Ridge Road, Stamford,
Connecticut 06902.
58
<PAGE>
DESCRIPTION OF EQUITY SECURITIES
The total authorized capital stock of the Company is comprised of 55,812,750
shares, consisting of: 55,812,000 shares of Common Stock, par value $.01 per
share; 30,812,000 shares of which are designated as Class A Common Stock which
consist of 25,000,000 shares of Class A Common Stock, Series 1, 5,412,000
shares of Class A Common Stock, Series 2, and 400,000 shares of Class A Common
Stock, Series 3; 25,000,000 shares of Class B Common Stock; and 750 shares of
Senior Preferred Stock.
The following is a summary of certain provisions of the Certificate of
Incorporation and the By-Laws of the Company. The Summary is qualified in its
entirety by reference to the Certificate of Incorporation and the By-Laws which
are Exhibits to the Registration Statement.
COMMON STOCK
Voting Rights. Each share of Class B Common Stock entitles the holder thereof
to one vote. Each share of Class A Common Stock entitles the holder thereof to
one vote per share so long as the Outstanding Amount is less than or equal to
25,000,000 (The "Series 1 Amount"). So long as the Outstanding Amount is
greater than the Series 1 Amount, each share of Class A Common Stock,
irrespective of series, will entitle the holder thereof to a fraction of a vote
per share equal to one (1) multiplied by a fraction the numerator of which is
the Series 1 Amount and the denominator of which is the Outstanding Amount.
Under the following circumstances, class voting will be permitted as follows:
(a) At such time, if any, as GE Capital and its affiliates cease to own,
in the aggregate, 50% of the amount of shares of Common Stock initially
purchased by them, the number of directors which the Designator shall have
the right to designate shall be increased by one and the number of
directors GE Capital shall have the right to designate shall be reduced by
one. If GE Capital or its affiliates cease to own, in the aggregate, 20% of
such shares, the number of directors will be automatically changed to seven
and the holders of the Class A Common Stock, voting as a class, will be
entitled to elect five of such directors, and the holders of the Class B
Common Stock, voting as a class, will be entitled to elect two of such
directors; provided, however, that as long as the Account Purchase
Agreement is in effect and GE Capital or any of its affiliates owns any
shares of Class B Common Stock, GE Capital will have the right to elect one
of the two directors which the holders of the Class B Common Stock will be
entitled to elect and all other holders of Class B Common Stock in the
aggregate will be entitled to elect the other of the two directors which
the holders of Class B Common Stock will be entitled to elect. A vacancy in
the directorships to be elected, respectively, by the holders of the Class
A Common Stock or the Class B Common Stock may be filled only by the vote
or written consent of the holders of Class A Common Stock or Class B Common
Stock, as the case may be.
(b) Any amendment of the Certificate of Incorporation increasing the
number of authorized shares of Class A Common Stock of any series, or Class
B Common Stock, may only be adopted with the affirmative vote of the
holders of a majority of both the shares of Class A Common Stock, Series 1,
then outstanding, and the shares of Class B Common Stock then outstanding,
each voting as a class.
Purchasers hereunder will be purchasing the beneficial interest in Shares
which are held of record by the Voting Trustee as trustee for the Voting Trust.
Accordingly, such Purchasers will have investment power but no voting power
with respect to the Shares purchased hereunder.
Dividends. As and when declared by the Board of Directors of the Company,
after payment in full of dividends with respect to Senior Preferred Stock then
outstanding, including any arrearages thereon, the aggregate amount of
dividends other than stock dividends which is payable to holders of shares of
Common Stock, without distinction as to class or series, shall be allocated
among the classes and series of Common Stock, as follows:
(i) The term "Class A Amount", as used below with respect to a
determination of dividends, shall mean the number equal to the lesser of
the Series 1 Amount or the Outstanding Amount as of the date of
determination;
59
<PAGE>
(ii) The portion of such dividends which is payable to the holders of
Class A Common Stock, as a class, and without distinction as to series, at
any time when the Outstanding Amount does not exceed the Series 1 Amount,
shall be the amount which bears the same ratio to the total amount of such
dividends as the Class A Amount bears to the sum of (A) the Class A Amount,
plus (B) the number of shares of Class B Common Stock outstanding as of the
date of the determination; and such portion of such dividends which is
payable to the holders of the Class A Common Stock shall be allocated among
such holders in proportion to their respective holdings of shares of Class
A Common Stock, without distinction as to series;
(iii) The portion of such dividends which is payable to the holders of
Class A Common Stock, as a class, and without distinction as to series, at
any time when the Outstanding Amount exceeds the Series 1 Amount, (but the
Outstanding Amount less the number of shares of Class A Common Stock,
Series 3, outstanding (such difference being the "Non-Series 3 Outstanding
Amount") does not exceed the Series 1 Amount), shall be the product of the
amount which would be payable to holders of Class A Common Stock if the
immediately preceding paragraph (ii) were applicable and the Class A Amount
were equal to the Series 1 Amount multiplied by a fraction, the numerator
of which is the Outstanding Amount and the denominator of which is the sum
of the Series 1 Amount plus fifty percent (50%) of the excess of the
Outstanding Amount over the Series 1 Amount; and such portion of such
dividends which is payable to the holders of the Class A Common Stock shall
be allocated among such holders in proportion to their respective holdings
of shares of Class A Common Stock, without distinction as to series; and
(iv) The portion of such dividends which is payable to the holders of
Class A Common Stock, as a class, and without distinction as to series, at
any time when the Outstanding Amount exceeds the Series 1 Amount (and
paragraph (iii) immediately preceding is not applicable), shall be the
product of (x) the amount which would be payable to holders of Class A
Common Stock if paragraph (ii) above were applicable and the Class A Amount
were equal to the Series 1 Amount, multiplied by (y) a fraction, the
numerator of which is the Non-Series 3 Outstanding Amount and the
denominator of which is the sum of the Series 1 Amount plus eighty-one
point five percent (81.5%) of the excess of the Non-Series 3 Outstanding
Amount over the Series 1 Amount, and multiplied by (z) a fraction, the
numerator of which is the Outstanding Amount and the denominator of which
is the sum of the Non-Series 3 Outstanding Amount plus fifty percent (50%)
of the number of shares of Class A Common Stock, Series 3, outstanding at
such time; and such portion of such dividends which is payable to the
holders of the Class A Common Stock shall be allocated among such holders
in proportion to their respective holdings of shares of Class A Common
Stock, without distinction as to series; and
(v) The portion of such dividends which is payable to the holders of
Class B Common Stock, as a class, shall be the portion of the total amount
of such dividends which is not payable to the holders of Class A Common
Stock in accordance with paragraph (ii), (iii) or (iv) above, as
applicable; and such portion of such dividends which is payable to the
holders of the Class B Common Stock shall be allocated among such holders
in proportion to their respective holdings of shares of Class B Common
Stock.
Liquidation Rights. Upon a liquidation, dissolution or winding up of the
Company, holders of Common Stock will be entitled to receive, after prior
rights of creditors and holders of Senior Preferred Stock then outstanding, any
assets remaining available for distribution to stockholders in the same
proportions as they are entitled to receive dividends.
Transfer Restrictions. In general, as described elsewhere herein, Purchasers
are limited in their rights to sell, assign, pledge, encumber or otherwise
transfer shares of Common Stock, and such transfer is subject to rights of
first refusal for an indefinite period of time. See "THE STOCKHOLDERS'
AGREEMENT."
Other. Holders of the Common Stock have no preemptive rights. All outstanding
shares of the Common Stock are fully paid and nonassessable. There are no
redemption, conversion or sinking fund provisions with respect to the Common
Stock.
60
<PAGE>
SENIOR PREFERRED STOCK
Voting Rights. Except as required by law, the holders of Senior Preferred
Stock shall not have any voting rights, except the right to elect one director
to be an additional member of the Board of Directors (a) during the period
following a default in the payment of accrued dividends on the Senior Preferred
Stock for four consecutive quarters until such accrued dividends shall have
been paid in full and (b) during the period following any failure to make a
mandatory redemption of Senior Preferred Stock until such failure shall have
been cured.
Dividends. The Certificate of Incorporation provides that the holders of such
shares of Senior Preferred Stock are entitled to receive, before any dividends
may be declared or paid upon or set aside for the Common Stock, cumulative cash
dividends of $4,850 per share per annum, in equal quarterly payments on the
last business day of March, June, September and December. Dividend payments
made with respect to the Senior Preferred Stock may be made only in cash. No
dividends may be declared on shares of Senior Preferred Stock when such
declaration or payment would constitute a default under any agreements
governing indebtedness of the Company or any other member of the Ward Group.
Mandatory Redemption.The holders of a majority of the outstanding Senior
Preferred Stock may, by notice served on the Company, not prior to April 28,
1999, require the Company to redeem all or any portion of the outstanding
shares of Senior Preferred Stock at a redemption price of $100,000 per share
plus unpaid accrued dividends thereon. No redemption of such Preferred Stock
could be made when such redemption would constitute a default under any
agreements governing indebtedness for borrowed money of the Company or any
other member of the Ward Group.
Optional Redemption. The Certificate of Incorporation provides that the
Company has the right upon ten days' notice to redeem the whole or any part of
the Senior Preferred Stock. Any such optional redemption would be at a price of
$100,000 per share of the Senior Preferred Stock being redeemed plus unpaid
accrued dividends thereon.
Liquidation Rights. Upon any liquidation, dissolution or winding up of the
Company, the holders of Senior Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Company available for distribution
to its stockholders, before any distribution or payment is made to any holder
of Common Stock, an amount in cash equal to $100,000 per share plus an amount
equal to the unpaid accrued dividends thereon.
BY-LAWS; CERTAIN MATTERS REQUIRING THE VOTE OF TWO-THIRDS OF THE DIRECTORS
The By-Laws provide that the affirmative vote of not less than two-thirds of
the members of the Board of Directors of the Company shall be required in order
for the Company to take, or permit, any member of the Ward Group to take any of
the following actions:
(a) a merger, consolidation or other business combination (other than
among members of the Ward Group and other than as part of an acquisition of
assets permitted pursuant to the provision described below in clause (m));
(b) any of the following sales (other than intercompany sales within the
Ward Group, sales solely of inventory in the ordinary course of business,
and sale and leaseback transactions in the ordinary course of business or,
to the extent out of the ordinary course of business, consistent with the
past practices of the Ward Group): (i) any sale of assets of the Ward Group
(including assets consisting of shares of stock of a subsidiary of the
Company) where the gross proceeds of sale (exclusive of assumption of
liabilities) are in an amount equal to the greater of (A) $50 million or
(B) 20% of the consolidated common stockholders' equity of the Company as
of the time of the sale; or (ii) any sale of assets of the Ward Group
(including assets consisting of shares of stock of a subsidiary of the
Company) to the extent the gross proceeds of sale (exclusive of assumption
of liabilities), when added to the gross proceeds of all
61
<PAGE>
other sales of assets of the Ward Group (exclusive of assumption of
liabilities) occurring during that fiscal year, exceed an amount equal to
the greater of (A) $100 million or (B) 30% of the consolidated common
stockholders' equity of the Company as of the time of the sale; provided,
however, that notwithstanding the foregoing limitation, any single sale of
assets for gross proceeds not exceeding $1 million (exclusive of assumption
of liabilities) shall be excluded from the foregoing computation;
(c) amendments to the Certificate of Incorporation or By-Laws of the
Company (other than amendments changing the number of authorized shares of
Class A Common Stock, Series 2);
(d) payment of dividends on shares of Common Stock (other than
intercompany dividends among members of the Ward Group);
(e) redemptions of shares of Common Stock, other than pursuant to the
provisions of the Stockholders' Agreement or the Stock Ownership Plan;
(f) public or private offerings of debt or equity securities of any
member of the Ward Group, other than to other members of the Ward Group,
pursuant to the Stock Ownership Plan or certain provisions of the
Stockholders' Agreement permitting the Company to sell shares of Common
Stock which it has purchased from Shareholders and permitting demand
registrations;
(g) guaranties of any indebtedness in excess of $5 million for borrowed
money of any person or entity other than a member of the Ward Group;
(h) setting of annual financial goals and targets;
(i) the making of, or the entry into a binding commitment to make, any
capital expenditures which would cause the amount expended (or committed to
be expended) by the Ward Group for capital expenditures during a fiscal
year to exceed the capital expenditure budget to be contained in the annual
financial goals and targets of the Ward Group for such year by more than
10% of the budgeted amount;
(j) borrowings by any member of the Ward Group which would cause the
aggregate consolidated indebtedness of the Company for money borrowed to
exceed $25 million, plus five percent of the consolidated common
stockholders' equity of the Company measured at the time of such
borrowings, but, in determining the amount of such borrowings and the
necessity of approval of 2/3 of the members of the Board of Directors, the
following borrowings shall be excluded: (i) borrowings made in connection
with the Company's acquisition of Montgomery Ward in June 1988 and
borrowings made under any whole or partial refunding or replacement thereof
without increasing the principal amounts thereof other than for increases
for closing costs (including prepayment penalties) incurred in connection
with such refunding or replacement; (ii) purchase money financing incurred
in accordance with the annual financial goals and targets of the Ward
Group, and purchase money financing in connection with the issuance of
notes in payment of the purchase price for shares of Common Stock purchased
by the Company pursuant to the Stockholders' Agreement or the Terms and
Conditions; it being understood that purchase money financing shall include
financing, refinancing or funding of the acquisition price of real property
(or any interest therein) or other fixed assets acquired hereafter by a
member of the Ward Group, regardless of whether said financing, refinancing
or funding is done at the time of, or subsequent to, the acquisition of any
such real property (or interest therein) or other fixed assets; (iii)
borrowings made for the purpose of redeeming any of the Senior Preferred
Stock; or (iv) borrowings made upon the exercise by GE Capital of its right
in certain instances to lend the Company, or to permit the Company to
borrow, funds sufficient to permit the exercise by the Company of certain
options to purchase Shares from Brennan and his Permitted Transferees;
(k) increases in compensation and/or fringe, welfare or pension benefits
for any member of the executive committee of Montgomery Ward, other than in
accordance with the practices and guidelines of the Ward Group in effect
from time to time, but in no event beyond the increases being given for
comparable executives in comparable retail businesses, as determined from
published survey data and guidelines;
(l) adoption of a plan of liquidation of the Company;
62
<PAGE>
(m) acquisition of assets (other than purchases of inventory and capital
expenditures) which would cause the amount expended (or committed to be
expended) by the Ward Group for the acquisition of such assets during a
fiscal year to exceed the budget for acquisitions of such assets to be
contained in the annual financial goals and targets of the Ward Group for
such year by more than 10% of the budgeted amount;
(n) entry into any transaction (exclusive of compensation and fringe,
welfare and pension benefit arrangements with affiliates who are officers,
directors or associates of the Ward Group for services rendered by them to
the Ward Group) with an affiliate, as that term is defined in the Act,
other than affiliates constituting members of the Ward Group;
(o) seeking of a consent or waiver from a lender to a member of the Ward
Group whose loan to the member of the Ward Group has a then outstanding
principal balance in excess of $30 million, in any case in which consent or
waiver is required for the entry into a transaction by the Ward Group and
which, in the absence of such consent or waiver, would constitute a default
or an event of default under the documents evidencing or pertaining to the
loan made by the lender, other than any consent or waiver required in
connection with (i) the making of any borrowing permitted pursuant to
clause (ii), (iii) or (iv) of clause (j) above; (ii) any mandatory
prepayment obligation arising from the sale or financing of any real
property (or interests therein) or other fixed assets; (iii) any prepayment
occurring by reason of a "Change of Control" (as defined in one or more of
the loan documents evidencing the borrowings referred to in sub-paragraph
(j)(i)) or (iv) the incurring of any liens (other than for money borrowed);
(p) authorizing certain transfers of shares of Common Stock in a case
where the transferee is not a Management Shareholder, a Permitted
Transferee, or a present or prospective associate of the Ward Group;
(q) a waiver of certain prohibitions on transfers of shares of Common
Stock, as applied to Brennan;
(r) a waiver of certain prohibitions on transfers of shares of Common
Stock by GE Capital and its affiliates;
(s) the determination of certain limitations set forth in the
Stockholders' Agreement with respect to the amounts which may be expended
by the Company in any fiscal year to purchases of shares of Common Stock;
(t) without limiting the generality of any of the foregoing supermajority
requirements, any of the following actions with respect to the Account
Purchase Agreement: (i) termination thereof by agreement of the parties
thereto; (ii) the exercise of a unilateral right of termination and the
exercise of all other rights, options and elections granted thereunder to
Montgomery Ward; (iii) the giving of waivers and consents with respect
thereto; and/or (iv) any amendment thereto; and
(u) the termination for Cause of Brennan's employment with any member of
the Ward Group.
From and after the date of any reduction in the number of members of the
Board of Directors that GE Capital has the right to designate pursuant to the
By-Laws of the Company, the provisions of the By-Laws of the Company described
above requiring a vote of not less than two-thirds of the Board of Directors,
may be amended or terminated in whole or in part, upon the affirmative vote of
both (x) a majority of the members of the Board of Directors and (y) the
holders of a majority of the outstanding shares of Class A Common Stock. The
Stockholders' Agreement requires that these requirements be provided in the By-
Laws until June 17, 1998.
DETERMINATION OF OFFERING PRICE
Generally, the purchase price of Shares purchased hereunder by Purchasers
designated as Designated Management Optionees will be the Fair Market Value
(determined in accordance with the Stockholders' Agreement) for Vested Shares
and the lesser of the Fair Market Value and the acquisition price for Non-
Vested Shares. Shares to be sold by the Company hereunder will be sold at the
price set by the Board of Directors, which it is anticipated will generally be
the then Fair Market Value of such Shares. Brennan may sell Shares hereunder at
such prices as he determines to be advisable in connection therewith. As of the
date hereof, Brennan has not elected to sell any Shares, and thus has not made
any such determination.
63
<PAGE>
PLAN OF DISTRIBUTION
Shares will be sold by Management Shareholders or participants in the Stock
Ownership Plan as and when required pursuant to the Stockholders' Agreement or
the Terms and Conditions, as the case may be, to Designated Management
Optionees. It also is anticipated that the Company may arrange for consensual
transactions upon terms similar to those set forth in the option provisions of
the Stockholders' Agreement in connection with the renegotiation of its
relationships with Management Shareholders, including associates of the
Company. Any Shares repurchased by the Company or a member of the Committee, as
a Designated Management Optionee, as permitted by the Stockholders' Agreement
may be resold by the Company or such member of the Committee. It is currently
anticipated that the Non-Vested Shares to be sold by the Selling Shareholders
will be purchased by Designated Management Optionees and that the Vested Shares
held by these persons will be purchased by the Company.
LIMITED TRANSFERABILITY OF SHARES
As of July 2, 1994, the Company had 44,476,306 shares of Common Stock
outstanding, comprised of 19,326,202 shares of Class A Common Stock, Series 1,
150,104 Shares of Class A Common Stock, Series 2, and 25,000,000 shares of
Class B Common Stock owned by GE Capital. All of such shares are subject to
restrictions on transfer pursuant to the Stockholders' Agreement or the Terms
and Conditions. This adversely affects the ability of the Purchasers hereunder
or any subsequent transferees to dispose of their Shares. Consequently, the
Purchasers and any such subsequent transferees from them may not be able to
liquidate their investments in the event of an emergency or for any other
reason. The purchase of Shares is suitable only for persons who have no need
for liquidity with respect to their investment.
LEGAL OPINIONS
The validity of the Class A Common Stock, Series 1, and the Voting Trust
Certificates offered hereby is being passed upon for the Company by Altheimer &
Gray, Chicago, Illinois. In addition, that firm's legal opinion filed as an
exhibit to the Registration Statement of which this Prospectus is a part
includes a legal opinion regarding "CERTAIN FEDERAL INCOME TAX ASPECTS." A
limited partnership consisting of certain members of such firm owns 294,250
shares of Class A Common Stock, Series 1. Myron Lieberman, a director of the
Company and a senior partner in Altheimer & Gray, is the sole general partner
of the limited partnership which purchased such shares. Mr. Lieberman also
holds 16,623 Shares in his own name. Additionally, Mr. Lieberman is the
beneficial owner of 2,200,000 Shares as trustee of the Family Trust.
EXPERTS
The financial statements and schedules included in or incorporated by
reference in this Prospectus and elsewhere in this Registration Statement to
the extent and for the periods indicated in their reports, have been audited by
Arthur Andersen & Co., independent public accountants, and are included herein
in reliance upon the authority of said firm as experts in giving said reports.
Reference is made to said report, which includes an explanatory paragraph with
respect to the change in the methods of accounting for postretirement benefits
other than pensions and income taxes in 1992, as discussed in Notes 6 and 9 to
the Consolidated Financial Statements.
64
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MONTGOMERY WARD HOLDING CORP.
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheet at January 1, 1994 and January 2, 1993........ F-4
For the 52-Week Period ended January 1, 1994, the 53-Week Period ended
January 2, 1993, and the 52-week period ended December 28, 1991
Consolidated Statement of Income....................................... F-3
Consolidated Statement of Shareholders' Equity......................... F-5
Consolidated Statement of Cash Flows................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Consolidated Condensed Balance Sheet at April 2, 1994 (unaudited) and
January 1, 1994......................................................... F-34
For the 13-Week Periods Ended April 2, 1994 and April 3, 1993 (unaudited)
Consolidated Statement of Income....................................... F-33
Consolidated Statement of Cash Flows................................... F-35
Notes to Consolidated Condensed Financial Statements..................... F-36
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholdersof Montgomery Ward Holding Corp.:
We have audited the accompanying consolidated balance sheet of Montgomery
Ward Holding Corp. (a Delaware Corporation) and Subsidiary as of January 1,
1994 and January 2, 1993, and the related consolidated statements of income,
shareholders' equity and cash flows for the fiscal years ended January 1, 1994,
January 2, 1993 and December 28, 1991. 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 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
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 January 1, 1994 and January 2, 1993,
and the results of their operations and their cash flows for the fiscal years
ended January 1, 1994, January 2, 1993 and December 28, 1991, in conformity
with generally accepted accounting principles.
As discussed in Notes 6 and 9 to the consolidated financial statements,
effective December 29, 1991, the Company changed its methods of accounting for
postretirement benefits other than pensions and income taxes.
Arthur Andersen & Co.
Chicago, Illinois,
February 15, 1994
F-2
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF INCOME
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
52-WEEK 53-WEEK 52-WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JANUARY 1, JANUARY 2, DECEMBER 28,
1994 1993 1991
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Net sales, including leased and li-
censed department sales............. $5,602 $5,402 $5,294
Direct response marketing revenues,
including insurance................. 400 379 360
------ ------ ------
Total Revenues..................... 6,002 5,781 5,654
------ ------ ------
Costs and Expenses
Cost of goods sold, including net oc-
cupancy and buying expense.......... 4,225 4,018 3,922
Benefits, losses, and expenses of di-
rect response operations (Note 11).. 300 286 275
Operating, selling, general and ad-
ministrative expenses (Notes 8 and
19)................................. 1,274 1,282 1,226
Interest expense, net of investment
income (Note 18).................... 43 45 56
------ ------ ------
Total Costs and Expenses........... 5,842 5,631 5,479
------ ------ ------
Income Before Income Taxes............. 160 150 175
Income Tax Expense (Note 9)............ 59 50 40
------ ------ ------
Net Income before cumulative effect of
changes in accounting principles...... 101 100 135
Cumulative Effect of Changes in Ac-
counting Principles:
Income Taxes (Note 9)................ -- 50 --
Postretirement Benefits, net (Note
6).................................. -- (90) --
------ ------ ------
Net Income............................. 101 60 135
Preferred Stock Dividend Requirements
(Note 14)............................. -- 8 13
------ ------ ------
Net Income Applicable to Common
Shareholders...................... $ 101 $ 52 $ 122
====== ====== ======
Net Income Per Class A Common Share be-
fore cumulative effect of changes in
accounting principles................. $ 2.29 $ 2.01 $ 2.40
Cumulative effect of changes in ac-
counting principles................... -- (.88) --
------ ------ ------
Net Income per Class A Common Share
(Note 15)......................... $ 2.29 $ 1.13 $ 2.40
====== ====== ======
Net Income Per Class B Common Share be-
fore cumulative effect of changes in
accounting principles................. $ 2.04 $ 1.87 $ 2.48
Cumulative effect of changes in ac-
counting principles................... -- (.82) --
------ ------ ------
Net Income per Class B Common Share
(Note 15)......................... $ 2.04 $ 1.05 $ 2.48
====== ====== ======
Cash Dividends declared per Common
Share
Class A.............................. $ .50 $ .25 --
Class B.............................. $ .50 $ .25 --
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED BALANCE SHEET
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1994 1993
---------- ----------
ASSETS
<S> <C> <C>
Cash and cash equivalents................................ $ 98 $ 81
Short-term investments................................... 19 11
Investments of insurance operations (Note 4)............. 296 277
------ ------
Total Cash and Investments........................... 413 369
Trade and other accounts receivable...................... 62 47
Accounts and notes receivable from affiliates (Note 3)... 4 18
------ ------
Total Receivables.................................... 66 65
Federal income taxes receivable (Note 9)................. -- 3
Merchandise inventories (Note 5)......................... 1,242 1,038
Prepaid pension contribution (Note 6).................... 310 291
Properties, plants and equipment, net of accumulated
depreciation and amortization (Note 7).................. 1,263 1,222
Direct response and insurance acquisition costs.......... 295 280
Other assets (Note 8).................................... 246 217
------ ------
Total Assets......................................... $3,835 $3,485
====== ======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Trade accounts payable................................... $1,358 $1,210
Federal income taxes payable (Note 9).................... 7 --
Accrued liabilities and other obligations (Notes 3, 6,
10, 11 and 15).......................................... 1,197 1,148
Insurance policy claim reserves (Notes 2 and 11)......... 237 241
Long-term debt (Note 12)................................. 213 125
Obligations under capital leases (Note 13)............... 89 95
Deferred income taxes (Note 9)........................... 127 113
------ ------
Total Liabilities.................................... 3,228 2,932
Commitments and Contingent Liabilities (Notes 12, 20 and
21)
Shareholders' Equity (Note 15)
Common stock........................................... -- --
Capital in excess of par value......................... 19 16
Retained earnings...................................... 658 580
Unrealized gain on marketable equity securities........ 3 3
Less: Treasury stock, at cost.......................... (73) (46)
------ ------
Total Shareholders' Equity........................... 607 553
------ ------
Total Liabilities and Shareholders' Equity........... $3,835 $3,485
====== ======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
COMMON COMMON CAPITAL IN TREASURY SHARE-
STOCK $.01 STOCK $.01 EXCESS OF RETAINED UNREALIZED STOCK, HOLDERS'
PAR VALUE PAR VALUE PAR VALUE EARNINGS GAINS AT COST EQUITY
---------- ---------- ---------- -------- ---------- -------- --------
(NUMBER OF SHARES
IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 29,
1990................... 23,885.1 25,000.0 $10 $417 $-- $ (6) $421
Net income.............. -- -- -- 135 -- -- 135
Cash dividends paid..... -- -- -- (13) -- -- (13)
Tax benefit of stock op-
tion exercises and
other share exchanges.. -- -- 3 -- -- -- 3
Change in unrealized
gain on marketable eq-
uity securities........ -- -- -- -- 2 -- 2
Shares repurchased as
Treasury stock......... (2,771.7) -- -- -- -- (28) (28)
Shares issued upon exer-
cise of options........ 73.5 -- -- -- -- -- --
Shares issued upon exer-
cise of
conversion rights...... 3.4 -- -- -- -- -- --
-------- -------- --- ---- --- ---- ----
Balance, December 28,
1991................... 21,190.3 25,000.0 $13 $539 $ 2 $(34) $520
Cumulative effect of
changes in
accounting principles.. -- -- -- (40) -- -- (40)
-------- -------- --- ---- --- ---- ----
Balance, December 29,
1991 as restated....... 21,190.3 25,000.0 13 499 2 (34) 480
Net income before cumu-
lative effect of
changes in accounting
principles............. -- -- -- 100 -- -- 100
Cash dividends paid..... -- -- -- (19) -- -- (19)
Tax benefit of stock op-
tion exercises and
other share exchanges.. -- -- 2 -- -- -- 2
Change in unrealized
gain on marketable eq-
uity securities........ -- -- -- -- 1 -- 1
Shares repurchased as
Treasury stock......... (777.7) -- -- -- -- (12) (12)
Shares issued upon exer-
cise of options........ 256.4 -- 1 -- -- -- 1
Shares issued upon exer-
cise of
conversion rights...... 3.4 -- -- -- -- -- --
-------- -------- --- ---- --- ---- ----
Balance, January 2,
1993................... 20,672.4 25,000.0 $16 $580 $ 3 $(46) $553
Net income.............. -- -- -- 101 -- -- 101
Cash dividends paid..... -- -- -- (23) -- -- (23)
Tax benefits of stock
option exercises and
other share exchanges.. -- -- 2 -- -- -- 2
Shares repurchased as
Treasury stock......... (1,258.7) -- -- -- -- (27) (27)
Shares issued upon exer-
cise of options........ 192.9 -- 1 -- -- -- 1
Shares issued upon exer-
cise of conversion
rights................. 3.4 -- -- -- -- -- --
-------- -------- --- ---- --- ---- ----
Balance, January 1,
1994................... 19,610.0 25,000.0 $19 $658 $ 3 $(73) $607
======== ======== === ==== === ==== ====
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
52-WEEK 53-WEEK 52-WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JAN. 1, JAN. 2, DEC. 28,
1994 1993 1991
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income before cumulative effect of
changes in accounting principles...... $ 101 $ 100 $ 135
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization......... 98 97 95
Deferred income taxes................. 25 32 (16)
Changes in operating assets and liabil-
ities:
(Increase) decrease in:
Trade and other accounts receivable.. (9) 9 9
Accounts and notes receivable from
affiliates.......................... 14 (1) 12
Merchandise inventories.............. (204) (38) (73)
Prepaid pension contribution......... (19) (18) (17)
Other assets......................... (53) 55 5
Increase (decrease) in:
Accounts and notes payable to affili-
ates................................ -- (30) 11
Trade accounts payable............... 148 (17) 64
Accrued liabilities and other obliga-
tions............................... 33 21 35
Federal income taxes payable, net.... (1) (34) (8)
Insurance policy claim reserves...... (4) (21) (28)
------ ------- -------
Net cash provided by operations... 129 155 224
------ ------- -------
Cash flows from investing activities:
Purchase of short-term investments..... (248) (1,221) (2,128)
Purchase of investments of insurance
operations............................ (688) (707) (751)
Sale of short-term investments......... 240 1,367 2,183
Sale of investments of insurance opera-
tions................................. 669 698 729
Disposition of properties, plants and
equipment, net........................ 3 7 3
Sale of assets held for disposition.... 3 2 2
Capital expenditures................... (142) (146) (128)
------ ------- -------
Net cash used for investing activ-
ities............................ (163) -- (90)
------ ------- -------
Cash flows from financing activities:
Proceeds from issuance of short-term
borrowings............................ 7,718 1,823 --
Payments on short-term borrowings...... (7,718) (1,823) --
Proceeds from issuance of long-term
borrowings............................ 100 -- --
Payments of long-term debt............. (12) (396) (130)
Payments of obligations under capital
leases................................ (6) (7) (7)
Proceeds from issuance of common stock. 1 1 --
Payments to redeem preferred stock..... -- (90) --
Cash dividends paid.................... (23) (19) (13)
Purchase of treasury stock, at cost.... (11) (7) (7)
Tax benefit of stock options exercised
and other share exchanges............. 2 2 3
------ ------- -------
Net cash provided by (used for)
financing activities............. 51 (516) (154)
------ ------- -------
Increase (decrease) in cash and cash
equivalents............................ 17 (361) (20)
Cash and cash equivalents at beginning
of period.............................. 81 442 462
------ ------- -------
Cash and cash equivalents at end of pe-
riod................................... $ 98 $ 81 $ 442
====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS)
1. COMPANY FORMATION
Montgomery Ward Holding Corp. (the Company or MW Holding), formerly BFB
Acquisition Corp., was formed on February 8, 1988, for the purpose of acquiring
all of the outstanding stock of Montgomery Ward & Co., Incorporated (Montgomery
Ward) from Marcor Inc. (Marcor), a wholly-owned subsidiary of Mobil Corporation
(Mobil).
2. MAJOR ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the Company and all
subsidiaries. Certain prior period amounts have been reclassified to be
comparable with the current period presentation. In addition, income from
investments of insurance operations was reclassified from Interest expense, net
to Direct response marketing revenues for all periods presented.
Business Segments
The Company and its subsidiaries are engaged in retail merchandising and
direct response marketing (including insurance) in the United States. Retail
merchandising operations are conducted primarily through Montgomery Ward, 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 22 for information regarding these segments.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, time deposits and highly
liquid debt instruments with a maturity of three months or less from the date
of purchase. The carrying amount reported in the financial statements for cash
and cash equivalents approximates the fair value of these assets.
Following is a summary of cash payments for interest and income taxes and
non-cash financing and investing activities:
<TABLE>
<CAPTION>
52-WEEK 53-WEEK 52-WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JAN. 1, JAN. 2, DEC. 28,
1994 1993 1991
------------ ------------ ------------
<S> <C> <C> <C>
Cash paid for:
Income taxes.......................... $ 46 $ 53 $ 55
Interest.............................. $ 55 $ 50 $ 70
Non-cash financing activities:
Notes issued for purchase of Treasury
stock................................ $ 16 $ 5 $ 21
Non-cash investing activities:
Change in unrealized gain on market-
able equity securities............... $ -- $ 1 $ 2
Like-kind exchange of assets.......... $ 6 $ -- $ --
</TABLE>
The net cumulative effect of changes in accounting principles of $40 in 1992
has no cash impact.
F-7
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
2. MAJOR ACCOUNTING POLICIES (CONTINUED)
Investments
In 1993, the FASB issued Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (FAS No.
115), which is effective for fiscal years beginning after December 15, 1992.
The Company plans to adopt this statement during 1994. All of the debt
securities are classified as "available-for-sale" and will be stated at fair
market value with all changes in unrealized gains or losses included in
Shareholders' Equity under FAS No. 115. Due to the nature of FAS No. 115 and
the volatility of the market, the impact of adoption of this statement is not
reasonably estimable at this time.
Investments of Insurance Operations
Fixed maturities (bonds and redeemable preferred stock) and mortgage loans
are stated at amortized cost. Equity securities (common stock and nonredeemable
preferred stock) are stated at market. Policy loans and mortgages are carried
at face value.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market, using the
retail last-in, first-out (LIFO) method.
Depreciation, Amortization and Repairs
Depreciation is computed on a straight-line basis over the estimated useful
lives of the properties, with annual rates ranging between 2% and 3% for
buildings and between 12% and 25% for fixtures and equipment. Leasehold
improvements and assets under capital leases are amortized on a straight-line
basis over no longer than the primary term of the lease. Upon retirement or
disposition, the cost and the related depreciation or amortization are removed
from the accounts, with the gains or losses included in income.
Interest relating to construction in progress is capitalized and amortized
over the useful life of the property. Pre-operating expenditures which are not
capital in nature are charged against income in the year the store is opened.
Normal maintenance and repairs are expensed as incurred. Major repairs that
materially extend the lives of properties are capitalized, and the assets
replaced, if any, are retired.
Direct Response Marketing Revenues
Life and accident and health insurance premiums, which are recognized as
revenue when due from policyholders, are associated with related benefits and
expenses to result in the recognition of profit over the terms of the policies.
Property-liability insurance premiums and club membership dues are deferred and
earned on a pro rata basis over the terms of the policies and memberships.
Unearned premiums and club memberships of $53 and $52 at January 1, 1994 and
January 2, 1993, respectively, are included in Accrued liabilities and other
obligations.
Direct Response and Insurance Acquisition Costs
Costs allocated to the insurance and club memberships in force at June 24,
1988 (the acquisition date), as well as the costs of acquiring new club
memberships and insurance business (primarily marketing expenses), are included
in Direct response and insurance acquisition costs. Costs of acquiring new
business have been deferred when considered recoverable.
F-8
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
2. MAJOR ACCOUNTING POLICIES (CONTINUED)
Acquisition costs are amortized over the premium-paying periods of the
related policies in proportion to the anticipated premium revenue to be
recognized. Amortization charged to income was $111, $106 and $89 for 1993,
1992 and 1991, respectively, and is included in Benefits, losses and expenses
of direct response operations.
Interest Rate Exchange and Cap Agreements
Amounts paid or received pursuant to interest rate exchange and cap
agreements are deferred and amortized as interest expense or income over the
remaining life of the applicable agreement.
Insurance Policy Claim Reserves
Liabilities for future policy benefits have been determined principally by
the net level premium method. These amounts have been computed by using
assumptions that include provisions for risk of adverse deviation. The
assumptions developed for interest rates (average 6%-8%) and withdrawal rates
are based on the experience of Montgomery Ward Life Insurance Company, a
wholly-owned subsidiary of Signature. The principal mortality tables used to
develop the assumed mortality rates are the 1960 Commissioners' Standard Group
Table, the 1955-1960 and 1965-1970 Basic Mortality Tables and the 1969-1971
U.S. Life Tables. The reserve for claims and related adjustment expenses is
based on estimates of the costs of individual claims reported and incurred but
not reported prior to year-end. While management believes the reserve for
claims and related adjustment expenses is adequate, the reserve is continually
reviewed and as adjustments become necessary, they are reflected in current
operations.
In December, 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts." This statement
was adopted in 1993. The statement eliminated the reporting of assets and
liabilities relating to reinsured contracts net of the effects of reinsurance
and required that reinsurance recoverables (including amount related to claims
incurred but not reported) and prepaid reinsurance premiums be reported as
assets. The adoption of this statement has no impact on the results of
operations. The prior year's financial statements were restated to reflect the
reclassification of reinsurance credits of $52 from Insurance policy claims
reserves to Other Assets.
Federal Income Tax
The Company and its subsidiaries, with the exception of certain of its
insurance subsidiaries, file a consolidated Federal income tax return. These
insurance subsidiaries are eligible to be included in the consolidated return
in 1994.
Prior to 1992, the Company determined its income tax expense and related
deferred federal income taxes in accordance with Statement of Financial
Accounting Standards No. 96, "Accounting for Income Taxes" (FAS 96). Effective
December 29, 1991, the Company adopted the provisions of FAS 109, "Accounting
for Income Taxes". See Note 9 for discussion of the impact on financial
position and results of operations resulting from the adoption of FAS 109.
F-9
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
2. MAJOR ACCOUNTING POLICIES (CONTINUED)
Postemployment Benefits
In 1992, the Financial Accounting Standards Board (FASB) issued Statement No.
112, "Employers' Accounting for Postemployment Benefits". As the Company
currently accounts for severance and other related postemployment costs under
the accrual method, the adoption of FAS 112 will have no material impact on the
financial statements.
3. ACCOUNTS AND NOTES RECEIVABLE FROM AFFILIATES
Montgomery Ward and Montgomery Ward Credit Corporation, a subsidiary of GE
Capital (Montgomery Ward Credit) have entered into an Account Purchase
Agreement pursuant to which Montgomery Ward Credit purchases receivables from
time to time and provides services to Montgomery Ward. Under this agreement,
Montgomery Ward Credit has the exclusive right to operate the Montgomery Ward
private label credit card system and is obligated to purchase (and Montgomery
Ward is obligated to sell) all the receivables generated by the Montgomery Ward
private label credit card system, up to $6,000 at any time outstanding, for
their face value. Montgomery Ward accounts for the transfer as a sale of the
applicable receivables. Sales of receivables to Montgomery Ward Credit were
$3,991, $3,489 and $3,541 for 1993, 1992 and 1991, respectively. At January 1,
1994 and January 2, 1993, there were $4,947 and $4,783 of Montgomery Ward
credit card receivables owned by Montgomery Ward Credit, respectively. Amounts
receivable from Montgomery Ward Credit pursuant to the sale of such receivables
are included in Accounts and notes receivable from affiliates.
Montgomery Ward is exposed to both market risk and credit risk under the
Account Purchase Agreement. Under the Account Purchase Agreement, Montgomery
Ward is required to pay Montgomery Ward Credit the excess interest costs on a
monthly basis if a blended interest rate applicable to Montgomery Ward Credit's
finance costs with respect to the receivables exceeds 10% per annum. To date,
the blended interest rate has been less than 10%.
Should Montgomery Ward Credit or its guarantor, GE Capital, fail to perform
its obligations under the Account Purchase Agreement, Montgomery Ward would
suffer an accounting loss up to the amount of Montgomery Ward Credit's share of
defaulted indebtedness (as described below), net of applicable reserves carried
by Montgomery Ward Credit. Montgomery Ward estimates that any accounting loss
would be immaterial at January 1, 1994. Montgomery Ward Credit's obligations
under the Account Purchase Agreement are not collateralized.
The risk of credit losses is shared by Montgomery Ward and Montgomery Ward
Credit. Montgomery Ward Credit bears the risk up to 3.9% (the prime layer),
Montgomery Ward bears the risk in excess of such prime layer up to 5%,
Montgomery Ward and Montgomery Ward Credit equally share losses between 5% and
8%, and Montgomery Ward Credit bears the losses in excess of 8% of average
gross receivables. Actual credit losses were 5.5% for 1993, 5.8% for 1992 and
4.9% for 1991.
Under the terms of the Account Purchase Agreement, a portion of Montgomery
Ward's 1991 liability for credit losses and its liabilities for credit losses
for 1992 through 1997 are payable to Montgomery Ward Credit in early 1998. The
amounts for periods ending through 1997 will be included in notes which bear
interest at a rate similar to rates Montgomery Ward pays for comparable
borrowings. In exchange for Montgomery Ward's agreement to allow Montgomery
Ward Credit to increase finance charge rates in selected states, Montgomery
Ward receives a share of incremental finance charges resulting from such
F-10
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
increases. Incremental finance charges are generated only on purchases
subsequent to the date such finance charge rates are increased. During 1992,
rates were increased in certain states effective July 1 and October 1.
Montgomery Ward's share is available for offset against the notes payable in
early 1998, and bears interest at the same rate and for the same term as the
notes payable to Montgomery Ward Credit. Notes payable applicable to credit
losses for 1991, 1992 and 1993 were $108 and the finance charge offset
applicable to those notes was $9. During the first quarter of 1994, a payment
of $35 was made towards the amounts due under the Account Purchase Agreement.
Under the agreement, the notes payable to Montgomery Ward Credit are limited to
$300 at any time with any excess to be paid currently in cash. The Company does
not expect credit losses for the period through 1997 to exceed the $300
limitation. In addition, legislation has from time to time been introduced in
certain states which, if enacted, may require rescinding all or a portion of
such rate increases, in which case Montgomery Ward's share of rate increases
may be substantially reduced. In the event that, due to the increase in finance
charge rates, any refunds are required to be made, Montgomery Ward and
Montgomery Ward Credit have agreed to share the financial risk. The allowance
for estimated losses to be borne by Montgomery Ward, as well as the unpaid
portion applicable to 1991, 1992 and 1993, offset by Montgomery Ward's share of
the finance charges is included in Accrued liabilities and other obligations.
The Account Purchase Agreement will be in effect until December 31, 2004, and
thereafter from year to year unless either party gives ten years prior notice
of its election to terminate.
F-11
<PAGE>
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 in securities
other than related party investments. The fair values for marketable debt and
equity securities are based on quoted market prices.
<TABLE>
<CAPTION>
JANUARY 1, 1994
-----------------------------------------------
AMOUNT AT
GROSS GROSS WHICH
UNREALIZED UNREALIZED MARKET SHOWN IN
TYPE OF INVESTMENT COST GAINS LOSSES VALUE BALANCE SHEET
------------------ ---- ---------- ---------- ------ -------------
<S> <C> <C> <C> <C> <C>
Fixed maturities:
Bonds:
United States Government
and government agencies
and authorities........... $ 67 $ 3 $ -- $ 70 $ 67
Public utilities........... 80 16 -- 96 80
All other corporate bonds.. 26 1 -- 27 26
---- --- ---- ---- ----
Total fixed maturities .. $173 $20 $ -- $193 173
---- === ==== ==== ----
Equity securities:
Common stock................. 8 $ 5 $ 13 13
---- --- ---- ----
Total equity securities.... 8 $ 5 $ 13 13
---- === ==== ----
Mortgage loans................. 64 64
Policy loans................... 7 7
Short-term investments......... 39 39
---- ----
Total Investments.......... $291 $296
==== ====
<CAPTION>
JANUARY 2, 1993
-----------------------------------------------
AMOUNT AT
GROSS GROSS WHICH
UNREALIZED UNREALIZED MARKET SHOWN IN
TYPE OF INVESTMENT COST GAINS LOSSES VALUE BALANCE SHEET
------------------ ---- ---------- ---------- ------ -------------
<S> <C> <C> <C> <C> <C>
Fixed maturities:
Bonds:
United States Government
and government agencies
and authorities........... $ 77 $ 3 $ -- $ 80 $ 77
Public utilities........... 83 16 -- 99 83
All other corporate bonds.. 40 1 -- 41 40
---- --- ---- ---- ----
Total fixed maturities... $200 $20 $ -- $220 200
---- === ==== ==== ----
Equity securities:
Common stock................. 9 $ 4 $ 13 13
---- --- ---- ----
Total equity securities.... 9 $ 4 $ 13 13
---- === ==== ----
Mortgage loans................. 31 31
Policy loans................... 7 7
Short-term investments......... 26 26
---- ----
Total Investments.......... $273 $277
==== ====
</TABLE>
F-12
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
4. INVESTMENTS OF INSURANCE OPERATIONS (CONTINUED)
The amounts of fixed maturities as of January 2, 1993 are as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
--------- ------
<S> <C> <C>
Due in 1994.............................................. $ 27 $ 28
Due in 1995 through 1999................................. 102 112
Due in 2000 through 2004................................. 43 52
Due in 2005 and beyond................................... 1 1
---- ----
$173 $193
==== ====
</TABLE>
5. MERCHANDISE INVENTORIES
Merchandise inventories are valued using the retail LIFO method, which
matches current costs with current sales. If inventories had been valued using
the first-in, first-out (FIFO) method, they would have been $117, $104, and $93
higher than those reported as of January 1, 1994, January 2, 1993, and December
28, 1991, respectively.
6. RETIREMENT PLANS
Retirement plans of a contributory nature cover a majority of full-time
associates of Montgomery Ward and its subsidiaries. Retirement benefits are
provided by a defined benefit pension plan as well as by a savings and profit
sharing plan. Montgomery Ward and its subsidiaries contribute to the defined
benefit pension plan to cover any excess of defined minimum benefits over the
benefits available from the savings and profit sharing plan attributable to the
accumulated value of associate contributions.
The components of the pension credit were as follows:
<TABLE>
<CAPTION>
52-WEEK 53-WEEK 52-WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JANUARY 1, 1994 JANUARY 2, 1993 DECEMBER 28, 1991
--------------- --------------- -----------------
<S> <C> <C> <C>
Service cost-benefits
earned during the
period................. $(11) $ (9) $ (8)
Interest cost on pro-
jected benefit
obligation............. (45) (44) (47)
Actual return on assets. 101 (20) 93
Deferral of unantici-
pated investment
performance............ (26) 91 (21)
---- ---- ----
Net pension credit.. $ 19 $ 18 $ 17
==== ==== ====
Assumptions:
Discount rate......... 8.5% 9.0% 9.0%
Increase in future
compensation......... 6.0% 6.0% 6.0%
Rate of return on plan
assets............... 9.5% 9.0% 10.5%
</TABLE>
F-13
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
6. RETIREMENT PLANS (CONTINUED)
The funded status of the defined benefit pension plans was as follows:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1994 1993
---------- ----------
<S> <C> <C>
Actuarial present value of accumulated benefit obliga-
tion:
Vested................................................. $565 $523
Nonvested.............................................. 4 6
---- ----
Accumulated benefit obligation......................... 569 529
Additional amounts related to projected increases in
compensation levels................................... 9 13
---- ----
Projected benefit obligation........................... 578 542
Plan assets at fair value, primarily in equity and
fixed income securities............................... 863 802
---- ----
Plan assets in excess of projected benefit obligation.. $285 $260
==== ====
Consisting of:
Unrecognized net loss since initial application of FAS
87.................................................... $(28) $(34)
Unrecognized prior service cost since initial applica-
tion of FAS 87........................................ $ 3 $ 3
Prepaid pension contribution........................... $310 $291
</TABLE>
The projected benefit obligation was determined using an assumed discount
rate of 7.5% and 8.5% at January 1, 1994 and January 2, 1993, respectively, and
an assumed rate of increase in future compensation levels of 6%. 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 1993, 1992 and 1991.
Substantially all associates who retire after participation in the retirement
plan for ten years and who are members of the health care plan for the year
prior to retirement are eligible for certain health care and life insurance
benefits, the cost of which is shared with the retirees. In 1992, the Company
established a limit on its future annual contributions on behalf of retirees at
a maximum of 125% of the projected 1992 company contributions. During 1993, the
Company substantially increased contributions required of retirees.
In the fourth quarter of 1992, the Company decided to adopt Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" as of December 29, 1991. This
statement requires the accrual of the cost of providing postretirement
benefits, including medical and life insurance coverage, during the active
service period of the associate. The Company elected to immediately recognize
the accumulated postretirement liability. This resulted in a one-time, after-
tax charge of $90 (after reduction for income taxes of $59). The effect of this
change on 1992 was not material. The pro forma effect of the change on years
prior to 1992 is not determinable. Prior to 1992, the Company recognized
expense in the year the benefits were provided.
F-14
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
6. RETIREMENT PLANS (CONTINUED)
The components of the net periodic postretirement benefit cost for 1993 and
1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Service Cost............... $ 2 $ 2
Interest cost on accumu-
lated postretirement bene-
fit obligation............ 12 12
--- ---
Net periodic
postretirement benefit
cost.................. $14 $14
=== ===
</TABLE>
The status of the Company's liability for postretirement benefits at January
1, 1994 and January 2, 1993, which are included in Accrued liabilities and
other obligations is as follows:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1994 1993
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees......................................... $120 $108
Fully eligible active associates................. 20 19
Other active associates.......................... 25 23
---- ----
Total accumulated postretirement benefit obliga-
tion.............................................. 165 150
Unrecognized loss.................................. (22) (5)
---- ----
Accrued postretirement benefit obligation.......... $143 $145
==== ====
</TABLE>
The weighted average discount rate used in measuring the accumulated
postretirement benefit obligation was 7.5% and 8.5% at January 1, 1994 and
January 2, 1993, respectively. The assumed health care cost trend rate was not
applicable due to the caps established on current cost levels during 1993. In
1992, the assumed health care cost trend rate was 12% grading to 6% over 6
years for participants below age 65, and 6% for participants age 65 or older.
The impact of a 1% increase in the medical trend rate on both the accumulated
postretirement benefit obligation and service cost and interest cost for 1993
is not applicable due to caps established on costs during 1993.
The Company continues to evaluate ways in which it can better manage retiree
benefits and control the costs. Any changes in the plan or revisions to
assumptions that affect the amount of expected future benefits may have a
significant effect on the amount of the reported obligation and annual expense.
F-15
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
7. PROPERTIES, PLANTS AND EQUIPMENT
The details of the properties, plants and equipment accounts are shown below
at cost.
<TABLE>
<CAPTION>
BALANCE AT RETIREMENTS BALANCE
BEGINNING ADDITIONS OR SALES AT CLOSE
OF PERIOD AT COST AT COST OTHER OF PERIOD
---------- --------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
For the 52-week period ended
December 28, 1991:
Land....................... $ 160 $ 4 $-- $(1) $ 163
Buildings.................. 653 53 -- (6) 700
Leasehold improvements..... 213 17 3 -- 227
Fixtures and equipment..... 236 54 2 -- 288
Assets under capital
leases.................... 119 -- 1 -- 118
------ ---- --- --- ------
Total.................... $1,381 $128 $ 6 $(7) $1,496
====== ==== === === ======
For the 53-week period ended
January 2, 1993:
Land....................... $ 163 $ 13 $ 1 $(1) $ 174
Buildings.................. 700 51 2 (3) 746
Leasehold improvements..... 227 30 2 (1) 254
Fixtures and equipment..... 288 52 5 -- 335
Assets under capital
leases.................... 118 -- 2 (2) 114
------ ---- --- --- ------
Total.................... $1,496 $146 $12 $(7) $1,623
====== ==== === === ======
For the 52-week period ended
January 1, 1994:
Land....................... $ 174 $ 3 $-- $-- $ 177
Buildings.................. 746 32 -- -- 778
Leasehold improvements..... 254 38 (3) -- 289
Fixtures and equipment..... 335 69 (3) -- 401
Assets under capital
leases.................... 114 -- (1) -- 113
------ ---- --- --- ------
Total.................... $1,623 $142 $ 7 $-- $1,758
====== ==== === === ======
</TABLE>
F-16
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
7. PROPERTIES, PLANTS AND EQUIPMENT (CONTINUED)
The details of the accumulated depreciation and amortization of properties,
plants and equipment are shown below.
<TABLE>
<CAPTION>
BALANCE AT RETIREMENTS BALANCE
BEGINNING ADDITIONS OR SALES AT CLOSE
OF PERIOD AT COST AT COST OTHER OF PERIOD
---------- --------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
For the 52-week period ended
December 28, 1991:
Buildings.................. $ 60 $29 $-- $(1) $ 88
Leasehold improvements..... 46 14 1 -- 59
Fixtures and equipment..... 90 43 1 -- 132
Assets under capital
leases.................... 23 9 1 -- 31
---- --- --- --- ----
Total.................... $219 $95 $ 3 $(1) $310
==== === === === ====
For the 53-week period ended
January 2, 1993:
Buildings.................. $ 88 $24 $-- $(1) $111
Leasehold improvements..... 59 17 1 -- 75
Fixtures and equipment..... 132 46 2 -- 176
Assets under capital
leases.................... 31 10 2 -- 39
---- --- --- --- ----
Total.................... $310 $97 $ 5 $(1) $401
==== === === === ====
For the 52-week period ended
January 1, 1994:
Buildings.................. $111 $23 $-- $-- $134
Leasehold improvements..... 75 21 1 -- 95
Fixtures and equipment..... 176 49 2 -- 223
Assets under capital
leases.................... 39 5 1 -- 43
---- --- --- --- ----
Total.................... $401 $98 $ 4 $-- $495
==== === === === ====
</TABLE>
Amounts shown as "Other" represent the transfer of certain properties, plants
and equipment to Other assets.
Losses on the sale of properties were $2 for 1992 and $1 for 1991,
respectively. Expenditures for maintenance and repairs were $122, $115 and $105
for 1993, 1992 and 1991, respectively.
8. OTHER ASSETS
During the fourth quarter of 1991, the Company sold its 14.7% investment in
Office Max, Inc. for $30. The sale resulted in a net pretax gain of $17 and is
included in 1991 Operating, selling, general and administrative expenses. A
note bearing interest at 5.25% was received as proceeds and was classified as
Other Assets at December 28, 1991. The note was paid on January 15, 1992.
9. INCOME TAXES
In the fourth quarter of 1992, the Company decided to adopt FAS 109,
"Accounting for Income Taxes", as of December 29, 1991 and all quarterly
financial data was restated, accordingly. The cumulative effect on prior years'
net income of the adoption of this statement was a credit of $50. Prior years'
financial statements have not been restated to apply the provisions of FAS 109.
F-17
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
9. INCOME TAXES (CONTINUED)
An operating loss carryforward available for Federal income tax purposes of
$5 at December 29, 1990 was utilized in 1991. In addition, the Company has
alternative minimum tax (AMT) credits of $31, $31 and $21 as of January 1,
1994, January 2, 1993 and December 28, 1991, respectively, available to offset
future Federal income tax liabilities.
The approximate tax effects of temporary differences and carryforwards that
give rise to the deferred tax liability at January 1, 1994 are as follows:
<TABLE>
<S> <C>
Postretirement benefits........................................... $ (56)
Accrued liabilities............................................... (222)
Other deferred tax assets......................................... (27)
-----
Total deferred tax assets..................................... (305)
-----
Pension credit.................................................... 121
Direct response and insurance acquisition costs................... 114
Property, plants and equipment.................................... 133
Other deferred tax liabilities.................................... 68
-----
Total deferred tax liabilities................................ 436
-----
AMT credits....................................................... (31)
Valuation allowance............................................... 27
-----
Net deferred tax liability.................................... $ 127
=====
</TABLE>
Income tax expense consists of:
<TABLE>
<CAPTION>
52-WEEK 53-WEEK 52-WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JAN. 1, 1994 JAN. 2, 1993 DEC. 28, 1991
------------ ------------ ------------
<S> <C> <C> <C> <C>
Federal
Currently payable................. $28 $15 $ 42
Deferred.......................... 25 32 (16)
State, local and foreign............ 6 3 14
--- --- ----
Total income tax expense........ $59 $50 $ 40
=== === ====
A reconciliation of the statutory to effective federal income tax rate is as
follows:
<CAPTION>
52-WEEK 53-WEEK 52-WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JAN. 1, 1994 JAN. 2, 1993 DEC. 28, 1991
------------ ------------ ----------------
<S> <C> <C> <C> <C>
Federal income tax rate............. 35% 34% 34%
State taxes, net of reduction of
Federal tax........................ 2 1 5
Targeted Jobs Tax Credit............ (1) (2) (1)
Impact of increase in statutory
rate............................... 1 -- --
Benefit of financial reporting oper-
ating loss carryforwards, net...... -- -- (15)
--- --- ----
Effective income tax rate........... 37% 33% 23%
=== === ====
</TABLE>
F-18
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
9. INCOME TAXES (CONTINUED)
The Company has filed a protest relating to a Federal income tax assessment
by the Internal Revenue Service for the short tax year ended December 31,
1988. The Company believes that its ultimate tax liability will be
significantly less than the amounts assessed or which may be assessed in
future years relating to the disputed issues. Accordingly, management believes
that the disposition of the disputed Federal issues will have no material
impact on future earnings.
Montgomery Ward and the State of California have settled income tax
assessments for the taxable years 1978 through 1988. As Montgomery Ward
previously provided for these assessments, there will be no further impact on
future earnings or financial position.
10. DEFERRED SERVICE CONTRACT REVENUE
The Company accounts for sales of product service contracts in accordance
with FASB Technical Bulletin 90-1, "Accounting for Separately Priced Extended
Warranty and Product Maintenance Contracts", and recognizes the revenue
related to those sales in proportion to the costs expected to be incurred in
performing services under the contracts. Deferred service contract revenue of
$239 and $210 at January 1, 1994 and January 2, 1993, respectively, is
included in Accrued liabilities and other obligations.
F-19
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
11. INSURANCE POLICY CLAIM RESERVES
The Company's insurance subsidiaries are involved in both the cession and
assumption of reinsurance with other companies. Risks are reinsured with other
companies to permit the recovery of a portion of the direct losses. These
reinsured risks are treated as though, to the extent of the reinsurance, they
are risks for which the Company is not liable. Policy related liabilities and
accruals, including incurred but not reported claims, are included in the
financial statements net of reinsurance ceded. The Company remains liable to
the extent the reinsuring companies cannot meet their obligations under these
reinsurance treaties.
In 1992, the Financial Accounting Standards Board (FASB) issued Statement No.
113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts", which applies to financial statements for fiscal years
beginning after December 15, 1992. This statement precludes the reporting of
assets and liabilities relating to reinsured contracts net of the effects of
reinsurance. The Company adopted FAS 113 during fiscal 1993 which had no impact
on the results of operations of the Company. The prior years' financial
statements were restated to reflect the reclassification of credits for
reinsurance of $52 from insurance policy claims reserves to other assets.
Premium revenues, which are included in Direct response marketing revenues,
are as follows:
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED TO
AMOUNT COMPANIES COMPANIES AMOUNT NET
------ --------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
52-Week Period Ended December
28, 1991:
Life insurance in force....... $5,444 $130 $-- $5,314 0.0%
====== ==== === ======
Premiums
Life insurance.............. $ 46 $ 1 $ 3 $ 48 6.3%
Accident and health insur-
ance....................... 65 -- 21 86 24.4%
Property and liability in-
surance.................... 50 12 -- 38 0.0%
------ ---- --- ------
Total..................... $ 161 $ 13 $24 $ 172 14.0%
====== ==== === ======
53-Week Period Ended January 2,
1993:
Life insurance in force....... $5,325 $114 $-- $5,211 0.0%
====== ==== === ======
Premiums
Life insurance.............. $ 45 $ 1 $ 3 $ 47 6.4%
Accident and health insur-
ance....................... 66 -- 16 82 19.5%
Property and liability in-
surance.................... 49 8 -- 41 0.0%
------ ---- --- ------
Total..................... $ 160 $ 9 $19 $ 170 11.2%
====== ==== === ======
52-Week Period Ended January 1,
1994:
Life insurance in force....... $5,438 $102 $-- $5,336 0.0%
====== ==== === ======
Premiums
Life insurance.............. $ 45 $ 1 $ 3 $ 47 6.4%
Accident and health insur-
ance....................... 67 -- 13 80 16.3%
Property and liability in-
surance.................... 51 8 -- 43 0.0%
------ ---- --- ------
Total..................... $ 163 $ 9 $16 $ 170 9.4%
====== ==== === ======
</TABLE>
F-20
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
12. LONG-TERM DEBT
The long-term debt of Montgomery Ward and its subsidiaries is as follows:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1994 1993
---------- ----------
<S> <C> <C>
Montgomery Ward & Co., Incorporated Economic Development
Revenue Bonds, due in 1994 at 9.5% interest rate....... $ 5 $ 5
Commercial Development Revenue Bonds, due in 2013 at
4.15% interest rate, adjusted at three-year intervals.. 5 5
Note Purchase Agreements; Senior Notes Series A to Se-
ries G due in 1998 to 2005 at 7.07% to 8.18% interest
rate................................................... 100 --
Other................................................... 2 2
Montgomery Ward Real Estate Subsidiaries Return 4 3/4%
Secured Notes, due serially to January 15, 1995........ 2 4
11 1/2% Secured Note, due serially to September 1, 2001. 17 18
7 1/2% Secured Note, due serially to November 30, 2002.. 7 8
9.45% Secured Notes, due serially to November 30, 2003.. 19 20
7 3/4% Secured Notes, due serially to August 31, 2004... 22 23
7 7/8% Secured Notes, due serially to December 15, 2005. 10 11
9% Secured Notes, due serially to January 1, 2006....... 14 17
Other................................................... 10 12
---- ----
Total long-term debt................................ $213 $125
==== ====
</TABLE>
The amounts of long-term debt that become due during the fiscal years 1994
through 1998 are as follows: 1994--$13, 1995--$8, 1996--$8, 1997--$9 and 1998--
$20.
Montgomery Ward has entered into an Amended and Restated Credit Agreement
dated as of September 22, 1992, as amended (Restated Credit Agreement) with
various lenders. The Restated Credit Agreement, which expires September 23,
1996, provides for a revolving facility in the principal amount of $350 and
imposes various restrictions on Montgomery Ward, including the satisfaction of
certain financial tests. Montgomery Ward may select among several interest rate
options, including a rate negotiated with one or more of the various lenders. A
commitment fee is payable based upon the unused amount of the facility,
although in the case of any negotiated rate loan, an additional fee may be
payable to the lenders not participating in the negotiated rate loan. As of
January 1, 1994, no borrowings were outstanding under the Restated Credit
Agreement.
Montgomery Ward has also entered into a Short Term Credit Agreement dated as
of September 22, 1992, as amended (Short Term Agreement) with various lenders.
The Short Term Agreement, which expires September 22, 1994, provides for a
revolving facility in the principal amount of $200 and imposes various
restrictions on Montgomery Ward, including the satisfaction of certain
financial tests. Montgomery Ward may select among several interest rate
options, including a rate negotiated with one or more of the various lenders. A
commitment fee is payable based upon the unused amount of this facility,
although in the case of any negotiated rate loan, an additional fee may be
payable to the lenders not participating in the negotiated rate loan. As of
January 1, 1994, no borrowings were outstanding under the Short Term Agreement.
F-21
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
12. LONG-TERM DEBT (CONTINUED)
On March 1, 1993, Montgomery Ward entered into Note Purchase Agreements
involving the private placement of $100 of Senior Notes which have maturities
of from five to twelve years at fixed interest rates varying from 7.07% to
8.18%.
During 1993, Montgomery Ward has also entered into a Term Loan Agreement
dated as of November 24, 1993 with various banks (Term Loan Agreement). The
Term Loan Agreement provides for a total borrowing capacity of $165 million
over a one-year period and is to be repaid upon the fifth anniversary of the
Term Loan Agreement. The purpose of this loan is to partially finance the
Lechmere acquisition. As of January 1, 1994, no borrowings were outstanding
under this agreement.
The Restated Credit Agreement, the Short Term Agreement, the Term Loan
Agreement and the Note Purchase Agreements (collectively, the Agreements)
impose various restrictions on Montgomery Ward, including the satisfaction of
certain financial tests which include restrictions on payments of dividends.
Under the terms of the Restated Credit Agreement, the Short Term Agreement and
the Term Loan Agreement which are currently the most restrictive of the
financing agreements as to dividends, distributions and redemptions, Montgomery
Ward may not pay dividends or make any other distributions to the Company or
redeem any Common Stock in excess of (1) $50 on a cumulative basis, plus (2)
50% of Consolidated Net Income of Montgomery Ward (as defined in the
Agreements) after December 28, 1991, plus (3) the amount of any distribution
made by Montgomery Ward for the purpose of redeeming the Senior Preferred Stock
and the Junior Preferred Stock of the Company (which were redeemed on September
30, 1992), plus (4) capital contributions received by Montgomery Ward after
December 28, 1991, plus (5) net proceeds received by Montgomery Ward from (a)
the issuance of capital stock including treasury stock but excluding Debt-Like
Preferred Stock (as defined in the Agreements), or (b) any indebtedness which
is converted into shares of capital stock other than Debt-Like Preferred Stock
of Montgomery Ward or the Company, after December 28, 1991, plus (6) an
adjustment of $45 for 1993 through 1996, $30 in 1997 and $15 in 1998. To date,
Montgomery Ward has been in compliance with all such financial tests. Under
these agreements, Montgomery Ward expects to be able to advance the Company
sufficient funds to allow the Company to make the required installment payments
in 1994 for notes issued to repurchase shares held by former officers and their
permitted transferees.
Borrowings to date under the Restated Credit Agreement, the Short Term
Agreement and the Note Purchase Agreements have been used for working capital
purposes, to retire certain indebtedness of Montgomery Ward and to redeem
outstanding Preferred Stock of the Company (See Note 14).
Effective September 22, 1992, Montgomery Ward prepaid the amount outstanding,
$128, under the Subordinated Loan agreement dated as of June 23, 1988 between
Montgomery Ward and GE Capital, as amended (Subordinated Loan). Concurrently
therewith, Montgomery Ward repaid the amount outstanding, $195, under the
Credit Agreement dated as of June 22, 1988 among Montgomery Ward and various
banks, as amended (Term Loan). The source of funds for these transactions was
sales of short-term investments and borrowings under the Restated Credit
Agreement and the Short Term Agreement.
Montgomery Ward is exposed to market risk under both the Restated Credit
Agreement and Short Term Agreement in the event of an increase in interest
rates. To offset this risk, Montgomery Ward has entered into interest rate
exchange agreements. The aggregate notional principal amount under the
agreements is $50 in 1993. Under the terms of the interest rate exchange
agreements, Montgomery Ward pays the banks a weighted average fixed rate of
less than 8.5% in 1993 and receives the three-month London interbank offered
(LIBO) rate in each case multiplied by the notional principal amount. In 1993,
the agreement increased the
F-22
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
12. LONG-TERM DEBT (CONTINUED)
effective interest rate under the Restricted Credit Agreement and the Short
Term Agreement by .88%. The agreement increased the effective interest rate of
the Term Loan for 1992 by .89% and increased the effective interest rate under
the Restated Credit Agreement and Short-Term Agreement by .80%. The effective
interest rate of the Subordinated Loan was unaffected by these agreements in
1992. For 1991, the agreements increased the effective interest rate of the
Term Loan by .69% and increased the Subordinated Loan effective interest rate
by 1.13%.
Montgomery Ward has Commercial Letter of Credit Facilities with various
lenders for the purpose of providing documentary letters of credit primarily in
connection with the purchase of imported merchandise for an aggregate amount of
$405. The facilities expire at various dates through June 1995.
Montgomery Ward has outstanding Commercial Development Revenue Bonds, which
are adjusted to the market rate of interest at three-year intervals. The rate
was adjusted to 4.15% in 1992.
The Secured Notes of the real estate subsidiaries are secured by mortgage
liens and/or assignments of rental agreements whereby the real estate
subsidiaries have assigned to trustees certain monies payable under leases with
Montgomery Ward. At January 1, 1994, assets with a net book value of
approximately $220 represented collateral for certain of these secured notes.
The market value of the Company's long-term debt of $165 is estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
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 January 1, 1994, the minimum lease payments under all noncancelable
operating leases with an initial term of more than one year, not including $13
of future sublease rentals, and under capital leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1994......................................................... $ 15 $ 84
1995......................................................... 15 77
1996......................................................... 14 70
1997......................................................... 13 63
1998......................................................... 13 55
Later Years.................................................. 69 487
---- ----
Total Minimum Lease Payments............................. $139 $836
====
Less Executory Costs, principally real estate taxes to be
paid by the lessor.......................................... (6)
Less Imputed Interest........................................ (44)
----
Present Value of Net Minimum Capital Lease Payments Including
Portion due within one year of $7........................... $ 89
====
</TABLE>
F-23
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
13. LEASES (CONTINUED)
Net rent expense charged to earnings was $104 for 1993, $101 for 1992 and $95
for 1991 after deducting rentals from subleases of $9 in 1993, $10 in 1992 and
$11 in 1991. Rent expense includes contingent lease rentals for capital and
operating leases of $11 for 1993, $11 for 1992 and $12 for 1991. 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 June 22, 1988, the Company issued 500 shares of its Senior Preferred Stock
and 400 shares of its Junior Preferred Stock to GE Capital for an aggregate
purchase price of $50 and $40, respectively. Beginning in the first quarter of
1992, dividends were paid quarterly at an annual rate of $11,500 per share and
$12,000 per share for the Senior Preferred Stock and Junior Preferred Stock,
respectively.
Effective September 30, 1992, Montgomery Ward declared a dividend payable to
the Company and the Company redeemed all of its then-outstanding shares of
Preferred Stock, including 500 shares of Senior Preferred Stock, par value
$1.00 per share, and 400 shares of Junior Preferred Stock, par value $1.00 per
share, all of which were held by GE Capital. The aggregate redemption prices
for the Senior Preferred Stock and the Junior Preferred Stock were $50 and $40,
respectively, and accrued dividends thereon were $3.
15. COMMON STOCK
The Company has the following authorized classes of common stock:
Class A Common Stock, Series 1; $.01 par value; 25,000,000 shares
authorized; 19,481,096 shares issued and outstanding, net of 5,518,904
shares held in treasury.
Class A Common Stock, Series 2; $.01 par value; 5,412,000 shares
authorized; 128,897 shares issued and outstanding, net of 459,034 shares
held in treasury.
Class B Common Stock; $.01 par value; 25,000,000 shares authorized,
issued and outstanding; all owned by GE Capital.
The Company has repurchased 3,905,550 shares held by certain former officers
of the Company, Montgomery Ward and Signature and their permitted transferees
by making cash payments and issuing installment notes in the aggregate of
approximately $54. As of January 1, 1994, the outstanding balance of these
notes was $32. These installment notes bear interest at varying rates, are
payable over a multi-year period (generally three to five years) and are
secured by shares of Common Stock, the fair market value of which is equal to
the outstanding principal amount under each note. The notes are classified as
Accrued liabilities and other obligations. Under all of the Agreements,
Montgomery Ward will be able to advance the Company sufficient funds to allow
the Company to make the required installment payments in 1994.
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.
F-24
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
15. COMMON STOCK (CONTINUED)
Net income per common share is computed as follows:
<TABLE>
<CAPTION>
52-WEEK PERIOD ENDED
JANUARY 1, 1994
---------------------
CLASS A CLASS B
---------- ----------
<S> <C> <C>
Earnings available for Common Shareholders............... $ 50 $ 51
Weighted average number of common and common equivalent
shares (stock options) outstanding...................... 21,805,203 25,000,000
Earnings per share....................................... $2.29 $2.04
<CAPTION>
53-WEEK PERIOD ENDED
JANUARY 2, 1993
---------------------
CLASS A CLASS B
---------- ----------
<S> <C> <C>
Earnings available for Common Shareholders, after
deducting preferred stock dividend requirements and
cumulative effect of changes in accounting principles... $ 26 $ 26
Weighted average number of common and common equivalent
shares (stock options) outstanding...................... 22,537,539 25,000,000
Earnings per share....................................... $1.13 $1.05
</TABLE>
<TABLE>
<CAPTION>
52-WEEK PERIOD ENDED
DECEMBER 28, 1991
---------------------
CLASS A CLASS B
---------- ----------
<S> <C> <C>
Earnings available for Common Shareholders, after
deducting preferred stock dividend requirements......... $ 60 $ 62
Weighted average number of common and common equivalent
shares (stock options) outstanding...................... 24,954,495 25,000,000
Earnings per share....................................... $2.40 $2.48
</TABLE>
F-25
<PAGE>
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,
and 5,412,000 shares of Class A Common Stock, Series 2, 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
1,484,302 and 1,133,265 shares of Class A Common Stock, Series 2 were
exercisable at January 1, 1994 and January 2, 1993, respectively.
Following is a summary of activity under the plan.
<TABLE>
<CAPTION>
OPTION PRICE
OPTIONS RANGE
--------- -------------
<S> <C> <C>
Outstanding December 29, 1990......................... 2,661,825 $ 0.20-$10.20
---------
Granted, 1991......................................... 818,002 $11.10-$14.79
Exercised, 1991....................................... (73,450) $ 0.20-$14.79
Cancellations, 1991................................... (461,410) $ 0.20-$14.79
---------
Outstanding December 28, 1991......................... 2,944,967 $ 0.20-$14.79
---------
Granted, 1992......................................... 1,377,478 $15.11-$18.75
Exercised, 1992....................................... (256,367) $ 0.20-$15.11
Cancellations, 1992................................... (469,170) $ 0.20-$18.75
---------
Outstanding January 2, 1993........................... 3,596,908 $ 0.20-$18.75
---------
Granted, 1993......................................... 1,979,105 $18.75-$22.50
Exercised, 1993....................................... (192,864) $ 0.20-$18.75
Cancellations, 1993................................... (520,083) $ 0.20-$22.50
---------
Outstanding Janaury 1, 1994........................... 4,863,066 $ 0.20-$22.50
=========
</TABLE>
During 1991, the Board of Directors approved the Directors Plan. The
Directors Plan was established to, among other things, allow two of the current
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 1993, 1992 and 1991, 3,466, 3,332 and 3,450 Series 1
shares were issued from treasury as payment for directors fees, respectively.
17. INVESTMENTS IN SUBSIDIARIES FORMERLY UNCONSOLIDATED
During 1991, Montgomery Ward Life Insurance Company (MWLIC), formerly a
subsidiary of Montgomery Ward Insurance Company (MWIC), became a sister company
of MWIC. Under the laws applicable to insurance companies, MWIC and MWLIC 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, MWIC and
MWLIC, which had an accumulated deficit of $9 and retained earnings of $139,
respectively, and total shareholder's equity of $12 and $159, respectively,
could pay dividends of $2 and $41, respectively, during 1994 subject to the
availability of earned surplus as determined on a statutory basis. Dividends
received from insurance subsidiaries were $35, $27 and $33 for 1993, 1992 and
1991, respectively. In 1991, dividends were paid which exceeded the limitation
as determined on a statutory basis. MWIC obtained approval from the Illinois
Insurance Department with respect to these excess dividend payments.
F-26
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
17. INVESTMENTS IN SUBSIDIARIES FORMERLY UNCONSOLIDATED (CONTINUED)
Summary financial information for all subsidiaries previously accounted for
on the equity method is as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C> <C>
Cash and Investments........................................... $293 $274
Receivables.................................................... 156 159
Other Assets................................................... 201 200
Other Liabilities.............................................. (403) (401)
---- ----
Net assets................................................. $247 $232
==== ====
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Gross revenues................................................. $239 $240 $214
Income before taxes............................................ 79 58 70
Net income..................................................... 50 40 45
</TABLE>
18. INTEREST EXPENSE, NET OF INVESTMENT INCOME
Net interest expense is as follows:
<TABLE>
<CAPTION>
52-WEEK 53-WEEK 52-WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JANUARY 1, JANUARY 2, DECEMBER 28,
1994 1993 1991
------------ ------------ ------------
<S> <C> <C> <C>
Interest on short-term borrowings........ $12 $ 4 $--
Interest on long-term debt and obliga-
tions under capital leases.............. 24 41 70
Miscellaneous interest, net.............. 8 6 5
Investment income........................ (1) (6) (19)
--- --- ---
Total interest expense, net of in-
vestment income..................... $43 $45 $56
=== === ===
</TABLE>
Realized capital gains before income tax and changes in unrealized gains
(losses) after income tax on fixed maturities, mortgage loans and equity
securities are as follows:
<TABLE>
<CAPTION>
FIXED MATURITIES
AND MORTGAGE EQUITY
LOANS SECURITIES
---------------- ----------
<S> <C> <C>
52-Week Period Ended January 1, 1994
Realized.......................................... $ 1 $--
Unrealized........................................ $ -- $ 3
53-Week Period Ended January 2, 1993
Realized.......................................... $ 1 $--
Unrealized........................................ $ -- $ 3
52-Week Period Ended December 28, 1991
Realized.......................................... $ -- $--
Unrealized........................................ $ (1) $ 3
</TABLE>
F-27
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
19. ADVERTISING COSTS
Advertising costs charged to income were $434 for 1993, $443 for 1992 and
$395 for 1991.
20. 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.
21. RELATED PARTY TRANSACTIONS
Substantially all shares of Class A Common Stock, except those held by the
Chairman and Chief Executive Officer of the Company and a trust established for
the benefit of his children, are held by a Voting Trust. A Voting Trustee
(currently the Chairman and Chief Executive Officer of the Company) has sole
voting power and control of all shares held by the Voting Trust. The Voting
Trust will expire June 21, 1998 or upon the occurrence of certain specified
events in accordance with the Voting Trust Agreement.
The Company engages in various transactions with GE Capital as described in
Notes 3 and 14.
In October 1991, the Company entered into a joint venture, MW Direct L.P. (MW
Direct), formed through a partnership between subsidiaries of Montgomery Ward
and subsidiaries of Fingerhut Companies, Inc., a Minneapolis-based specialty
catalog marketer. Montgomery Ward made a $5 initial capital contribution in
1992 and additional funding may be required within limitations as set forth in
the Partnership Agreement. The cumulative maximum capital contribution is
limited to $30 in 1994.
In December 1992, Montgomery Ward, through formation of a new subsidiary,
became a 33.33% partner in Bernel Partners. The purpose of this partnership is
to acquire direct or indirect interests in companies which could, consistent
with the Company's retail strategy, supply the Company with merchandise for
resale. Montgomery Ward made a capital contribution of $10 on January 13, 1993.
Per the terms of the partnership agreement, additional funding is not required,
but is permitted at the Company's discretion.
Montgomery Ward paid on behalf of those associates and past associates of
Montgomery Ward and certain of its subsidiaries who purchased stock in the
Company in 1988 (the Management Shareholders), the legal fees and related costs
and expenses in connection with the deficiencies in tax assessed by the
Internal Revenue Service, and the Tax Court cases which have been filed.
Montgomery Ward paid approximately $2 in 1993 and $1 in 1992 for services
rendered in connection with the aforementioned matters. In 1992, $1 was paid
for such services to a law firm in which a director and a Management
Shareholder of the Company is a senior partner.
In November 1991, the Board of Directors approved a line of credit program
for certain associates, including directors who are associates and executive
officers of the Company (Line of Credit Program). Under the Line of Credit
Program, the Company arranged with banks (Program Banks) for lines of credit of
up to $10 in the aggregate for all participants in the Line of Credit Program.
As of January 1, 1994, an aggregate of $4 was available under the Line of
Credit Program. Any associate who borrows money from the Program
F-28
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
21. RELATED PARTY TRANSACTIONS (CONTINUED)
Banks under the Line of Credit Program is required to pledge to such Program
Banks as collateral a number of shares owned by such associate, the fair market
value of which is equal to twice the amount the associate borrows. In the event
any associate should default upon his or her repayment obligations, the Company
anticipates that it will repurchase that individual's note from the Program
Banks, together with the Banks' security interest in the pledged stock, at the
face amount of the note plus up to one year's interest. At January 1, 1994,
borrowings of approximately $1 were outstanding under the Line of Credit
Program.
22. 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.
<TABLE>
<CAPTION>
53-WEEK 53-WEEK 52-WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JANUARY 1, 1994 JANUARY 2, 1993 DECEMBER 28, 1991
--------------- --------------- -----------------
<S> <C> <C> <C>
Total Revenues
Retail Merchandising...... $5,602 $5,402 $5,294
Direct Response Marketing. 400 379 360
------ ------ ------
Total................... $6,002 $5,781 $5,654
====== ====== ======
Operating Earnings
Retail Merchandising...... $ 171 $ 198 $ 225
Direct Response Marketing. 54 52 41
Corporate and Other....... (65) (100) (91)
------ ------ ------
Total................... $ 160 $ 150 $ 175
====== ====== ======
Identifiable Assets
Retail Merchandising...... $2,627 $2,391 $2,327
Direct Response Marketing. 753 702 733
Corporate and Other....... 455 392 888
------ ------ ------
Total................... $3,835 $3,485 $3,948
====== ====== ======
Depreciation and Amortiza-
tion
Retail Merchandising...... $ 95 $ 94 $ 93
Direct Response Marketing. 3 3 2
------ ------ ------
Total................... $ 98 $ 97 $ 95
====== ====== ======
Capital Expenditures
Retail Merchandising...... $ 139 $ 141 $ 126
Direct Response Marketing. 3 5 2
------ ------ ------
Total................... $ 142 $ 146 $ 128
====== ====== ======
</TABLE>
F-29
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
23. PARENT COMPANY FINANCIAL INFORMATION
Following is the MW Holding balance sheet as of January 1, 1994 and January
2, 1993 and the statements of income and cash flows for the 52-week period
ended January 1, 1994, for the 53-week period ended January 2, 1993 and for the
52-week period ended December 28, 1991.
MONTGOMERY WARD HOLDING CORP.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1994 1993
---------- ----------
<S> <C> <C>
Federal Income Taxes Receivable........................... $ 4 $ 4
Investment in Montgomery Ward............................. 671 592
Other Assets.............................................. -- 1
---- ----
Total Assets.............................................. $675 $597
==== ====
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable to Montgomery Ward....................... $ 35 $ 23
Accrued Liabilities....................................... 33 21
---- ----
Total Liabilities....................................... 68 44
Common Stock.............................................. -- --
Capital in excess of par value............................ 19 16
Retained Earnings......................................... 658 580
Unrealized gain on marketable equity securities........... 3 3
Less: Treasury stock, at cost............................. (73) (46)
---- ----
Total Shareholders' Equity.............................. 607 553
---- ----
Total Liabilities and Shareholders' Equity................ $675 $597
==== ====
</TABLE>
STATEMENT OF INCOME
<TABLE>
<CAPTION>
52-WEEK 53-WEEK 52-WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED
JANUARY 1, 1994 JANUARY 2, 1993 DECEMBER 28, 1991
--------------- --------------- -----------------
<S> <C> <C> <C>
Miscellaneous Costs.......... $ (1) $(2) $--
---- --- ----
Total Costs and Expenses... (1) (2) --
Tax Benefits................. -- -- --
---- --- ----
Net Loss Before Earnings of
Montgomery Ward............. (1) (2) --
Equity in Net Income of Mont-
gomery Ward, net of
cumulative effect of ac-
counting changes............ 102 62 135
---- --- ----
Net Income................... 101 60 135
Preferred Stock Dividend Re-
quirements.................. -- (8) (13)
---- --- ----
Net Income Available for Com-
mon Shareholders............ $101 $52 $122
==== === ====
</TABLE>
F-30
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN MILLIONS)
23. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2, DECEMBER 28,
1994 1993 1991
---------- ---------- ------------
<S> <C> <C> <C>
Net Income.................................. $ 101 $ 60 $ 135
Adjustments to reconcile net income to net
cash provided:
Change in undistributed earnings of sub-
sidiary.................................. (79) 48 (122)
Decrease (increase) in:
Federal income taxes receivable......... -- (1) (2)
Other assets............................ 1 -- --
Increase (decrease) in:
Accounts payable to Montgomery Ward..... 12 10 7
Accrued liabilities..................... (4) (4) (1)
----- ---- -----
Net cash provided before financing activi-
ties....................................... 31 113 17
----- ---- -----
Cash flows from financing activities:
Proceeds from issuance of common stock.... 1 1 --
Dividends declared........................ (23) (19) (13)
Payments to redeem preferred stock........ -- (90) --
Purchase of treasury stock, at cost....... (11) (7) (7)
Tax benefit of stock options exercise and
other stock exchanges.................... 2 2 3
----- ---- -----
Net cash used for financing activities...... (31) (113) (17)
----- ---- -----
Cash at end of period....................... $ -- $-- $ --
===== ==== =====
Non-cash investing activities:
Change in unrealized gain on investments.. $ -- $ 1 $ 2
Non-cash financing activities:
Notes issued for purchase of treasury
stock.................................... $ 16 $ 5 $ 21
</TABLE>
F-31
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
24. QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly operations of MW Holding as restated (See Notes 6 and 9) are
summarized as follows:
<TABLE>
<CAPTION>
QUARTER
-----------------------------------
FIRST SECOND THIRD FOURTH YEAR
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
52-Week Period Ended January 1, 1994
Net sales............................... $1,151 $1,279 $1,321 $1,851 $5,602
Cost of goods sold...................... 867 958 1,002 1,398 4,225
Net Income.............................. 10 27 14 50 101
Net Income per Class A Common Share..... .21 .61 .33 1.16 2.29
Net Income per Class B Common Share..... .19 .56 .29 1.01 2.04
53-Week Period Ended January 2, 1993
Net sales............................... $1,086 $1,202 $1,238 $1,876 $5,402
Cost of goods sold...................... 809 886 928 1,395 4,018
Net Income before cumulative effect of
changes in accounting principles....... 8 27 15 50 100
Cumulative effect of changes in account-
ing principles......................... (40) -- -- -- (40)
Net Income.............................. (32) 27 15 50 60
Net Income per Class A Common Share be-
fore cumulative effect of changes in
accounting principles.................. .12 .53 .26 1.11 2.01
Cumulative effect of changes in account-
ing principles......................... (.86) -- -- -- (.88)
Net Income per Class A Common Share..... (.74) .53 .26 1.11 1.13
Net Income per Class B Common Share be-
fore cumulative effect of changes in
accounting principles.................. .11 .50 .24 1.01 1.87
Cumulative effect of changes in account-
ing principles......................... (.82) -- -- -- (.82)
Net Income per Class B Common Share..... (.71) .50 .24 1.01 1.05
</TABLE>
F-32
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF INCOME
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE 13-WEEK
PERIOD ENDED
------------------
APRIL 2, APRIL 3,
1994 1993
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues
Net sales, including leased and licensed department sales.... $1,211 $1,151
Direct response marketing revenues, including insurance...... 107 97
------ ------
Total Revenues............................................. 1,318 1,248
------ ------
Costs and Expenses
Cost of goods sold, including net occupancy and buying ex-
pense....................................................... 926 868
Benefits, losses and expenses of direct response operations.. 81 73
Operating, selling, general and administrative expenses...... 284 283
Interest expense, net of investment income................... 11 9
------ ------
Total Costs and Expenses................................... 1,302 1,233
------ ------
Income Before Income Taxes..................................... 16 15
Income Tax Expense............................................. 6 5
------ ------
Net Income..................................................... $ 10 $ 10
====== ======
Net Income per Class A Common Share............................ $ .23 $ .21
Net Income per Class B Common Share............................ $ .20 $ .19
</TABLE>
See notes to consolidated condensed financial statements.
F-33
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED CONDENSED BALANCE SHEET
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
APRIL 2, JANUARY 1,
1994 1994
ASSETS ----------- ----------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents............................... $ 50 $ 98
Short-term investments.................................. 7 19
Investments of insurance operations..................... 326 296
------ ------
Total Cash and Investments.......................... 383 413
Trade and other accounts receivable..................... 72 62
Accounts and notes receivable from affiliates........... 26 4
------ ------
Total Receivables................................... 98 66
Merchandise inventories................................. 1,391 1,242
Prepaid pension contribution............................ 313 310
Properties, plants and equipment, net of accumulated de-
preciation and amortization............................ 1,315 1,263
Other assets............................................ 667 541
------ ------
Total Assets............................................ $4,167 $3,835
====== ======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Short-term borrowings................................... $ 367 $ --
Trade accounts payable.................................. 1,141 1,358
Federal income taxes payable............................ 3 7
Accrued liabilities and other obligations............... 1,195 1,197
Insurance policy claim reserves......................... 237 237
Long-term debt.......................................... 402 213
Obligations under capital leases........................ 87 89
Deferred federal income taxes........................... 109 127
------ ------
Total Liabilities................................... 3,541 3,228
Shareholders' Equity
Common stock.......................................... -- --
Capital in excess of par value........................ 19 19
Retained earnings..................................... 668 658
Unrealized gain on marketable equity securities....... 14 3
Less: Treasury stock, at cost......................... (75) (73)
------ ------
Total Shareholders' Equity.......................... 626 607
------ ------
Total Liabilities and Shareholders' Equity.............. $4,167 $3,835
====== ======
</TABLE>
See notes to consolidated condensed financial statements.
F-34
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE 13-WEEK
PERIOD ENDED
-----------------
APRIL 2, APRIL 3,
1994 1993
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 10 $ 10
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 25 25
Deferred income taxes.................................... (6) (4)
Changes in operating assets and liabilities:
(Increase) decrease in:
Trade and other accounts receivable.................... 2 (2)
Accounts and notes receivable from affiliates.......... (22) (2)
Merchandise inventories................................ (6) (133)
Prepaid pension contribution........................... (3) (3)
Other assets........................................... (11) (15)
Increase (decrease) in:
Trade accounts payable................................. (286) (174)
Federal income taxes payable, net...................... (2) 3
Accrued liabilities and other obligations.............. (65) (55)
------ ------
Net cash used in operations.......................... (364) (350)
------ ------
Cash flows from investing activities:
Acquisition of Lechmere, net of cash acquired.............. (109) --
Purchase of short-term investments......................... (25) (19)
Purchase of investments of insurance operations............ (116) (98)
Sale of short-term investments............................. 37 30
Sale of investments of insurance operations................ 103 87
Capital expenditures....................................... (12) (10)
Disposition of properties, plants and equipment, net....... -- 1
------ ------
Net cash used for investing activities............... (122) (9)
------ ------
Cash flows from financing activities:
Proceeds from issuance of short-term borrowings............ 1,727 1,742
Payments on short-term borrowings.......................... (1,360) (1,514)
Proceeds from issuance of long-term debt................... 165 100
Payments of Montgomery Ward long-term debt................. (2) (3)
Payments of obligations under capital leases............... (2) (1)
Payments of Lechmere long-term debt........................ (88) --
Purchase of treasury stock, at cost........................ (2) (1)
------ ------
Net cash provided by financing activities............ 438 323
------ ------
Decrease in cash and cash equivalents........................ (48) (36)
Cash and cash equivalents at beginning of period............. 98 81
------ ------
Cash and cash equivalents at end of period................... $ 50 $ 45
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes............................................. $ 15 $ 7
Interest................................................. $ 13 $ 9
</TABLE>
See notes to consolidated condensed financial statements.
F-35
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
1. CONDENSED FINANCIAL STATEMENTS
Montgomery Ward Holding Corp. (the Company or MW Holding) conducts its
operations through its only direct subsidiary, Montgomery Ward & Co.,
Incorporated (Montgomery Ward). In the opinion of management, the unaudited
financial statements of the Company include all adjustments necessary for a
fair presentation. All such adjustments are of a normal recurring nature. The
condensed financial statements should be read in the context of the financial
statements and notes thereto contained elsewhere in this Registration
Statement.
Income from investments of insurance operations for 1993 has been
reclassified from Interest expense, net to Direct response marketing revenues.
Certain other prior period amounts have also been reclassified to be comparable
with the current period presentation.
Effective January 2, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS No. 115). Under FAS No. 115, all debt securities are
classified as "available-for-sale" and are stated at fair market value with all
changes in unrealized gains or losses included in Shareholders' Equity. The
adoption of FAS No. 115 increased investments of insurance operations by $17,
deferred income taxes by $6 and unrealized gain on equity securities by $11 and
had no impact on the results of operations of the Company.
2. NET INCOME PER COMMON SHARE
Net income per common share is computed as follows:
<TABLE>
<CAPTION>
13-WEEK PERIOD ENDED
APRIL 4, 1994
---------------------
CLASS A CLASS B
---------- ----------
<S> <C> <C>
Earnings available for Common Shareholders......... $ 5 $ 5
Weighted average number of common and common
equivalent shares (stock options) outstanding..... 21,632,062 25,000,000
Earnings per share................................. $0.23 $0.20
<CAPTION>
13-WEEK PERIOD ENDED
APRIL 3, 1993
---------------------
CLASS A CLASS B
---------- ----------
<S> <C> <C>
Earnings available for Common Shareholders......... $ 5 $ 5
Weighted average number of common and common
equivalent shares (stock options) outstanding..... 22,471,520 25,000,000
Earnings per share................................. $0.21 $0.19
</TABLE>
3. ACQUISITION OF LECHMERE, INC.
Montgomery Ward acquired in a merger transaction all the stock of LMR
Acquisition Corporation (LMR) which owns 100% of the stock of Lechmere, Inc.
(Lechmere) on March 30, 1994. The aggregate purchase price was comprised of an
estimated price of $113 and a contingent purchase price payable in 1995 of up
to $20 in cash and the issuance of up to 400,000 shares of Class A Common
Stock, Series 1 (or at the option of Montgomery Ward, if duly authorized, up to
400,000 shares of Class A Common Stock, Series 3). The exact amount, if any, of
the contingent price to be paid is dependent on Lechmere achieving or exceeding
a specified gross margin amount during the period commencing February 27, 1994
and ending February 25, 1995.
F-36
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONCLUDED)
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
3. ACQUISITION OF LECHMERE, INC. (CONTINUED)
The closing price included a $10 promissory note (the Note) of Montgomery
Ward, which bears interest at a rate of 4.87% per annum. Seventy-five percent
of the accrued interest on and principal of the Note are payable 540 days after
the date of the Note and the balance is payable three years after the date of
the Note. The Note, which is secured by a standby letter of credit, is to be
reduced upon the occurrence of certain specified circumstances.
As part of the closing, Montgomery Ward advanced approximately $88 and
assumed $3 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 preliminary results of asset
valuations and liability and contingency assessments. Actual adjustments may
differ based on the results of further evaluations of the fair value of the
acquired assets and liabilities. Any differences between preliminary and actual
adjustments are not expected to have a material impact on the consolidated
financial statements.
The preliminary allocation is summarized as follows:
<TABLE>
<S> <C>
Inventory........................................................... $143
Properties, Plants and Equipment.................................... 65
Goodwill............................................................ 108
Other Assets........................................................ 23
Due to Montgomery Ward.............................................. (88)
Other Liabilities................................................... (138)
----
$113
====
</TABLE>
4. SUBSEQUENT EVENT
On April 27, 1994, the Company issued 750 shares of a new series of Senior
Preferred Stock (Senior Preferred Stock) to GE Capital in exchange for $75 in
cash. The Company used the proceeds to acquire 750 shares of a new issue of
Senior Preferred Stock of Montgomery Ward (Montgomery Ward Preferred) for $75
and Montgomery Ward used the proceeds to reduce short-term borrowings.
Holders of the Senior Preferred Stock are entitled to receive cumulative cash
dividends of $4,850 per share, per annum, in equal quarterly payments.
The Company may, upon 10 days notice, redeem the Senior Preferred Stock at a
price of $100,000 per share. On or after April 28, 1999, upon four months
written notice by the holders, the Company is required to redeem the Senior
Preferred Stock at a price of $100,000 per share.
F-37
<PAGE>
STOCKHOLDERS' AGREEMENT
DATED AS OF
JUNE 17, 1988
AS AMENDED AND RESTATED AS OF AUGUST 1, 1994
(INCLUDING AMENDMENTS CONTEMPLATED
AS OF AUGUST 1, 1994)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I
Definitions and Introductory Matters................. A-1
1.1 Adoption of Recitals................................. A-1
1.2 Definitions.......................................... A-1
1.3 Securities Law Restrictions.......................... A-10
1.4 Transferability of Certain Shares.................... A-11
Duration of Certain Portions of Article II and
1.5 Certain Portions of Article III...................... A-11
1.6 Duration of Certain Portions of Article V............ A-11
1.7 Withholding.......................................... A-11
1.8 Consummation of Acquisition.......................... A-12
1.9 Joinder in Agreement................................. A-12
1.10 Adjustment for Dilutive Events....................... A-12
1.11 Shortening or Lengthening of Option Periods.......... A-12
1.12 Action by 2/3 of Members of Board of Directors....... A-12
ARTICLE II
Voluntary Transfers of Shares........................ A-12
2.1 General Effect of Agreement.......................... A-12
2.2 Certain Permitted Transfers of Shares................ A-13
2.3 Certain Prohibited Transfers......................... A-14
2.4 Notice of Transfer of Shares......................... A-14
2.5 Form of Transfer Notice.............................. A-15
2.6 Approval of Board of Directors....................... A-15
2.7 Options.............................................. A-16
2.8 Transfer if Options Not Exercised.................... A-17
2.9 Exercise of Options for Less than All of the Shares.. A-18
2.10 Closing of Exercise of Options....................... A-18
2.11 Effect of Shares in the Hands of the Transferee...... A-18
2.12 Termination of GE Capital's Rights................... A-19
ARTICLE III
Purchases of Shares upon Termination of Employment... A-19
Termination of Employment of Type 2 Management
3.1 Shareholder.......................................... A-19
Death or Permanent Disability of a Type 2 Management
3.2 Shareholder.......................................... A-20
Death of Type 2 Management Shareholder Following
3.3 Termination of Employment............................ A-20
3.4 Notice of Death...................................... A-21
3.5 Termination of Brennan's Employment or Death......... A-21
3.6 Death of Other Type 1 Management Shareholder......... A-22
3.7 Purchase Price of Shares............................. A-22
3.8 Manner of Payment.................................... A-23
3.9 Notes and Security................................... A-24
3.10 Fair Market Value.................................... A-25
3.11 Closing.............................................. A-27
3.12 Priorities........................................... A-27
3.13 Failure to Deliver Shares............................ A-27
3.14 Resale of Shares..................................... A-28
3.15 Modification of Options.............................. A-28
3.16 Offset of Purchase Price............................. A-28
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE IV
Certain Limitations on Purchases of Shares........... A-28
4.1 Restrictions on the Company's Right and/or Obligation
to Purchase Shares................................... A-28
4.2 Definition of the Limitations........................ A-30
4.3 Cash Payments Limitation............................. A-30
4.4 Right of GE Capital to Cure Limitations.............. A-31
ARTICLE V
Corporate Governance Matters......................... A-31
5.1 Voting of Shares held by Management Shareholders..... A-31
5.2 Election of Directors................................ A-31
5.3 Certain Supermajority Requirements................... A-32
5.4 Certain Required Provisions of Certificate of
Incorporation........................................ A-34
5.5 By-laws of Members of the Ward Group................. A-35
5.6 Election of Chief Executive Officer.................. A-36
5.7 Agreement to Vote.................................... A-36
5.8 Recapitalization..................................... A-36
ARTICLE VI
Registration Rights.................................. A-36
6.1 Demand Registration Rights........................... A-36
6.2 Piggyback Registration Rights........................ A-38
6.3 Registration Procedures.............................. A-39
6.4 Restrictions on Public Sale.......................... A-42
6.5 Other Registrations.................................. A-42
6.6 Registration Expenses................................ A-42
6.7 Indemnity and Contribution........................... A-43
6.8 Rule 144............................................. A-45
6.9 Participation in Underwritten Registrations.......... A-45
6.10 Other Registration Rights............................ A-45
6.11 Amendments and Waivers............................... A-46
6.12 Inclusion of Vested Shares........................... A-46
6.13 Exception............................................ A-46
ARTICLE VII
Restrictive Covenants................................ A-46
7.1 Restrictive Covenants................................ A-46
7.2 Limitations on Restrictive Covenants................. A-47
7.3 Return of Documents.................................. A-47
7.4 Cooperation.......................................... A-47
7.5 Enforcement.......................................... A-48
7.6 Survival; Waiver of Offset........................... A-48
7.7 Jurisdiction......................................... A-48
7.8 Construction......................................... A-48
7.9 Exception............................................ A-48
ARTICLE VIII
General Matters...................................... A-49
8.1 Legend on Certificates............................... A-49
8.2 Termination and Amendment of Agreement............... A-49
8.3 Termination of Status as Management Shareholder...... A-50
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
8.4 Not an Employment Agreement............................ A-50
8.5 Indemnification........................................ A-50
8.6 Notices................................................ A-50
8.7 Miscellaneous.......................................... A-51
8.8 Counterparts........................................... A-51
8.9 Descriptive Headings................................... A-51
8.10 Entire Agreement....................................... A-51
8.11 Waivers................................................ A-51
8.12 Binding Effect; Enforcement............................ A-51
8.13 Applicable Law......................................... A-51
8.14 Severability........................................... A-51
8.15 Resolution of Certain Ambiguities and Conflicts........ A-52
8.16 Joinder by Brennan..................................... A-52
8.17 Authority to Give Consents, Approvals, etc............. A-52
</TABLE>
iii
<PAGE>
STOCKHOLDERS' AGREEMENT
THIS AGREEMENT ("Agreement") is made as of June 17, 1988 among BFB
Acquisition Corp., a Delaware corporation (the "Company"), Bernard F. Brennan
("Brennan"), General Electric Capital Corporation, a New York corporation ("GE
Capital") and the other Persons (as herein defined) who are parties to this
Agreement.
RECITALS
A. The Company has been organized for the purpose of acquiring all of the
outstanding shares of stock of Montgomery Ward & Co., Incorporated ("Ward"),
and, to this end, the Company has entered into a Stock Purchase Agreement,
dated as of March 6, 1988, as amended, with Mobil Corporation and Marcor Inc.
(the "Purchase Agreement"), and is about to complete the acquisition of Ward
pursuant to the provisions thereof.
B. Brennan and the other individuals executing this Agreement as of the date
hereof have purchased shares of Class A Common Stock, Series 1, of the Company.
C. GE Capital has purchased shares of Class B Common Stock and Senior
Preferred Stock, par value $1.00 per share (the "Preferred Stock").
D. The parties desire to set forth certain restrictions with respect to the
ownership of shares of Class A Common Stock, Series 1 ("Series 1 Shares"),
Class A Common Stock, Series 2 ("Series 2 Shares"), and Class A Common Stock,
Series 3 ("Series 3 Shares"), of the Company (the Series 1 Shares, Series 2
Shares and Series 3 Shares being hereinafter collectively referred to as "Class
A Shares" and the holders thereof being sometimes collectively referred to as
"Class A Shareholders") and shares of Class B Common Stock of the Company
("Class B Shares" and the holders thereof being sometimes collectively referred
to as "Class B Shareholders"), certain options and obligations to purchase such
shares, and certain matters relating to corporate governance of the Company,
all as herein set forth.
AGREEMENTS
NOW, THEREFORE, it is hereby agreed as follows:
ARTICLE I
Definitions and Introductory Matters
1.1 Adoption of Recitals. The parties hereto adopt the foregoing Recitals and
agree and affirm that construction of this Agreement shall be guided thereby.
1.2 Definitions. For the purposes hereof:
(a) "Acquisition Date" shall mean the date on which a Management
Shareholder (as herein defined) first acquired any Shares (as herein
defined). The Acquisition Date for a Permitted Transferee (as herein
defined) shall be the same as the Acquisition Date for his Management
Shareholder;
(b) "Acquisition Price" shall mean the price paid to the Company for a
Share purchased from the Company (as adjusted by the Company on an
equitable basis for stock dividends, stock splits, reclassifications and
like actions);
(c) "Act" shall mean the Securities Act of 1933, as amended;
(d) "Adjustment Period" shall have the meaning set forth in Section
3.10(a)(ii);
<PAGE>
(e) "Advice" shall have the meaning set forth in Section 6.3;
(f) "Applicable Date" shall have the meaning set forth in Section
3.10(a);
(g) "Article III Closing" and "Article III Closing Date" shall have the
meanings set forth in Section 3.11;
(h) "Average Closing Price" shall have the meaning set forth in Section
3.10(b);
(i) "Award" shall mean an award of Shares without cash consideration
pursuant to the terms of the Employee Stock Option Plan (as herein
defined);
(j) Intentionally omitted;
(k) "Board of Directors" shall mean the board of directors of the
Company;
(k)(A) "Brennan" shall mean Bernard F. Brennan;
(l) "Cash Payments Limitation" shall have the meaning set forth in
Section 4.3;
(m)"Cause" shall mean any of the following with respect to an employee of
a member of the Ward Group (as herein defined):
(i) the commission of any crime, whether or not involving any member
of the Ward Group, which constitutes a felony in the jurisdiction
involved;
(ii) the sale, use or possession on the premises of any member of the
Ward Group of a controlled substance whose sale, use or possession is
illegal in the manner used or possessed and in the jurisdiction
involved;
(iii) the repeated consumption of drugs or alcohol that interferes
with the employee's ability to discharge his assigned responsibilities;
(iv) an intentional violation of the provisions of Section 7.1 of
this Agreement;
(v) in the case of a Type 2 Management Shareholder, the intentional
and repeated failure on the part of the employee to perform such duties
as may be delegated to him and which are commensurate with his
employment position, and in the case of Brennan, the intentional and
repeated refusal, after repeated written notices thereof from the Board
of Directors, to perform such duties at the Company's executive offices
in Chicago, Illinois as may be delegated to him which are reasonably
commensurate with his position as the chief executive officer of the
Company; or
(vi) the unlawful taking or misappropriation of any property
belonging to any member of the Ward Group or in which any member of the
Ward Group has an interest;
(n) "Class A Amount" shall mean a number of Class A Shares equal to the
Series 1 Amount (as herein defined) or, if less, the Outstanding Amount (as
herein defined);
(o) "Closing Date" shall mean the date on which the closing pursuant to
the Purchase Agreement occurred;
(p) "Commission" shall mean the Securities and Exchange Commission;
(q) "Competing Business" shall mean any person or entity engaged, in any
area of the world, directly or indirectly, in any retail merchandising
business conducted from multiple retail locations, of a type engaged in by
any member of the Ward Group, or any business of the type engaged in by
Signature Financial/Marketing, Inc. ("Signature") or any of its
subsidiaries (as long as Signature or such subsidiary is a member of the
Ward Group), other than the insurance business, as of the time of the
complained of act;
(r) "Confidential Information" shall mean competitive data, trade secrets
or confidential trade information in the possession of the Ward Group which
is not generally known to others and the confidentiality of which the Ward
Group have taken reasonable steps to protect, but does not include general
business knowledge acquired by a Management Shareholder;
A-2
<PAGE>
(s) Intentionally omitted;
(t) "Controlling Shareholder" shall have the meaning set forth in Section
1.5;
(u)"Demand" and "Demanding Group" and "Demand Registration" shall have
the meanings set forth in Section 6.1;
(v)"Designated Management Optionees" shall mean those Management
Shareholders, or any member or members of their respective Families (as
herein defined), who are designated in writing by the Designator (as herein
defined), with concurrent notice to the Company, as having the right to
exercise a specifically designated option to purchase a specifically
designated number of Shares pursuant to Article II or III. The options so
designated may not, in the aggregate, exceed the number of Shares which, at
the time of the designation, are subject to purchase pursuant to Article II
or Article III, but in making such designation, the Designator may
designate alternate Designated Management Optionees who shall have options
to purchase Shares if the Persons designated as primary Designated
Management Optionees do not exercise the designated options. The Designator
may designate a member of the Committee (as herein defined), or a member of
the Family of a member of the Committee, as a Designated Management
Optionee only as provided elsewhere in this Agreement. Each designation of
a Designated Management Optionee shall be made in writing and delivered by
the Designator to the Designated Management Optionee and the Company. By
written notice delivered to a Designated Management Optionee, with
concurrent notice to the Company, the Designator may change or revoke the
designation of any Management Shareholder (or member of his Family, as the
case may be) as a Designated Management Optionee and/or the designation of
the number of Shares to be purchased, at any time prior to exercise of the
designated option for any reason or for no reason. In the event one or more
Designated Management Optionees are granted an option to purchase Shares
pursuant to Article III, and the Shares as to which such option is
exercisable are not Vested Shares in the hands of the Management
Shareholder (or his Permitted Transferees) whose Shares are subject to
purchase or sale under Article III, the Designator may, as part of the
designation of the identity of the Designated Management Optionee(s),
designate that all or any portion of such Shares shall be Vested Shares in
the hands of the Designated Management Optionee(s);
(w)"Designator" shall mean the person or the committee of three
Management Shareholders, as set forth below and as the case may be, which
has, among other powers, the power to designate the Designated Management
Optionees. Prior to the occurrence of an Event (as defined below) for all
purposes other than designating (and in connection with the designation of)
Designated Management Optionees, the Designator shall be Brennan. At all
times for purposes of designating (and in connection with the designation
of) Designated Management Optionees, and from and after the occurrence of
an Event for all purposes (including, without limitation, designating (and
in connection with the designation of) Designated Management Optionees),
the Designator shall be such committee of three Management Shareholders
(the "Committee").
The Committee shall, except as provided below, be comprised of Brennan,
Edwin G. Pohlmann ("Pohlmann") and Myron Lieberman ("Lieberman"). Prior to
the occurrence of an Event, if any member of the Committee shall resign
from the Committee or cease to be A Qualified Management Shareholder (as
defined below), then such person shall cease to be a member of the
Committee and the remaining members of the Committee shall as soon as
practicable appoint a Qualified Management Shareholder as a member of the
Committee and thereby fill the vacancy on the Committee so created. From
and after the occurrence of an Event, the Committee shall be comprised of
Pohlmann, Spencer H. Heine ("Heine") and Lieberman (each of Pohlmann, Heine
and Lieberman being a "Continuing Member" and collectively being the
"Continuing Members") so long as each is a Qualified Management
Shareholder; provided, however, that at any time from and after the
occurrence of an Event (i) if one, but only one, Continuing Member has
resigned from the Committee or ceased to be a Qualified Management
Shareholder, then the Committee shall be comprised of the two remaining
Continuing Members who have not resigned from the Committee and are
Qualified Management Shareholders and the Largest Management Shareholder
(as defined below) (but the Second Largest Management
A-3
<PAGE>
Shareholder (as defined below) if the Largest Management Shareholder is one
of such remaining Continuing Members, but the Third Largest Management
Shareholder (as defined below) if both the Largest Management Shareholder
and the Second Largest Management Shareholder are such remaining Continuing
Members), (ii) if each of two, but only two, of the Continuing Members has
either resigned from the Committee or ceased to be a Qualified Management
Shareholder, then the Committee shall be comprised of the remaining
Continuing Member who has not resigned from the Committee and is a
Qualified Management Shareholder, the Largest Management Shareholder and
the Second Largest Management Shareholder (but the Second Largest
Management Shareholder and the Third Largest Management Shareholder if the
Largest Management Shareholder is such Continuing Member, but the Largest
Management Shareholder and the Third Largest Management Shareholder if the
Second Largest Management Shareholder is such Continuing Member), and (iii)
if each of the Continuing Members has either resigned from the Committee or
ceased to be a Qualified Management Shareholder, then the Committee shall
be comprised of the Largest Management Shareholder, the Second Largest
Management Shareholder and the Third Largest Management Shareholder.
In all cases, the Committee shall act by the vote of a majority of its
members; provided, however, that neither a member of the Committee nor a
member of his Family may be designated as a Designated Management Optionee
except upon the affirmative vote of all other members of the Committee.
A "Qualified Management Shareholder" is each of Lieberman and any other
person who is a Management Shareholder and employed by a member of the Ward
Group. A person (including Lieberman) shall cease to be a Qualified
Management Shareholder if (i) he ceases to be a Management Shareholder,
(ii) he dies, (iii) he is adjudicated incompetent, (iv) in the case of
Lieberman, he ceases to be a director of the Company or (v) in the case of
any Management Shareholder other than Lieberman, no member of the Ward
Group employs such Management Shareholder.
An "Event" means that Brennan has resigned from the Committee or ceased
to be a Qualified Management Shareholder.
The "Largest Management Shareholder" shall be the Management Shareholder
(other than Brennan and any Management Shareholder who is not willing or
able to serve on the Committee) who, from time to time, is employed by a
member of the Ward Group and is the owner of the largest number of Shares
as compared to each other Management Shareholder (other than Brennan and
any Management Shareholder who is not willing or able to serve on the
Committee) and who is willing and able to serve as a member of the
Committee.
The "Second Largest Management Shareholder" shall be the Management
Shareholder (other than Brennan, the Largest Management Shareholder and any
Management Shareholder who is not willing or able to serve on the
Committee) who, from time to time, is employed by a member of the Ward
Group and is the owner of the largest number of Shares as compared to each
other Management Shareholder (other than Brennan, the Largest Management
Shareholder and any Management Shareholder who is not willing or able to
serve on the Committee) and who is willing and able to serve on the
Committee.
The "Third Largest Management Shareholder" shall be the Management
Shareholder (other than Brennan, the Largest Management Shareholder, the
Second Largest Management Shareholder and any Management Shareholder who is
not willing or able to serve on the Committee) who, from time to time, is
employed by a member of the Ward Group and is the owner of the largest
number of Shares as compared to each other Management Shareholder (other
than Brennan, the Largest Management Shareholder, the Second Largest
Management Shareholder and any Management Shareholder who is not willing or
able to serve on the Committee) and who is willing and able to serve on the
Committee.
For the purposes of the foregoing provisions of this paragraph (w), a
Management Shareholder shall be deemed to own all Shares owned by his
Permitted Transferees. In the event that two or more persons own the same
number of Shares so that each, in the absence of the other (or others, as
the case may be) would be the Largest Management Shareholder, the Second
Largest Management Shareholder or the Third Largest Management Shareholder
(as the case may be), then the remaining member (or members,
A-4
<PAGE>
as the case may be) of the Committee from time to time shall determine
which of such person or persons shall be deemed to be the Largest
Management Shareholder, the Second Largest Management Shareholder or the
Third Largest Management Shareholder, as the case may be.
(x)"Employee Stock Option Plan" or "Plan" shall mean a stock option plan
for the benefit of the employees, advisors and consultants of the Ward
Group and directors of the Company which may be adopted hereafter by the
Board of Directors, pursuant to which such employees, advisors, consultants
and directors may be granted options to purchase Class A Shares. The Shares
issued pursuant to the Employee Stock Option Plan shall, in the case of
Shares issued to employees of the Ward Group, be subject to options to
purchase such Shares upon termination of employment with the Ward Group,
and restrictions on Transfers, which, unless otherwise changed or waived by
2/3 of the members of the Board of Directors, are reasonably similar to
those which are set forth in this Agreement;
(y)"Escrow Agent" shall have the meaning set forth in Section 3.13;
(z)"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended;
(aa)"Fair Market Value per Share" shall have the meaning set forth in
Section 3.10;
(bb) "Family" shall mean a spouse or descendant or ancestor of a
Management Shareholder, or a spouse of a descendant or ancestor of a
Management Shareholder, or a trustee of a trust or custodian of a
custodianship primarily for the benefit of one or more of the foregoing
and/or a Management Shareholder;
(cc) "First Period" shall have the meaning set forth in Section 2.3(c);
(cc)(A) "Fully Diluted Non-Series 3 Outstanding Amount" shall mean the
Fully Diluted Outstanding Amount (as herein defined) less the sum of (x)
the number of Series 3 Shares outstanding on the date of determination plus
(y) the number of Series 3 Shares subject to purchase pursuant to Options
(as herein defined) granted under the Employee Stock Option Plan on the
date of determination;
(cc)(B) "Fully Diluted Outstanding Amount" shall mean the number of Class
A Shares of all series which are outstanding on the date of determination
plus the number of Class A Shares subject to purchase pursuant to Options
granted under the Employee Stock Option Plan on the date of determination;
(dd) "GE Capital Affiliate" shall mean any entity which, at the time of
the applicable determination, GE Capital controls, which controls GE
Capital, or which is under common control with GE Capital, but does not
include the Ward Group or any member thereof. For the purposes of the
preceding sentence, "control" means the power, direct or indirect, to
direct or cause the direction of the management and policies of a Person
through voting securities, contract or otherwise. Without limiting the
generality of the foregoing, as of the date of this Agreement, Kidder,
Peabody Group, Inc. ("Kidder, Peabody") is a GE Capital Affiliate;
(ee) "Group" shall have the meaning set forth in Section 6.1(a)(i);
(ff) "Indemnitees" shall mean Brennan, Dominic M. Mangone and Edwin G.
Pohlmann;
(ff)(A) "Insider" shall have the meaning set forth in Section 3.15;
(gg) "Insurance Proceeds" shall have the meaning set forth in Section
3.8(a);
(hh) "Limitations" shall have the meaning set forth in Section 4.2;
(ii) "Management Shareholders" or "Management Shareholder" shall mean a
Type 1 Management Shareholder (as herein defined) or a Type 2 Management
Shareholder (as herein defined), without distinction:
(jj) "Non-Plan Shares" shall mean all shares other than Plan Shares (as
herein defined);
(jj)(A) "Non-Series 3 Outstanding Amount" shall mean the Outstanding
Amount less the number of Series 3 Shares outstanding on the date of
determination;
A-5
<PAGE>
(kk) "Option" shall mean a nonqualified stock option to acquire Shares
granted pursuant to the Employee Stock Option Plan;
(ll) "Originally Scheduled Article III Closing Date" shall have the
meaning set forth in Section 4.1(b);
(mm) "Outstanding Amount" shall mean the number of Class A Shares of all
series which are outstanding on the date of determination;
(nn) "Period" shall have the meaning set forth in Section 2.3(c);
(oo) "Permanent Disability" shall mean the total permanent disability of
a Management Shareholder who is an employee of the Ward Group, as
determined in accordance with the published policies (in effect on the
applicable date) of the Ward Group with respect to the determination of
total permanent disability;
(pp) "Permitted Transferee" shall mean:
(i) a Person, other than a Management Shareholder, to whom Shares are
Transferred pursuant to and in compliance with the provisions of
Section 2.2(b); and
(ii) a member of the Family of a Management Shareholder who has
either (x) acquired Shares by virtue of having been designated a
Designated Management Optionee by the Designator or (y) acquired Shares
on or about the date hereof and joined in this Agreement as a Permitted
Transferee of said Management Shareholder.
Each reference herein to a Permitted Transferee of a particular Management
Shareholder shall mean (x) a Permitted Transferee owning Shares which that
Management Shareholder was the last Management Shareholder to own, and (y)
a member of the Family of that Management Shareholder who has acquired
Shares in a manner set forth in (ii) above;
(qq) "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, unincorporated organization, association,
corporation, trust, institution, public benefit corporation, entity or
government;
(rr) "Piggyback Registration" shall have the meaning set forth in Section
6.2(a);
(ss) Intentionally omitted;
(tt) "Plan Shares" shall mean any Shares received by the holder thereof
(or by a Permitted Transferee (as herein defined) of such holder) pursuant
to the Employee Stock Option Plan;
(uu) "Pledgee" shall have the meaning set forth in Section 2.2(c);
(vv) "Post-Termination Death" shall have the meaning set forth in Section
3.3;
(ww) "Public Offering Termination Date" shall mean the date, if any, on
which, as a result of the sale or issuance of shares of common stock
pursuant to one or more registration statements under the Act (other than
pursuant to the Employee Stock Option Plan or pursuant to a registration
statement to register shares primarily or exclusively for Transfer (as
hereinafter defined) upon exercise of options pursuant to Article III of
this Agreement or in connection therewith) and under Rule 144 (as herein
defined), 25% or more of the outstanding shares of voting common stock of
the Company consist of shares of voting common stock of the Company which
have been so issued or sold;
(xx) "Purchase Price" shall have the meaning set forth in Section 3.7;
(yy) "Purchase Right" shall mean a nonqualified stock option to acquire
Shares, identified as such and generally to be exercised during a shorter
period of time than an Option granted pursuant to the terms of the Employee
Stock Option Plan;
(zz) "Registration" and "Registration Statement" shall have the meanings
set forth in Section 6.3;
(aaa) "Registration Expenses" shall have the meaning set forth in Section
6.6(a);
A-6
<PAGE>
(bbb) "Rule 144" shall mean Rule 144, as amended, promulgated by the
Commission under the Act:
(ccc) "Second Period" shall have the meaning set forth in Section 2.3(c);
(ddd) "Second Transfer Notice" shall have the meaning set forth in
Section 2.8(b);
(eee) "Series 1 Amount" shall mean the number twenty-five million
(25,000,000);
(fff) "Shareholder" shall mean a Management Shareholder, a Permitted
Transferee, GE Capital, and a GE Capital Affiliate who is the owner of
Shares, and any Person owning Shares who is no longer a GE Capital
Affiliate but who was a GE Capital Affiliate at the time such Person first
acquired Shares;
(ggg) "Shares" shall, except as otherwise specifically provided herein,
mean the shares of common stock of the Company, without distinction as to
class or series, and shall include certificates of beneficial interest
issued by the Voting Trustee (as herein defined), pursuant to the Voting
Trust Agreement (as herein defined); provided, however, that (and without
implication that a contrary result was intended, but by way of
clarification):
(i) for the purposes of determining the number of Shares eligible to
vote or receive distributions, there shall be no duplication as between
Shares held by the Voting Trustee, on the one hand, and certificates of
beneficial interest issued by the Voting Trustee, on the other hand;
and
(ii) where the right to vote Shares or execute consents is granted or
required pursuant to the provisions of this Agreement, except as
otherwise expressly provided in Section 8.17, the term "Shares" shall
not include certificates of beneficial interest issued by the Voting
Trustee under the Voting Trust Agreement;
and this Agreement shall be interpreted in accordance with the foregoing
proviso to the extent the context so requires; provided, further, that for
the purposes of this Agreement, a share of common stock of the Company
shall cease to be a Share at such time as such Share:
(iii) has been effectively registered and disposed of in accordance
with the registration statement under the Act covering it; or
(iv) has been sold pursuant to Rule 144;
and the legend referred to in Section 8.1 has been removed from the
certificate representing such Share, even if such share of common stock is
subsequently acquired by a Shareholder; and provided, further, that a share
of common stock shall cease to be a Share for the purposes of Article II at
such time as such Share has been sold in a foreclosure sale by a Person to
whom said Shares have been pledged pursuant to Section 3.9, or retained by
such Person in lieu of foreclosure of such pledge;
(hhh) "Solicitation Period" shall have the meaning set forth in Section
2.8(b);
(hhh)(A) "Termination" shall have the meaning set forth in Section 3.15;
(hhh)(B) "Terms and Conditions" shall mean those certain Montgomery Ward
& Co., Incorporated Stock Ownership Plan Terms and Conditions agreed to by
and between the Company and participants in the Employee Stock Option Plan.
(iii) "Third Party Offer" shall mean a bona fide written offer to
purchase Shares;
(jjj) "Trading Period" shall have the meaning set forth in Section
3.10(b);
(kkk) "Transfer" shall mean any transfer, sale, assignment, pledge,
encumbrance or other disposition of Shares, or, in the case of the Company,
any issuance or sale of Shares, irrespective of whether any of the
foregoing are effected voluntarily or involuntarily, by operation of law or
otherwise, or whether inter vivos or upon death;
A-7
<PAGE>
(lll) "Transferee" shall mean a Person who has made a Third Party Offer
or to whom a Transfer for no consideration is proposed to be made;
(mmm) "Transferor" shall mean a Person who shall propose to Transfer
Shares pursuant to Article II;
(nnn) "Transfer Notice" shall mean a written notice of a proposed
Transfer;
(ooo) "Type 1 Management Shareholder" shall mean Brennan, Silas S.
Cathcart, Myron Lieberman and any other Person who is designated by the
Designator as a Type 1 Management Shareholder and who concurrently herewith
or at any time hereafter, in contemplation of that Person's acquisition of
Shares, executes a counterpart of, or joins in and agrees to be bound by,
this Agreement as a Type 1 Management Shareholder. Other than Brennan and
Myron Lieberman, as long as GE Capital and GE Capital Affiliates own, in
the aggregate, at least 20% of the Shares which they acquired in June,
1988, no Person shall be designated as a Type 1 Management Shareholder
without the prior consent of GE Capital, which consent shall not
unreasonably be withheld;
(ppp) "Type 2 Management Shareholder" shall mean any person who
concurrently herewith or at any time hereafter, in contemplation of that
Person's acquisition of Shares, executes a counterpart of, or joins in and
agrees to be bound by, this Agreement as a Type 2 Management Shareholder.
Unless that Person has been designated by the Designator as, or is already,
a Type 1 Management Shareholder, Type 2 Management Shareholders shall
include all Persons who acquire Class A Shares pursuant to the exercise of
Options granted to them under the Employee Stock Option Plan who are
required to join in this Agreement or to hold such Class A Shares subject
to the terms of this Agreement;
(qqq) Intentionally omitted;
(rrr) "Valuation Date" shall mean the date on which the employment of a
Type 2 Management Shareholder with the Ward Group terminates for any reason
whatsoever, including death or Permanent Disability;
(sss) "Vested Shares" shall mean (x) with respect to a Type 1 Management
Shareholder and his Permitted Transferees, all Shares owned by them, and
(y) with respect to a Type 2 Management Shareholder and his Permitted
Transferees, that number of Shares owned by them, as a group, equal to the
amount determined, on the date of determination ("Vesting Date"), by adding
A. below plus B. below plus C. below plus D. below, and then subtracting E.
below, where A., B., C., D. and E. are as follows:
A. the aggregate number of Shares theretofore acquired by them as a
group (other than from each other) which as to them as a group are Non-
Plan Shares and which, at the time of acquisition by any member of the
group, were Vested Shares in the hands of the Person who Transferred
such Shares to any one of them or were designated, at the time of
acquisition of such Shares by the Management Shareholder or his
Permitted Transferees, as Vested Shares by the Company or the
Designator pursuant to the provisions hereof;
B. the number of Non-Plan Shares determined by multiplying the total
number of Non-Plan Shares theretofore acquired by them as a group
(other than from each other) and not described in subparagraph A. next
above by the Percentage of Vesting for Non-Plan Shares in effect on the
Vesting Date;
C. the number of Plan Shares determined by multiplying the total
number of Plan Shares theretofore acquired by them as a group (other
than from each other), including the number of Plan Shares Awarded to
them or purchased pursuant to the exercise of Purchase Rights, but
excluding the number of Plan Shares acquired pursuant to exercise of
Options, by the Percentage of Vesting applicable to each of such Plan
Shares in effect on the Vesting Date;
D. the lesser of (i) the number of Plan Shares determined by
multiplying the total number of Plan Shares purchased or subject to
purchase by them under outstanding or previously exercised Options
(whether or not exercisable) by the Percentage of Vesting applicable to
each Plan Share so purchased or subject to purchase pursuant to an
Option on the Vesting Date, and (ii) the number of Plan Shares
theretofore acquired by them pursuant to exercise of Options;
A-8
<PAGE>
E. the aggregate number of Vested Shares theretofore disposed of by
them, as a group (other than to or among each other).
The number of Vested Shares and Shares which are not Vested Shares owned in
the aggregate by a Management Shareholder and his Permitted Transferees
shall be allocated among them proportionately to the numbers of Shares
owned by each of them. In the event of the occurrence of an event which
would give rise to options contained in Section 3.2 (whether or not such
options are exercised), the Percentage of Vesting shall be 100%. The
Percentage of Vesting of a Type 2 Management Shareholder (and his Permitted
Transferees) whose employment with the Ward Group has been terminated for
Cause shall be 0%.
In all other events, as to a Type 2 Management Shareholder and his Permitted
Transferees, the Percentage of Vesting for Non-Plan Shares shall be determined
as follows:
<TABLE>
<CAPTION>
IF THE VESTING DATE IS THE PERCENTAGE
ON OR AFTER THE: AND BEFORE THE: OF VESTING IS:
---------------------- --------------- --------------
<S> <C> <C>
Date of this Agreement First anniversary of the 0%
Acquisition Date
First anniversary of the Second anniversary of the 20%
Acquisition Date Acquisition Date
Second anniversary of the Third anniversary of the 40%
Acquisition Date Acquisition Date
Third anniversary of the Fourth anniversary of the 60%
Acquisition Date Acquisition Date
Fourth anniversary of the Fifth anniversary of the 80%
Acquisition Date Acquisition Date
Fifth anniversary of the any time thereafter 100%
Acquisition Date
</TABLE>
In all other cases, as to a Type 2 Management Shareholder and his Permitted
Transferees, the Percentage of Vesting for Plan Shares shall be, if the Vesting
Date is before the first anniversary of the Vesting Period Commencement Date
(as herein defined), 0%; on or after the first anniversary and before the
second anniversary of the Vesting Period Commencement Date, 20%; on or after
the second anniversary and before the third anniversary of the Vesting Period
Commencement Date, 40%; on or after the third anniversary and before the fourth
anniversary of the Vesting Period Commencement Date, 60%; on or after the
fourth anniversary and before the fifth anniversary of the Vesting Period
Commencement Date, 80%; and on or after the fifth anniversary of the Vesting
Period Commencement Date, 100%.
In the following instances the Vesting Date shall be the following date:
(i) in the case of a Transfer of Shares pursuant to Article II (other
than Section 2.2(a) or 2.2(i) thereof), the date on which a Transfer
Notice is served;
(ii) in the case of a Transfer of Shares pursuant to Section 2.2(a),
the date of approval of the proposed Transfer by the Board of
Directors;
(iii) in the case of a sale of Shares under Rule 144 permitted by
Section 2.2(i), the date the Management Shareholder or his Permitted
Transferee Transferred Shares utilizing Rule 144;
(iv) in the case of a purchase of Shares pursuant to Article III, the
date of termination of the applicable Type 2 Management Shareholder's
employment with the Ward Group for any reason whatsoever;
(v) in the case of an exercise of rights under Article VI, the date
on which the Management Shareholder or Permitted Transferee makes a
Demand or requests inclusion of any of such Shares in a Registration
Statement (as the case may be).
A-9
<PAGE>
Notwithstanding the foregoing provisions of this paragraph (sss):
(vi) in the case of a purchase of Shares pursuant to Article III from
a Type 2 Management Shareholder whose Percentage of Vesting, in
accordance with the foregoing, is less than 100%, the Board of
Directors, in its discretion, may increase the Percentage of Vesting as
determined in accordance with the foregoing, but not in excess of 100%;
(vii) in the case of termination of employment of a Type 2 Management
Shareholder with the Ward Group (other than for Cause), where not all
Shares owned by that Management Shareholder and his Permitted
Transferees were purchased in accordance with Section 3.1, on the
Article III Closing Date those Shares not so purchased which were not
Vested Shares as of the date of termination of employment shall become
Vested Shares for all purposes of this Agreement other than Section
3.3, and for the purposes of Section 3.3 said Shares shall not
thereafter become Vested Shares;
(viii) in connection with any issuance or sale of Shares by the
Company, the Company may designate all or any portion of such Shares as
Vested Shares;
(ix) at any time and from time to time, after the Closing Date, upon
written notice delivered to the Company, the Designator may increase
the Percentage of Vesting otherwise applicable to a Type 2 Management
Shareholder and his Permitted Transferees, but not in excess of 100%;
(x) on the Public Offering Termination Date, except for the purposes
of Section 3.3, all Shares which are not then Vested Shares shall
become Vested Shares;
(ttt) "Vesting Period Commencement Date" shall mean (i) in the case of an
Award, the date of the grant of an Award; (ii) in the case of a Purchase
Right, the date of exercise of the Purchase Right; (iii) in the case of an
Option, the date of grant of the Option;
(uuu) "Voting Trust Agreement" shall mean that certain Voting Trust
Agreement, dated as of June 20, 1988, among Brennan and the other
individuals who are parties thereto (the "June 20, 1988 Voting Trust
Agreement") as well as all agreements adopted hereafter which have
substantially similar terms to the June 20, 1988 Voting Trust Agreement and
to which any Class A Shares are subject;
(vvv) "Voting Trustee" shall mean the Person serving as voting trustee
under the Voting Trust Agreement;
(www) "Ward Group" shall mean the Company and its direct and indirect
subsidiaries.
1.3 Securities Law Restrictions. In addition to the restrictions on the
Transfer of Shares which are contained in this Agreement, each Shareholder
represents and warrants to the Company, and agrees and acknowledges, that:
(a) all Shares acquired by or for such Shareholder in transactions which
have not been registered pursuant to the Act are being or have been
acquired solely for such Shareholder's own account, for investment purposes
only and not with a view toward the distribution thereof (within the
meaning of the Act), and that, irrespective of any other provisions of this
Agreement, any Transfer of such Shares will be made only in compliance with
all applicable federal and state securities laws, including, without
limitation, the Act;
(b) except to the extent so registered or as provided in Article VI
hereof, the Company is not required to register any Shares acquired by or
for such Shareholder under the Act, and such Shares must be held by such
Shareholder until such Shares are registered under the Act or an exemption
from such registration is available; that the Company will have no
obligation to take any actions that may be necessary to make available any
exemption from registration under the Act; and that the Company will place
"stop transfer" restrictions on the party responsible for recording
Transfers of Shares;
(c) the Shareholder is familiar with Rule 144, which establishes
guidelines governing, among other things, the resale of "restricted
securities" (that is, securities which are acquired from the issuer of such
securities in a transaction not involving any public offering);
A-10
<PAGE>
(d) Rule 144 may not be available for Transfers of the Shares, because,
among other things, the Company, at the time of the proposed Transfer of
Shares, may not be required to file the reports required to be filed by
Section 15(d) of the Exchange Act and may not then have a class of
securities registered pursuant to Section 12 of the Exchange Act; and, even
if the Company is then required to file reports under the Exchange Act, and
has filed all reports required to be filed, reliance on Rule 144 to
Transfer securities is subject to other restrictions and limitations, as
set forth in Rule 144;
(e) in connection with any Transfer of the Shares, under Rule 144 or
pursuant to some other exemption, the Shareholder may, if required by the
Company, be required to deliver to the Company an opinion from counsel for
the Shareholder, and/or receive an opinion from counsel for the Company, to
the effect that all applicable federal and state securities law
requirements have been met.
1.4 Transferability of Certain Shares. Shares issued by the Company pursuant
to a stock dividend, stock split, reclassification, or like action, or pursuant
to the exercise of a right granted by the Company to all its stockholders to
purchase Shares on a proportionate basis, shall be Transferred only, and for
all purposes be treated, in the same manner as, and be subject to the same
options with respect to, the Shares which were split or reclassified or with
respect to which a stock dividend was paid or rights to purchase Shares on a
proportionate basis were granted. In the event of a merger of the Company where
this Agreement does not terminate pursuant to Section 8.2(c), shares of stock
and/or securities convertible into shares of stock issued in exchange for
Shares shall thereafter be deemed to be Shares which are subject to the terms
of this Agreement.
1.5 Duration of Certain Portions of Article II and Certain Portions of
Article III. From and after the Public Offering Termination Date:
(a) the provisions of Article II shall cease to be in effect as to any
Shareholder other than a Controlling Shareholder; provided, however, that
from and after the Public Offering Termination Date, the Designator may
waive the application of the provisions of Article II as to any particular
Transfer by a Controlling Shareholder (including a Transfer by the
Designator himself) or terminate the provisions of Article II as to all
Controlling Shareholders; provided, further, that as long as GE Capital and
the GE Capital Affiliates own, in the aggregate, 10% or more of the
outstanding shares of common stock of the Company and Brennan is a
Controlling Shareholder, the consent of GE Capital shall be required as to
any waiver or termination of the provisions of Article II with respect to a
Transfer by Brennan or any of his Permitted Transferees. For the purposes
hereof, a Controlling Shareholder shall be a Shareholder who owns (or whose
voting trust certificates represent) 1% or more of the outstanding shares
of common stock of the Company. For the purpose of the preceding sentence,
there shall be full attribution of ownership between a Management
Shareholder and his Permitted Transferees, and between GE Capital and the
GE Capital Affiliates;
(b) the provisions of Section 3.2(a) and Sections 3.5 and 3.6, shall
terminate, and all references in Sections 3.2(b) and (c) to the 90-day
period referred to in Section 3.2(a) shall be eliminated from said
sections.
1.6 Duration of Certain Portions of Article V. Anything in this Agreement to
the contrary notwithstanding, (a) the provisions of Article V of this
Agreement, to the extent they constitute an agreement with respect to the
manner in which Shares shall be voted, and, (b) unless sooner terminated
pursuant to other provisions of this Agreement, Section 5.3, shall be in effect
only until the tenth anniversary of the date of this Agreement.
1.7 Withholding. Each Management Shareholder shall pay, or make arrangements
to pay, all federal, state and local income taxes which may be assessed upon
such Management Shareholder in connection with his ownership of Shares,
including, without limitation, taxes which may be imposed in connection with
the lapse or release of any restrictions set forth herein with respect to the
Shares. In any case in which any member of the Ward Group is legally required
to withhold such taxes, such payment shall be made on or before the date such
withholding is required. In the event any such payment is not made when
A-11
<PAGE>
due and any member of the Ward Group is legally required to withhold such
taxes, then, to the extent permitted by law, the Company shall have the right
to do any of the following in its sole discretion: (i) direct the Voting
Trustee to sell such number of Shares subject to the Voting Trust Agreement
which are beneficially owned by the Management Shareholder as may be necessary
in order that the net proceeds of sale will equal the member of the Ward
Group's withholding obligation (with such Shares remaining subject to the
Voting Trust Agreement), and pay such net proceeds to such member of the Ward
Group; (ii) deduct the amount required to be withheld from funds otherwise due
the Management Shareholder by the Ward Group (including, without limitation,
salaries and proceeds of the sale of Shares sold to the Company pursuant to the
provisions of this Agreement), and pay the amount so deducted to such member of
the Ward Group; or (iii) pursue any other legal or equitable right or remedy.
1.8 Consummation of Acquisition. The Company will use its best efforts to
consummate the acquisition contemplated by the Purchase Agreement. If, however,
such acquisition is not consummated, then this Agreement shall terminate and
the parties hereto shall be placed in the position in which they would have
been if this Agreement had not been entered into.
1.9 Joinder in Agreement. Except as contemplated by this Agreement, Shares
shall not be Transferred to any Person who is not a signatory to this Agreement
unless that Person shall have executed and delivered such documents as are
deemed reasonably necessary by the Company, in consultation with its counsel,
to evidence such Person's acceptance of, and agreement to be bound by, the
provisions of this Agreement. Without limiting the generality of the foregoing,
such documents shall contain the representations, warranties and covenants set
forth in Section 1.3 hereof.
1.10 Adjustment for Dilutive Events. Whenever this Agreement contains a
reference to a percentage of the number of Shares acquired by a Shareholder on
or about the date hereof, on a specific date, during a specific time period or
on "the date the Shareholder first acquired Shares," the number of Shares to
which such percentage shall be applied shall be adjusted to take into account
stock splits, stock dividends, reverse stock splits and similar dilutive
events.
1.11 Shortening or Lengthening of Option Periods. Whenever in Article II or
Article III the Company, a Designated Management Optionee or a Shareholder is
given an option to purchase or sell Shares which is exercisable during a given
period of time, if the Company, that Designated Management Optionee or that
Shareholder chooses not to exercise that option, the Company, that Designated
Management Optionee or that Shareholder may deliver written notice of that fact
to the Company (in the case where a Designated Management Optionee or a
Shareholder is relinquishing an option) and the Designator. In such event, the
applicable option period shall be deemed to have ended with respect to the
Company or such Designated Management Optionee or such Shareholder (as the case
may be) on the date on which such notice is delivered. Any period during which
an option to purchase is exercisable may be extended by agreement of the party
subject thereto. In such event, options to purchase which are subsequent to the
option with respect to which the period is extended shall become exercisable on
the date upon which they would have been exercisable, unless otherwise agreed
by the holders of such options, and shall be extended to the same extent as
that the prior options are extended from time to time.
1.12 Action by 2/3 of Members of Board of Directors. Whenever in this
Agreement the vote, consent or waiver of 2/3 of the members of the Board of
Directors is required, the number of directors required shall be determined
without regard to any vacancies on the Board of Directors.
ARTICLE II
Voluntary Transfers of Shares
2.1 General Effect of Agreement. Unless a Transfer of Shares is made in
accordance with the provisions of this Agreement, it shall not be valid or have
any force or effect.
A-12
<PAGE>
2.2 Certain Permitted Transfers of Shares. Anything contained in this
Agreement to the contrary notwithstanding, Shares may be Transferred:
(a) subject to Section 5.3(p), by a holder of Shares with the prior
approval of the Board of Directors, either subject to this Agreement or
otherwise, as the Board of Directors shall determine;
(b) (i) by a Management Shareholder to any member of his Family;
(ii) by a member of the Family of a Management Shareholder to any
other member of the Family of that Management Shareholder, or to that
Management Shareholder;
(iii) to the personal representative of a Management Shareholder or
Permitted Transferee who is deceased or adjudicated incompetent;
(iv) subject to the provisions of Section 3.2, 3.3 or 3.5 (as the
case may be), by the personal representative of a Management
Shareholder or Permitted Transferee who is deceased or adjudicated
incompetent to any member of said Management Shareholder's Family;
(v) upon termination of a trust or custodianship which is a Permitted
Transferee, by the trustee of such trust or custodian of such
custodianship to the person or persons who, in accordance with the
provisions of said trust or custodianship, are entitled to receive the
Shares held in trust or custody;
(c) by a Management Shareholder to a bank or other institutional lender
(a "Pledgee"), as collateral security for a loan to the Management
Shareholder to solely finance the acquisition of such Shares; provided,
however, that in connection with the exercise of any rights under such
pledge, including without limitation any foreclosure thereof, the Pledgee
shall be obligated to comply with Sections 2.4 through 2.10, both inclusive
(it being understood that following the pledge of Shares to a Pledgee, the
character of such Shares as Vested Shares or otherwise shall be determined
as if such pledge had not occurred, and, for the purposes of Section
1.2(kkk), a Transfer of such Shares by the Pledgee (other than to the
pledgor) shall be deemed to be a Transfer of such Shares by the pledgor);
(d) by the Voting Trustee (i) pursuant to clause (i) of Section 1.7, or
(ii) to the applicable Management Shareholders and Permitted Transferees
who are beneficiaries under the Voting Trust Agreement, upon the
termination of the Voting Trust Agreement or the release of said Shares
therefrom;
(e) pursuant to Articles III or VI;
(f) by Brennan or his personal representative (as the case may be) to any
Management Shareholder, and by any Management Shareholder or Permitted
Transferee to Brennan;
(g) by GE Capital to any GE Capital Affiliate, and by any GE Capital
Affiliate to any other GE Capital Affiliate or to GE Capital; provided,
however, that if GE Capital or such GE Capital Affiliate shall Transfer
Shares to a GE Capital Affiliate formed for the principal purpose of owning
such Shares, or whose principal asset consists of such Shares (whether at
the time of the Transfer of the Shares to such entity or at the time of a
subsequent transfer of the shares or other ownership interests of such
entity), a subsequent transfer of the shares (or other ownership interest)
of such entity shall be deemed to constitute a Transfer of Shares for the
purposes of this Agreement;
(h) by the Company, either subject to this Agreement or otherwise, as the
Board of Directors shall determine, pursuant to (x) Section 5.3(f), or (y)
the Employee Stock Option Plan;
(i) provided that such Shares are not subject to the Voting Trust
Agreement, and provided that Section 2.3 has been complied with as if the
Transfer was being made pursuant to Sections 2.4 through 2.10, both
inclusive, and, (x) for affiliates (within the meaning of the Act) of the
Company and (y) for non-affiliates of the Company if there was not an
effective registration statement under the Act covering the sale of Shares
to the Management Shareholder making such Transfer, pursuant to Rule 144;
(j) by a Person to whom such Shares have been pledged pursuant to Section
3.9, in connection with the exercise of that Person's rights under such
pledge, including, without limitation, any foreclosure thereof.
A-13
<PAGE>
(k) by a Management Shareholder to a Pledgee, as collateral security for
a loan to the Management Shareholder pursuant to the line of credit program
established with certain banks under which loans are available to certain
associates of the Company, which loans are to be secured by an amount of
such associate's Shares (the "Line of Credit Program") and by the Pledgee
to the Company or any other member of the Ward Group pursuant to such Line
of Credit Program; provided, however, that in connection with the exercise
of any rights under such pledge (other than a transfer to the Company or
any other member of the Ward Group), including, without limitation, any
foreclosure thereof, the Pledgee (other than the Company as assignee of or
successor to the rights of a Pledgee) shall be obligated to comply with
Sections 2.4 through 2.10, both inclusive (it being understood that
following the pledge of Shares to a Pledgee, the character of such Shares
as Vested Shares or otherwise shall be determined as if such pledge had not
occurred, and for the purposes of Section 1.2 (kkk), a Transfer of such
Shares by the Pledgee (other than to the pledgor or the Company or any
other member of the Ward Group pursuant to such Program) shall be deemed to
be a Transfer of such Shares by the pledgor); provided further that, except
as otherwise provided in this subparagraph (k), the Shares subject to such
pledge shall remain in all respects subject to the terms and provisions of
this Agreement, including, without limitation, the put and call rights set
forth in Article III of this Agreement and the rights of refusal set forth
in Article II of this Agreement. The Company may resell to any person any
Shares which the Company has acquired as Pledgee or otherwise pursuant to
the Line of Credit Program, on such terms as the Board of Directors shall
determine, and such sale shall not be subject to any of the restrictions or
rights of first refusal set forth in Article II of this Agreement.
Regardless of the party to whom a Transfer of Shares is made pursuant to this
Section 2.2, the Shares so Transferred shall thereafter continue to be subject
to the terms, provisions and conditions of this Agreement; provided, however,
that (x) unless the Board of Directors has determined otherwise, Shares
Transferred pursuant to paragraphs (a) or (h) hereof, and (y) Shares
Transferred pursuant to paragraphs (i) or (j) hereof or Article VI, shall not
be subject to the terms, provisions and conditions of this Agreement.
2.3 Certain Prohibited Transfers. Without the prior written approval of the
Board of Directors, the following Transfers of Shares pursuant to Sections 2.4
through 2.10, both inclusive, are prohibited:
(a) no Management Shareholder or Permitted Transferee may Transfer Shares
prior to the first to occur of (x) the third anniversary of the Acquisition
Date and (y) the Public Offering Termination Date;
(b) no Management Shareholder or Permitted Transferee may transfer Shares
which are not Vested Shares or which are pledged to a Pledgee pursuant to
the Line of Credit Program;
(c) during the 12 month period ("First Period") beginning on the first to
occur of the third anniversary of the Acquisition Date and the Public
Offering Termination Date, and during the 12 month period immediately
following the First Period (the "Second Period", the First Period and the
Second Period being referred to generally as a "Period"), neither a
Management Shareholder nor any of his Permitted Transferees may Transfer
Shares pursuant to Sections 2.4 through 2.10, both inclusive, to the extent
such Transfer would result in the Transfer of more than 33 1/3% for the
First Period and 50% for the Second Period of the Vested Shares
collectively owned by the Management Shareholder and all of his Permitted
Transferees at the beginning of the applicable Period;
(d) no Transferor (other than GE Capital, a present or former GE Capital
Affiliate or a Pledgee) may Transfer Shares unless that Shareholder has
received a Third Party Offer; and
(e) neither GE Capital nor any present or former GE Capital Affiliate
may, other than a Second Transfer Notice as contemplated by Section 2.8(b),
serve a Transfer Notice prior to the expiration of 150 days following the
date of expiration of the last option period which arose by virtue of the
prior service by GE Capital or a present or former GE Capital Affiliate of
a Transfer Notice.
2.4 Notice of Transfer of Shares. Even though the requirements of Section 2.3
shall have been met, no Shares shall be Transferred, except as may be required
by or permitted pursuant to the provisions of Section
A-14
<PAGE>
2.2, Article III, Article IV or Article VI, unless the Transferor first serves
a Transfer Notice upon the Company, the Designator and GE Capital, and
thereafter complies with the remaining provisions of this Article II.
2.5 Form of Transfer Notice. Each Transfer Notice shall specify:
(a) the number of Shares which the Transferor proposes to Transfer and
the consideration per Share which the Transferor desires to receive for
said Transfer (which, in the case where the Transferor has received a Third
Party Offer, shall be the consideration set forth in the Third Party Offer
and which, in the case where a Pledgee is foreclosing a pledge of Shares
pledged by a Type 2 Management Shareholder, shall not exceed the amount for
which the Shares could be purchased pursuant to Section 3.1 if the
Management Shareholder who had pledged the Shares to the Pledgee had ceased
to be an employee of the Ward Group on the date of service of the Transfer
Notice);
(b) in any case in which the Transferor has received a Third Party Offer,
the name, and business and residence addresses of the Transferee;
(c) all of the material terms and conditions, including the terms and
conditions of payment, upon which the Transferor proposes to Transfer said
Shares (which, in the case where the Transferor has received a Third Party
Offer, shall be the terms and conditions set forth in the Third Party
Offer); and
(d) the address of the Transferor to which notices of the exercise of the
options herein provided shall be sent.
In any case in which the Transferor is required, pursuant to the provisions
hereof, to obtain a Third Party Offer, the Transferor shall attach to the
Transfer Notice a true and correct copy of the Third Party Offer. A proposed
Transfer of Shares without consideration shall be deemed to be a proposed
Transfer for a consideration of $.01 per Share (which shall be deemed to be the
consideration per Share set forth in the Transfer Notice). In the event GE
Capital or a present or former GE Capital Affiliate serves a Transfer Notice,
the Transfer Notice shall, at the option of the Transferor, contain the
identities of all Persons with whom the Transferor has had discussions
regarding possible Transfers of Shares, and the identities of all Persons with
whom the Transferor intends in good faith to have such discussions. During the
time between the date on which GE Capital or a present or former GE Capital
Affiliate serves a Transfer Notice, and the last date on which an option to
purchase the Shares sought to be Transferred is exercisable as provided in
Section 2.7, the Transferor shall (if it has elected to include the information
set forth in the preceding sentence in its Transfer Notice), by written notice
to the Company and the Designator, update the information contained in the
Transfer Notice not less frequently than monthly. During the 60-day period
commencing on the date of service of a Transfer Notice filed by GE Capital or a
present or former GE Capital Affiliate, the Transferor may, by written notice
to the Company and the Designator, amend the Transfer Notice to add the
identities of additional Persons with whom the Transferor has had discussions
or intends in good faith to have discussions regarding Transfers of the Shares
sought to be Transferred, but if such a written notice is served, the period of
time in which the options set forth in Section 2.7(c) may be exercised by the
Designated Management Optionees shall be extended by 60 days from the date on
which the last such written notice was served.
2.6 Approval of Board of Directors. The options set forth in Section 2.7 or
2.8 shall be exercisable, and a Transfer of Shares to a Transferee can be made,
only if the Board of Directors (and, in the case of a proposed transfer by
Kidder, Peabody to any person, other than a Management Shareholder, GE Capital
or another GE Capital Affiliate, the Designator) within the 10-day period next
following the date of service of the Transfer Notice (or, in the case of a
Transfer pursuant to Section 2.8(b), the Second Transfer Notice), shall approve
the Transferee as a prospective holder of Shares; provided, however, that the
approval by the Board of Directors (and, to the extent required by the
foregoing, the Designator) of a Transfer of Shares by GE
A-15
<PAGE>
Capital or a present or former GE Capital Affiliate shall not be required with
respect to any Transfer Notice served by any of them after the fifth
anniversary of the Closing Date, as long as the Transferee is not engaged in a
Competing Business at the time of service of the Transfer Notice. In any case
where approval by the Board of Directors (and, to the extent required by the
foregoing, the Designator) for a proposed Transfer is required, subject to the
following sentence, the Board of Directors (and, to the extent required by the
foregoing, the Designator) shall not unreasonably withhold their approval of
any Transferee, and shall not withhold their approval if the Transferee is then
a Management Shareholder, GE Capital or a GE Capital Affiliate. However, the
Board of Directors (and, in the case of a proposed transfer by Kidder, Peabody
to any Person, other than a Management Shareholder, GE Capital or another GE
Capital Affiliate, the Designator) may, in its sole discretion, withhold its or
his approval of any Transferee which is then engaged in a Competing Business.
The Board of Directors (and, in the case of a proposed transfer by Kidder,
Peabody to any person, other than a Management Shareholder, GE Capital or
another GE Capital Affiliate, the Designator) shall be conclusively deemed to
have approved the Transferee unless, prior to the expiration of the 10-day
period, it or he shall notify the Transferor in writing of its or his
disapproval. For the purposes of this Section 2.6 only, a business which is
competitive with the business conducted by Signature and its subsidiaries shall
not be deemed to constitute a Competing Business solely by virtue of the fact
that its business is competitive with that conducted by Signature and its
subsidiaries.
2.7 Options. Upon the service of a Transfer Notice, and provided that the
Transferee has been approved by the Board of Directors as set forth in Section
2.6, options to purchase the Shares described therein shall be created, and may
be exercised, as follows:
(a) the service of a Transfer Notice by a Management Shareholder shall
create:
(i) options in each of the Designated Management Optionees
(exercisable by service of written notice upon the Transferor, the
Designator, GE Capital and the Company within the 45-day period next
following the date of service of the Transfer Notice) to purchase all
or any portion of the Shares described in the Transfer Notice, at the
price and on the terms therein contained;
(ii) an option in the Company (exercisable by service of written
notice upon the Transferor, the Designator and GE Capital within the
15-day period next following the date of expiration of the 45-day
period described in subparagraph (i) of this paragraph (a)) to purchase
all or any portion of the Shares described in the Transfer Notice which
were not purchased by the Designated Management Optionees, at the price
and on the terms contained in the Transfer Notice; and
(iii) an option in GE Capital (exercisable by service of written
notice upon the Transferor, the Designator and the Company within the
15-day period next following the date of expiration of the 15-day
period described in subparagraph (ii) of this paragraph (a)) to
purchase all or any portion of the Shares described in the Transfer
Notice which were not purchased by the Designated Management Optionees
and the Company, at the price and on the terms contained in the
Transfer Notice;
(b) the service of a Transfer Notice by a Permitted Transferee shall
create an option in his Management Shareholder (exercisable by service of
written notice upon the Transferor, the Designator, the Company and GE
Capital within the 30-day period next following the date of service of the
Transfer Notice) to purchase all or any portion of the Shares described
therein, at the price and on the terms therein contained. If said
Management Shareholder does not exercise the foregoing option with respect
to all Shares described in the Transfer Notice, the optionees described in
paragraph (a) above shall have the options to purchase the Shares with
respect to which said Management Shareholder has not exercised his
foregoing option that would have been created if said Management
Shareholder had been the Transferor and if the Transfer Notice had been
served on the last day of the 30-day period during which said Management
Shareholder could have exercised his option pursuant to this paragraph (b);
A-16
<PAGE>
(c) the service of a Transfer Notice by GE Capital, a present or former
GE Capital Affiliate, or a Pledgee shall create:
(i) options in each of (x) the Designated Management Optionees and/or
(y) in the case of a Transfer Notice served by GE Capital or a GE
Capital Affiliate, any other Person designated by the Designator
(exercisable by service of written notice upon the Transferor, the
Designator and the Company within the 60-day period next following the
date of service of the Transfer Notice) to purchase all or any portion
of the Shares described in the Transfer Notice, at the price and on the
terms therein contained (it being understood that in the event a Person
referred to in clause (y), next above, acquires any Shares pursuant to
the option granted to such Person, pursuant to this subparagraph (i),
such Shares shall, following the acquisition thereof, be subject to
such rights, options and restrictions, whether pursuant to this
Agreement, or otherwise, as shall be agreed upon by the Designator and
such Person) and if so agreed upon by the Designator and such Person,
such Person, notwithstanding anything to the contrary elsewhere herein
contained, shall not be required to join in and become a party to this
Agreement;
(ii) an option in the Company (exercisable by service of written
notice upon the Transferor and the Designator within the 15-day period
next following the date of expiration of the 60-day period described in
subparagraph (i) of this paragraph (c)) to purchase all or any portion
of the Shares described in the Transfer Notice which were not purchased
by the Designated Management Optionees, at the price and on the terms
contained in the Transfer Notice; and
(iii) if the Transferor is a former GE Capital Affiliate or a
Pledgee, an option in GE Capital (exercisable by service of written
notice upon the Transferor and the Designator within the 15-day period
next following the date of expiration of the 15-day period described in
subparagraph (ii) of this paragraph (c)) to purchase all or any portion
of the Shares described in the Transfer Notice which were not purchased
by the Designated Management Optionees and the Company, at the price
and on the terms contained in the Transfer Notice.
If the consideration desired to be received for a Transfer of Shares, as set
forth in the Transfer Notice, is other than cash to be paid at the consummation
of the Transfer or thereafter (that is, if the consideration would constitute
so-called "in kind" property), then any optionee exercising its option under
this Agreement to purchase Shares may satisfy its payment obligations with
respect to such purchase by making cash payment(s) (in lieu of "in kind"
transfer(s) of property) equal to the fair market value of the property which
would have been transferred in kind. The determination of such fair market
value shall be made, as of the time the Transfer Notice with respect to the
Transfer was served, by (x) not less than 2/3 of the members of the Board of
Directors in the good-faith exercise of their reasonable discretion, or (y) a
nationally recognized investment banking firm retained by the Board of
Directors. If the Transferor is a member of the Board of Directors, or, in the
case of a Transfer of Shares by GE Capital or present or former GE Capital
Affiliates, employees of GE Capital or present or former GE Capital Affiliates
are members of the Board of Directors, he or they (as the case may be) shall
not vote on the issue of whether the Company shall exercise its option to
purchase the Transferor's Shares.
2.8 Transfer if Options Not Exercised. If none of the options provided in
Section 2.7 are exercised, or if such options are exercised only in part, or if
such options are treated, pursuant to Section 2.9, as if not exercised:
(a) if the Transferor is a party other than GE Capital, a present or
former GE Capital Affiliate or a Pledgee, then, during a period of 60 days
beginning on the day following the date of expiration of the last
applicable option period, the Transferor may Transfer all, but not less
than all, Shares sought to be Transferred as to which such options were not
exercised (or treated, pursuant to Section 2.9, as if not exercised), to
the Transferee, at a price which is not less than 95% of the price
specified in the Transfer Notice and on terms and conditions not less
favorable to the Transferor than those specified in the Transfer Notice;
A-17
<PAGE>
(b) if GE Capital, a present or former GE Capital Affiliate or a Pledgee
is the Transferor, then, during a period of 60 days beginning on the day
following the date of expiration of the last applicable option period (the
"Solicitation Period"), the Transferor may solicit Third Party Offers to
purchase all, but not less than all, Shares sought to be Transferred as to
which such options were not exercised (or treated, pursuant to Section 2.9,
as if not exercised), and on terms and conditions (other than price) not
less favorable to the Transferor than the terms and conditions specified in
the Transfer Notice, and at a price which is not less than 95% of the price
set forth in the Transfer Notice. If any such Third Party Offer is obtained
during the Solicitation Period, then, subject to the following sentence,
during a period of 60 days beginning on the date the Third Party Offer was
obtained, the Transferor may Transfer all, but not less than all, of the
Shares described in the Transfer Notice at the price, and on the terms and
conditions, set forth in the preceding sentence. Notwithstanding the
preceding sentence, if prior to the end of the Solicitation Period the
Transferor shall obtain a Third Party Offer to purchase the Shares, and if
in the case of a proposed Transfer by GE Capital or a present or former GE
Capital Affiliate the Transferee was not identified in the Transfer Notice
(as amended) as a potential Transferee, the Transferor shall serve a new
Transfer Notice ("Second Transfer Notice") upon the Company and the
Designator, containing the terms of the Third Party Offer, and the
Transferor shall attach a copy of the Third Party Offer to the Second
Transfer Notice; provided, however, that the Second Transfer Notice may not
be served prior to the expiration of 15 days after the date of commencement
of said 60-day period. Upon the service of a Second Transfer Notice, the
options set forth in Section 2.7(c) may once again be exercised, at the
price and on the terms contained in the Second Transfer Notice, except that
(x) the period of time in which the Designated Management Optionees may
exercise the options set forth in Section 2.7(c) shall be 30 days rather
than 60 days (and the 60-day period referred to in Section 2.7(c) (ii)
shall be such 30-day period), (y) the period of time in which the Company
may exercise the option set forth in Section 2.7(c) shall be 5 days (and
the 15-day period referred to in Section 2.7(c)(iii) shall be such 5-day
period), and (z) in the case of a Transfer of Shares by a Pledgee or a
former GE Capital Affiliate, the period of time in which GE Capital may
exercise the option set forth in Section 2.7(c) shall be 5 days (and the
15-day periods described in Sections 2.7(c)(ii) and (iii) shall both be 5
days). If said options are not exercised, or are treated pursuant to
Section 2.9 as if not exercised, and provided that the Board of Directors
shall have approved the Transferee as provided in Section 2.6, then, during
a period of 60 days beginning on the day following the date of expiration
of the last applicable option period, the Transferor may Transfer all, but
not less than all, Shares sought to be Transferred to the Transferee, at
the price specified in the Second Transfer Notice and on terms and
conditions not less favorable to the Transferor than those specified in the
Second Transfer Notice.
In the event said Shares are not so Transferred, they shall remain subject in
all respects to the terms of this Agreement and may not thereafter be
Transferred except in compliance with all terms, conditions and provisions of
this Agreement.
2.9 Exercise of Options for Less than All of the Shares. If options exercised
pursuant to Section 2.7 or 2.8(b) call for the purchase of less than all of the
Shares sought to be Transferred, then, at the election of the Transferor
(exercised by the service of written notice of such election upon the Company
and each Shareholder exercising an option to purchase Shares within 10 days
next following the expiration of the last period in which such options may be
exercised), the exercise of all or any such options shall be deemed null and
void and treated, for purposes hereof, as if said options had not been
exercised.
2.10 Closing of Exercise of Options. To the extent Shares are to be purchased
by Designated Management Optionees, the Company or GE Capital by reason of
their exercises of options under Section 2.7 or 2.8(b), the closing of all such
purchases shall take place, at the principal offices of the Company, on the
30th day next following the date on which the last applicable option period
expired.
2.11 Effect of Shares in the Hands of the Transferee. Shares which are
Transferred to a Transferee shall thereafter continue to be subject to all
restrictions on Transfer and all other agreements, provisions,
A-18
<PAGE>
terms and conditions which are contained in this Agreement, and, without
limiting the generality of the foregoing, the Transferee must comply:
(a) with the provisions of Sections 2.4 through 2.10, both inclusive, if
he shall desire to Transfer any such Shares, as if the Transferee was a
Management Shareholder; and
(b) with the voting agreement provisions of Article V, as if the
Transferee was a Shareholder.
Except as provided in the following sentence, the Transferee (if he is not a
Shareholder) shall not have any of the rights which are given to the
Shareholders pursuant to the provisions of this Agreement. However, if the
Transferee acquired Shares from GE Capital or a present or former GE Capital
Affiliate, the Transferee shall be entitled to the rights granted to GE Capital
and the present or former GE Capital Affiliates under Article VI with respect
to the Shares acquired by the Transferee.
2.12 Termination of GE Capital's Rights. From and after the date that GE
Capital and the GE Capital Affiliates cease to own, in the aggregate, at least
20% of the Shares which GE Capital and the GE Capital Affiliates have purchased
or are purchasing on or about the date in June, 1988, all rights of GE Capital
under Sections 2.7(a)(iii), (b) and (c)(iii) and Section 2.8(b) of this Article
II shall terminate.
ARTICLE III
Purchases of Shares upon Termination of Employment
3.1 Termination of Employment of Type 2 Management Shareholder. Upon the
termination of a Type 2 Management Shareholder's employment with the Ward Group
for any reason other than death or Permanent Disability (including, without
limitation, resignation or discharge for or without Cause), the Company shall
forthwith notify the Designator of such termination, and:
(a) each of the Designated Management Optionees shall have an option
(exercisable by service of written notice upon such Management Shareholder,
each of his Permitted Transferees, and the Designator, within the 45-day
period next following the date on which the Company has notified the
Designator that such Management Shareholder's employment has terminated),
to purchase all or any portion of the Shares owned by such Management
Shareholder and each of his Permitted Transferees; and
(b) the Company shall have an option (exercisable by service of written
notice upon such Management Shareholder, each of his Permitted Transferees,
and the Designator, within the 30-day period next following the last day of
the 45-day period referred to in paragraph (a)), to purchase all or any
portion of the Shares which were not purchased by the Designated Management
Optionees; and
(c) each of the Designated Management Optionees shall have an additional
option (exercisable by service of written notice upon such Management
Shareholder, each of his Permitted Transferees, and the Designator, within
the 105-day period next following the date on which the Company has
notified the Designator that such Management Shareholder's employment has
terminated), to purchase all or any portion of the Shares of such
Management Shareholder and each of his Permitted Transferees which were
purchased upon exercise of an option after termination of the Management
Shareholder's employment; and
(d) the Company shall have an option (exercisable by service of written
notice upon such Management Shareholder, each of his Permitted Transferees
and the Designator, within the 30-day period next following the last day of
the 105-day period referred to in the immediately preceding paragraph (c)),
to purchase any or all of the Shares subject to the options created by such
paragraph (c) which were not purchased by the Designated Management
Optionees;
all in the manner, for the price and on the terms and conditions contained in
Sections 3.7 through 3.13, both inclusive, of this Article III.
A-19
<PAGE>
3.2 Death or Permanent Disability of a Type 2 Management Shareholder. Upon
the death of a Type 2 Management Shareholder while such Type 2 Management
Shareholder is an employee of any member of the Ward Group; or in the event the
employment of a Type 2 Management Shareholder with the Ward Group shall be
terminated by reason of Permanent Disability:
(a) the personal representative of the deceased or Permanently Disabled
Type 2 Management Shareholder or the Permanently Disabled Type 2 Management
Shareholder (as the case may be), and each Permitted Transferee of the
deceased or Permanently Disabled Type 2 Management Shareholder, shall each
have the option (exercisable by written notice delivered to the Company and
the Designator not later than 90 days after the date of death or the date
of termination of the Type 2 Management Shareholder's employment with the
Ward Group by reason of Permanent Disability, as the case may be, of the
Type 2 Management Shareholder), to sell all or any portion of the Shares
then owned by such respective Shareholders in accordance with paragraph
(b);
(b) if the options described in paragraph (a) are exercised, the
Designated Management Optionees shall each have the option (exercisable by
written notice delivered to the Company and each Shareholder having an
option to sell Shares pursuant to paragraph (a), within the 30-day period
next following the expiration of the 90-day period described in paragraph
(a)) to purchase all or any portion of the Shares as to which the options
to sell described in paragraph (a) were exercised, and the Company shall
purchase the Shares as to which the options described in paragraph (a) to
sell were exercised which the Designated Management Optionees have not
elected to purchase pursuant to this paragraph (b);
(c) if and to the extent the options described in paragraph (a) are not
exercised, the Designated Management Optionees shall have the option
(exercisable by written notice delivered to each Shareholder having an
option to sell Shares to the Company pursuant to paragraph (a) and the
Company within the 30-day period next following the 90-day period referred
to in paragraph (a)), to purchase from such Shareholders all or any portion
of the Shares then owned by such Shareholders as to which they did not
exercise their respective options to sell as set forth in paragraph (a);
and
(d) the Company shall have the option (exercisable by written notice to
each Shareholder having an option to sell Shares to the Company pursuant to
paragraph (a) within the 30-day period next following the expiration of the
30-day period referred to in paragraph (c)), to purchase from such
Shareholders all or any portion of the Shares then owned by such
Shareholders as to which they did not exercise their respective options to
sell as set forth in paragraph (a) and as to which the Designated
Management Optionees did not exercise their respective options to purchase
as set forth in paragraph (c);
all in the manner, for the price, and on the terms and subject to the
conditions contained in Sections 3.7 through 3.13, both inclusive, of this
Article III.
3.3 Death of Type 2 Management Shareholder Following Termination of
Employment. Upon the death of a Type 2 Management Shareholder following
termination of the Type 2 Management Shareholder's employment with the Ward
Group (a "Post-Termination Death"), in the case where that Type 2 Management
Shareholder and his Permitted Transferees did not previously sell all Shares
owned by them respectively pursuant to Section 3.1 or Section 3.2:
(a) each of the Designated Management Optionees shall have an option
(exercisable by service of written notice upon such Management Shareholder,
each of his Permitted Transferees, and the Designator, within the 90-day
period next following the date on which the Company has notified the
Designator that such Management Shareholder has died), to purchase all or
any portion of the Shares owned by such Management Shareholder and each of
his Permitted Transferees; and
(b) the Company shall have an option (exercisable by service of written
notice upon such Management Shareholder, each of his Permitted Transferees,
and the Designator, within the 30-day period next following the last day of
the 90-day period referred to in paragraph (a)), to purchase all or any
portion of the Shares which were not purchased by the Designated Management
Optionees;
all in the manner, for the price and on the terms and conditions contained in
Sections 3.7 through 3.13, both inclusive, of this Article III.
A-20
<PAGE>
3.4 Notice of Death. In order to effectuate the exercise of the options set
forth in Sections 3.2 and 3.3 in the event of the death of a Type 2 Management
Shareholder, the personal representative of the deceased Type 2 Management
Shareholder shall give written notice of such Type 2 Management Shareholder's
death to the Company within 90 days after the date of such death, regardless of
whether such personal representative shall be entitled to exercise any option
granted to him pursuant to this Article III. Forthwith following the receipt of
such notice, the Company shall deliver a copy thereof to the Designator. In the
event such notice is not so given by the personal representative of the
deceased Type 2 Management Shareholder, the period of time in which the options
set forth in Sections 3.2 and 3.3 may be exercised shall be appropriately
extended.
3.5 Termination of Brennan's Employment or Death. In the event of:
(a) the termination of Brennan's employment with the Ward Group which
occurs during the three year period commencing on the Closing Date by
reason of his voluntary resignation or termination for Cause:
(i) Brennan and each of his Permitted Transferees shall each have the
option (exercisable by written notice delivered to the Company not
later than 60 days after the date of termination of Brennan's
employment with the Ward Group) to sell to the Company all or any
portion of the Shares then owned by such respective Shareholders, and
the Company shall purchase all such Shares with respect to which such
options to sell were exercised; and
(ii) the Company shall have the option (exercisable by written notice
to Brennan and each of his Permitted Transferees within the 30-day
period next following the expiration of the 60-day period referred to
in paragraph (a)(i)), to purchase from such Shareholders all or any
portion of the Shares then owned by such Shareholders as to which they
did not exercise their respective options to sell as set forth in
paragraph (a), and Brennan and his Permitted Transferees shall sell all
such Shares with respect to which such options were exercised by the
Company;
provided, however, that the number of Shares as to which Brennan, his
Permitted Transferees and the Company may exercise such options, shall not,
in the aggregate, exceed 20% of the Shares which Brennan and his Permitted
Transferees owned on the Closing Date; provided, further, that if the
options exercised by Brennan and his Permitted Transferees, in the
aggregate, exceed 20% of the Shares which Brennan and his Permitted
Transferees owned on the Closing Date, the Shares which Brennan owned on
the date of exercise of his option shall be the first Shares so sold to the
Company pursuant to this paragraph (a); and provided, further, that if the
Company exercises the option set forth in paragraph (a)(ii), the numbers of
Shares which the Company shall purchase, in the aggregate, from Brennan and
his Permitted Transferees shall be allocated among them in such manner as
Brennan and his Permitted Transferees shall agree, and in the absence of
such an agreement, in proportion to their respective ownership of Shares;
(b) the termination of Brennan's employment with the Ward Group which
occurs by reason of the Ward Group's termination of Brennan's employment
without Cause, Brennan and each of his Permitted Transferees shall each
have the option from time to time (exercisable by written notice delivered
to the Company at any time and from time to time after the date of
termination of Brennan's employment with the Ward Group), to sell all or
any portion of the Shares then owned by such respective Shareholders, and
the Company shall purchase all such Shares with respect to which such
options were exercised;
(c) the termination of Brennan's employment with the Ward Group which
occurs by reason of his death or Permanent Disability:
(i) Brennan or his personal representative (as the case may be) and
each of his Permitted Transferees shall each have the option,
exercisable from time to time prior to the fifth anniversary of the
date of termination of Brennan's employment with the Ward Group by
written notice delivered to the Company at any time and from time to
time prior to said fifth anniversary, to sell all or any portion of the
Shares then owned by such respective Shareholders to the Company, and
the Company shall purchase such Shares with respect to which such
options were exercised; and
A-21
<PAGE>
(ii) the Company shall have the option (exercisable by written notice
to each Shareholder having an option to sell Shares to the Company
pursuant to paragraph (c)(i) within the 90-day period next following
the date of termination of Brennan's employment with the Ward Group),
to purchase from such Shareholders all or any portion of the Shares
then owned by such Shareholders as to which they did not theretofore
exercise their respective options to sell as set forth in paragraph
(c)(i), and Brennan or his personal representative (as the case may be)
and his Permitted Transferees shall sell all such Shares with respect
to which the Company has exercised its option to the Company; provided,
however, that the number of Shares as to which the Company may exercise
such options, when added to the number of Shares as to which Brennan or
his personal representative (as the case may be) and his Permitted
Transferees have theretofore exercised their options pursuant to
paragraph (c)(i), shall not exceed 35% of the Shares which Brennan and
his Permitted Transferees own on the Closing Date;
(d) the death of Brennan following the termination of his employment with
the Ward Group, Brennan's personal representative, and each of his
Permitted Transferees, shall each have the option, exercisable from time to
time prior to the fifth anniversary of the date of Brennan's death, by
written notice delivered to the Company at any time and from time to time
prior to said fifth anniversary, to sell all or any portion of the Shares
then owned by such respective Shareholders to the Company, and the Company
shall purchase all such Shares with respect to which such options were
exercised;
all in the manner, for the price, and on the terms and subject to the
conditions contained in Sections 3.7 through 3.13, both inclusive, of this
Article III. Notwithstanding the preceding provisions of paragraphs (b), (c)
and (d) of this Section 3.5, permitting multiple exercises of options by
Brennan or his personal representative (as the case may be) and his Permitted
Transferees, no such option may be exercised by each of Brennan, his personal
representative or any Permitted Transferee more frequently than once in each
one year period commencing on the date on which the first such option arose or
an anniversary of that date. The time for exercise of such options within any
such one year period shall be determined by Brennan or his personal
representatives (as the case may be), and all such options shall be exercised
concurrently by all optionees desiring to exercise their respective options.
3.6 Death of Other Type 1 Management Shareholder. In the event of the death
of any Type 1 Management Shareholder other than Brennan:
(a) the personal representative of the deceased Type 1 Management
Shareholder, and each Permitted Transferee of the deceased Type 1
Management Shareholder (as the case may be), shall each have the option
(exercisable by written notice delivered to the Company and the Designator
not later than 90 days after the date of death of the Type 1 Management
Shareholder) to sell all or any portion of the Shares then owned by such
respective Shareholders;
(b) if the options described in paragraph (a) are exercised, the
Designated Management Optionees shall each have the option (exercisable by
written notice delivered to the Company and each Shareholder having an
option to sell Shares pursuant to paragraph (a), within the 30-day period
next following the expiration of the 90-day period described in paragraph
(a)) to purchase all or any portion of the Shares as to which the options
to sell described in paragraph (a) were exercised; and
(c) the Company shall purchase the Shares as to which the options
described in paragraph (a) to sell were exercised which the Designated
Management Optionees have not elected to purchase pursuant to paragraph
(b);
all in the manner, for the price, and on the terms and subject to the
conditions contained in Sections 3.7 through 3.13, both inclusive, of this
Article III.
3.7 Purchase Price of Shares. The aggregate purchase price ("Purchase Price")
of Shares to be purchased pursuant to Sections 3.1, 3.2, 3.3, 3.5 or 3.6 shall
be the following:
(a) where Shares are to be purchased pursuant to Section 3.1, 3.2 or 3.3:
A-22
<PAGE>
(i) if the product of the Fair Market Value per Share multiplied by
the aggregate number of Shares to be purchased is equal to or less than
the sum of (x) the Acquisition Price of all Shares which are not Vested
Shares multiplied by the aggregate number of such Shares, plus (y) the
Fair Market Value per Share of all Shares which are Vested Shares
multiplied by the aggregate number of such Shares, then the Purchase
Price shall be the product of the Fair Market Value per Share,
multiplied by the aggregate number of Shares to be purchased;
(ii) if subparagraph (i) of this paragraph (a) is not applicable,
subject to paragraph (e) below, the Purchase Price shall be equal to
the sum of (x) the product of the Fair Market Value per Share
multiplied by the number of Vested Shares, plus (y) the product of the
Acquisition Price multiplied by the number of Shares which are not
Vested Shares to be purchased;
(b) Intentionally omitted;
(c) where Shares are to be purchased pursuant to Section 3.5 (other than
paragraph (a) thereof) or Section 3.6, the Purchase Price shall be the
product of the Fair Market Value per Share, multiplied by the aggregate
number of Shares to be purchased;
(d) where Shares are to be purchased pursuant to Section 3.5(a), the
purchase price of each of the Shares shall be the book value thereof as of
the last day of the month next preceding the month in which Brennan's
employment with the Ward Group terminated, as determined by the Company's
chief financial officer in accordance with the generally accepted
accounting principles applied by the Company in the preparation of its
consolidated financial statements;
(e) where options are exercised pursuant to Section 3.1 or 3.3 for less
than all of the Shares owned by a Management Shareholder and his Permitted
Transferees, in determining the Purchase Price in accordance with paragraph
(a) or (b), the Shares which are not Vested Shares shall be deemed to have
been purchased or sold first;
(f) for the sole purpose of computing the Purchase Price in connection
with a purchase of Shares pursuant to Section 3.3, in computing that
portion of the Purchase Price which is allocable to Shares which are not
Vested Shares, the Acquisition Price of each of the Shares which are not
Vested Shares shall be increased by a simple interest factor of 8% per
annum calculated from the Valuation Date to the Article III Closing Date,
but the Acquisition Price, as so increased, shall not exceed the Fair
Market Value per Share.
3.8 Manner of Payment. Subject to the provisions of Article IV, the Purchase
Price shall be paid in the following manner:
(a) except as otherwise provided in paragraph (c), an amount equal to 25%
of the Purchase Price of all Shares shall be paid in cash on the Article
III Closing Date; provided, however, that if the Company is a purchaser of
Shares and the Company or any member of the Ward Group shall have obtained
insurance on the life of a Management Shareholder whose Shares (or Shares
owned by his Permitted Transferees) are to be purchased pursuant to Section
3.2, 3.3, 3.5 (c), 3.5(d) or 3.6, for the purpose of providing funds with
which to purchase such Shares, and in the event the proceeds of such
insurance ("Insurance Proceeds") exceed the amount which would be payable
by the Company on the Article III Closing Date in cash but for this
proviso, and if the Insurance Proceeds have been collected as of the
Article III Closing Date, an amount equal to the Insurance Proceeds, but
not in excess of the Purchase Price for the Shares purchased by the
Company, shall be paid in cash on the Article III Closing Date (it being
understood that if the Insurance Proceeds are collected after the Article
III Closing Date, the Company shall make a mandatory prepayment under the
note(s) delivered by the Company pursuant to paragraph (b) of the amount by
which the Insurance Proceeds exceeds the amount which was paid on the
Article III Closing Date, forthwith following the collection thereof, with
all installments coming due under said note(s) to be reduced ratably);
A-23
<PAGE>
(b) except as otherwise provided in paragraph (c), the balance of the
Purchase Price shall be paid in three equal annual installments on the
first through third anniversaries, both inclusive, of the Article III
Closing Date. The principal amount of the balance of the Purchase Price
remaining from time to time unpaid shall bear interest, payable on the same
dates as each installment of principal, at a rate per annum equal to the
lowest rate of interest which will not result in any portion of the
Purchase Price being deemed to be unstated interest or original issue
discount under the provisions of the Internal Revenue Code of 1986. If said
provisions are inapplicable for any reason, the interest rate shall be 8%
per annum;
(c) notwithstanding the preceding provisions of this Section 3.8, in the
event of a purchase of Shares following the voluntary termination of
employment of a Type 2 Management Shareholder with the Ward Group (other
than by reason of normal retirement in accordance with the Ward Group's
retirement policies), or the termination of employment of such Management
Shareholder with the Ward Group for Cause, the amount which shall be paid
on the Article III Closing Date shall equal 16 2/3% of the Purchase Price,
and the balance of the Purchase Price shall be paid in five equal annual
installments on the first through fifth anniversaries, both inclusive, of
the Article III Closing Date, plus interest, payable on the same dates as
each installment of principal, at the rate determined pursuant to paragraph
(b);
(d) the Purchase Price shall be payable by the Designated Management
Optionees and the Company in proportion to their respective purchases of
Shares pursuant to this Article III.
3.9 Notes and Security. The portion of the Purchase Price which has not been
paid in cash on the Article III Closing Date shall be evidenced and secured as
follows:
(a) the portion of the Purchase Price which is not paid on the Article
III Closing Date shall be evidenced by a non-negotiable secured promissory
installment note(s) made by the Company and/or the Designated Management
Optionee(s) purchasing Shares (as the case may be). Each such note or notes
shall be in a commercially reasonable form of promissory note given to
evidence an installment indebtedness, providing for payment of the unpaid
balance of the Purchase Price, and interest thereon, all as provided in
Section 3.8. Each such promissory installment note shall provide for
acceleration in the event of non-payment after a reasonable grace period,
and shall provide that it may be prepaid at any time or from time to time,
in whole or in part, without premium, penalty or notice. Except as provided
in Section 3.8 (a), all prepayments shall be applied against installments
coming due in the inverse order of their maturity. If there is more than
one seller of such Shares, a separate note shall be issued to each seller
of such Shares. Each promissory note which is made by the Company shall
provide that the obligations thereunder are subordinated to the extent
provided in, and are subject to the provisions of, Article IV. Each note
shall provide that a default under any note made by the party issuing it to
a Management Shareholder or his Permitted Transferees pursuant to this
Article III shall be a default under all notes made by that party to such
Management Shareholder and his Permitted Transferees pursuant to this
Article III. Each such note or notes shall be substantially in the form
contained in Exhibit B attached hereto;
(b) each note shall be secured, at the option of the purchaser of the
Shares, by either (x) a pledge, meeting the requirements of the Illinois
Uniform Commercial Code, of a number of the Shares purchased which have an
aggregate purchase price at the time of the pledge (determined in the
manner provided in Section 3.7 and in the following sentences) equal to the
original principal amount of such note, or (y) a standby letter of credit
reasonably satisfactory to the Shareholder whose Shares are being sold. If
Shares are to be pledged, for the purposes of determining the type and
number thereof, on the Article III Closing Date the Company and the
Designated Management Optionees shall be deemed to have made payment in
full for a type (Vested Shares or Shares which are not Vested Shares, as
the case may be) and number of Shares which has an aggregate value
(determined as provided herein) equal to the amount so paid, and the Shares
which are so deemed to have been paid for in full shall not be subject to
the pledge, and only the balance of the Shares shall be subject to the
pledge. In determining the value of the Shares which are deemed to have
been paid for in full on the Article III Closing Date in accordance with
the
A-24
<PAGE>
two preceding sentences, Shares which are not Vested Shares shall first be
deemed to have been paid for in full, until all of such Shares have been
deemed to have been paid for in full. If Shares are to be pledged, at the
option of the pledgor, the Shares to be pledged shall be held by an
escrowee reasonably satisfactory to the pledgor, pursuant to an Escrow
Agreement containing terms and provisions which are reasonably satisfactory
to the pledgor.
3.10 Fair Market Value. The Fair Market Value per Share of Shares purchased
pursuant to this Article III shall be determined as follows:
(a) unless a public market for the Shares exists, the Fair Market Value
per Share of each of the Shares shall be based upon the fair market value
of the consolidated common equity of the Company for the fiscal year in
which the Valuation Date occurs (in the case of a purchase of Shares
pursuant to Section 3.1 or 3.2) or the fiscal year in which the Article III
Closing Date occurs (in the case of a purchase of Shares pursuant to
Section 3.3, 3.5 or 3.6), adjusted as provided herein. The Valuation Date
(in the case of a purchase of Shares pursuant to Section 3.1 or 3.2) or the
Article III Closing Date (in the case of a purchase of Shares pursuant to
Section 3.3, 3.5 or 3.6) is referred to herein as the "Applicable Date".
Subject to the following provisions, the fair market value of the
consolidated common equity of the Company shall be determined annually by
the Board of Directors, as of the first day of the then-current fiscal year
of the Company, in its reasonable discretion and in good faith, as soon
after the commencement of each fiscal year of the Company as possible. In
the event the fair market value of the consolidated common equity of the
Company, as so determined, would exceed 150% of the consolidated common
equity of the Company (determined in accordance with the generally accepted
accounting principles applied by the Ward Group) as of the first day of the
fiscal year for which the determination is to be made, the affirmative vote
of not less than 2/3 of the members of the Board of Directors shall be
required in order to determine the amount of the excess. The Board of
Directors may in its discretion retain an independent investment banker to
make recommendations to the Board of Directors as to the fair market value
of the consolidated common equity of the Company. Each such determination
shall be effective as of the first day of the then-current fiscal year, and
remain in effect with respect to all Applicable Dates occurring during that
fiscal year; provided, however that the fair market value of the common
equity as so determined by the Board of Directors shall be adjusted by
adding:
(i) an amount equal to the Fair Market Value at the date of grant for
the Shares underlying all Options and Purchase Rights and other options
or rights to acquire shares of common stock outstanding and unexpired
on the Article III Closing Date;
(ii) the amount of cash and other consideration (including any
difference between the Fair Market Value at the date of grant and the
exercise price) received or receivable by the Company during the period
commencing on the first day of the fiscal year in which the Applicable
Date occurs and ending on the Article III Closing Date (the "Adjustment
Period") on account of the exercise of any Options, Purchase Rights, or
other options or rights to acquire shares of common stock;
(iii) the aggregate consideration received by the Company for shares
of common stock issued during the Adjustment Period and not accounted
for in either (i) or (ii) above;
and by subtracting:
(iv) the aggregate amount of dividends paid or payable by the Company
on its common stock during the Adjustment Period; and
(v) the aggregate amount paid by the Company to redeem, repurchase or
otherwise acquire for consideration shares of its common stock during
the Adjustment Period;
and the said fair market value of the consolidated common equity of the
Company, as so adjusted, shall be the fair market value of the consolidated
common equity of the Company. The foregoing adjustments shall be made by
the Company's chief financial officer, acting reasonably and in good faith
and in accordance with the provisions of this Section 3.10. For the first
fiscal year of the Company, the parties
A-25
<PAGE>
agree that the fair market value of the consolidated common equity of the
Company as of the first day of such first fiscal year shall be $10,000,000.
Once the fair market value of the consolidated common equity of the Company
has been determined as provided in the foregoing provisions of this
paragraph (a), the Fair Market Value per Share of each of the Shares to be
purchased pursuant to this Article III shall be determined as follows:
(vi) the Fair Market Value per Share of each of the Class A Shares
shall be the amount determined as follows:
a. First, at any time when the Fully Diluted Outstanding Amount on
the date of determination does not exceed the Series 1 Amount, the
fair market value of the consolidated common equity of the Company
shall be multiplied by a fraction the numerator of which is the
Fully Diluted Outstanding Amount and the denominator of which is the
sum of the Fully Diluted Outstanding Amount plus the number of
outstanding Class B Shares on the day immediately preceding the
Article III Closing Date; or
b. at any time when the Fully Diluted Outstanding Amount on the
date of determination exceeds the Series 1 Amount, but the Fully
Diluted Non-Series 3 Outstanding Amount does not exceed the Series 1
Amount, the amount which would be determined if the immediately
preceding Section 3.10(a)(vi)a were applicable and the Fully Diluted
Outstanding Amount were equal to the Series 1 Amount shall be
multiplied by a fraction the numerator of which is the Fully Diluted
Outstanding Amount and the denominator of which is the sum of the
Series 1 Amount plus fifty percent (50.0%) of the excess of the
Fully Diluted Outstanding Amount over the Series 1 Amount on the day
immediately preceding the Article III Closing Date; or
c. at any time when the Fully Diluted Outstanding Amount as of the
date of determination exceeds the Series 1 Amount (and Section
3.10(a)(vi)b. is not applicable), the amount which would be
determined if Section 3.10(a)(vi)a. were applicable and the Fully
Diluted Outstanding Amount were equal to the Series 1 Amount shall
be multiplied by (x) a fraction the numerator of which is the Fully
Diluted Non-Series 3 Outstanding Amount and the denominator of which
is the sum of the Series 1 Amount plus eighty-one point five percent
(81.5%) of the excess of the Fully Diluted Non-Series 3 Outstanding
Amount over the Series 1 Amount, and multiplied by (y) a fraction
the numerator of which is the Fully Diluted Outstanding Amount and
the denominator of which is the sum of the Fully Diluted Non-Series
3 Outstanding Amount plus fifty percent (50.0%) of the sum of the
number of Series 3 Shares outstanding plus the number of Series 3
Shares subject to purchase pursuant to Options granted under the
Employee Stock Option Plan on the day immediately preceding the
Article III Closing Date;
d. Second, the amount determined pursuant to subparagraph a., b.
or c., as applicable, shall be divided by the aggregate number of
Class A Shares (without distinction as to series) on the day
immediately preceding the Article III Closing Date, with Shares
which are subject to purchase pursuant to options granted under the
Employee Stock Option Plan being treated, for the purposes of this
subparagraph d., as being outstanding Shares;
provided, however, that no adjustment to the Fair Market Value per
Class A Share as calculated as of the first day of the then-current
fiscal year shall be required unless such adjustment would result in an
increase or a decrease of at least 1% from the amount as so determined
as of the beginning of the then-current fiscal year;
(vii) the Fair Market Value per Share of each of the Class B Shares
shall be the amount determined by (x) subtracting from the fair market
value of the consolidated common equity of the Company the aggregate
Fair Market Value per Share of all of the Class A Shares of all series,
as determined pursuant to subparagraph (vi), and (y) dividing the
resulting number by the total number of Class B Shares which are
outstanding as of the day immediately preceding the Article III Closing
Date.
A-26
<PAGE>
In the event the Article III Closing Date occurs prior to the date on which
the appropriate fair market value of the consolidated common equity of the
Company has been determined, the Purchase Price shall initially be
determined on the basis of the most recent determination of the fair market
value of the consolidated common equity of the Company and shall thereafter
be adjusted as soon as the fair market value of the consolidated common
equity of the Company for the current fiscal year has been determined. If
necessary in order to accomplish any such adjustment, the parties shall
immediately substitute new notes and/or exchange cash payments as soon as
practicable after the amount of such adjustment is determined, so that the
parties are placed in the same positions in which they would have been if
the appropriate fair market value of the consolidated common equity of the
Company had been known on the Article III Closing Date.
(b) if a public market for the Shares exists, the Fair Market Value per
Share shall be the Average Closing Price of the Shares during the period
("Trading Period") consisting of the ten trading days ending on the day
immediately preceding the Valuation Date (in the case of a purchase of
Shares pursuant to Section 3.1 or 3.2) or the date on which the first
option arising under Section 3.3, 3.5 or 3.6, as the case may be, was
exercised (in the case of a purchase of Shares pursuant to any of said
sections). For the purposes of the preceding sentence:
(i) if the Shares are listed on any national securities exchange or
traded in the over-the-counter market and included in the NASDAQ
National Market System, the Average Closing Price shall be the
arithmetic mean of the last sale prices of the Shares on each day of
the Trading Period on the national securities exchange where the Shares
are principally traded if the Shares are listed for trading on such
exchange, or in the over-the-counter market as reported by NASDAQ if
the Shares are included in the National Market System;
(ii) if the Shares are traded over-the-counter but are not included
in the NASDAQ National Market System, the Average Closing Price shall
be the arithmetic mean of the average of the closing bid and asked
quotations on each day of the Trading Period.
3.11 Closing. Subject to the remainder of this Section 3.11 and to Section
4.1, any purchase of Shares pursuant to this Article III shall be consummated
("Article III Closing") at the Company's principal office at 10:00 a.m.,
prevailing business time, on the 30th day next following the last day on which
the last option to purchase or sell such Shares which is granted pursuant to
this Article III is exercisable ("Article III Closing Date"), or on such
earlier day as designated by the purchaser(s) in the sole discretion of the
purchaser(s) upon not less than three days prior notice to the Management
Shareholder or his personal representative, as the case may be, and to the
Management Shareholder's Permitted Transferees. If said date is a Saturday,
Sunday or legal holiday, the Article III Closing shall occur at the same time
and place on the next succeeding business day. At the Article III Closing, each
person selling Shares shall deliver certificates representing the Shares being
purchased, duly endorsed, and each shall furnish such other evidence, including
applicable inheritance and estate tax waivers and releases, as may reasonably
be necessary to effect the Transfers of Shares. The Company and/or the
Designated Management Optionee(s) purchasing Shares shall make the payments,
deliver the notes, and effect the pledges, which are set forth in Sections 3.8
and 3.9.
3.12 Priorities. In the event options to purchase Shares owned by a
Management Shareholder or a Permitted Transferee shall arise under both Article
II and Article III, as between the provisions of Article II, on the one hand,
and Article III, on the other hand, if on the date on which an option to
purchase or sell Shares arises under Article III, any option under Article II
has not been exercised, or, if exercised, the purchase to be made pursuant to
said exercise has not been closed, the priority of such Articles shall be
determined by the Designator, but if the Designator fails to make any such
determination by written notice delivered to the Company within 30 days next
following the date on which the option or obligation under Article III arose,
Article III shall have priority.
3.13 Failure to Deliver Shares. In the event the Company or any of the
Designated Management Optionees exercise one or more options to purchase Shares
pursuant to this Article III, or the Company becomes obligated to purchase
Shares pursuant to this Article III, and in the event a Management Shareholder
or Permitted Transferee whose Shares are to be purchased pursuant to this
Article III fails to
A-27
<PAGE>
deliver them on the Article III Closing Date, the Company and/or the Designated
Management Optionees purchasing Shares may elect to deposit the cash and
promissory note(s) representing the Purchase Price with the Company's general
counsel ("Escrow Agent"). In the event the Company and/or said Designated
Management Optionees do so, the Shares shall be deemed for all purposes
(including the right to vote and receive payment of dividends) to have been
Transferred to the purchasers thereof, the Company or the Voting Trustee (as
the case may be) shall issue new certificates representing the Shares to the
purchasers thereof, and the certificates registered in the name of the
Shareholders obligated to sell them (or the voting trust certificates, as the
case may be) shall be deemed to have been cancelled and to represent solely a
right to receive payment of the Purchase Price, with interest (if any) earned
thereon, from the escrow. If the proceeds of sale have not been claimed by the
former Shareholders whose Shares were purchased pursuant to this Article III
prior to the third anniversary of the Article III Closing Date, the escrow
deposits, and all interest (if any) earned thereon, shall be returned to the
respective depositors, and the former Shareholders whose Shares were purchased
shall look solely to the purchasers for payment of the Purchase Price. The
Escrow Agent shall not be liable for any action or inaction taken by him in
good faith, and shall have no liability whatsoever for failure to earn interest
(or with respect to the amount of interest earned) on the escrow deposits.
3.14 Resale of Shares. The Company may resell to any employee or prospective
employee of the Ward Group, including any person who is already a Management
Shareholder, any Shares which the Company has repurchased pursuant to this
Article III or Article II on such terms as the Board of Directors shall
determine. At any time in which the Voting Trust Agreement is in effect, the
employee shall join in and become a party to the Voting Trust Agreement, the
Company shall, on behalf of the employee, issue shares of common stock to the
Voting Trustee for the benefit of the employee, and the Voting Trustee shall
issue to the employee certificates of beneficial interest constituting an equal
number of Shares.
3.15 Modification of Options. Notwithstanding anything to the contrary
contained herein, with respect to any options exercisable pursuant to Sections
3.1, 3.2 or 3.5 hereof as a result of termination of employment ("Termination")
of a person whose short-swing profits with respect to purchases and sales of
Shares immediately after such Termination would be subject to recapture under
Section 16 of the Exchange Act ("Insider"), such options shall arise with
respect to each such Insider and his or her Permitted Transferees, upon the
earlier of (i) six months and one day after such Termination or (ii) the date
of service of a Transfer Notice by such Insider or Permitted Transferee, as the
case may be, on or after the date of such Termination; provided, however, that
this Section 3.15 shall not apply to any Insider or Permitted Transferee who,
as of the date of such Termination, holds any Shares, with respect to which any
option under Article II has not been exercised and has not yet expired, or, if
exercised, the purchase of Shares pursuant thereto has not been closed. All
time periods contained elsewhere in this Agreement with respect to exercise of
options modified pursuant to this Section 3.15 shall be adjusted in accordance
with this Section 3.15.
3.16 Offset of Purchase Price. Notwithstanding anything to the contrary
contained herein, in the event that any person selling Shares pursuant to this
Article III is, immediately prior to the Closing, indebted to the Company or
any Pledgee by virtue of the Line of Credit Program, then the Company (or any
assignee thereof) may pay all or a portion of the Purchase Price by forgiving
or offsetting such indebtedness in an amount equal to the amount of the
Purchase Price to be so paid, by causing such indebtedness to be forgiven or
offset in an amount equal to the amount of the Purchase Price to be so paid or
by paying to the holder of such debt on behalf of such seller an amount equal
to the amount of the Purchase Price to be so paid.
ARTICLE IV
Certain Limitations on Purchases of Shares
4.1 Restrictions on the Company's Right and/or Obligation to Purchase Shares.
Notwithstanding anything to the contrary contained in this Agreement, the
Company: (x) shall have the right to conditionally exercise any option arising
under Article III to purchase Shares (other than an option arising under
Section
A-28
<PAGE>
3.5(a) or (c)); (y) shall not be obligated to purchase Shares; and (z) shall
not be obligated to make payments with respect to the Purchase Price of Shares
it has theretofore purchased; to the extent unconditional exercise of such
option, the purchase of such Shares or the making of such a payment, when taken
together with all other unconditional exercises of options by the Company, all
other purchases by the Company of Shares and the making of all other payments
by the Company on account of Shares which the Company has purchased, would
result in a violation of one of the Limitations (as herein defined). If this
Section 4.1 is applicable, the following shall govern the exercises of such
options and the making of such purchases and payments:
(a) in the event the Company has an option to purchase Shares (other than
an option arising under Section 3.5(a) or (c)) but, by virtue of the
Limitations, is unable to purchase all Shares as to which it desires to
exercise its option to purchase, it may unconditionally exercise its option
as to the number of Shares which it may purchase without violation of the
Limitations, and shall purchase those Shares on the Article III Closing
Date, and may exercise said option as to the remaining Shares it desires to
purchase conditioned upon its being able to do so without violation of the
Limitations. In the event the Company is obligated to purchase Shares but
is unable, by virtue of the Limitations, to pay the full amount which is
payable by the Company on the Article III Closing Date with respect to the
Shares which it is obligated to purchase, the Article III Closing shall
take place with respect to the purchase of those Shares which the Company
is able to purchase without violation of the Limitations;
(b) with respect to those Shares which the Company was obligated, or
conditionally exercised an option, to purchase but was unable, on the
Article III Closing Date to purchase by virtue of the Limitations, the
Article III Closing Date shall be extended with respect to such Shares by
the period of such inability, but not in excess of one year from the date
on which the Article III Closing Date would have occurred with respect to
such Shares but for this Section 4.1. If said inability is cured in whole
prior to the expiration of said one year period, the Article III Closing
shall occur with respect to such Shares on the 30th day after the date on
which the inability has been cured. If as of the end of said one year
period the inability to purchase such Shares was cured in part, the Article
III Closing shall take place with respect to the Shares as to which the
inability was cured, on the 30th day after the expiration of said one-year
period. If the Article III Closing Date is extended as to any Shares
pursuant to this paragraph (b), the Purchase Price of such Shares shall be
computed as if the Article III Closing had occurred with respect to such
Shares on the date set forth in Section 3.11, without regard to this
Section 4.1 (the "Originally Scheduled Article III Closing Date"). The
Purchase Price of such Shares, as so computed, shall be reduced by the
amount of any cash dividends paid or declared and distributions made or
delivered with respect to such Shares, during the period commencing on the
Originally Scheduled Article III Closing Date and ending on the actual
Article III Closing Date with respect to such Shares, and shall bear
interest for the period commencing on the Originally Scheduled Article III
Closing Date and ending on the actual Article III Closing Date, at the rate
of interest which would be applicable under Section 3.8(b) if the Article
III Closing had occurred with respect to such Shares on the Originally
Scheduled Article III Closing Date, and shall be payable on the Article III
Closing Date, and the rate of interest which is payable on the portion of
the Purchase Price which is payable in installments pursuant to Section
3.8(b) or (c) shall be that same rate of interest. To the extent that after
the expiration of said one year period, the Company remains unable to
purchase any of the Shares which it is otherwise obligated to purchase or
has conditionally exercised an option to purchase, the Company shall be
relieved of the obligation which it was unable to fulfill, the Company's
conditional exercise of its option to purchase such Shares shall terminate,
and the Shares which the Company was otherwise obligated, or had
conditionally exercised an option, to purchase shall thereafter remain
subject to all applicable provisions of this Agreement;
(c) in applying the foregoing provisions of this Section 4.1, the Shares
which are not Vested Shares shall be deemed to have been purchased or sold
first;
(d) if after the Article III Closing the Company is precluded from making
all or any portion of an installment payment on account of the unpaid
balance of the Purchase Price, the Company's obligation to make such
payment (or portion thereof) shall be tolled until the earlier of the date
on which it is no
A-29
<PAGE>
longer precluded from making such payment (or portion thereof) or the first
anniversary of the date on which the payment (or portion thereof) was due.
During the time in which the Company's obligation is so tolled, interest
shall continue to accrue on the payment which was due but not made, but the
holder of any note made by the Company which represents the unpaid portion
of the Purchase Price of the Shares purchased by the Company shall not take
any action to collect the payment due, or to accelerate the maturity of any
payments not then due;
(e) if after the expiration of the period of time in which the Company's
obligation has been tolled pursuant to paragraph (d) the Company has not
made the payment in full of the total amount then due, the holder of the
note made by the Company shall have the right to foreclose the pledge of
the Shares pledged by the Company, or draw against the letter of credit
provided by the Company, as security therefor. If the holder does so, or
takes other legal action to collect on the note, the holder's right to
collect the amount owed by the Company to such holder (other than by way of
foreclosure of the pledge of Shares pledged as collateral therefor or
drawing on the letter of credit furnished by the Company in connection
therewith) shall be subordinated to the Company's or Montgomery Ward's
obligations under its then most junior subordinated debt and all debt which
is senior thereto, and such holder's right to enforce its right to collect
such amount shall be restricted to the extent of the maximum restriction
contained in any of such debt with respect to such enforcement; provided,
however, that notwithstanding any subordination provisions which may be
contained in the instruments evidencing such debt, the holder of the note
shall be entitled to collect the amount owing from the Company on account
of the purchase of the Shares to the extent that payment of the amount
sought to be collected would not result in a violation of any provisions of
the instruments evidencing any debt of the Company which is senior to the
holder's note and which permit distributions by, and/or intercompany
dividends to, the Company in connection with its repurchases of Shares. For
the purposes of the immediately preceding sentence, references to the
Company shall be deemed to include references to Ward;
(f) if any of the Designated Management Optionees shall have exercised
options to purchase any of the Shares which are subject to purchase under
Article III, the Article III Closing shall nonetheless take place with
respect to the Shares as to which said options have been exercised, and the
provisions of this Section 4.1 shall have no effect on the Shares as to
which such options have been exercised, or on the obligations of the
Designated Management Optionees with respect to payment of the Purchase
Price thereof.
4.2 Definition of the Limitations. The Limitations shall consist of the
following:
(a) any provision of the law of the Company's state of incorporation
which restricts the Company's ability to repurchase its Shares or restricts
payments on account of the Purchase Price thereof;
(b) any provision of any material contract to which a member of the Ward
Group is a party (including, without limitation, loan agreements), and any
provision of any Certificate of Incorporation of any member of the Ward
Group, which would be violated by the Company's repurchase of its Shares,
the making of payments on account of the Purchase Price thereof, or the
payment of intercompany dividends or other distributions or advances to the
Company so that it can repurchase Shares or make payments on account of the
Purchase Price thereof; and
(c) the Cash Payments Limitation then in effect.
4.3 Cash Payments Limitation. Except as otherwise determined by the Board of
Directors, the Cash Payments Limitation shall be determined with respect to
each fiscal year of the Company, and shall be equal to the sum of $5,000,000
(increased by $2,000,000 per fiscal year after the Company's initial fiscal
year) plus the aggregate Insurance Proceeds collected during a fiscal year. To
the extent the Cash Payments Limitation restricts the aggregate amount which
can be paid by the Company in a fiscal year with respect to repurchases of its
Shares, obligations of the Company to make payments shall be honored in the
order in which they arose.
A-30
<PAGE>
4.4 Right of GE Capital to Cure Limitations. In the event the Company is
unable to exercise an option pursuant to Section 3.5(a) or (c) because of the
Limitations, and provided that the number of members of the Board of Directors
has not theretofore been reduced as provided in Section 5.2(c), the Board of
Directors (by action of a majority of the members of the Board of Directors
designated by GE Capital) may waive the Cash Payments Limitation, or GE Capital
may, on such terms as are reasonably agreed upon between the Company and GE
Capital, lend to the Company sufficient funds to permit the exercise of such
option without violation of the Limitations.
ARTICLE V
Corporate Governance Matters
5.1 Voting of Shares held by Management Shareholders. At any time in which
this Article V of this Agreement is in effect and the Voting Trust Agreement is
not in effect, and, in addition, with respect to any Shares which are owned by
Management Shareholders or Permitted Transferees which for any reason are not
subject to the provisions of the Voting Trust Agreement, on all matters
requiring a vote of the Management Shareholders, as long as Brennan is a
Management Shareholder, all Shares held by all Management Shareholders other
than Brennan, and all Shares held by Permitted Transferees (other than the
Shares acquired, on or about the date hereof, by Brennan's Permitted
Transferees), shall be voted in the same manner that Brennan votes his Shares
with respect to that matter.
5.2 Election of Directors. Subject to the limitations set forth herein, and
in addition to any provisions relating to the election of directors by the
holders of Preferred Stock which are contained in the Certificate of
Incorporation and By-laws of the Company, at all times in which this Article V
is in effect, the By-laws of the Company shall provide, and the Shareholders
agree to vote, for the election of a Board of Directors consisting of nine
members, five to be designated by the Designator and four to be designated by
GE Capital. The By-laws shall further provide, and the Shareholders agree,
that, disregarding any directors which may be elected by the holders of
Preferred Stock pursuant to the provisions of the Company's Certificate of
Incorporation:
(a) Intentionally omitted;
(b) at such time, if any, as GE Capital and the GE Capital Affiliates
shall cease to own, in the aggregate, more than 50% of the Shares which GE
Capital and the GE Capital Affiliates held on the Closing Date, the number
of members of the Board of Directors which the Designator shall have the
right to designate shall be increased by one and the number of members of
the Board of Directors which GE Capital shall have the right to designate
shall be reduced by one;
(c) at such time, if any, as GE Capital and the GE Capital Affiliates
shall cease to own, in the aggregate, 20% or more of the Shares which GE
Capital and the GE Capital Affiliates held on the Closing Date, GE Capital
shall no longer have the right to designate members of the Board of
Directors in accordance with the foregoing provisions of this Section 5.2;
and the number of directors to be elected shall be reduced to seven, five
to be elected by the Class A Shareholders, voting as a class, and two to be
elected by the Class B Shareholders, voting as a class; provided, however,
that as long as that certain Account Purchase Agreement, dated as of June
24, 1988, between Ward and Montgomery Ward Credit Corporation (the "Account
Purchase Agreement") shall be in effect and GE Capital or any GE Capital
Affiliate shall own any Class B Shares, GE Capital shall have the right to
elect one of the two directors to be elected by the Class B Shareholders.
In the event of a vacancy on the Board of Directors, the party who had the
right to designate the director whose seat is vacant shall have the right to
designate the party who shall fill the vacancy. The party who had the right to
designate a director shall also have the right to cause that director to be
removed.
A-31
<PAGE>
5.3 Certain Supermajority Requirements. At all times in which this Article V
is in force, the By-laws of the Company shall provide, and the Shareholders
agree, that in addition to those other provisions of this Agreement which
require the affirmative vote of not less than 2/3 of the members of the Board
of Directors for the taking of actions by the Company, the affirmative vote of
not less than 2/3 of the members of the Board of Directors (but, in the case of
paragraph (t), instead of the aforesaid 2/3 requirement, the affirmative vote
of a majority of the directors designated by the Designator or, at any time in
which class voting is in effect, by a majority of the directors elected by the
holders of Class A Shares) shall be required in order for the Company to take,
or permit any member of the Ward Group to take, any of the following actions:
(a) a merger, consolidation or other business combination (other than
among members of the Ward Group and other than as part of an acquisition of
assets permitted pursuant to paragraph (m));
(b) any of the following sales (other than intercompany sales within the
Ward Group, sales solely of inventory in the ordinary course of business,
and sale and leaseback transactions in the ordinary course of business or,
to the extent out of the ordinary course of business, consistent with the
past practices of the Ward Group):
(i) any sale of assets of the Ward Group (including assets consisting
of shares of stock of a subsidiary of the Company) where the gross
proceeds of sale (exclusive of assumption of liabilities) are in an
amount equal to the greater of (A) $50,000,000 or (B) 20% of the
consolidated common stockholders' equity of the Company as of the time
of the sale; or
(ii) any sale of assets of the Ward Group (including assets
consisting of shares of stock of a subsidiary of the Company) to the
extent the gross proceeds of sale (exclusive of assumption of
liabilities), when added to the gross proceeds of all other sales of
assets of the Ward Group (exclusive of assumption of liabilities)
occurring during that fiscal year, exceed an amount equal to the
greater of (A) $100,000,000 or (B) 30% of the consolidated common
stockholders' equity of the Company as of the time of the sale;
provided, however, that notwithstanding the foregoing limitation, any
single sale of assets for gross proceeds not exceeding $1,000,000
(exclusive of assumption of liabilities) shall be excluded from the
foregoing computation;
(c) amendments to the Certificate of Incorporation or By-laws of the
Company (other than amendments to the By-laws permitted pursuant to Section
8.2);
(d) payment of dividends on Shares (other than intercompany dividends
among members of the Ward Group);
(e) redemptions of Shares, other than pursuant to the provisions of this
Agreement or the Employee Stock Option Plan;
(f) public or private offerings of debt or equity securities of any
member of the Ward Group, other than to other members of the Ward Group,
pursuant to the Employee Stock Option Plan, Section 3.14 or Section 6.1
with respect to the offering of Shares in Demand Registrations on behalf of
those Persons exercising their demand registration rights thereunder and
Section 6.2 with respect to the offering of Shares in Piggyback
Registrations on behalf of those Persons exercising their piggyback
registration rights thereunder;
(g) guaranties of any indebtedness in excess of $5,000,000 for borrowed
money of any Person other than a member of the Ward Group;
(h) setting of annual financial goals and targets;
(i) the making of, or the entry into a binding commitment to make, any
capital expenditures which would cause the amount expended (or committed to
be expended) by the Ward Group for capital expenditures during a fiscal
year to exceed the capital expenditure budget to be contained in the annual
financial goals and targets of the Ward Group for such year by more than
10% of the budgeted amount;
A-32
<PAGE>
(j) borrowings by any member of the Ward Group which would cause the
aggregate consolidated indebtedness of the Company for money borrowed to
exceed an amount equal to $25,000,000, plus 5% of the amount of the
consolidated common stockholders' equity of the Company measured at the
time of such borrowings, but in determining both the amount of such
borrowings and the necessity for approval of 2/3 of the members of the
Board of Directors, the following borrowings shall be excluded:
(i) borrowings made in connection with the acquisition, pursuant to
the Purchase Agreement, of Ward, and under the term loan, revolving
credit, tax standby letter of credit, "Tax Loan" and commercial letter
of credit facilities established in connection with such acquisition,
borrowings pursuant to the Subordinated Loan Agreement, dated June 23,
1988, between Ward and GE Capital, borrowings of any member of the Ward
Group existing at the time of such acquisition, and borrowings made
under any whole or partial refunding or replacement thereof without
increasing the principal amount thereof, other than increases for
closing costs (including, without limitation, prepayment penalties)
incurred in connection with such refunding or replacement;
(ii) purchase money financing incurred in accordance with the annual
financial goals and targets of the Ward Group, and purchase money
financing in connection with the issuance of notes pursuant to Sections
3.8 and 3.9 or Sections 3.6 and 3.7 of the Terms and Conditions, it
being understood that purchase money financing shall include financing,
refinancing or funding of the acquisition price of real property (or
any interest therein) or other fixed assets acquired hereafter by a
member of the Ward Group, regardless of whether said financing,
refinancing or funding is done at the time of, or subsequent to, the
acquisition of any such real property (or interest therein) or other
fixed assets;
(iii) Intentionally omitted;
(iv) borrowings made for the purpose of redeeming any of the
Preferred Stock; or
(v) borrowings made pursuant to Section 4.4:
(k) increases in compensation and/or fringe, welfare or pension benefits
for any member of the Executive Committee of the Ward Group, other than in
accordance with the practices and guidelines of the Ward Group in effect
from time to time (it being understood that any material change from the
current practices and guidelines shall require the affirmative vote of 2/3
of the members of the Board of Directors), but in no event beyond the
increases being given for comparable executives in comparable retail
businesses, as determined from published survey data and guidelines;
(l) adoption of a plan of liquidation of the Company;
(m) acquisition of assets (other than purchases of inventory and capital
expenditures) which would cause the amount expended (or committed to be
expended) by the Ward Group for the acquisition of such assets during a
fiscal year to exceed the budget for acquisitions of such assets to be
contained in the annual financial goals and targets of the Ward Group for
such year by more than 10% of the budgeted amount;
(n) entry into any transaction (exclusive of compensation and fringe,
welfare and pension benefit arrangements with affiliates who are officers,
directors or employees of the Ward Group for services rendered by them to
the Ward Group) with an affiliate, as that term is defined in the Act,
other than affiliates constituting members of the Ward Group;
(o) seeking of a consent or waiver from a lender to a member of the Ward
Group whose loan to the member of the Ward Group has a then outstanding
principal balance in excess of $30,000,000, in any case in which consent or
waiver is required for the entry into a transaction by the Ward Group and
which, in the absence of such consent or waiver, would constitute a default
or an event of default under the documents evidencing or pertaining to the
loan made by the lender, other than any consent or waiver required in
connection with:
(i) the making of any borrowing permitted pursuant to paragraph
(j)(ii), (iii), (iv) or (v);
A-33
<PAGE>
(ii) any mandatory prepayment obligation arising from the sale or
financing of any real property (or interests therein) or other fixed
assets;
(iii) any prepayment occurring by reason of a "Change of Control" (as
defined in one or more of the loan documents evidencing the loans
referred to in subparagraph (j)(i) made in connection with the
acquisition of Ward by the Company); or
(iv) the incurring of any liens (other than for money borrowed);
provided, however, that approval of 2/3 of the members of the Board of
Directors for the seeking of such consent or waiver shall not be required
if the transaction for which such consent or waiver is being sought (x) is
specifically permitted pursuant to any of the other paragraphs of this
Section 5.3 without the approval of 2/3 of the members of the Board of
Directors, or (y) has been authorized by 2/3 of the members of the Board of
Directors pursuant to any of said other paragraphs;
(p) authorizing a Transfer of Shares pursuant to Section 2.2(a) in a case
where the transferee is not a Management Shareholder, a Permitted
Transferee, or a present or prospective employee of the Ward Group;
(q) a waiver of the prohibitions on Transfers of Shares contained in
Sections 2.3(a) and (c), as applied to Brennan; provided, however, that by
action of a simple majority of the members of the Board of Directors, the
references in those paragraphs to the third anniversary may be amended to
constitute references to the second anniversary;
(r) a waiver of the prohibitions on Transfers of Shares contained in
Section 2.3(e);
(s) any determination, pursuant to Section 4.3, of a Cash Payments
Limitation other than that expressly set forth in that section;
(t) without limiting the generality of any other provision of this
Section 5.3, any of the following actions with respect to the Account
Purchase Agreement:
(i) termination thereof by agreement of the parties thereto;
(ii) the exercise of a unilateral right of termination and the
exercise of all other rights, options and elections granted thereunder
to Ward;
(iii) the giving of waivers and consents with respect thereto; and/or
(iv) any amendment thereto;
(u) the termination for Cause of Brennan's employment with any member of
the Ward Group.
5.4 Certain Required Provisions of Certificate of Incorporation. At all times
in which this Article V is in effect, the Certificate of Incorporation of the
Company will contain provisions to the following effect, and the Shareholders
agree that:
(a) the common stock of the Company shall consist of two classes of
Shares, Class A Shares and Class B Shares; and the Class A Shares shall
consist of three series, Series 1, Series 2 and Series 3;
(b) no amendment to the Certificate of Incorporation which increases the
number of authorized Shares of any class or series of Common Stock shall be
adopted without the affirmative vote of a majority of the holders of
outstanding Series 1 Shares and the holders of a majority of the
outstanding Class B Shares, each voting separately as a class;
(c) in addition to the class voting required pursuant to paragraph (b),
class voting will be provided to the extent necessary to effectuate the
provisions of this Agreement requiring class votes;
(d) the adoption of the Employee Stock Option Plan, the making of any
amendments thereto, and the determination of the number of Shares as to
which options to purchase shall be granted thereunder, shall require the
affirmative vote of (i) a majority of the members of the Board of
Directors, and (ii) the holders of a majority of the outstanding Series 1
Shares; and the By-laws of the Company shall provide that the determination
of the manner in which Options shall be awarded and may be exercised
(including the exercise prices of Options granted thereunder) shall be
determined by the affirmative vote of a majority of the members of the
Board of Directors;
A-34
<PAGE>
(e) except for the issuance of Shares pursuant to the exercise of Options
granted under the Employee Stock Option Plan, in addition to complying with
Section 5.3(f), the Company may issue authorized but unissued Class A
Shares of either Series only upon the affirmative vote of the holders of a
majority of the outstanding Class A Shares; and
(f) in connection with the payment of dividends, proceeds payable in
liquidation of the Company, and proceeds of a merger of the Company, the
aggregate amount which is payable to holders of Shares, without distinction
as to class or series, shall be allocated among the classes and series of
Shares, as follows:
(i) The portion of such dividends or proceeds which is payable to the
holders of Class A Shares, as a class, and without distinction as to
series, at any time when the Outstanding Amount as of the date of
determination does not exceed the Series 1 Amount, shall be the amount
which bears the same ratio to the total amount of such dividends or
proceeds as the Class A Amount bears to the sum of (x) the Class A
Amount, plus (y) the number of Class B Shares outstanding as of the
date of determination; and such portion of such dividends or proceeds
which is payable to the holders of Class A Shares shall be allocated
among such holders in proportion to their respective holdings of Class
A Shares, without distinction as to series;
(ii) The portion of such dividends or proceeds which is payable to
the holders of Class A Shares, as a class, and without distinction as
to series, at any time when the Outstanding Amount as of the date of
determination exceeds the Series 1 Amount (but the Non-Series 3
Outstanding Amount as of the date of determination does not exceed the
Series 1 Amount), shall be the product of the amount which would be
payable to holders of Class A Shares if the immediately preceding
Section 5.4(f)(i) were applicable and the Class A Amount were equal to
the Series 1 Amount multiplied by a fraction the numerator of which is
the Outstanding Amount and the denominator of which is the sum of the
Series 1 Amount plus fifty percent (50.0%) of the excess of the
Outstanding Amount over the Series 1 Amount; and such portion of such
dividends or proceeds which is payable to the holders of Class A Shares
shall be allocated among such holders in proportion to their respective
holdings of Class A Shares, without distinction as to series; and
(iii) The portion of such dividends or proceeds which is payable to
the holders of Class A Shares, as a class, and without distinction as
to series, at any time when the Outstanding Amount as of the date of
determination exceeds the Series 1 Amount (and Section 5.4(f)(ii)
immediately preceding is not applicable), shall be the product of the
amount which would be payable to holders of Class A Shares if Section
5.4(f)(i) above were applicable and the Class A Amount were equal to
the Series 1 Amount multiplied by (y) a fraction the numerator of which
is the Non-Series 3 Outstanding Amount and the denominator of which is
the sum of the Series 1 Amount plus eighty-one point five percent
(81.5%) of the excess of the Outstanding Amount over the Series 1
Amount, and multiplied by (z) a fraction the numerator of which is the
Outstanding Amount and the denominator of which is the sum of the Non-
Series 3 Outstanding Amount plus fifty percent (50.0%) of the number of
shares of Series 3 Stock outstanding as of the date of such
determination; and such portion of such dividends or proceeds which is
payable to the holders of Class A Shares shall be allocated among such
holders in proportion to their respective holdings of Class A Shares,
without distinction as to series; and
(iv) The portion of such dividends or proceeds which is payable to
the holders of Class B Shares as a class, shall be the portion of the
total amount of such dividends or proceeds which is not payable to the
holders of Class A Shares in accordance with Section 5.4(f)(i),
5.4(f)(ii) or 5.4(f)(iii) above, as applicable; and such portion of
such dividends or proceeds which is payable to the holders of the Class
B Shares shall be allocated among such holders in proportion to their
respective holdings of Class B Shares.
5.5 By-laws of Members of the Ward Group. Forthwith following the Closing
Date, the Company shall cause the By-laws of each member of the Ward Group,
other than the Company, to be amended to provide that no action may be taken by
that member which, if such action was taken by the Company, would require
A-35
<PAGE>
that the affirmative vote of 2/3 of the members of the Board of Directors be
obtained pursuant to Section 5.3 for the taking of such action, unless that
action has also been authorized or ratified by 2/3 of the members of the Board
of Directors.
5.6 Election of Chief Executive Officer. The person serving from time to time
as the chief executive officer of the Company shall concurrently serve as the
chief executive officer of Ward.
5.7 Agreement to Vote. All Shareholders (exclusive of Brennan's Permitted
Transferees who have acquired Shares on or about the date hereof, it being
understood that said Permitted Transferees are not bound by the provisions of
this Section 5.7), and (without implication that the Voting Trustee is not
otherwise a Shareholder) the Voting Trustee, agree that at all meetings of
stockholders of the Company, including, without limitation, meetings called for
the election and/or removal of directors, they will vote their respective
Shares in such a manner as will accomplish the provisions of this Article V.
The Shareholders' (and Voting Trustee's) agreement to vote their Shares as
provided in this Article V shall include an agreement to execute written
consents of stockholders of the Company in lieu of a meeting.
5.8 Recapitalization. In connection with any public offering of Shares (other
than pursuant to the Employee Stock Option Plan), the Company shall have the
right to cause a recapitalization of the Company to occur, in order to
facilitate such public offering. Any such recapitalization, as nearly as
possible, shall put the parties in the same relative positions with respect to
equity ownership and voting control of the Company in which they were prior to
the recapitalization, after taking into account any dilution resulting from
outstanding but unexercised Purchase Rights or Options under the Employee Stock
Option Plan. Each of the Shareholders, and the Voting Trustee, agrees to vote
his Shares in favor of any recapitalization of the Company which meets the
foregoing requirements, and to treat the shares of stock and other securities
issued in such recapitalization as Shares under this Agreement.
ARTICLE VI
Registration Rights
6.1 Demand Registration Rights. The Shareholders shall have the following
Demand Registration rights:
(a) at any time after the earlier of (i) 90 days after the first
registration of Shares under the Act (other than any registrations on Form
S-4 or S-8 or any form substituting therefor or any registration statement
filed in connection with an offering of securities or granting of Options
primarily to employees of any member of the Ward Group or any registration
statement filed to register shares primarily or exclusively for Transfer
upon exercise of options pursuant to this Agreement or in connection
therewith) or (ii) July 1, 1992, subject to paragraph (e) below of this
Section 6.1 and to Section 6.12, a Demanding Group (as herein defined) may
make a written request of the Company (a "Demand") for registration with
the Commission, under and in accordance with the provisions of the Act and
this Section 6.1, of all or part of its Shares (a "Demand Registration"),
subject to the following:
(i) for the purposes of this Article VI, the Management Shareholders
and their Permitted Transferees, as a class, shall constitute one
Group, and GE Capital and the present and former GE Capital Affiliates,
as a class, shall constitute the other Group. As used herein, a
"Demanding Group" shall mean a Group which shall make a Demand pursuant
to this Section 6.1. Each Demanding Group shall be entitled to (x) two
Demand Registrations (other than Demand Registrations on Form S-3
promulgated by the Commission or any successor form) and (y) at any
time in which the Company is eligible to register Shares on Form S-3 or
any successor form, an unlimited number of Demand Registrations on Form
S-3. Any Demand made by the Management Shareholders, as a Demanding
Group, shall only be made by the Designator in his sole discretion;
(ii) the Company need not effect a Demand Registration unless such
Demand Registration shall include at least 20% of the Shares held in
the aggregate, as of the date hereof, by the Demanding Group making the
Demand;
A-36
<PAGE>
(iii) if:
a. the Company has filed, or has taken substantial steps toward
filing, a Registration Statement (as herein defined) relating to any
of the Company's securities, and the managing underwriter of the
offering to which such registration relates or, if not an
underwritten offering, the Board of Directors, is of the opinion
that the filing of a Registration Statement relating to a Demand
Registration would adversely affect the offering by the Company of,
or the market for, its securities; or
b. If the Board of Directors determines in the exercise of its
reasonable judgment that the Company's ability to pursue a
contemplated merger, acquisition, significant sale of assets or
other significant business transaction (authorization for the
negotiation of which has been obtained from the Board of Directors)
would be adversely affected by the filing of a Registration
Statement with respect to a Demand Registration;
the Company may defer such Demand Registration for a single period not
to exceed 180 days; and
(iv) if the Company shall elect to defer any Demand Registration
pursuant to the terms of subparagraph (iii), no Demand shall be deemed
to have been made for the purposes of this Section 6.1 unless and until
the Demand Registration has become effective in accordance with
paragraph (b) below;
All Demands made pursuant to this paragraph (a) shall specify the aggregate
number of Shares requested to be registered, the intended methods of
disposition thereof (if known) and the anticipated price per Share
(expressed as a minimum price before expenses and commissions) at which the
Shares will be sold pursuant to the Demand Registration;
(b) a Demand shall not be counted as such for the purposes of paragraph
(a) until the Registration Statement relating thereto shall have been (i)
filed with the Commission, (ii) declared effective by the Commission and
(iii) maintained continuously effective for a period of at least 120 days
or such shorter period when all Shares included therein have been sold in
accordance with such Demand Registration. If a Demand Registration shall
have occurred, a subsequent Demand shall not be made by a Demanding Group
prior to 180 days after the expiration of the period described in the
preceding sentence;
(c) immediately upon receipt of a Demand, the Company shall give written
notice to all members of both Groups which have not made a Demand that the
Demanding Group has made a Demand. Subject to the following provisions of
this paragraph (c), and to paragraph (e) below of this Section 6.1 and
Section 6.12, each of the members of both Groups which have not made a
Demand may, upon written notice to the Company delivered within 15 days
next following the date on which the Demand is made, elect to include all
or any portion of their respective Shares in the Demand Registration. If,
however, in any Demand Registration the managing underwriter or
underwriters thereof (or in the case of a Demand Registration not being
underwritten, an independent underwriter, of nationally recognized
standing, selected by the holders of a majority of the Shares being
registered therein, whose fees and expenses shall be borne by the Company),
advise the Company in writing that in its or their reasonable opinion the
number of securities proposed to be sold in such Demand Registration
exceeds the number that can be sold in such offering without having a
material adverse effect on the success of the offering or the market for
the Shares, the Company will include in such Demand Registration only the
number of Shares which, in the reasonable opinion of such underwriter or
underwriters, can be sold without having a material adverse effect on the
success of the offering or the market for the Shares, in the following
order of priority:
(i) first, the Shares requested to be included in such Demand
Registration by the Shareholders who have made such requests in
accordance with paragraphs (a) and (c) of this Section 6.1; provided,
however, that if in the opinion of such underwriter(s), not all such
Shares can be so included without having a material adverse effect on
the success of the offering or the market for the Shares, the number of
Shares which in the opinion of such underwriters can be included shall
be allocated pro rata among the Shareholders requesting such
registration on the basis of the respective numbers of Shares requested
to be included by each of them;
A-37
<PAGE>
(ii)(second, Shares to be issued and sold by the Company requested to
be included in such Demand Registration shall be included, but only to
the extent that in the opinion of such underwriter(s) they may be
included without having a material adverse effect on the success of the
offering or the market for the Shares;
(d) if a Demand Registration is to be an underwritten offering, the
holders of a majority of the Shares to be included in such Demand
Registration held by such members of the Demanding Group that initiated
such Demand Registration shall select a managing underwriter or
underwriters of recognized national standing to administer the offering,
who shall be reasonably satisfactory to the Company;
(e) notwithstanding the foregoing, at any time during which the Voting
Trust Agreement is in effect, no Demand by a Management Shareholder or
Permitted Transferee, and no request for inclusion of Shares by a
Management Shareholder or Permitted Transferee pursuant to paragraph (c) of
this Section 6.1 or paragraph (a) of Section 6.2, shall be made, unless the
Voting Trustee shall have consented to releasing such Shares from the
Voting Trust Agreement as of the effective date of the applicable
Registration Statement.
6.2 Piggyback Registration Rights. The Shareholders shall have the following
Piggyback Registration rights:
(a) whenever during the period commencing on the date hereof and ending
on the tenth anniversary of the date hereof the Company proposes to
register any equity securities under the Act (other than any registrations
on Form S-4 or S-8 or any form substituting therefor or any registration
statement filed in connection with an offering of securities or granting of
options primarily to employees of any member of the Ward Group or any
registration statement filed to register shares primarily or exclusively
for Transfer pursuant to this Agreement or in connection therewith), the
Company will give written notice to all Shareholders, at least 30 days
prior to the anticipated filing date, of its intention to effect such a
registration, which notice will specify the proposed offering price (if
known), the kind and number of securities proposed to be registered, the
distribution arrangements and such other information that at the time would
be appropriate to include in such notice. Subject to paragraph (b) below
and to Section 6.12, the Company shall include in such registration all
Shares with respect to which written requests for inclusion therein have
been delivered by Shareholders to the Company within 15 business days after
the date of delivery of the Company's notice (a "Piggyback Registration").
Except as may otherwise be provided in this Article VI, Shares with respect
to which such requests for registration have been received will be
registered by the Company and offered for sale to the public in a Piggyback
Registration pursuant to this Article VI on the same terms and subject to
the same conditions as are applicable to any similar securities of the
Company included therein;
(b) If in any Piggyback Registration the managing underwriter or
underwriters thereof (or in the case of a Piggyback Registration not being
underwritten, an independent underwriter, of nationally recognized
standing, selected by the holders of a majority of the Shares being
registered therein, whose fees and expenses shall be borne by the Company),
advise the Company in writing that in its or their reasonable opinion the
number of Shares proposed to be sold in such Piggyback Registration exceeds
the number that can be sold in such offering without having a material
adverse effect on the success of the offering of securities to be sold by,
or the market for any equity securities of, the Company, the Company will
include in such Piggyback Registration (in addition to the equity
securities the Company proposes to sell) only the number of Shares owned by
the Shareholders requesting such Piggyback Registration, if any, which, in
the opinion of such underwriter or underwriters can be sold without having
such a material adverse effect. If some, but not all, of such Shares can be
so included, the number of Shares which in the opinion of such underwriter
or underwriters can be included shall be allocated pro rata among the
Shareholders requesting such Piggyback Registration on the basis of the
respective numbers of Shares requested to be included by each of them;
(c) if any Piggyback Registration is an underwritten offering, the
Company will select a managing underwriter or underwriters of nationally
recognized standing to administer the offering; and
A-38
<PAGE>
(d) notwithstanding anything to the contrary contained in this Section
6.2, the Company shall not be obligated to include any Shares in any
registration statement filed by the Company if counsel to the Company who
is reasonably satisfactory to the Shareholders who have made a request
pursuant to paragraph (a) of this Section 6.2 shall render an opinion to
such Shareholders to the effect that (i) registration is not required for
the proposed Transfer of such Shares or (ii) a post-effective amendment to
an existing registration statement filed simultaneously with the proposed
Transfer would be sufficient for such proposed Transfer, and the Company in
fact files such a post-effective amendment.
6.3 Registration Procedures. With respect to any Demand Registration or
Piggyback Registration (generically, a "Registration"), the Company will,
subject to subparagraph 6.1(a)(iii) and Section 6.5, as expeditiously as
practicable:
(a) prepare and file with the Commission as soon as practicable a
registration statement or registration statements (the "Registration
Statement") relating to the applicable Registration on any appropriate form
under the Act which shall be available for use in connection with the sale
of the Shares in accordance with the intended method or methods of
distribution thereof; provided, however, that in the case of a Demand
Registration the Company shall not be required to undergo or pay for any
special audit to effect such Registration, and if a special audit would be
required, either the Shareholders selling Shares thereunder shall agree to
pay the costs and expense of such audit (and such costs and expenses shall
not constitute Registration Expenses) or the Company shall have the right
to delay the filing or effectiveness of the Registration Statement until
such time as a regular audit in the ordinary course of the Company's
business shall have been completed. The Company will use its best efforts
to cause such Registration Statement to become effective. The Company shall
not be deemed to have breached such "best efforts" undertaking if it shall
take any action which is required under applicable law, or shall take any
action in good faith and for valid business reasons, including without
limitation the acquisition or divestiture of assets;
(b) prepare and file with the Commission such amendments and post-
effective amendments to the Registration Statement as may be necessary to
keep each Registration Statement effective for a period of not more than
120 days after the date of its effectiveness, or such shorter period as
will terminate when all Shares covered by such Registration Statement have
been sold; cause each prospectus required in connection therewith (a
"Prospectus ") to be supplemented by any required Prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the Act; and
comply with the provisions of the Act with respect to the disposition of
all securities covered by such Registration Statement during the applicable
period, in accordance with the intended method or methods of distribution
by the sellers thereof as set forth in the Registration Statement or
supplement to the Prospectus;
(c) promptly notify the selling holders of Shares and the managing
underwriters, if any (and, if requested by any such Person, confirm such
advice in writing), of:
(i) the date on which the Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement has been filed,
and, with respect to the Registration Statement or any post-effective
amendment, the date on which the same has become effective;
(ii) any written request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus or for
additional information;
(iii) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose;
(iv) the receipt by the Company of any written request by any state
securities authority for additional information or written notification
with respect to the suspension of the qualification of the Shares for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(v) the happening of any event which makes any material statement
made in the Registration Statement, the Prospectus or any document
incorporated therein by reference untrue in any material respect or
which requires the making of any changes in the Registration Statement,
the Prospectus
A-39
<PAGE>
or any document incorporated therein by reference in order to make the
statements therein not misleading in the light of the circumstances
under which they were made;
(d) make every reasonable effort (taking into account the interest of all
selling Shareholders, the Company, and its officers and directors) to
obtain the withdrawal of any order suspending the effectiveness of the
Registration Statement at the earliest possible moment;
(e) if requested by the managing underwriter or underwriters or a holder
of Shares being sold in connection with an underwritten offering, promptly
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managing underwriters and
the holders of a majority of the Shares being sold agree should reasonably
be included therein relating to the plan of distribution with respect to
such Shares, including, without limitation, in the case of an underwritten
offering, information with respect to (i) the number of Shares being sold
to such underwriters in a firm commitment underwriting and the purchase
price being paid therefor by such underwriters, and (ii) any other terms of
the underwriting; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable upon being
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(f) furnish to each selling holder of Shares and each managing
underwriter (if any), without charge, at least one signed copy of the
Registration Statement and any amendment thereto, including financial
statements and schedules, all documents incorporated therein by reference
and, to the extent reasonable, all exhibits (including those incorporated
by reference);
(g) deliver to each selling holder of Shares and the underwriters, if
any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
selling holder of Shares and underwriters may reasonably request; the
Company consents to the use, in accordance with the Act, of each Prospectus
or any amendment or supplement thereto by each of the selling holders of
Shares and the underwriters, if any, in connection with the offering and
sale of the Shares covered by such Prospectus or any amendment or
supplement thereto;
(h) in connection with any Registration of Shares, use its best efforts
to register or qualify or cooperate with the selling holders of Shares, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification of such Shares for offer and sale under the
securities or "blue sky" laws of such jurisdictions as the holders of not
less than 25% of the Shares covered by the Registration Statement (or, in
the case of Shares being sold by Management Shareholders and/or their
Permitted Transferee, the Designator) or the managing underwriter
reasonably requests in writing, considering the amount of Shares proposed
to be sold in each such jurisdiction, and do any and all other acts or
things reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Shares covered by the Registration Statement; provided
that the Company will not be required to qualify generally to do business
in any jurisdiction where it is not then so qualified or to take any action
that would subject it to taxation in any such jurisdiction or to submit to
the general service of process in any such jurisdiction;
(i) cooperate with the selling holders of Shares and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing the Shares to be sold free from any restrictive
legends; and cause such Shares to be in such denominations and registered
in such names as the managing underwriters may request at least two
business days prior to any sale of Shares to the underwriters;
(j) use reasonable efforts to cause the Shares covered by the applicable
Registration Statement to be registered with or approved by such
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Shares in the jurisdictions contemplated by paragraph
(h) of this Section 6.3;
(k) upon the occurrence of any event contemplated by subparagraph (ii),
(iv) or (v) of paragraph (c) of this Section 6.3, prepare any required
supplement or post-effective amendment to the Registration Statement or the
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Shares, the Prospectus will
A-40
<PAGE>
not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(l) not later than the effective date of the applicable Registration
Statement, provide a CUSIP number for all Shares;
(m) enter into such agreements (including an underwriting agreement) and
take all such other actions in connection therewith which are reasonably
required in order to expedite or facilitate the disposition of such Shares,
and, in such connection, whether or not an underwriting agreement is
entered into and whether or not the Registration is an underwritten
Registration:
(i) make such representations and warranties to the holders of such
Shares and the underwriters, if any, in such form, substance and scope
as are reasonably required and customarily made by issuers to
underwriters in primary underwritten offerings;
(ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the
holders of a majority of the Shares being sold) addressed to each
selling holder and the underwriters, if any, covering the matters
reasonably required and customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such underwriters and holders;
(iii) use its best efforts to obtain "cold comfort" letters and
updates thereof from the Company's independent certified public
accountants addressed to the selling holders of Shares and the
underwriters, if any, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters
received by underwriters in connection with primary underwritten
offerings;
(iv) if an underwriting agreement is entered into, cause to be
included therein the indemnification provisions and procedures set
forth in Section 6.7 with respect to all parties to be indemnified
pursuant to said Section; and
(v) deliver such documents and certificates as may reasonably be
requested by the holders of a majority of the Shares being sold and the
managing underwriters, if any, to evidence compliance with subparagraph
(m) (i) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
The above shall be done at each closing under such underwriting or
similar agreement as and to the extent required thereunder;
(n) make available for inspection by a representative of the holders of a
majority of the Shares, any underwriter participating in any disposition
pursuant to such Registration, and any attorney or accountant retained by
the sellers or underwriter, at reasonable times and upon reasonable prior
notice, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
Registration Statement; provided, however, that any records, information or
documents that are designated by the Company in writing as confidential
shall be kept confidential by such Persons unless disclosure of such
records, information or documents is required by court or administrative
order of any regulatory body having jurisdiction;
(o) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make generally available to its
security holders (which may be accomplished through compliance with Rule
158 under the Act), earning statements satisfying the provisions of Section
11(a) of the Act, for the twelve month period:
(i) commencing at the end of any fiscal quarter in which Shares are
sold to underwriters in a firm commitment or best efforts underwritten
offering; or
(ii) if not sold to underwriters in such an offering, commencing with
the first month of the Company's first fiscal quarter after the quarter
in which the Registration Statement became effective.
A-41
<PAGE>
Said earning statements shall be furnished within 45 days after the
expiration of such 12-month period unless such 12-month period constitutes
a fiscal year, in which latter event said statements shall be furnished
within 90 days after the expiration of such 12-month period; and
(p) prior to the filing of the Registration Statement, any Prospectus or
any other document that is to be incorporated by reference into the
Registration Statement or the Prospectus after initial filing of the
Registration Statement, provide copies of each such document to counsel to
the selling holders of Shares and to the managing underwriters, if any;
make the Company's representatives available, at reasonable times and upon
reasonable prior notice, for discussion of such document; and make such
changes in such document prior to the filing thereof as counsel for such
selling holders or underwriters may reasonably request.
The Company may require each seller of Shares as to which any Registration is
being effected to furnish to the Company in writing or orally as the Company
may request, such information regarding such seller and the proposed
distribution of such securities as the Company may from time to time reasonably
request in writing. Each Shareholder agrees that upon receipt of notice from
the Company of the happening of any event of the kind described in subparagraph
(c)(ii), (iii) or (v) of this Section 6.3, such Shareholder will forthwith
discontinue disposition of Shares pursuant to the Registration Statement until
such Shareholder has received copies of the supplemented or amended Prospectus
as contemplated by paragraph (k) of this Section 6.3, or until it has been
advised in writing (the "Advice") by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus. If so directed by
the Company, such Shareholder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in such
Shareholder's possession), of the Prospectus covering such Shares which is
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the 120-day period referred to in paragraph (b) of this
Section 6.3 shall be extended by the number of days during the period from the
date of the giving of such notice to the date when each seller of Shares
covered by such Registration Statement shall have received either the copies of
the supplemented or amended Prospectus contemplated by paragraph (k) of this
Section 6.3 or the Advice (as the case may be), both dates inclusive.
6.4 Restrictions on Public Sale. Each Shareholder whose Shares are included
in a Registration Statement agrees not to effect any public sale or
distribution of the securities of the Company, of the same or similar class or
classes as the securities included in such Registration Statement or any
securities convertible into or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144, during the 15-day period prior to, and
during the 90-day period beginning on, the effective date of such Registration
Statement (except as part of such Registration), if and to the extent requested
by the Company in the case of a non-underwritten public offering, or if and to
the extent requested by the managing underwriter or underwriters, in the case
of an underwritten public offering.
6.5 Other Registrations. The Company agrees not to effect any public sale or
distribution of any securities similar to the Shares being registered, or any
securities convertible into or exchangeable or exercisable for such securities
(other than any such sale or distribution of such securities in connection with
any merger or consolidation by the Company or any other member of the Ward
Group or the acquisition by the Company or any other member of the Ward Group
of the capital stock or substantially all of the assets of any other Person or
the continuation of a distribution under a Registration Statement filed in
connection with an offering of securities or granting of Options primarily to
employees of any member of the Ward Group), during the 15-day period prior to,
and during the 90-day period beginning on, the effective date of any
Registration Statement filed in connection with a Demand made pursuant to
Section 6.1(a).
6.6 Registration Expenses. Expenses incident to Registrations pursuant to
this Article VI shall be borne as follows:
(a) all expenses incident to the Company's performance of or compliance
with this Agreement ("Registration Expenses") will be borne by the Company.
Registration Expenses shall include, without limitation, all registration
and filing fees, the fees and expenses of the counsel and accountants for
the
A-42
<PAGE>
Company (including the expenses of any "cold comfort" letters), all other
costs and expenses of the Company incident to the preparation, printing and
filing under the Act of the Registration Statement (and all amendments and
supplements thereto) and furnishing copies thereof and of the Prospectus
included therein, the costs and expenses incurred by the Company in
connection with the qualification of the Shares under the state securities
or "blue sky" laws of various jurisdictions, the costs and expenses
associated with filings required to be made with the National Association
of Securities Dealers, Inc., the costs and expenses of listing the Shares
for trading on a national securities exchange or authorizing them for
trading on the NASDAQ National Market System and all other costs and
expenses incurred by the Company in connection with any Registration
hereunder. Notwithstanding the preceding sentence, Registration Expenses
shall not include the costs and expenses of any Shareholders for
underwriters' commissions and discounts, brokerage fees, transfer taxes
with respect to the Shareholders' Shares to be Transferred pursuant to the
Registration, or the fees and expenses of any counsel, accountants or other
representatives retained by any Shareholder, all of which shall be paid by
the respective Shareholders who are selling Shares pursuant to the
Registration;
(b) if the holders of Shares possessing, in the aggregate, a majority of
the Shares covered by a Registration Statement which has been filed (or
which the Company notifies such holders it is prepared to file within five
days) pursuant to Section 6.1(a), but has not yet become effective, shall
request the Company to withdraw (or to cease the preparation of) such
Registration Statement, the Company shall use its best efforts to withdraw
(or cease the preparation of) such Registration Statement; provided,
however, that if prior to the date which is 180 days after the date on
which the Registration Statement was withdrawn or the preparation thereof
was ceased, the holders of 90% of the Shares covered by such Registration
Statement may thereafter request the Company to refile (or to recommence
the preparation of) such Registration Statement, if permitted under the
Act, the Company shall use its best efforts to do so, and such Registration
Statement shall not constitute a second Demand pursuant to Section 6.1;
provided further, that as a condition to any such request, such holders of
the Shares shall agree in writing to reimburse the Company for all
Registration Expenses over and above those which the Company, by
proceeding, would have incurred had such initial Registration Statement not
been withdrawn (or the preparation thereof ceased). Except as provided
above, in any offering initiated as a Demand Registration pursuant to
Section 6.1(a), the Company shall pay all Registration Expenses in
connection therewith, whether or not the Registration Statement relating
thereto becomes effective.
6.7 Indemnity and Contribution. The parties shall be entitled to indemnity
and contribution in connection with Registrations, as follows:
(a) the Company agrees to indemnify each Shareholder, its officers,
directors and agents and each Person who (within the meaning of the Act)
controls such Shareholder, and hold them harmless against, all losses,
claims, damages, liabilities and expenses (which, subject to the
limitations herein contained, shall include reasonable attorneys' fees)
resulting from (i) any untrue or alleged untrue statement of a material
fact contained in any Registration Statement, Prospectus or preliminary
Prospectus or based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading (except insofar as the same are caused by any such
untrue statement or alleged untrue statement or omission or alleged
omission being based upon or contained in any information relating to such
Shareholder furnished in writing to the Company by such Shareholder or his,
her or its representatives expressly for use therein or by such
Shareholder's or such Shareholder's agent's failure to deliver a copy of
the Registration Statement or Prospectus or any amendments or supplements
thereto after the Company has furnished such Shareholder with a sufficient
number of copies of the same), or (ii) the Company's failure to perform its
obligations under this Section 6.7. The Company will also indemnify
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, their officers
and directors and each Person who (within the meaning of the Act) controls
such Persons, to the same extent as provided above with respect to the
indemnification of the holders of Shares. Notwithstanding the foregoing,
the Company shall not be obligated to
A-43
<PAGE>
indemnify any holder of Shares (including the indemnified parties related
to such holders) with respect to any losses, claims, damages, liabilities
or expenses to the extent the same result from the breach by such holder of
the agreements set forth in the last paragraph of Section 6.3;
(b) in connection with any Registration in which any Shareholder is
participating, each such Shareholder will furnish to the Company in writing
such information with respect to such Shareholder as the Company reasonably
requests for use in connection with any Registration Statement or
Prospectus, and such Shareholder shall indemnify the Company, its directors
and officers, each underwriter and each Person who (within the meaning of
the Act) controls the Company or any such underwriter, and hold them
harmless, against any losses, claims, damages, liabilities and expenses
(which, subject to the limitations herein contained, shall include
reasonable attorneys' fees) resulting from (i) a breach by such
Shareholders of the provisions of the last paragraph of Section 6.3, (ii)
any untrue statement of a material fact or any omission to state a material
fact required to be stated therein or necessary to make the statements in
the Registration Statement or Prospectus or preliminary Prospectus or any
amendment or supplement thereto, in light of the circumstances under which
they were made, not misleading, to the extent (but only to the extent) that
such untrue statement or omission is contained in any information relating
to such Shareholder so furnished in writing by such Shareholder or his, her
or its representative specifically for inclusion therein, or (iii) such
Shareholder's failure to perform his obligations under this Section 6.7.
The Company shall be entitled to receive indemnities from underwriters,
selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as
provided above with respect to information with respect to such Persons so
furnished in writing by such Persons or their representatives specifically
for inclusion in any Prospectus or Registration Statement;
(c) any Person entitled to indemnification hereunder will:
(i) give prompt written notice to the indemnifying party after the
receipt by the indemnified party of a written notice of the
commencement of any action, suit, proceeding or investigation or any
threat thereof made in writing for which such indemnified party will
claim rights of indemnification or contribution pursuant to this
Section 6.7; provided, however, that the failure of any indemnified
party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under paragraphs (a) and (b) next
above, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice; and
(ii) unless in such indemnified party's reasonable judgment a
conflict of interest may exist between such indemnified and
indemnifying parties with respect to such claim, permit such
indemnifying party to unconditionally (but subject to the exceptions
herein contained) assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party.
If the defense is so assumed by the indemnifying party, the indemnifying
party shall lose its right to defend and settle the claim if it fails to
proceed diligently and in good faith with the defense of the claim. If the
defense of the claim is not so assumed by the indemnifying party, or if the
indemnifying party shall lose its right to defend and settle the third
party claim as provided in the previous sentence, the indemnified party
shall have the right to defend and settle the claim provided that the
indemnified party gives the indemnifying party not less than 10 days prior
written notice of any proposed settlement. If the defense is assumed by the
indemnifying party and is not lost as provided above, subject to the
provisions of the following sentence, the indemnifying party shall have the
right to defend and settle the claim. Notwithstanding the preceding
sentence, in connection with any settlement negotiated by an indemnifying
party, no indemnified party will be required by an indemnifying party (x)
to enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation, (y)
to enter into any settlement that attributes by its terms liability to the
indemnified party, or (z) to consent to the entry of any judgment that does
not include as a term thereof a full dismissal of the litigation or
proceeding with prejudice. An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel in any one
A-44
<PAGE>
jurisdiction for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and
any other of such indemnified parties with respect to such claim, in which
event the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels;
(d) if for any reason the rights of indemnification provided for in
paragraphs (a) and (b) of this Section 6.7 are unavailable to an
indemnified party as contemplated by such paragraphs (a) and (b), then the
indemnifying party in lieu of indemnification shall contribute to the
amount paid or payable by the indemnified party (which, subject to the
limitation provided in paragraph (c) next above, shall include legal fees
and expenses paid) as a result of such loss, claim, damage, liability or
expense in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying
party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations;
(e) the Company and the Shareholders agree that it would not be just and
equitable if contribution pursuant to paragraph (d) next above were
determined by pro rata allocation or other method of allocation which does
not take account of equitable considerations. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any Person not guilty of such
misrepresentation. The obligations of the holders of Shares to contribute
pursuant to paragraph 6.7(d) are several and not joint;
(f) if indemnification is available under this Section 6.7, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided in paragraphs (a) and (b) hereof without regard to (x) the
relative fault of the indemnifying party or indemnified party or (y) any
other equitable considerations.
6.8 Rule 144. Once the first Registration Statement filed by the Company
under the Act (other than any Registration on Form S-4 or S-8 or any form
substituting therefor, or in connection with the Employee Stock Option Plan or
to register shares primarily or exclusively for Transfer upon exercise of
options pursuant to this Agreement or in connection therewith or for an
offering of less than 5% of the common stock equity of the Company) has become
effective, the Company will file the reports required to be filed by it
pursuant to the Act and the Exchange Act, and the rules and regulations adopted
by the Commission thereunder, and will take such further actions as any
Shareholder may reasonably request, all to the extent required from time to
time to enable such Shareholder (subject, however, to the applicable
provisions, if any, of Article II hereof) to effect sales of Shares without
registration under the Act within the limitations of the exemption provided by
Rule 144, if applicable to the sale of Shares, or any similar rule or
regulation hereafter adopted by the Commission. At any reasonable time and upon
request of a Shareholder, the Company will deliver to that Shareholder a
written statement as to whether it has complied with such informational
requirements. Notwithstanding the foregoing, the Company may deregister any
class of its equity securities under Section 12 of the Exchange Act or suspend
its duty to file reports with respect to any class of its securities pursuant
to Section 15(d) of the Exchange Act if it is then permitted to do so pursuant
to the provisions of the Exchange Act and the rules and regulations thereunder.
6.9 Participation in Underwritten Registrations. No Shareholder may
participate in any underwritten Registration hereunder unless such Shareholder
has:
(a) agreed to sell its Shares on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to select the
underwriter pursuant to Sections 6.1 and 6.2 above; and
(b) accurately completed in a timely manner and executed all
questionnaires, powers of attorney, underwriting agreements and other
documents customarily required under the terms of such underwriting
arrangements.
6.10 Other Registration Rights. Except as granted herein to the Shareholders,
the Company will not grant any Person (including the Shareholders) any demand
or piggyback registration rights with respect to the shares of common stock of
the Company (or securities convertible into or exchangeable for, or options to
A-45
<PAGE>
purchase, shares of common stock of the Company), other than piggyback
registration rights that are not inconsistent with the terms of this Article
VI. Any right to prior or pro rata inclusion in a Registration Statement with
the Shares entitled to the benefits of this Article VI shall be deemed to be
inconsistent with the terms of this Article VI. Except as provided in Section
6.1(c), the Company shall not grant to any Person the right to piggyback on a
Demand Registration.
6.11 Amendments and Waivers. The provisions of this Article VI, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers of or consents to departures from the provisions hereof may not be
given, unless such amendment, modification, supplement, waiver or consent shall
have been approved by not less than 2/3 of the members of the Board of
Directors. Notwithstanding the foregoing:
(a) the provisions regarding Registrations, insofar as such provisions
affect the rights of GE Capital and the GE Capital Affiliates, may not be
amended, modified, supplemented, waived or departed from without the prior
written approval of GE Capital;
(b) the provisions regarding Registrations, insofar as such provisions
affect the rights of the Management Shareholders and Permitted Transferees,
may not be amended, modified, supplemented, waived or departed from without
the prior written approval of Management Shareholders and Permitted
Transferees holding at least a majority of the Shares then held by all
Management Shareholders and their Permitted Transferees;
(c) any amendment, modification, supplement, waiver or consent that
materially and adversely affects any Group differently from the other Group
shall require the prior written approval of the holders of at least a
majority of the Shares then held by all members of the Group so affected;
(d) an amendment, modification, supplement, waiver or consent to
departure from the provisions hereof with respect to a matter that relates
exclusively to the rights of holders of Shares whose Shares are being sold
pursuant to a Registration Statement, that relates to the Shares being so
sold, and that does not directly or indirectly affect the rights of the
other holders of Shares or Shares not being so sold, may be given by the
holders of a majority of the Shares being sold by such Shareholders; and
(e) no amendment, modification, supplement, waiver or consent to the
departure from its terms with respect to Section 6.7 shall be effective
with respect to any Registration against any holder of Shares who
participated in such Registration and is entitled to its protection unless
consented to in writing by such holder.
6.12 Inclusion of Vested Shares. Notwithstanding any provision of this
Article VI to the contrary, only Shares owned by a Management Shareholder or
Permitted Transferee which are Vested Shares may be included in any
Registration pursuant to the provisions of this Article VI.
6.13 Exception. Notwithstanding anything to the contrary contained in a
separate section of this Agreement, the provisions of this Article VI shall not
inure to the benefit of or be applicable to any Management Shareholder who (a)
first became party hereto after June 15, 1991 and (b) at the time he seeks to
assert any rights hereunder owns less than 10,000 Shares after taking into
account the split-up of the Company's common stock on April 2, 1990.
ARTICLE VII
Restrictive Covenants
7.1 Restrictive Covenants. In consideration of the issuance of Shares to him,
each Management Shareholder who is an employee of the Ward Group individually
covenants and agrees that:
(a) during the time that he is employed by a member of the Ward Group and
for a period of three years following the termination of his employment by
the Ward Group for any reason whatsoever other
A-46
<PAGE>
than discharge without Cause (or, in the case of Brennan, during the period
commencing on the date hereof and ending on the first to occur of (i) the
fifth anniversary of the date hereof, and (ii) the date, if any, on which
his employment with the Ward Group has been terminated by the Ward Group
without Cause), he shall not directly or indirectly, own, manage, operate,
join, control or participate in the ownership, management, operation or
control of, any Competing Business in any of the states of the United
States or any foreign countries in which any member of the Ward Group was
so engaged during the period of his employment and continues to be so
engaged at the time of the complained-of act; provided, however, that the
Board of Directors, by the affirmative vote of not less than 2/3 of its
members, may waive the foregoing provision on behalf of the Company;
provided, further, that the foregoing shall not restrict the Management
Shareholder's passive ownership of shares of stock of a Person which is
engaged in a Competing Business, as long as such Shares are listed on a
national securities exchange or traded in the over-the-counter market, such
shares are held for investment purposes only, and the Management
Shareholder does not own more than 2% of the outstanding shares of stock of
such Person; provided, further, that a former Management Shareholder who
has become employed by a Person which was not engaged in a Competing
Business at the time his employment with such Person commenced shall not be
deemed to have become engaged in a Competing Business by virtue of such
Person's having acquired a business which is a Competing Business after the
time such Management Shareholder's employment with such Person commenced,
as long as (x) the Competing Business is not a substantial part of the
acquired business, (y) the former Management Shareholder is not involved in
the affairs of such acquired business and is not an officer or director of
such Person, and (z) the former Management Shareholder is not the owner of
2% or more of the voting securities of such Person;
(b) during the time that he is employed by the Ward Group, and thereafter
following the termination of his employment by the Ward Group for any
reason whatsoever, he will not divulge to persons not employed by the Ward
Group or use for his own benefit or the benefit of Persons not employed by
the Ward Group, any Confidential Information.
7.2 Limitations on Restrictive Covenants. For the purposes of Section 7.1(b):
(a) information which is at any time Confidential Information shall cease
to be such, and each Management Shareholder shall thereafter be under no
obligations with respect thereto, at such time that:
(i) it shall be disclosed by the Ward Group to the public; or
(ii) it shall become known by the public other than by reason of the
disclosure thereof in violation of applicable confidentiality
agreements; and
(b) notwithstanding the provisions thereof, nothing contained therein
shall be construed to prohibit any Management Shareholder from making any
disclosure of information, either to his legal counsel in connection with
the defense of any claim, under this Agreement or otherwise, made by any
member of the Ward Group, or in connection with the enforcement of any
right, under this Agreement or otherwise, existing in favor of the
Management Shareholder against any member of the Ward Group, or to any
governmental agency to the extent that the Management Shareholder is
required by law to do so.
7.3 Return of Documents. Promptly on the termination of his employment with
the Ward Group for any reason, each Management Shareholder (or in the event of
his death, his personal representative) shall return to the Company any and all
copies (whether prepared by himself or by any member of the Ward Group), of
books, records, notes, materials, memoranda and other data pertaining to
Confidential Information, which are in his possession or control at the time of
termination of employment. Each Management Shareholder acknowledges that he
does not have, nor can he acquire, any property rights or claims to any of such
materials or the underlying data.
7.4 Cooperation. At the request of any member of the Ward Group made at any
time or from time to time hereafter, each Management Shareholder, or in the
event of his death, his personal representative, shall
A-47
<PAGE>
make, execute and deliver all applications, papers, assignments, conveyances,
instruments or other documents and shall perform or cause to be performed such
other lawful acts as any member of the Ward Group may deem necessary or
desirable to implement any of the provisions of this Article VII, and he shall
give testimony and cooperate with the Ward Group in any controversy or legal
proceedings involving any member of the Ward Group. The applicable member of
the Ward Group shall reimburse the Management Shareholder for his reasonable
expenses which are incurred in connection with the giving of any such
testimony.
7.5 Enforcement. Each Management Shareholder agrees and acknowledges that his
violation or breach of the covenants contained in this Article VII shall cause
the Company irreparable injury and, in addition to any other right or remedy
available to the Company at law or in equity, the Company shall be entitled to
enforcement by court injunction. Notwithstanding the foregoing sentence,
nothing herein shall be construed as prohibiting the Company from also pursuing
any other rights, remedies or defenses, for such breach or threatened breach
including receiving damages and attorney's fees. In addition to the foregoing,
in the event of a breach or violation of this Article VII by a former Type 2
Management Shareholder which occurs after the Company and/or the Designated
Management Optionees have purchased the Type 2 Management Shareholder's Shares
or those of his Permitted Transferees pursuant to Article III, to the extent
that the Purchase Price of the Shares purchased exceeds the Purchase Price
which would have been paid if his employment with the Ward Group had been
terminated for Cause by reason of a violation of Section 7.1, the Purchase
Price shall be reduced to such latter amount, and if at the time the Purchase
Price is so reduced the Type 2 Management Shareholder and his Permitted
Transferees shall have received payments on account of the Purchase Price
which, in the aggregate, exceed the amount to which they would have been
entitled by virtue of such reduction, they shall forthwith pay the difference
to the purchasers of such Shares. The election of any remedy shall not be
construed as a waiver on the part of the Company of any rights it might
otherwise have at law or in equity. Said rights and remedies shall be
cumulative.
7.6 Survival; Waiver of Offset. The provisions of this Article VII shall
survive any termination of this Agreement and shall run and inure to the
benefit of the Company, its successors and assigns. Each section of this
Article VII shall be construed as an agreement independent of any other
provision of this Agreement; and the existence of any claim or cause of action
of any Management Shareholder against any member of the Ward Group, whether
predicated or based upon this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of this Article VII.
7.7 Jurisdiction. Each Management Shareholder hereby consents to the personal
jurisdiction of the Circuit Court of Cook County, Illinois and to the United
States District Court for the Northern District of Illinois, Eastern Division,
for any legal proceedings instituted by the Company to enforce any of the
covenants or agreements of each Management Shareholder contained in this
Article VII, and waives any and all objections which he may have to venue or
the issuance of service of process in any such proceedings, or any claim of
forum non conveniens.
7.8 Construction. In the event any court shall finally hold that the time or
territory or any other provision of this Article VII constitutes an
unreasonable restriction against any Management Shareholder, each Management
Shareholder agrees that the provisions hereof shall not be rendered void, but
shall apply as to such time, territory, and other extent as such court may
judicially determine or indicate constitutes a reasonable restriction under the
circumstances involved.
7.9 Exception. Notwithstanding anything to the contrary contained in a
separate section of this Agreement, the restrictions contained in Section
7.1(a) do not apply to any Person who (i) if his Acquisition Date occurred on
or before June 15, 1991, at no time owned 5,000 or more shares after taking
into account the split up of the Company's common stock on April 2, 1990, or
(ii) if his Acquisition Date occurred after June 15, 1991, at no time owned
25,000 or more shares after taking into account the split up of the Company's
common stock on April 2, 1990.
A-48
<PAGE>
ARTICLE VIII
General Matters
8.1 Legend on Certificates. All certificates evidencing Shares (other than
certificates of beneficial interest issued by the Voting Trustee under the
Voting Trust Agreement and Shares purchased in a sale registered pursuant to an
effective registration statement) shall bear the following legend:
"The sale, transfer and encumbrance of the shares represented by this
Certificate are subject to a certain Stockholders Agreement among the
corporation and its shareholders, dated as of June 17, 1988. A copy of said
Agreement is on file in the office of the Secretary of the corporation. No
sale or other transfer of the shares represented by this Certificate may be
effected except pursuant to the terms of said Agreement. In addition, the
shares represented by this Certificate have not been registered under the
Securities Act of 1933, as amended. The shares represented by this
Certificate may not be sold or transferred in the absence of an effective
Registration Statement for the shares under the Securities Act of 1933 or
pursuant to an applicable exemption from registration. In connection with
any proposed sale or transfer of the shares pursuant to an exemption from
registration, the holder of the shares represented by this Certificate may
be required to deliver to the corporation an opinion of counsel
satisfactory to the corporation, or the corporation may require that it
shall have received an opinion of its counsel, that registration under said
Act is not required. In addition, the right to vote the shares represented
by this certificate is restricted in the manner provided in said Agreement.
The corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof
authorized to be issued by the corporation and the qualifications,
limitations or restrictions of such preferences and/or rights."
All certificates evidencing Shares purchased in a sale registered pursuant to
an effective registration statement (other than certificates of beneficial
ownership issued by the Voting Trustee under the Voting Trust Agreement) shall
bear the following legend:
"The sale, transfer and encumbrance of the shares represented by this
Certificate are subject to a certain Stockholders Agreement among the
corporation and its shareholders, dated as of June 17, 1988. A copy of said
Agreement is on file in the office of the Secretary of the corporation. No
sale or other transfer of the shares represented by this Certificate may be
effected except pursuant to the terms of said Agreement. In addition, the
right to vote the shares represented by this certificate is restricted in
the manner provided in said Agreement. The corporation will furnish without
charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights
of each class of stock or series thereof authorized to be issued by the
corporation and the qualifications, limitations or restrictions of such
preferences and/or rights."
Should the certificates evidencing Shares purchased in a sale registered
pursuant to an effective registration statement be subject to a Voting Trust
Agreement other than the June 20, 1988 Voting Trust Agreement, the date in the
immediately above legend shall be modified to reflect the date of the
applicable Voting Trust Agreement. Upon termination of this Agreement,
certificates for Shares (other than certificates of beneficial interest issued
by the Voting Trustee pursuant to the Voting Trust Agreement) may be
surrendered to the Company in exchange for new certificates without the
foregoing legend, but, if necessary, said new certificates shall bear that
portion of the foregoing legend which relates to compliance with the Act.
8.2 Termination and Amendment of Agreement. This Agreement shall be
terminated:
(a) by the Company with the approval of the Board of Directors and with
the written consent of the holders of not less than 66 2/3% of the
outstanding Shares of each class, acting separately as a class;
(b) upon a sale by the Ward Group of all or substantially all of their
aggregate assets (other than an intercompany sale within the Ward Group),
to a single purchaser or a related group of purchasers in a single
transaction or a related series of transactions;
A-49
<PAGE>
(c) upon a merger or consolidation of the Company as a result of which
the Shareholders' percentage of ownership of the surviving or resulting
entity is less than 50% of their percentage of ownership of the Company
immediately prior to such merger or consolidation; or
(d) upon a sale, to a single purchaser or a related group of purchasers,
in a single transaction or a related series of transactions, of not less
than 66 2/3% of the outstanding shares of common stock of the Company of
each class.
Termination of this Agreement shall not affect any rights or obligations which
arose prior to termination, nor shall it terminate Article VI or Article VII.
Except as otherwise provided in Section 6.11 and in the following sentence,
this Agreement may be amended by the Company with the consent of the holders of
not less than 66 2/3% of the outstanding Shares of each class, acting
separately as a class, but no such amendment shall adversely affect the method
of valuation of any Management Shareholder's Shares for the purposes of Article
III without his specific consent. From and after the date on which the number
of members of the Board of Directors which GE Capital has the right to
designate pursuant to Section 5.2 has been reduced pursuant to paragraph (b) or
(c) thereof, Section 5.3, and the conforming provisions of the By-laws of the
Company, may be amended or terminated in whole or in part from time to time,
upon the affirmative vote or consent of (x) a majority of the members of the
Board of Directors and (y) the holders of a majority of the then outstanding
Class A Shares. As long as the Voting Trust Agreement is in effect, the Voting
Trustee, and once the Voting Trust Agreement is no longer in effect, the
Designator, shall have the power, as attorney in fact, to act for each of the
Management Shareholders and each Permitted Transferee in connection with the
termination, or any amendment or restatement, of this Agreement which has been
authorized by the Shareholders as provided in this Section 8.2. Said power
shall be deemed to be coupled with an interest and shall be irrevocable.
8.3 Termination of Status as Management Shareholder. From and after the date
that a Management Shareholder ceases to own any Shares, except for the
provisions of Article VII, he shall no longer be deemed to be a Management
Shareholder for purposes of this Agreement and all rights he may have hereunder
(including, without limitation, the right to exercise any option herein
granted) shall terminate. For the purposes of this Section 8.3, a Management
Shareholder shall be deemed to own all Shares owned by his Permitted
Transferees.
8.4 Not an Employment Agreement. Nothing contained in this Agreement shall be
deemed or construed as creating any agreement of employment between a
Management Shareholder and any member of the Ward Group or a right of any
Management Shareholder to employment by any member of the Ward Group.
8.5 Indemnification. Concurrently herewith, the Company shall (and will cause
Ward to) enter into an indemnification agreement in the form of Exhibit A
hereto, with the Indemnitees.
8.6 Notices. All notices required hereunder shall be in writing and shall be
deemed served when delivered personally to the person for whom intended or sent
by confirmed facsimile, or two days after deposit in the United States Mail,
certified mail, return receipt requested, addressed to the persons for whom
intended at the following respective addresses:
The Company:
Montgomery Ward Plaza
Chicago, IL 60671-0042
Attention: President
Any Management Shareholder, Permitted Transferee
or GE Capital Affiliate, as the case may be:
at the last known address of said Management
Shareholder, Permitted Transferee or GE
A-50
<PAGE>
Capital Affiliate, as the case may be, as disclosed
by the books and records of the Company;
GE Capital:
260 Long Ridge Road
Stamford, CT 06902
Attention: General Manager, Corporate Finance Group
with a copy to:
Associate General Counsel, Corporate Finance
Group at the same address
and/or to such other persons and/or at such other addresses as may be
designated by written notice served in accordance with the provisions hereof.
8.7 Miscellaneous. The use of the singular or plural or masculine, feminine
or neuter gender shall not be given an exclusionary meaning and, where
applicable, shall be intended to include the appropriate number or gender, as
the case may be.
8.8 Counterparts. This Agreement may be executed in counterparts. Each of
such counterparts shall be deemed to be an original and all of such
counterparts, when taken together, shall constitute a single instrument.
8.9 Descriptive Headings. Title headings are for reference purposes only and
shall have no interpretative effect.
8.10 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. Any amendments
to this Agreement must be made in writing and duly executed by each of the
parties entitled to adopt said amendment or by an authorized representative or
agent of each such party, all as provided in Section 8.2.
8.11 Waivers. No action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as waiver of any preceding or succeeding breach and no failure by any
party to exercise any right or privilege hereunder shall be deemed a waiver of
such party's rights or privileges hereunder or shall be deemed a waiver of such
party's rights to exercise the same at any subsequent time or times hereunder.
The preceding sentence shall not apply to the failure of a party to exercise a
specific option granted to that party pursuant to the terms of this Agreement
within the period of time provided herein. Any waiver shall be in writing,
signed by the waiving party.
8.12 Binding Effect; Enforcement. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, their heirs, representatives,
successors and permitted assigns. Each Shareholder agrees and acknowledges that
its breach of any of the provisions contained in this Agreement would cause
irreparable injury and that monetary damages would be inadequate. Accordingly,
each Shareholder agrees that, in addition to all other legal rights and
remedies, the aggrieved party shall be entitled to specific performance of the
rights granted to it under this Agreement.
8.13 Applicable Law. This Agreement shall be governed as to validity,
construction and in all other respects by the internal laws of the State of
Delaware.
8.14 Severability. The invalidity of any provision of this Agreement or
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
A-51
<PAGE>
8.15 Resolution of Certain Ambiguities and Conflicts. In the event of any
ambiguity or conflict in this Agreement (i) with respect to whether any
particular Shares constitute Vested Shares, (ii) the Percentage of Vesting
applicable thereto, or (iii) the application of the provisions of Article III
to any particular Management Shareholder and his Permitted Transferees, the
ambiguity or conflict shall be resolved by the Designator in his sole
discretion.
8.16 Joinder by Brennan. In addition to executing this Agreement in his
individual capacity, Brennan (i) accepts his appointment herein as the
Designator, and (ii) in his capacity as Voting Trustee, agrees to vote all
Shares which are subject to the Voting Trust Agreement in the manner provided
in Article V.
8.17 Authority to Give Consents, Approvals, etc. As long as the Voting Trust
Agreement shall be in effect, any votes, approvals, waivers or consents of
Shareholders whose Shares are subject to the Voting Trust Agreement shall be
made by the Voting Trustee, rather than the beneficial owners of such Shares,
except that for the purposes of Sections 6.11(d) and (e) and Section 8.2(a),
the beneficial owner of such Shares, rather than the Voting Trustee, shall be
the Person to give such approval, waiver or consent.
A-52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
BFB ACQUISITION CORP. GENERAL ELECTRIC CAPITAL CORPORATION
By: _________________________________
By: _______________________________ Title: ______________________________
Title: ____________________________
_____________________________________
Bernard F. Brennan
Type 1 Management Shareholder,
Designator and Voting Trustee
The undersigned hereby executes a counterpart of this Agreement, is hereby
made a party to this Agreement, and joins in and agrees to be bound by the
provisions of this Agreement as a (Type 1 Management Shareholder) (Type 2
Management Shareholder) (Permitted Transferee) (GE Capital Affiliate) (strike
three).
_____________________________________
Signature
_____________________________________
Printed name
_____________________________________
Street address
_____________________________________
City, state, zip code
A-53
<PAGE>
SCHEDULE A
AND
EXHIBIT A
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT B
FORM OF NON-NEGOTIABLE SECURED PROMISSORY INSTALLMENT NOTE
$ , 19
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises to pay to
("Payee"), the principal sum of Dollars and Cents ($ ),
subject to Payee's continued compliance with the restrictive covenants set
forth in Article VII of the Stockholders' Agreement (as defined herein),
including without limitation, Sections 7.1, 7.3 and 7.5 thereof, in each case
to the extent applicable by their terms. The balance of principal from time to
time outstanding and unpaid hereunder shall bear interest from the date hereof
at the rate of % per annum. The balance of principal shall be payable in five
(5) equal annual installments of $ each on the first through fifth
anniversaries, both inclusive, of the Article III Closing Date (as defined in
that certain Stockholders' Agreement dated as of June 17, 1988, as heretofore
amended and restated, hereinafter referred to as the "Stockholders'
Agreement"), such that the first installment is due and payable on , 19 ,
the second installment is due and payable on , 19 , the third installment
is due and payable on , 19 , the fourth installment is due and payable on
, 19 , and the final installment is due and payable on , 19 .
Accrued interest on the principal sum shall be paid at the times above provided
for payment of principal.
Payee has sold shares of Class A Common Stock (the "Shares") of Montgomery
Ward Holding Corp., a Delaware corporation (the "Company"), to Maker pursuant
to Article III of the Stockholders' Agreement and the purchase price for such
Shares has been paid, in part, through delivery of this Note to Payee.
All payments on account of the indebtedness evidenced by this Note shall be
applied first to accrued and unpaid interest and the remainder to principal.
Payments shall be made to Payee at , or such other place as Payee
may from time to time designate in writing to Maker.
This Note is secured by a Pledge and Escrow Agreement of even date herewith
(the "Pledge Agreement") between Maker, as Pledgor thereunder, and Payee, as
Pledgee thereunder.
The unpaid principal balance may be prepaid, in whole or in part, at any time
from time to time, without penalty or premium and without notice to Payee. All
prepayments shall be applied against installments coming due in the inverse
order of their maturity.
The obligations hereunder are subordinated to all other indebtedness of Maker
to the extent provided in, and are subject to the provisions of, Article IV of
the Stockholders' Agreement. By way of clarification, and not limitation, Payee
shall be entitled to the benefits of Section 4.3 of the Stockholders'
Agreement.
It shall constitute an "Event of Default" hereunder: (a) if Maker shall fail
to pay any payment of principal or interest when due hereunder within thirty
(30) days from the date written notice from the Payee of such default is
received by Maker; provided, however, that the foregoing clause shall not apply
in the event that Maker does not make all or any portion of such payment in
accordance with Article IV of the Stockholders' Agreement, in which event Maker
shall provide notice that the limitations imposed by Article IV are in effect,
prior to the expiration of such thirty (30) day period, or (b) if an Event of
Default by Maker shall occur under the Pledge Agreement, as the same may be
amended from time to time.
If an Event of Default shall occur hereunder, Payee, at its option and
without notice to Maker, may declare the unpaid principal balance, together
with accrued interest thereon, immediately due and payable.
This Note is secured by, and entitled to the benefits of, the Pledge
Agreement, whereby Maker has pledged to Payee voting trust certificates
representing shares of Class A Common Stock (the "Collateral") of the
Company to secure Maker's obligations to Payee hereunder.
<PAGE>
Maker agrees to pay all reasonable expenses incurred by Payee in the
enforcing or endeavoring to enforce this Note and in connection with any
litigation involving Payee as a result of the security interest held by Payee.
Payee shall be entitled to receive payment in full of all interest accruing
hereon subsequent to the filing of a petition or the taking of any other action
commencing a bankruptcy, reorganization arrangement or other similar proceeding
or which would accrue but for such proceeding or action.
No delay or omission on the part of Payee in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise of
any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy.
Maker hereby expressly waives presentment for payment, acceptance, notice of
dishonor, protest and notice of protest.
Maker represents and agrees that the indebtedness evidenced by this Note has
been incurred for business purposes and constitutes a business loan within the
meaning of 815 Illinois Compiled Statutes Section 205/4(1)(c).
Any notice given hereunder shall be in accordance with the notice provisions
provided under the Pledge Agreement and shall be deemed given when given in
accordance with those provisions.
This Note has been delivered at Chicago, Illinois and shall be governed by
and construed in accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, Maker has caused this Note to be executed as of the day
and year first above written.
Maker:
MONTGOMERY WARD HOLDING CORP.
By: _________________________________
Chief Financial Officer
<PAGE>
ANNEX 2
VOTING TRUST AGREEMENT
This VOTING TRUST AGREEMENT ("Agreement") is entered into as of June 21,
1988, by and among BFB ACQUISITION CORP., a Delaware corporation (the
"Company"); BERNARD F. BRENNAN, as the voting trustee (in such capacity and
with his successor(s) being hereinafter referred to as the "Voting Trustee");
and the Company stockholders who are parties hereto (hereinafter referred to
individually as a "Stockholder" and collectively as the "Stockholders"), as
identified and listed on a certificate attested to by the Secretary of the
Company and maintained with the permanent records of the Company (the
"Certificate").
RECITALS
A. The Stockholders are the record and beneficial owners of the number of
shares of class A common stock, series 1, par value $0.01 per share, of the
Company, as are set forth on the Certificate;
B. The Company presently contemplates hereafter issuing shares of class A
common stock, series 2, par value $0.01 per share, of the Company to
stockholders who will hereafter become parties to this Agreement. The common
stock, series 1 and series 2, of the Company, will herein sometimes be referred
to collectively as the "Class A Common Stock" and the shares (whether series 1
or series 2) of the Class A Common Stock will herein sometimes be referred to
as the "Shares";
C. BFB Merger Sub Corp., a Delaware corporation and a direct wholly owned
subsidiary of the Company ("Merger Corp."); the Company; and Montgomery Ward &
Co., Incorporated, an Illinois corporation ("Wards"), have entered into a Plan
and Agreement of Merger, dated as of June 23, 1988, providing, among other
things, for the merger of Merger Corp. with and into Wards; and
D. The Voting Trustee and the Stockholders deem it necessary and advisable to
deposit the Shares with the Voting Trustee on the terms and conditions
hereinafter set forth in order to assure that the holders of the Shares vote
with a single voice with respect to all matters submitted to the vote of
stockholders of the Company.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Filing of Agreement with the Company; Availability for Inspection by
Stockholders. Copies of counterparts of this Agreement, signed by all the
Stockholders by their attorney-in-fact, and of every agreement supplemental to
this Agreement or amending this Agreement, shall be filed in the principal
office of the Company, which currently is located at One Montgomery Ward Plaza,
Chicago, Illinois 60671-0042 and in the registered office of the Company in the
State of Delaware, and shall be open to the reasonable inspection of any
Stockholder of the Company or beneficiary of the trust under this Agreement.
The "Voting Trust Certificates" (as defined in Section 3) issued as provided in
this Agreement shall be issued, received and held subject to all of the terms
of this Agreement and the respective Subscription Agreements executed by the
Stockholders pursuant to which such Stockholders acquired their Shares and a
certain Stockholders Agreement dated as of June 17, 1988 executed by the
Stockholders by their attorney-in-fact ("Stockholders Agreement").
2. Transfer of Shares.
(a) Each of the Stockholders, simultaneously with the "Closing" (as
defined in the Confidential Private Placement Memorandum referred to in the
Subscription Agreement to which such Stockholder is a party), is depositing
or causing to be deposited with the Voting Trustee (or with a national bank
or other bank with capital of at least $100,000,000 designated by the
Voting Trustee, from time to time
B-1
<PAGE>
(the "Custodian")) such Stockholder's Shares by delivery to the Voting
Trustee (or Custodian, if any) of a certificate (or certificates)
representing the Shares owned by such Stockholder, together with
appropriate stock powers transferring such certificate(s) to the Voting
Trustee, with any requisite stock transfer stamps annexed thereto. The
Stockholders and the Voting Trustee (or Custodian, if any) shall take such
action as is necessary to effect the transfer of the Shares to, and in the
name of, the Voting Trustee on the books of the Company, including the
immediate filing of this Agreement with the Secretary of the Company. The
certificate(s) for Shares so transferred and delivered to the Voting
Trustee pursuant to this Agreement shall be surrendered by the Voting
Trustee to the Company's treasurer or transfer agent, if any, and
cancelled, and a new certificate (or certificates) therefor shall be issued
to and held by the Voting Trustee in the name of "Bernard F. Brennan, as
Voting Trustee". Upon receipt by the Voting Trustee of the certificate(s)
for Shares and upon the transfer of the Shares into the name of the Voting
Trustee, the Voting Trustee shall hold the Shares, as stockholder of
record, subject to the terms and conditions of this Agreement.
(b) The Voting Trustee may designate a Custodian to act for and on behalf
of the Voting Trustee under this Agreement. If a Custodian is designated by
the Voting Trustee, such person shall be empowered, at the direction of the
Voting Trustee acting in any manner consistent with this Agreement, to deal
with Shares and Voting Trust Certificates on the Voting Trustee's behalf as
if the Custodian were the Voting Trustee. The Custodian's actions taken
pursuant to this Agreement, in accordance with the Voting Trustee's
instructions consistent with this Agreement, shall be deemed to be those of
the Voting Trustee.
3. Issuance of Voting Trust Certificates. Promptly after the Closing, the
Voting Trustee shall issue or cause to be issued by the Custodian, if any, to
each Stockholder, in exchange for the Shares delivered by him or her pursuant
to this Agreement, a Voting Trust Certificate(s) substantially in the form
annexed as Exhibit A hereto (the "Voting Trust Certificate(s)"), representing
in the aggregate the number of Shares delivered by the respective Stockholder.
Except as otherwise provided in this Agreement (including, without limitation,
Section 5), all options, rights of purchase, and other powers and privileges
affecting the Shares represented by the Voting Trust Certificates (including,
without limitation, those provided for in the Subscription Agreement and those
provided in the Stockholders Agreement) shall attach to the Voting Trust
Certificates issued pursuant to this Agreement which represent the Shares.
4. Authority of Voting Trustee to Vote the Shares, Enter Into Agreements.
(a) The Voting Trustee shall hold the Shares transferred to him pursuant
to Sections 2, 5 and 12 of this Agreement under the terms and conditions
set forth in this Agreement. As long as any of the Shares are subject to
this Agreement and until the actual delivery by the Voting Trustee (or
Custodian, if any), to the stockholders owning such Shares, of stock
certificates in exchange for Voting Trust Certificates, pursuant to Section
11(b) of this Agreement, the Voting Trustee shall have full power and
authority, and is hereby fully and exclusively empowered and authorized, to
vote in person or by proxy the Shares deposited pursuant to this Agreement
and transferred to him (including any changed or additional Shares, as
provided in Section 5) at all meetings of the stockholders of the Company
or to give written consents in lieu of voting such Shares in respect of any
and all matters on which Shares are entitled to vote, including without
limitation, the election of directors.
(b) The Voting Trustee's power to vote such Shares and give consents in
respect thereof pursuant to this Agreement shall be irrevocable for the
term of this Agreement. The Voting Trustee shall have the right to waive
notice of any meeting of stockholders of the Company in respect of such
Shares. The Voting Trustee may exercise any power or perform any act
pursuant to this Agreement by an agent or attorney duly authorized and
appointed by him.
(c) The Voting Trustee shall have full power and authority to execute,
deliver and perform the Stockholders Agreement and enter into any
amendments with respect thereto without notice to the Stockholders.
B-2
<PAGE>
(d) Nothing contained in this Agreement shall disqualify the Voting
Trustee or successor trustees from serving as such if the Voting Trustee
does any of the following, nor shall anyone serving in such capacity be
incapacitated from doing any of the following: (i) dealing or contracting
with the Company or any of its affiliates, either as a vendor, purchaser,
or otherwise, nor shall any transaction or contract be affected or
invalidated by reason of the fact that the Voting Trustee or any firm or
corporation affiliated with the Voting Trustee is in any way interested in
such transaction or contract; nor shall the Voting Trustee be liable to
account to the Company or to any stockholder thereof for any profits
realized by, from or through any transaction or contract by reason of the
fact that the Voting Trustee or any firm or corporation affiliated with the
Voting Trustee is interested in such transaction or contract; or (ii)
serving the Company or any of its affiliates as an officer or director, or
in any other capacity, and receiving compensation therefor.
(e) Anything elsewhere in this Agreement to the contrary notwithstanding,
the holders of Voting Trust Certificates, and not the Voting Trustee, shall
have the exclusive right to approve, waive or consent to the matters
referred to in Sections 6.11(d), 6.11(e) and 8.2(a) of the Stockholders
Agreement.
5. Receipt of Additional Stock Certificates.
(a) If the Voting Trustee shall receive any shares of the Company or any
successor or successors of the Company issued by way of dividend, split-up,
recapitalization, reorganization, merger, consolidation, or any other
change or adjustment in respect of the Shares held by him pursuant to this
Agreement, the Voting Trustee (or Custodian, if any) shall hold the stock
certificates representing such additional or changed shares, to the extent
that such shares have voting rights (including voting rights contingent
upon the occurrence of specified events), subject to the terms of this
Agreement and shall issue, or cause to be issued by the Custodian, if any,
Voting Trust Certificates representing such changed or additional stock
certificates to the respective holders of the then outstanding Voting Trust
Certificates entitled thereto. Any stock certificates of the Company or any
successor or successors of the Company issued to the Voting Trustee with
respect to the Shares that are subject to this Agreement which do not have
any such voting rights shall be delivered to the respective registered
holders of the then outstanding Voting Trust Certificates in proportion to
the number of Shares respectively represented by the Voting Trust
Certificates.
(b) The term "Shares", as used in this Agreement, shall, without limiting
the generality of anything elsewhere herein contained, include, in addition
to the Shares originally deposited with the Voting Trustee, all additional
shares of the Company or any successor or successors of the Company
deposited with the Voting Trustee, pursuant to Section 5(a) or retained by
the Voting Trustee pursuant to Section 7.
6. Dividends and Distributions. Except as otherwise provided in Section 5, if
the Company shall pay dividends or any distribution on or in respect of the
Shares, it shall pay the same to the Voting Trustee, who shall promptly
distribute, or cause the distribution to be made by the Custodian (if any) of,
the same among the holders of record of then outstanding Voting Trust
Certificates in proportion to the number of Shares in respect of which the
dividends are paid or distribution is made, which are respectively represented
by their Voting Trust Certificates.
7. Subscription for Securities of the Company. In case any shares or other
securities of the Company are offered for subscription to the holders of the
Shares, the Voting Trustee (or Custodian, if any), promptly upon receipt of
notice of such offer, shall mail a copy thereof to each holder of Voting Trust
Certificates. Upon actual receipt (any deemed receipt in accordance with
Section 13 notwithstanding) by the Voting Trustee, prior to the last day fixed
by the Company for subscription and payment, of a request so to subscribe from
such holder accompanied by the requisite sum of money and appropriate form
required to subscribe for such shares or securities, the Voting Trustee shall
make, or cause to be made, such subscription and payment. If the shares or
other securities so subscribed for are voting securities of the Company, the
certificates therefor shall be issued and held by the Voting Trustee (or
Custodian, if any), as stockholder of record, subject to the terms and
conditions of this Agreement and the Voting Trustee shall issue or cause to be
issued by the Custodian, if any, to the subscribing holder a Voting Trust
Certificate in respect thereof. If the shares or
B-3
<PAGE>
other securities so subscribed for are non-voting securities of the Company,
the certificates therefor shall be issued to the subscribing holder and the
Voting Trustee shall mail or deliver such certificates or, cause them to be
mailed and delivered by the Custodian, if any, to such holder.
8. No Compensation; Expenses. The Voting Trustee shall serve without
compensation, but shall be entitled to reimbursement as set forth in this
Agreement for expenses and charges which may be incurred as Voting Trustee,
including but not limited to the employment of the Custodian, if any, and such
agents, attorneys and counsel as the Voting Trustee may deem necessary and
proper for the carrying out of this Agreement, and all taxes or other
governmental charges paid or incurred as a result of the transfer or issuance
of any Class A Common Stock or Voting Trust Certificates or in respect of the
ownership of the Class A Common Stock held as trustee or in respect of any
dividends, distributions or other rights in respect of such stock. Any such
charges or expenses incurred shall be promptly reimbursed to the Voting Trustee
by the Company and the Voting Trustee shall have a first lien on any and all
distributions in respect of the Shares to secure the Voting Trustee's rights to
such reimbursements.
9. Exculpation; Indemnification of Voting Trustee. The Voting Trustee shall
not be liable by reason of any matter arising out of or in relation to this
Agreement, except for such loss or damage as the holders of Voting Trust
Certificates may suffer by reason of the Voting Trustee's willful misconduct,
and, without limiting the generality of the foregoing, the Voting Trustee shall
not be liable for any action taken, or omitted to be taken, by him in reliance
upon and in conformity with, the advice of counsel, or by reason of any error
of judgment or mistake of law or other mistake, or for any act or omission of
any agent or attorney, or for any misconstruction of this Agreement, or for any
action of any sort taken or omitted thereunder or believed by the Voting
Trustee to be in accordance with the provisions and intents hereof or
otherwise. The Voting Trustee shall be indemnified and held harmless by the
Company from and against any and all of the Voting Trustee's actions pursuant
to this Agreement, except for such Voting Trustee's willful misconduct. The
Voting Trustee shall not be required to give a bond or other security for the
faithful performance of his duties as such and shall be entitled to receive
prompt payments in respect of the indemnification provided by this Agreement in
advance of the final adjudication of any disputes relating thereto.
10. Successor Voting Trustee.
(a) So long as Bernard F. Brennan shall be a "Management Shareholder" (as
defined in the Stockholders Agreement), of the Company, he shall be the
Voting Trustee.
(b) For the purposes of this paragraph (b), all references to ownership
of Shares shall include the legal and beneficial ownership of Shares held
in the Voting Trust and a Stockholder shall be so deemed to own as well all
Shares owned by his "Permitted Transferees" (as defined in the Stockholders
Agreement). If any of the following events occurs with respect to Bernard
F. Brennan (each of such events being herein sometimes referred to as a
"Terminating Event"): he shall (i) cease to be a Management Shareholder,
(ii) die, (iii) resign as Voting Trustee, or (iv) be adjudicated
incompetent, then, upon the occurrence of such Terminating Event, the
Management Shareholder, who, from time to time, after the occurrence of the
Terminating Event, is both the owner of the largest number of Shares and an
employee of the "Wards Group" (as such term is defined in the Stockholders
Agreement), shall be the successor Voting Trustee; provided, however, that
after the first anniversary of the date of such Terminating Event, the
successor Voting Trustee shall consist of a committee comprised of said
Management Shareholder and the two most senior officers, from time to time,
(other than said Management Shareholder) of Wards who are also Management
Shareholders. Said committee shall act by the vote of a majority of its
members. So long as Bernard F. Brennan is serving as the Voting Trustee, he
may, at any time or from time to time, rescind, alter or amend, in whole or
in part, any or all of the provisions of this paragraph by written notice
to the Stockholders. Such rescissions, alterations or amendments shall
remain in force until the termination of this Agreement or for such shorter
period or periods as Bernard F. Brennan shall state in such notice or any
subsequent notice or notices served while he is serving as Voting Trustee.
(c) The rights, powers, privileges and obligations of the Voting Trustee
acting as such pursuant to this Agreement shall be possessed by any
successor Voting Trustee with the same effect as though such
B-4
<PAGE>
successor had originally been a party to this Agreement. The words "Voting
Trustee" as used in this Agreement mean the Voting Trustee or any successor
Voting Trustee acting under this Agreement.
11. Termination.
(a) The Voting Trust created by this Agreement shall be effective and
remain in force until the occurrence of the earliest of the following
events:
(i) the tenth anniversary of the date of this Agreement;
(ii) the election of the Voting Trustee to terminate this Agreement
by written notice to the holders of Voting Trust Certificates at any
time after the date of this Agreement; or
(iii) if there shall be no Voting Trustee in office, the failure of a
successor Voting Trustee to be designated as provided in this Agreement
or to serve for a period of 120 consecutive days.
(b) Upon the termination of the Voting Trust with respect to any or all
of the Shares (it being understood that a termination with respect to some
Shares shall not terminate the Voting Trust with respect to other Shares),
the Voting Trustee shall in exchange for, and upon the surrender of, the
Voting Trust Certificates representing such Shares, deliver or cause to be
delivered by the Custodian, if any, stock certificates to the holder of
such Voting Trust Certificates.
(c) If, in the event of the bankruptcy, receivership, dissolution or
total or partial liquidation of the Company, whether voluntary or
involuntary, the Voting Trustee shall receive any monies, securities and
property to which the respective registered holders of the then outstanding
Voting Trust Certificates shall be entitled, the Voting Trustee shall
distribute or cause the distribution to be made by the Custodian, if any,
of such monies, securities and property to the respective registered
holders of the then outstanding Voting Trust Certificates in proportion to
the number of Shares respectively represented by their Voting Trust
Certificates.
(d) The death, disability or incompetency of a holder of a Voting Trust
Certificate during the term of this Agreement shall in no way affect the
validity or enforceability of this Agreement or the Voting Trust
Certificates issued pursuant to this Agreement, which shall remain in full
force and effect.
(e) If the Company shall acquire any Voting Trust Certificates, the
Company may thereupon, at its option, deliver such Voting Trust
Certificates to the Voting Trustee (or Custodian, if any) and shall receive
in exchange the Common Stock or other securities represented by such Voting
Trust Certificates. Upon such exchange the Voting Trust Certificates so
delivered shall be cancelled. Any Voting Trust Certificates held by the
Company shall not be deemed to be outstanding.
12. Additional Parties. If any person who is not a Stockholder shall acquire
Class A Common Stock of record who desires, or who is required as a condition
to such acquisition, to enter into and become a party to this Agreement, the
parties to this Agreement hereby agree that such person, upon execution of a
counterpart to this Agreement, shall become a party to this Agreement and be
deemed to be a Stockholder for all purposes of this Agreement as if such person
had originally executed this Agreement, and the Voting Trust herein created
shall continue to remain in effect.
13. Notices. All notices, statements, instructions or other documents
required to be given in accordance with this Agreement, shall be in writing and
shall be given either personally or by mailing the same in a sealed envelope,
first-class mail postage prepaid and either registered or certified, return
receipt requested, addressed to, or sent by telegram, telex, confirmed telecopy
or similar form of confirmed telecommunication (with a copy to follow by mail):
If to the Voting Trustee:
Bernard F. Brennan
c/o BFB Acquisition Corp.
One Montgomery Ward Plaza
Chicago, Illinois 60671-0042;
B-5
<PAGE>
if a Custodian has been appointed and is serving, and the holders of Voting
Trust Certificates have been so notified, then a copy is to be sent to the
Custodian at the address provided in such notice; and if to the holders of the
Voting Trust Certificates, at their respective addresses as shown on the
records of the Voting Trustee (or Custodian, if any) or to such other addresses
as a holder or the Voting Trustee shall designate pursuant to notice in the
manner set forth in this Agreement. Notices sent by mail shall be deemed served
on the second day after being deposited in the mail. Notices sent by other
means in accordance with this Section 13 shall be deemed served upon receipt.
Notices to be sent to a successor Voting Trustee shall be sent to the person
and at the address designated by notice served in the manner herein provided.
14. Maintenance of Certificate. The Company shall from time to time make such
amendments to the Certificate as shall be necessary.
15. Entire Agreement. This Agreement constitutes the entire understanding
among the parties to this Agreement with respect to the subject matter of this
Agreement and no modification, amendment or waiver of any provision of this
Agreement shall be valid unless in writing signed by the Voting Trustee and
holders of Voting Trust Certificates representing the beneficial interest in a
majority of the shares of Class A Common Stock constituting Shares under this
Agreement.
16. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties to this Agreement and their respective heirs,
executors, administrators and permitted successors and assigns.
17. Governing Law. Regardless of the place of execution, this Agreement shall
be governed by and construed in accordance with the laws of the State of
Delaware (without regard to Delaware's conflicts of laws principles). Each
Stockholder agrees to submit to personal jurisdiction and to waive any
objection as to venue of federal courts in the Northern District of Illinois or
state courts in the County of Cook, State of Illinois. Service of process on a
Stockholder or Stockholders in any action arising out of or relating to this
Agreement shall be effective if served upon such Stockholder or Stockholders by
mail in accordance with Section 13.
18. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
19. Severability. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
THE COMPANY:
BFB ACQUISITION CORP.
By: _________________________________
Bernard F. Brennan, President
VOTING TRUSTEE:
-------------------------------------
Bernard F. Brennan
STOCKHOLDERS:
-------------------------------------
Bernard F. Brennan, as attorney-in-
fact for each Person named in the
Certificate
B-6
<PAGE>
EXHIBIT A
VOTING TRUST CERTIFICATE
FOR SHARES OF CLASS A COMMON STOCK,
PAR VALUE $0.01 PER SHARE,
OF
BFB ACQUISITION CORP.,
A DELAWARE CORPORATION
No. of Shares Certificate No.
Series
THIS IS TO CERTIFY THAT, on June 21, 1998 or upon the prior termination of a
certain Voting Trust Agreement, dated June 21, 1988, by and among BFB
Acquisition Corp.; Bernard F. Brennan, as Voting Trustee; and certain class A
common stockholders of BFB Acquisition Corp., pursuant to which agreement this
certificate has been issued,
will be entitled to receive
certificates, expressed to be fully-paid and non-assessable, for the number of
shares, and of the series, hereinabove specified (the "Shares") and for the
duration of such Voting Trust Agreement, to receive distributions equal to the
cash or property or nonvoting stock distributions, if any, collected by the
Voting Trustee (or Custodian, if any) upon a like number of the Shares standing
in the name of the Voting Trustee. Prior to the actual delivery of such
certificates, the Voting Trustee (or Custodian, if any), with respect to any
and all of the Shares shall possess and be entitled to exercise, in the manner
and to the extent provided in the aforesaid Voting Trust Agreement, all of the
rights of every kind of the holder of this certificate, including the right to
vote and take part in, or to consent to any corporate or stockholders' action,
it being expressly stipulated that no right to vote, or take part in, or to
consent to any corporate or stockholders' action, shall pass by, or under, this
certificate.
This certificate is not valid unless signed by the Voting Trustee or the
appointed Custodian. The holder hereof, by accepting this certificate,
manifests his consent that the undersigned Voting Trustee may treat the
registered holder hereof as the true owner for all purposes, except the
delivery of certificates for Shares, which delivery shall not be made without
the surrender hereof.
IN WITNESS WHEREOF, the undersigned, the Voting Trustee, has caused this
certificate to be signed as of the day of June, 1988.
VOTING TRUSTEE:
_____________________________________
Bernard F. Brennan
CUSTODIAN:
[ _________________________________ ]
By: _________________________________
Title: ______________________________
B-7
<PAGE>
The sale, assignment, transfer, pledge, hypothecation or other encumbrance of
this Voting Trust Certificate or the Class A Common Stock (or any interest
therein) represented hereby is subject to the restrictions, terms and
conditions set forth in the Voting Trust Agreement described in this
Certificate and pursuant to which this Certificate is issued, to a Subscription
Agreement, dated as of June 14, 1988, and a certain Stockholders Agreement
among the corporation, its shareholders and holders of Voting Trust
Certificates, dated June 17, 1988. A copy of said Stockholders Agreement is on
file in the office of the Secretary of the corporation. No sale, assignment,
transfer, pledge, hypothecation or other encumbrance of this Certificate, or
the shares of Class A Common Stock represented by this Certificate, may be
effected, except pursuant to the terms of said Stockholders Agreement. In
addition, this Certificate and/or the shares of Class A Common Stock
represented by this Certificate, as the case may be, may not be sold or
transferred in the absence of an effective Registration Statement (for the
interest in the Voting Trust represented by this Certificate or said shares of
Class A Common Stock represented hereby, as the case may be) under the
Securities Act of 1933 or pursuant to an applicable exemption from
registration. In connection with any proposed sale or transfer of this
Certificate, or the shares of Class A Common Stock represented hereby, as the
case may be, pursuant to an exemption from registration, the holder of this
Certificate, or shares of Class A Common Stock represented by this Certificate,
as the case may be, may be required to deliver to the corporation an opinion of
counsel satisfactory to the corporation, or the corporation may require that it
shall have received an opinion of its counsel, that registration under said Act
is not required. In addition, the right to vote the shares of Class A Common
Stock represented by this Certificate is restricted in the manner provided in
said Stockholders Agreement.
ASSIGNMENT
FOR VALUE RECEIVED, does
hereby sell, assign and transfer unto all of the
undersigned's right, title and interest in and to this Voting Trust
Certificate, and does hereby irrevocably constitute and appoint
to be the undersigned's attorney to transfer this
Voting Trust Certificate on the books of the within named Voting Trustee, with
full power of substitution in the premises.
Dated: __________________________ _____________________________________
Transferor's signature
IN PRESENCE OF ______________________
Witness' signature
Print name of witness:
B-8
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SO-
LICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JU-
RISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICI-
TATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Prospectus Summary........................................................ 4
Summary Financial Information............................................. 13
The Company............................................................... 14
Risk Factors.............................................................. 14
The Stockholders' Agreement............................................... 18
Certain Federal Income Tax Aspects........................................ 26
Use of Proceeds........................................................... 28
Dividends................................................................. 28
The Voting Trust Agreement................................................ 29
Selected Financial Data................................................... 32
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 33
Business.................................................................. 38
Properties................................................................ 44
Management................................................................ 46
Selling Shareholders...................................................... 57
Principal Shareholders.................................................... 57
Description of Equity Securities.......................................... 59
Determination of Offering Price........................................... 63
Plan of Distribution...................................................... 64
Limited Transferability of Shares......................................... 64
Legal Opinions............................................................ 64
Experts................................................................... 64
Index to Consolidated Financial Statements................................ F-1
Annex 1 The Stockholders' Agreement....................................... A-1
Annex 2 Voting Trust Agreement............................................ B-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MONTGOMERY WARD HOLDING CORP.
3,000,000 SHARES
CLASS A COMMON STOCK,
SERIES 1
($.01 PAR VALUE)
VOTING TRUST CERTIFICATES
REPRESENTING 3,000,000 SHARES
CLASS A COMMON STOCK,
SERIES 1
($.01 PAR VALUE)
---------------
P R O S P E C T U S
---------------
AUGUST 1, 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate (except for the Securities and Exchange
Commission filing fee) of the fees and expenses all of which are payable by the
Company in connection with the registration and sale of the Shares and Voting
Trust Certificates being registered.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee................... $ 3,000
Costs of printing and engraving................................. 370,000
Legal fees and expense.......................................... 74,000
Accounting fees and expenses.................................... 70,000
Blue Sky fees and expenses...................................... 32,000
Miscellaneous................................................... 5,000
--------
Total....................................................... $554,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware provides
that a Delaware corporation may indemnify any persons, including officers and
directors, who are, or threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person was an officer or
director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such officer or director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, for criminal proceedings, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation. Where an officer
or director is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director actually and reasonably incurred.
Article Seventh of the Certificate of Incorporation of the Company provides
for indemnification of its officers and directors to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person, in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Company and Montgomery Ward have agreed to indemnify Brennan, Pohlmann
and Dominic M. Mangone against any and all liability arising out of or in
connection with certain derivative actions which
II-1
<PAGE>
have been brought on behalf of holders of Mobil stock against Brennan, among
others, alleging, among other things, that the price paid by the Company for
the stock of Montgomery Ward was grossly inadequate. Messrs. Brennan and
Pohlmann are each officers or directors of the Company. Brennan was an officer
and director of Montgomery Ward prior to the acquisition of Montgomery Ward by
the Company. Messrs. Mangone and Pohlmann were each officers of Montgomery Ward
prior to the acquisition of Montgomery Ward by the Company.
Pursuant to the Stock Purchase Agreement, Mobil and Marcor have released
Messrs. Brennan, Mangone and Pohlmann from any liability to Mobil or Marcor
arising out of or based upon any act or omission of such persons participating
in the offering for sale, or in the sale and purchase of Montgomery Ward. In
addition, Mobil's by-laws provide that it will "indemnify to the full extent
permitted by . . . . the laws of the State of Delaware, any person
made . . . . a party to any action or proceeding . . . . by reason of the fact
that he . . . . served any other enterprise as a director or officer at the
request of [Mobil]."
Pursuant to the Certificate of Incorporation and the By-Laws of GE Capital,
those directors of the Company who are executive officers of GE Capital may be
entitled to indemnification by GE Capital for their acts as officers of GE
Capital, including, without limitation, for serving on the Board of Directors
of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued securities without
registration under the Securities Act of 1933 as set forth below.
(1) On July 8, 1991, the Company issued 609 Series 1 Shares to each of Silas
S. Cathcart and Myron Lieberman pursuant to the Company's Directors Plan.
Exemption from registration was claimed under Section 4(2) of the Act,
regarding transactions by an issuer not involving any public offering.
(2) On October 8, 1991, the Company issued 507 and 609 Series 1 Shares,
respectively, to each of Silas S. Cathcart and Myron Lieberman pursuant to the
Company's Directors Plan. Exemption from registration was claimed under Section
4(2) of the Act, regarding transactions by an issuer not involving any public
offering.
(3) On January 8, 1992, the Company issued 496 and 596 Series 1 Shares,
respectively, to each of Silas S. Cathcart and Myron Lieberman pursuant to the
Company's Directors Plan. Exemption from registration was claimed under Section
4(2) of the Act, regarding transactions by an issuer not involving any public
offering.
(4) On April 8, 1992, the Company issued 320 and 480 Series 1 Shares,
respectively, to each of Silas S. Cathcart and Myron Lieberman pursuant to the
Company's Directors Plan. Exemption from registration was claimed under Section
4(2) of the Act, regarding transactions by an issuer not involving any public
offering.
(5) On June 8, 1992, the Company issued 480 Series 1 Shares to each of Silas
S. Cathcart and Myron Lieberman pursuant to the Company's Directors Plan.
Exemption from registration was claimed under Section 4(2) of the Act,
regarding transactions by an issuer not involving any public offering.
(6) On October 8, 1992, the Company issued 480 Series 1 Shares to Myron
Lieberman pursuant to the Company's Directors Plan. Exemption from registration
was claimed under Section 4(2) of the Act, regarding transactions by an issuer
not involving any public offering.
II-2
<PAGE>
(7) On January 8, 1993, the Company issued 400 and 480 Series 1 Shares,
respectively, to each of Silas S. Cathcart and Myron Lieberman pursuant to the
Company's Directors Plan. Exemption from registration was claimed under Section
4(2) of the Act, regarding transactions by an issuer not involving any public
offering.
(8) On March 19, 1993, the Company issued 320 Series 1 Shares to Silas S.
Cathcart pursuant to the Company's Directors Plan. Exemption from registration
was claimed under Section 4(2) of the Act, regarding transactions by an issuer
not involving any public offering.
(9) On April 8, 1993, the Company issued 333 and 400 Series 1 Shares,
respectively, to each of Silas S. Cathcart and Myron Lieberman pursuant to the
Company's Directors Plan. Exemption from registration was claimed under Section
4(2) of the Act, regarding transactions by an issuer not involving any public
offering.
(10) On July 8, 1993, the Company issued 400 Series 1 Shares to each of Silas
S. Cathcart and Myron Lieberman pursuant to the Company's Directors Plan.
Exemption from registration was claimed under Section 4(2) of the Act,
regarding transactions by an issuer not involving any public offering.
(11) On October 8, 1993, the Company issued 333 and 400 Series 1 Shares,
respectively, to each of Silas S. Cathcart and Myron Lieberman pursuant to the
Company's Directors Plan. Exemption from registration was claimed under Section
4(2) of the Act, regarding transactions by an issuer not involving any public
offering.
(12) On January 8, 1994, the Company issued 333 and 400 Series 1 Shares,
respectively, to each of Silas S. Cathcart and Myron Lieberman pursuant to the
Company's Directors Plan. Exemption from registration was claimed under Section
4(2) of the Act, regarding transactions by an issuer not involving any public
offering.
(13) On April 8, 1994, the Company issued 283 and 339 Series 1 Shares,
respectively, to each of Silas S. Cathcart and Myron Lieberman pursuant to the
Company's Directors Plan. Exemption from registration was claimed under Section
4(2) of the Act, regarding transactions by an issuer not involving any public
offering.
(14) On July 8, 1994, the Company issued 283 and 341 Series 1 Shares,
respectively, to each of Silas S. Cathcart and Myron Lieberman pursuant to the
Company's Directors Plan. Exemption from registration was claimed under Section
4(2) of the Act, regarding transactions by an issuer not involving any public
offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1. None.
2.(i)(A) Agreement and Plan of Merger dated March 17, 1994 by and among
Montgomery Ward & Co., Incorporated, MW Merger Corp., LMR
Acquisition Corporation, Lechmere, Inc. and stockholders of LMR
Acquisition Corporation executing counterparts of this
agreement, incorporated by reference to Exhibit 2.1(A)/2.(ii) to
the Company's Annual Report on Form 10-K for the fiscal year
ended January 1, 1994.
2.(ii) Agreement of Purchase and Sale of Stock dated February 24, 1994
among Signature Financial/Marketing, Inc., Greater California
Dental Services Plan, Inc. and National Dental Services, Inc.,
incorporated by reference to Exhibit 2.1(A)/2.(ii) to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 1, 1994.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of Registrant, dated
June 24, 1988, as amended, incorporated by reference to Ex-
hibit 3(a) of the Company's Registration Statement on Form S-
1 (Registration No. 33-23403).
*3.2 Certificate of Amendment to Certificate of Incorporation.
3.2(i) Certificate of Amendment to Certificate of Incorporation, in-
corporated by reference to Exhibit 3.2(i) of the Company's
Annual Report on Form 10-K for the fiscal year ended December
28, 1991.
3.2(ii) Certificate of Amendment to Certificate of Incorporation,
filed April 27, 1994.
3.2(iii) Third Restated Certificate of Incorporation of Registrant,
filed June 28, 1994.
3.3 Restated By-laws of Registrant, as amended through January
21, 1991, incorporated by reference to Exhibit 3.3 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1990.
3.3(i) Amended and Restated By-Laws of the Registrant, dated April
15, 1994.
4. *(a)(i) Specimen of Class A Common Stock, Series 1, Stock
Certificate.
*(a)(ii) Specimen of Voting Trust Certificate.
(b) Article FOURTH of the Certificate of Incorporation, in-
corporated by reference to Exhibit 3.2 (iii) hereto.
(c) Stockholders' Agreement, as amended and restated, incor-
porated by reference to Annex 1 of the Prospectus contained
in this Registration Statement.
5. Opinion of Counsel regarding validity of Class A Common
Stock, Series 1.
6. Not applicable.
7. Not applicable.
8. Opinion of Counsel regarding tax matters (included in the
opinion filed as Exhibit 5 hereto).
9. Voting Trust Agreement dated as of June 21, 1988, incorpo-
rated by reference to Annex 2 of the Prospectus contained in
this Registration Statement.
10.(i)(A) All documents filed as exhibits under item (4) above.
10.(i)(B) Stock Purchase Agreement dated March 6, 1988 between Mobil
Corporation, Marcor Inc. and BFB Acquisition Corp. incorpo-
rated by reference to Exhibit 10.(i)(B) of the Company's Reg-
istration Statement on Form S-1 (Registration No. 33-23403).
10.(i)(C) Amended and Restated Credit Agreement dated as of September
22, 1992 among Montgomery Ward & Co., Incorporated, various
banks, Continental Bank N.A., as Documentary Agent, The Bank
of Nova Scotia, as Administrative Agent and the Bank of New
York as Negotiated Loan Agent, incorporated by reference to
Exhibit 10.(i)(C) of the Company's Form 8-K on September 22,
1992.
10.(i)(C)(1) First Amendment dated as of September 22, 1993 to the Amended
and Restated Credit Agreement dated as of September 22, 1992
among Montgomery Ward & Co., Incorporated, various banks,
Continental Bank N.A. as Documentary Agent, The Bank of Nova
Scotia as Administrative Agent, and the Bank of New York as
Negotiated Loan Agent, incorporated by reference to Exhibit
10.(i)(C)(1) of the Company's Quarterly Report on Form 10-Q
for the fiscal quarterly period ended October 2, 1993.
</TABLE>
- --------
*Previously filed as an Exhibit to the Registration Statement.
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.(i)(E) Short Term Credit Agreement dated as of September 22, 1992
among Montgomery Ward & Co., Incorporated, various banks,
Continental Bank N.A. as Documentary Agent, The Bank of
Nova Scotia as Administrative Agent, and the Bank of New
York as Negotiated Loan Agent, incorporated by reference to
Exhibit 10.(i)(E) of the Company's Form 8-K on September
22, 1992.
10.(i)(E)(1) First Amendment dated as of September 22, 1993 to the Short
Term Credit Agreement dated as of September 22, 1992 among
Montgomery Ward & Co., Incorporated, various banks, Conti-
nental Bank N.A. as Documentary Agent, The Bank of Nova
Scotia as Administrative Agent, and the Bank of New York as
Negotiated Loan Agent, incorporated by reference to Exhibit
10.(i)(E)(1) of the Company's Quarterly Report on Form 10-Q
for the fiscal quarterly period ended October 2, 1993.
10.(i)(E)(2) Extension request letter dated September 22, 1993 from
Montgomery Ward & Co., Incorporated addressed to all banks
who are parties to the Short Term Agreement, and the re-
plies of all such banks to such requests, incorporated by
reference to Exhibit 10.(i)(E)(2) of the Company's Annual
Report on Form 10-K for the fiscal year ended January 1,
1994.
10.(i)(F) Note Purchase Agreements dated March 1, 1993 between Mont-
gomery Ward & Co., Incorporated and various lenders, incor-
porated by reference to Exhibit 10.(i)(F) of the Company's
Annual Report on Form 10-K for the fiscal year ended Janu-
ary 2, 1993.
10.(i)(G) Term Loan Agreement dated as of November 24, 1993 among
Montgomery Ward & Co., Incorporated, various banks, The
First National Bank of Chicago, as Documentary Agent, The
Bank of Nova Scotia, as Administrative Agent, and The Bank
of New York as Negotiated Loan Agent, incorporated by ref-
erence to Exhibit 10.(i)(G) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 1, 1994.
10.(ii)(A) Stock Purchase Agreement dated June 22, 1988 between Gen-
eral Electric Capital Corporation and Montgomery Ward &
Co., Incorporated, incorporated by reference to Exhibit
10.(ii)(A) of the Company's Registration Statement on Form
S-1 (Registration No. 33-23403).
10.(ii)(B) Account Purchase Agreement dated June 24, 1988 by and be-
tween Montgomery Ward Credit Corporation and Montgomery
Ward & Co., Incorporated, incorporated by reference to Ex-
hibit 10.(ii)(B) of the Company's Registration Statement on
Form S-1 (Registration No. 33-23403).
*10.(ii)(B)(1) Letter Agreement dated April 21, 1989, by and between Mont-
gomery Ward Credit Corporation and Montgomery Ward & Co.,
Incorporated (amending the Account Purchase Agreement which
is Exhibit 10.(ii)(B) hereto).
*10.(ii)(B)(2) Amendment to Account Purchase Agreement dated December 26,
1989 by and between Montgomery Ward & Co., Incorporated and
Montgomery Ward Credit Corporation.
*10.(ii)(B)(3) Letter Agreement dated April 24, 1990 by and between Mont-
gomery Ward & Co., Incorporated and Montgomery Ward Credit
Corporation.
10.(ii)(B)(4) Letter Agreement dated December 26, 1990, by and between
Montgomery Ward Credit Corporation and Montgomery Ward &
Co., Incorporated, incorporated by reference to Exhibit
10.(ii)(D) of the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 1990.
10.(ii)(B)(5) Fifth Amendment to Account Purchase Agreement dated May 23,
1992 by and between Montgomery Ward & Co., Incorporated and
Montgomery Ward Credit Corporation, incorporated by refer-
ence to Exhibit 10.(ii)(E) of the Company's Quarterly Re-
port on Form 10-Q for the fiscal quarterly period ended
June 27, 1992.
</TABLE>
- --------
*Previously filed as an Exhibit to the Registration Statement.
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.(ii)(B)(6) Amendment dated May 23, 1992 to Letter Agreement dated
June 24, 1988 (Signature Credit Agreement) by and among
Signature Financial/Marketing, Inc., Montgomery Ward &
Co., Incorporated and Montgomery Ward Credit Corpora-
tion, incorporated by reference to Exhibit 10.(ii)(F) of
the Company's Quarterly Report on Form 10-Q for the fis-
cal quarterly period ended June 27, 1992.
10.(ii)(B)(7) Letter Agreement dated December 29, 1992 by and between
Montgomery Ward & Co., Incorporated and Montgomery Ward
Credit Corporation, incorporated by reference to Exhibit
10.(ii)(6) of the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993.
10.(ii)(B)(8) Amendment to Account Purchase Agreement dated April 29,
1993 by and between Montgomery Ward & Co., Incorporated
and Montgomery Ward Credit Corporation, incorporated by
reference to Exhibit 10.(ii)(H) of the Company's Quar-
terly Report on Form 10-Q for the fiscal quarterly pe-
riod ended April 3, 1993.
10.(ii)(B)(9) Letter Agreement dated September 15, 1993, by and be-
tween Montgomery Ward Credit Corporation and Montgomery
Ward & Co., Incorporated, incorporated by reference to
Exhibit 10.(ii)(G)(2) of the Company's Annual Report on
Form 10-K for the fiscal year ended January 1, 1994.
10.(ii)(B)(10) Ninth Amendment to Account Purchase Agreement dated Feb-
ruary 16, 1994 by and between Montgomery Ward & Co., In-
corporated and Montgomery Ward Credit Corporation, in-
corporated by reference to Exhibit 10.(ii)(H) of the
Company's Annual Report on Form 10-K for the fiscal year
ended January 1, 1994.
10.(ii)(B)(11) Tenth Amendment to Account Purchase Agreement dated June
16, 1994, by and between Montgomery Ward Credit Corpora-
tion and Montgomery Ward & Co., Incorporated.
10.(ii)(C) Letter Agreement dated June 24, 1988 among Signature
Financial/Marketing, Inc., Montgomery Ward Credit Corpo-
ration and Montgomery Ward & Co., Incorporated, incorpo-
rated by reference to Exhibit 10.(ii)(C) of the
Company's Registration Statement on Form S-1 (Registra-
tion No. 33-23403).
10.(ii)(C)(1) Amendment dated May 23, 1992 to Letter Agreement by and
among Signature Financial/Marketing, Inc., Montgomery
Ward & Co., Incorporated and Montgomery Ward Credit Cor-
poration, incorporated by reference to Exhibit
10.(ii)(E) of the Company's Quarterly Report on Form 10-
Q for the fiscal quarterly period ended June 27, 1992.
10.(ii)(C)(2) Second Amendment dated June 16, 1994 to Signature Credit
Agreement by and among Signature Financial/Marketing,
Inc., Montgomery Ward & Co., Incorporated and Montgomery
Ward Credit Corporation.
10.(iv)(A) Montgomery Ward & Co., Incorporated Stock Ownership
Plan, incorporated by reference to Exhibit 10.(iv)(A) of
the Post-Effective Amendment No. 2 of the Company's Reg-
istration Statement on Form S-1 (Registration No. 33-
23403).
*10.(iv)(A)(i) Amendments to Montgomery Ward & Co., Incorporated Stock
Ownership Plan adopted December 22, 1989.
10.(iv)(A)(ii) Amendments to Montgomery Ward & Co., Incorporated Stock
Ownership Plan, incorporated by reference to Exhibit
10.(iv)(A)(ii) of the Company's Registration Statement
on Form S-1 (Registration No. 33-41161).
10.(iv)(A)(ii)(a) Montgomery Ward & Co., Incorporated Stock Ownership
Plan, as amended and restated May 20, 1994.
</TABLE>
- --------
*Previously filed as an Exhibit to the Registration Statement.
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.(iv)(A)(iii) Montgomery Ward & Co., Incorporated Stock Ownership Plan
Terms and Conditions as amended and restated, incorpo-
rated by reference to Annex 3 of the Prospectus contained
in the Company's Registration Statement on Form S-1 (Reg-
istration No. 33-41161).
10.(iv)(A)(iv) Amendment No. 7 to the Montgomery Ward & Co., Incorpo-
rated Stock Ownership Plan Terms & Conditions adopted Oc-
tober 25, 1991 incorporated by reference to Exhibit
10.(i)(A)(10) of the Company's Quarterly Report on Form
10-Q for the fiscal quarterly period ended September 28,
1991.
10.(iv)(A)(v) Montgomery Ward & Co., Incorporated Stock Ownership Plan
Terms and Conditions, as amended and restated May 20,
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 (Regis-
tration No. 33-23403).
10.(iv)(B)(i) Montgomery Ward & Co., Incorporated Executive Long-Term
Incentive Plan.
10.(iv)(C) Montgomery Ward & Co., Incorporated Performance Manage-
ment 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 Per-
formance Management Program.
10.(iv)(D) Montgomery Ward & Co., Incorporated Retirement Security
Plan (as amended and restated effective as of January 1,
1989) incorporated by reference to Exhibit 10.(iv)(D) of
the Post-Effective Amendment No. 3 to the Company's Reg-
istration Statement on Form S-1 (Registration No. 33-
23403).
10.(iv)(E) Montgomery Ward & Co., Incorporated Supplemental Retire-
ment Plan incorporated by reference to Exhibit 10.(iv)(E)
of the Company's Registration Statement on Form S-1 (Reg-
istration No. 33-23403).
10.(iv)(F) Montgomery Ward & Co., Incorporated Savings and Profit
Sharing Plan (as amended and restated as of January 1,
1989) incorporated by reference to Exhibit 10.(iv)(F) of
the Post-Effective Amendment No. 3 to the Company's Reg-
istration Statement on Form S-1 (Registration No. 33-
23403).
10.(iv)(G) 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)(H) 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)(I) Montgomery Ward & Co., Incorporated Success Plan.
10.(vi) Employment Agreement effective January 14, 1991 between
Montgomery Ward & Co., Incorporated and Bernard W. An-
drews, incorporated by reference to Exhibit 10.(vi) of
the Company's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994.
10.(vii) Agreement effective October 21, 1991 between Montgomery
Ward & Co., Incorporated and Fingerhut Companies, Inc.,
incorporated by reference to Exhibit 10.(vii) of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 1991.
</TABLE>
- --------
*Previously filed as an Exhibit to the Registration Statement.
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.(viii) Line of Credit Agreement effective November 19, 1991 between
Montgomery Ward & Co., Incorporated and The Northern Trust
Company and The First National Bank of Chicago, incorporated
by reference to Exhibit 10.(viii) of the Company's Annual Re-
port on Form 10-K for the fiscal year ended December 28, 1991.
10.(ix) Employment Agreement effective September 3, 1992 between Mont-
gomery Ward & Co., Incorporated and Harold Kahn, incorporated
by reference to Exhibit 10.(ix) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 1993.
10.(x) Employment Agreement effective September 17, 1992 between
Montgomery Ward & Co., Incorporated and Leslie A. Ball, incor-
porated by reference to Exhibit 10.(x) of the Company's Annual
Report on Form 10-K for the fiscal year ended January 2, 1993.
10.(xi) Employment Agreement effective November 1, 1991 between Mont-
gomery Ward & Co., Incorporated and Richard Bergel, incorpo-
rated by reference to Exhibit 10.(xi) of the Company's Annual
Report on Form 10-K for the fiscal year ended January 2, 1993.
10.(xi)(A) Employment Agreement dated March 1, 1994 between Montgomery
Ward & Co., Incorporated and Richard Bergel.
10.(xii) Employment Agreement effective December 31, 1993 between Mont-
gomery Ward & Co., Incorporated and Robert F. Connolly, incor-
porated by reference to Exhibit 10.(ix) of the Company's An-
nual Report on Form 10-K for the fiscal year ended January 1,
1994.
11. Statement regarding computation of per share earnings incorpo-
rated by reference to Exhibit 11 of the Company's Annual Re-
port on Form 10-K for the fiscal year ended January 1, 1994.
12. Not applicable.
14. Not applicable.
15. Not applicable.
*21. Subsidiaries of the Registrant.
23. Consents of Experts and Counsel.
(a) The consent of Arthur Andersen & Co.
(b) The consent of Altheimer & Gray is included in that firm's
opinion as Exhibit 5 hereto.
*24. Powers of attorney executed by the following Directors and Of-
ficers of Montgomery Ward Holding Corp. authorizing execution
of the Registration Statement on Form S-1 and amendments, in-
cluding post-effective amendments, thereto:
(a) Bernard F. Brennan
(b) Richard Bergel
(c) Myron Lieberman
(d) Denis J. Nayden
*24.(A) Power of Attorney dated May 24, 1990, executed by James A.
Parke authorizing execution of post-effective amendments to
the Registration Statement on Form S-1.
*24.(C) Power of Attorney dated May 19, 1993, executed by Spencer H.
Heine authorizing execution of post-effective amendments to
the Registration Statement on Form S-1.
</TABLE>
- --------
*Previously filed as an Exhibit to the Registration Statement.
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
24.(D) Power of Attorney dated July 26, 1994, executed by Bernard W.
Andrews authorizing execution of post-effective amendments to
the Registration Statement on Form S-1.
25. Not applicable.
26. Not applicable.
27. Financial Statement Schedules, incorporated by reference to Ex-
hibit 27 of the Company's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994.
28. Not applicable.
</TABLE>
- --------
*Previously filed as an Exhibit to the Registration Statement.
(b) Financial Statement Schedules:
II. Amounts Receivable from Related Parties and Underwriters, Promoters, and
Employees Other than Related Parties, incorporated by reference to Exhibit
27.
IX. Short-Term Borrowings, incorporated by reference to Exhibit 27.
Schedules not included have been omitted because they are not applicable, not
required, not material, or the required information is given in the financial
statements or notes thereto or combined with the information presented in other
schedules or exhibits.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Registrant pursuant
to the foregoing provisions, otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person, in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes:
(a) to file, during any period in which offers or sales are being made of
the securities offered herein, a post-effective amendment to this
Registration Statement;
(i) to include any prospectus required by section 10(a)(3) of the
Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information set forth in this Registration
Statement.
(b) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-9
<PAGE>
(c) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that:
(a) For purposes of determining liability under the Act, the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430 A under the Act and continued in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(b) For purposes of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT NO. 6 TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, AND STATE
OF ILLINOIS, ON THE 1ST DAY OF AUGUST, 1994.
Montgomery Ward Holding Corp.
/s/ John L. Workman
By:__________________________________
John L. Workman
Executive Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT NO. 6 HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON AUGUST 1, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Bernard F. Brennan*
Chairman of the Board of Directors and
Chief Executive Officer, and a Director
/s/ John L. Workman
- -------------------------------------------
John L. Workman Executive Vice President and Chief
Financial Officer
Bernard W. Andrews*
President and Chief Operating Officer and a
Director
Richard Bergel*
Vice Chairman and a Director
Spencer H. Heine*
Executive Vice President, Secretary and
General Counsel and a Director
Myron Lieberman*
Director
Denis J. Nayden*
Director
James A. Parke*
Director
/s/ Edwin G. Pohlmann
*By:_________________________________
Edwin G. Pohlmann
Attorney-in-Fact
- -------------------------------------------
Silas S. Cathcart Director
- -------------------------------------------
David D. Ekedahl Director
</TABLE>
II-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
1. None.
2.(i)(A) Agreement and Plan of Merger dated March 17, 1994 by
and among Montgomery Ward & Co., Incorporated, MW
Merger Corp., LMR Acquisition Corporation, Lechmere,
Inc. and stockholders of LMR Acquisition Corporation
executing counterparts of this agreement, incorporated
by reference to Exhibit 2.1(A)/2.(ii) to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 1, 1994.
2.(ii) Agreement of Purchase and Sale of Stock dated February
24, 1994 among Signature Financial/Marketing, Inc.,
Greater California Dental Services Plan, Inc. and
National Dental Services, Inc., incorporated by
reference to Exhibit 2.1(A)/2.(ii) to the Company's
Annual Report on Form 10-K for the fiscal year ended
January 1, 1994.
3.1 Restated Certificate of Incorporation of Registrant,
dated June 24, 1988, as amended, incorporated by refer-
ence to Exhibit 3(a) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
*3.2 Certificate of Amendment to Certificate of Incorpora-
tion.
3.2(i) Certificate of Amendment to Certificate of Incorpora-
tion, incorporated by reference to Exhibit 3.2(i) of
the Company's Annual Report on Form 10-K for the fiscal
year ended December 28, 1991.
3.2(ii) Certificate of Amendment to Certificate of Incorpora-
tion, filed April 27, 1994.
3.2(iii) Third Restated Certificate of Incorporation of Regis-
trant, filed June 28, 1994.
3.3 Restated By-laws of Registrant, as amended through Jan-
uary 21, 1991, incorporated by reference to Exhibit 3.3
of the Company's Annual Report on Form 10-K for the
fiscal year ended December 29, 1990.
3.3(i) Amended and Restated By-Laws of the Registrant, dated
April 15, 1994.
4. *(a)(i) Specimen of Class A Common Stock, Series 1,
Stock Certificate.
*(a)(ii) Specimen of Voting Trust Certificate.
(b) Article FOURTH of the Certificate of Incorporation,
incorporated by reference to Exhibit 3.2 (iii) hereto.
(c) Stockholders' Agreement, as amended and restated,
incorporated by reference to Annex 1 of the Prospectus
contained in this Registration Statement.
5. Opinion of Counsel regarding validity of Class A Common
Stock, Series 1.
6. Not applicable.
7. Not applicable.
8. Opinion of Counsel regarding tax matters (included in
the opinion filed as Exhibit 5 hereto).
9. Voting Trust Agreement dated as of June 21, 1988, in-
corporated by reference to Annex 2 of the Prospectus
contained in this Registration Statement.
10.(i)(A) All documents filed as exhibits under item (4) above.
</TABLE>
- --------
*Previously filed as an Exhibit to the Registration Statement.
1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
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) Amended and Restated Credit Agreement dated as of
September 22, 1992 among Montgomery Ward & Co., In-
corporated, various banks, Continental Bank N.A., as
Documentary Agent, The Bank of Nova Scotia, as Ad-
ministrative Agent and the Bank of New York as Nego-
tiated Loan Agent, incorporated by reference to Ex-
hibit 10.(i)(C) of the Company's Form 8-K on Septem-
ber 22, 1992.
10.(i)(C)(1) First Amendment dated as of September 22, 1993 to
the Amended and Restated Credit Agreement dated as
of September 22, 1992 among Montgomery Ward & Co.,
Incorporated, various banks, Continental Bank N.A.
as Documentary Agent, The Bank of Nova Scotia as Ad-
ministrative Agent, and the Bank of New York as Ne-
gotiated Loan Agent, incorporated by reference to
Exhibit 10.(i)(C)(1) of the Company's Quarterly Re-
port on Form 10-Q for the fiscal quarterly period
ended October 2, 1993.
10.(i)(E) Short Term Credit Agreement dated as of September
22, 1992 among Montgomery Ward & Co., Incorporated,
various banks, Continental Bank N.A. as Documentary
Agent, The Bank of Nova Scotia as Administrative
Agent, and the Bank of New York as Negotiated Loan
Agent, incorporated by reference to Exhibit
10.(i)(E) of the Company's Form 8-K on September 22,
1992.
10.(i)(E)(1) First Amendment dated as of September 22, 1993 to
the Short Term Credit Agreement dated as of Septem-
ber 22, 1992 among Montgomery Ward & Co., Incorpo-
rated, various banks, Continental Bank N.A. as Docu-
mentary Agent, The Bank of Nova Scotia as Adminis-
trative Agent, and the Bank of New York as Negoti-
ated Loan Agent, incorporated by reference to Ex-
hibit 10.(i)(E)(1) of the Company's Quarterly Report
on Form 10-Q for the fiscal quarterly period ended
October 2, 1993.
10.(i)(E)(2) Extension request letter dated September 22, 1993
from Montgomery Ward & Co., Incorporated addressed
to all banks who are parties to the Short Term
Agreement, and the replies of all such banks to such
requests, incorporated by reference to Exhibit
10.(i)(E)(2) of the Company's Annual Report on Form
10-K for the fiscal year ended January 1, 1994.
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)(G) Term Loan Agreement dated as of November 24, 1993
among Montgomery Ward & Co., Incorporated, various
banks, The First National Bank of Chicago, as Docu-
mentary Agent, The Bank of Nova Scotia, as Adminis-
trative Agent, and The Bank of New York as Negoti-
ated Loan Agent, incorporated by reference to Ex-
hibit 10.(i)(G) of the Company's Annual Report on
Form 10-K for the fiscal year ended January 1, 1994.
10.(ii)(A) Stock Purchase Agreement dated June 22, 1988 between
General Electric Capital Corporation and Montgomery
Ward & Co., Incorporated, incorporated by reference
to Exhibit 10.(ii)(A) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
</TABLE>
- --------
*Previously filed as an Exhibit to the Registration Statement.
2
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NUMBER DESCRIPTION NUMBER
-------------- ----------- ----------
<C> <S> <C>
10.(ii)(B) Account Purchase Agreement dated June 24, 1988 by
and between Montgomery Ward Credit Corporation
and Montgomery Ward & Co., Incorporated, incorpo-
rated by reference to Exhibit 10.(ii)(B) of the
Company's Registration Statement on Form S-1
(Registration No. 33-23403).
*10.(ii)(B)(1) Letter Agreement dated April 21, 1989, by and be-
tween Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated (amending the
Account Purchase Agreement which is Exhibit
10.(ii)(B) hereto).
*10.(ii)(B)(2) Amendment to Account Purchase Agreement dated De-
cember 26, 1989 by and between Montgomery Ward &
Co., Incorporated and Montgomery Ward Credit Cor-
poration.
*10.(ii)(B)(3) Letter Agreement dated April 24, 1990 by and be-
tween Montgomery Ward & Co., Incorporated and
Montgomery Ward Credit Corporation.
10.(ii)(B)(4) Letter Agreement dated December 26, 1990, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to Exhibit 10.(ii)(D) of the
Company's Annual Report on Form 10-K for the fis-
cal year ended December 29, 1990.
10.(ii)(B)(5) Fifth Amendment to Account Purchase Agreement
dated May 23, 1992 by and between Montgomery Ward
& Co., Incorporated and Montgomery Ward Credit
Corporation, incorporated by reference to Exhibit
10.(ii)(E) of the Company's Quarterly Report on
Form 10-Q for the fiscal quarterly period ended
June 27, 1992.
10.(ii)(B)(6) Amendment dated May 23, 1992 to Letter Agreement
dated June 24, 1988 (Signature Credit Agreement)
by and among Signature Financial/Marketing, Inc.,
Montgomery Ward & Co., Incorporated and Montgom-
ery Ward Credit Corporation, incorporated by ref-
erence to Exhibit 10.(ii)(F) of the Company's
Quarterly Report on Form 10-Q for the fiscal
quarterly period ended June 27, 1992.
10.(ii)(B)(7) Letter Agreement dated December 29, 1992 by and
between Montgomery Ward & Co., Incorporated and
Montgomery Ward Credit Corporation, incorporated
by reference to Exhibit 10.(ii)(6) of the
Company's Annual Report on Form 10-K for the fis-
cal year ended January 2, 1993.
10.(ii)(B)(8) Amendment to Account Purchase Agreement dated
April 29, 1993 by and between Montgomery Ward &
Co., Incorporated and Montgomery Ward Credit Cor-
poration, incorporated by reference to Exhibit
10.(ii)(H) of the Company's Quarterly Report on
Form 10-Q for the fiscal quarterly period ended
April 3, 1993.
10.(ii)(B)(9) Letter Agreement dated September 15, 1993, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to Exhibit 10.(ii)(G)(2) of the
Company's Annual Report on Form 10-K for the fis-
cal year ended January 1, 1994.
10.(ii)(B)(10) Ninth Amendment to Account Purchase Agreement
dated February 16, 1994 by and between Montgomery
Ward & Co., Incorporated and Montgomery Ward
Credit Corporation, incorporated by reference to
Exhibit 10.(ii)(H) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 1,
1994.
10.(ii)(B)(11) Tenth Amendment to Account Purchase Agreement
dated June 16, 1994, by and between Montgomery
Ward Credit Corporation and Montgomery Ward &
Co., Incorporated.
</TABLE>
- --------
*Previously filed as an Exhibit to the Registration Statement.
3
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NUMBER DESCRIPTION NUMBER
-------------- ----------- ----------
<C> <S> <C>
10.(ii)(C) Letter Agreement dated June 24, 1988 among
Signature Financial/Marketing, Inc., Montgom-
ery Ward Credit Corporation and Montgomery
Ward & Co., Incorporated, incorporated by ref-
erence to Exhibit 10.(ii)(C) of the Company's
Registration Statement on Form S-1 (Registra-
tion No. 33-23403).
10.(ii)(C)(1) Amendment dated May 23, 1992 to Letter Agree-
ment by and among Signature
Financial/Marketing, Inc., Montgomery Ward &
Co., Incorporated and Montgomery Ward Credit
Corporation, incorporated by reference to Ex-
hibit 10.(ii)(E) of the Company's Quarterly
Report on Form 10-Q for the fiscal quarterly
period ended June 27, 1992.
10.(ii)(C)(2) Second Amendment dated June 16, 1994 to Signa-
ture Credit Agreement by and among Signature
Financial/Marketing, Inc., Montgomery Ward &
Co., Incorporated and Montgomery Ward Credit
Corporation.
10.(iv)(A) Montgomery Ward & Co., Incorporated Stock Own-
ership Plan, incorporated by reference to Ex-
hibit 10.(iv)(A) of the Post-Effective Amend-
ment No. 2 of the Company's Registration
Statement on Form S-1 (Registration No.
33-23403).
*10.(iv)(A)(i) Amendments to Montgomery Ward & Co., Incorpo-
rated Stock Ownership Plan adopted December
22, 1989.
10.(iv)(A)(ii) Amendments to Montgomery Ward & Co., Incorpo-
rated Stock Ownership Plan, incorporated by
reference to Exhibit 10.(iv)(A)(ii) of the
Company's Registration Statement on Form S-1
(Registration No. 33-41161).
10.(iv)(A)(ii)(a) Montgomery Ward & Co., Incorporated Stock Own-
ership Plan, as amended and restated May 20,
1994.
10.(iv)(A)(iii) Montgomery Ward & Co., Incorporated Stock Own-
ership Plan Terms and Conditions as amended
and restated, incorporated by reference to An-
nex 3 of the Prospectus contained in the
Company's Registration Statement on Form S-1
(Registration No. 33-41161).
10.(iv)(A)(iv) Amendment No. 7 to the Montgomery Ward & Co.,
Incorporated Stock Ownership Plan Terms & Con-
ditions adopted October 25, 1991 incorporated
by reference to Exhibit 10.(i)(A)(10) of the
Company's Quarterly Report on Form 10-Q for
the fiscal quarterly period ended September
28, 1991.
10.(iv)(A)(v) Montgomery Ward & Co., Incorporated Stock Own-
ership Plan Terms and Conditions, as amended
and restated May 20, 1994.
10.(iv)(B) Montgomery Ward & Co., Incorporated Long Term
Incentive Plan incorporated by reference to
Exhibit 10.(iv)(B) of the Company's Registra-
tion Statement on Form S-1 (Registration No.
33-23403).
10.(iv)(B)(i) Montgomery Ward & Co., Incorporated Executive
Long-Term Incentive Plan.
10.(iv)(C) Montgomery Ward & Co., Incorporated Perfor-
mance Management Program incorporated by ref-
erence to Exhibit 10.(iv)(C) of the Company's
Registration Statement on Form S-1 (Registra-
tion No. 33-23403).
10.(iv)(C)(i) Montgomery Ward & Co., Incorporated Senior Ex-
ecutive Performance Management Program.
10.(iv)(D) Montgomery Ward & Co., Incorporated Retirement
Security Plan (as amended and restated effec-
tive as of January 1, 1989) incorporated by
reference to Exhibit 10.(iv)(D) of the Post-
Effective Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registra-
tion No. 33-23403).
</TABLE>
- --------
*Previously filed as an Exhibit to the Registration Statement.
4
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
10.(iv)(E) Montgomery Ward & Co., Incorporated Supplemental Re-
tirement 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 & Co., Incorporated Savings and
Profit Sharing Plan (as amended and restated as of
January 1, 1989) incorporated by reference to Exhibit
10.(iv)(F) of the Post-Effective Amendment No. 3 to
the Company's Registration Statement on Form S-1
(Registration No. 33-23403).
10.(iv)(G) 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)(H) Montgomery Ward Holding Corp. Senior Officer Sever-
ance 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)(I) Montgomery Ward & Co., Incorporated Success Plan.
10.(vi) Employment Agreement effective January 14, 1991 be-
tween Montgomery Ward & Co., Incorporated and Bernard
W. Andrews, incorporated by reference to Exhibit
10.(vi) of the Company's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994.
10.(vii) Agreement effective October 21, 1991 between Montgom-
ery Ward & Co., Incorporated and Fingerhut Companies,
Inc., incorporated by reference to Exhibit 10.(vii)
of the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1991.
10.(viii) Line of Credit Agreement effective November 19, 1991
between Montgomery Ward & Co., Incorporated and The
Northern Trust Company and The First National Bank of
Chicago, incorporated by reference to Exhibit
10.(viii) of the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991.
10.(ix) Employment Agreement effective September 3, 1992 be-
tween Montgomery Ward & Co., Incorporated and Harold
Kahn, incorporated by reference to Exhibit 10.(ix) of
the Company's Annual Report on Form 10-K for the fis-
cal year ended January 2, 1993.
10.(x) Employment Agreement effective September 17, 1992 be-
tween Montgomery Ward & Co., Incorporated and Leslie
A. Ball, incorporated by reference to Exhibit 10.(x)
of the Company's Annual Report on Form 10-K for the
fiscal year ended January 2, 1993.
10.(xi) Employment Agreement effective November 1, 1991 be-
tween Montgomery Ward & Co., Incorporated and Richard
Bergel, incorporated by reference to Exhibit 10.(xi)
of the Company's Annual Report on Form 10-K for the
fiscal year ended January 2, 1993.
10.(xi)(A) Employment Agreement dated March 1, 1994 between
Montgomery Ward & Co., Incorporated and Richard
Bergel.
10.(xii) Employment Agreement effective December 31, 1993 be-
tween Montgomery Ward & Co., Incorporated and Robert
F. Connolly, incorporated by reference to Exhibit
10.(ix) of the Company's Annual Report on Form 10-K
for the fiscal year ended January 1, 1994.
</TABLE>
- --------
*Previously filed as an Exhibit to the Registration Statement.
5
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
11. Statement regarding computation of per share earnings
incorporated by reference to Exhibit 11 of the
Company's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994.
12. Not applicable.
14. Not applicable.
15. Not applicable.
*21. Subsidiaries of the Registrant.
23. Consents of Experts and Counsel.
(a) The consent of Arthur Andersen & Co.
(b) The consent of Altheimer & Gray is included in that
firm's opinion as Exhibit 5 hereto.
*24. Powers of attorney executed by the following Directors
and Officers of Montgomery Ward Holding Corp. authoriz-
ing execution of the Registration Statement on Form S-1
and amendments, including post-effective amendments,
thereto:
(a) Bernard F. Brennan
(b) Richard Bergel
(c) Myron Lieberman
(d) Denis J. Nayden
*24.(A) Power of Attorney dated May 24, 1990, executed by James
A. Parke authorizing execution of post-effective amend-
ments to the Registration Statement on Form S-1.
*24.(C) Power of Attorney dated May 19, 1993, executed by Spen-
cer H. Heine authorizing execution of post-effective
amendments to the Registration Statement on Form S-1.
24.(D) Power of Attorney dated July 26, 1994, executed by Ber-
nard W. Andrews authorizing execution of post-effective
amendments to the Registration Statement on Form S-1.
25. Not applicable.
26. Not applicable.
27. Financial Statement Schedules, incorporated by refer-
ence to Exhibit 27 of the Company's Annual Report on
Form 10-K for the fiscal year ended January 1, 1994.
28. Not applicable.
</TABLE>
- --------
*Previously filed as an Exhibit to the Registration Statement.
6
<PAGE>
EXHIBIT 3.2(ii)
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE,
DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE
OF AMENDMENT OF "MONTGOMERY WARD HOLDING CORP.", FILED IN THIS OFFICE ON THE
TWENTY-SEVENTH DAY OF APRIL, A.D. 1994, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ William T. Quillen
[SEAL] --------------------------------------
William T. Quillen, Secretary of State
2151394 8100 AUTHENTICATION: 7102067
944073191 DATE: 04-27-94
<PAGE>
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. Article FOURTH of the Certificate of Incorporation of the
Corporation is hereby amended as follows:
(i) 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-five million
four hundred twelve thousand seven hundred fifty (55,412,750)
consisting of the following amounts in the following designations:
1. Common Stock. Fifty-five million four hundred twelve
thousand (55,412,000) 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 million four hundred twelve thousand
(30,412,000) 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
(b) twenty-five million (25,000,000) shares of Class B
Common Stock (hereinafter referred to as the "Class B Common
Stock").
<PAGE>
2. Preferred Stock. Seven hundred fifty (750) shares of Preferred
Stock, par value one dollar ($1.00) per share (hereinafter referred to
as "Preferred Stock" or "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, 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 at the annual rate of four thousand eight
hundred fifty dollars ($4,850) per share (the "Dividend Rate"), and no
more, in equal quarterly payments of one thousand two hundred twelve
dollars and fifty cents ($1,212.50) per share, on the last business
day of March, June, September and December (each of such dates being a
"Dividend Payment Date"), commencing with the Dividend Payment Date in
June, 1994. The dividend payable on the Dividend Payment Date in June,
1994 with respect to any share of Senior Preferred Stock shall be the
pro rata amount of the Dividend Rate 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 June, 1994 and a 365-day year. (The period from the Issuance
Date to the first 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
2
<PAGE>
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 a "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 C.1) or (y) the
terms, conditions and provisions of the "Employee Stock Option
3
<PAGE>
Plan" (defined in Section C.1), 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 Employee Stock Option Plan, 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.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 all mandatory redemptions required to have been paid or
deposited for their benefit on or before all "Mandatory
Redemption Dates" (defined in Section A.4(a)(i)) occurring 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.
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,
4
<PAGE>
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
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 or accrued but
unpaid, 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) The holders of not less than a majority of the
outstanding shares of Senior Preferred Stock may, by notice
served on the Corporation, require the Corporation to redeem,
on the date which is four (4) months after the effective date
of such notice, but not prior to the date which is one day
after the fifth anniversary of the Issuance Date, all
5
<PAGE>
or any portion, as set forth in such notice, 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"). Such notice may be given from time to time with respect
to any partial or full redemptions. Notice of every redemption
pursuant to this Section A.4(a) shall be personally delivered or
sent by certified mail, postage prepaid and return receipt
requested, to the Corporation at the address of its principal
executive offices to the attention of its Secretary. Such notice
shall be effective upon receipt by the Corporation. The
procedures set forth in Section A.4(b)(i) shall be followed for
partial redemptions.
(ii) On and after any 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 the Continental Bank N.A., 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 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 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
6
<PAGE>
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
7
<PAGE>
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 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 reaquired
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.
8
<PAGE>
5. Redemption 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 "Wards Group" (defined in Section C.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 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
9
<PAGE>
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 number 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 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
10
<PAGE>
quorums, a majority of the holders present in person or by proxy
of the stock which lacks a quorum shall have the power to adjourn
the meeting for the election of directors which they are entitled
to elect from time to time without notice other than announcement
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 the 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 power, 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)."
(ii) Part B of Article FOURTH is hereby eliminated in its entirety and
replaced with the following:
"PART B. - Intentionally Omitted"
Any references in the Certificate of Incorporation of the Corporation to
such Part B or the Junior Preferred Stock are hereby eliminated.
Except to the extent specifically provided to the contrary in this
Certificate of Amendment, the terms, provisions and conditions of the
Certificate of Incorporation of the Corporation shall remain unamended and in
full force and effect.
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.
11
<PAGE>
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 27th day of April, 1994.
MONTGOMERY WARD HOLDING CORP.
/s/ Bernard F. Brennan
By:--------------------------
Bernard F. Brennan
Chairman of the Board
(CORPORATE SEAL)
ATTEST:
/s/ Spencer H. Heine
By:------------------------
Spencer H. Heine
Secretary
12
<PAGE>
Exhibit
3.2(iii)
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
________________________________
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "MONTGOMERY WARD HOLDING CORP.", FILED IN THIS OFFICE ON THE
TWENTY-EIGHTH DAY OF JUNE, A.D. 1994, AT 4 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
(Logo of William T. Quillen)
-------------------------------------
William T. Quillen, Secretary of State
AUTHENTICATION: 7166040
DATE: 06-29-94
<PAGE>
THIRD
-----
RESTATED
--------
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.
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.
5. An amendment to the Second Restated Certification of Incorporation of
the Corporation was filed in the office of the Secretary of State of Delaware on
April 27, 1994.
6. The Board of Directors of the Corporation, by unanimous consent of its
members, filed with the minutes of the Board of Directors, adopted resolutions
proposing and declaring advisable the Third Restated Certificate of
Incorporation of the Corporation as follows, consisting of Articles First
through Tenth and the amendments reflected therein:
FIRST: THE NAME OF THE CORPORATION IS:
MONTGOMERY WARD HOLDING CORP.
SECOND: The address of its registered office in the State of Delaware
is 32 Lockerman Square, Ste. L-100, in the City of Dover 19901, County of Kent.
The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation are to conduct any lawful business, to exercise any
lawful purpose and power, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware as the same may be amended from time to time ("GCL").
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is fifty-five million eight hundred
twelve thousand seven hundred fifty (55,812,750) consisting of the following
amounts in the following designations:
<PAGE>
1. Common Stock. Fifty-five million eight hundred twelve thousand
(55,812,000) 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 million eight hundred twelve thousand (30,812,000)
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) four hundred thousand (400,000) shares of Class A
Common Stock, Series 3 (hereinafter referred to as "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. Seven hundred fifty (750) shares of Preferred
Stock, par value one dollar ($1.00) per share (hereinafter referred to as
"Preferred Stock" or "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
<PAGE>
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, 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 at the annual rate of four thousand
eight hundred fifty dollars ($4,850) per share (the "Dividend Rate"), and no
more, in equal quarterly payments of one thousand two hundred twelve dollars and
fifty cents ($1,212.50) per share, on the last business day of March, June,
September and December (each of such dates being a "Dividend Payment Date"),
commencing with the Dividend Payment Date in June, 1994. The dividend payable on
the Dividend Payment Date in June, 1994 with respect to any share of Senior
Preferred Stock shall be the pro rata amount of the Dividend Rate 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 June, 1994 and a 365-day year. (The period from the Issuance Date to the
first 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 a "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:
3
<PAGE>
(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, conditions
and provisions of the "Employee Stock Option Plan" (defined in Section B.1), 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 Employee Stock Option Plan, 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.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 all mandatory
redemptions required to have been paid or deposited for their benefit on or
before all "Mandatory Redemption Dates" (defined in Section A.4(a)(i))
occurring 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
4
<PAGE>
(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.
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 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 or accrued but unpaid, 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.
5
<PAGE>
4. Redemption.
(a) Mandatory Redemption.
(i) The holders of not less than a majority of the outstanding shares
of Senior Preferred Stock may, by notice served on the Corporation, require
the Corporation to redeem, on the date which is four (4) months after the
effective date of such notice, but not prior to the date which is one day
after the fifth anniversary of the Issuance Date, all or any portion, as
set forth in such notice, 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"). Such notice may
be given from time to time with respect to any partial or full redemptions.
Notice of every redemption pursuant to this Section A.4(a) shall be
personally delivered or sent by certified mail, postage prepaid and return
receipt requested, to the Corporation at the address of its principal
executive offices to the attention of its Secretary. Such notice shall be
effective upon receipt by the Corporation. The procedures set forth in
Section A.4(b)(i) shall be followed for partial redemptions.
(ii) On and after any 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 the Continental Bank N.A., 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 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
6
<PAGE>
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
7
<PAGE>
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 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
8
<PAGE>
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 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
9
<PAGE>
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 number 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 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
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 the
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
10
<PAGE>
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).
PART B. COMMON STOCK
------ ------------
Except as otherwise provided in this certificate of incorporation, all
shares of Class A Common Stock, Series 1, all shares of Class A Common Stock,
Series 2, all shares of Class A Common Stock Series 3, and all shares of Class B
Common Stock shall be identical in all respects and shall entitle the holders
thereof to the same rights and privileges.
1. Adoption of Employee Stock Option Plan and Issuance of Class A Common
Stock. As used herein, the terms "Ward Group" and "Employee Stock Option Plan"
shall have the meanings specified in that certain Stockholders Agreement dated
as of June 17, 1988 among the Corporation and certain of its stockholders, as
Amended and Restated on May 20, 1994, a copy of which is on file with the
secretary of the Corporation, without giving effect to any amendments of such
agreement occurring after the execution and delivery of such Amendment and
Restatement ("Stockholders Agreement"). The determination of the number of
shares of Class A Common Stock as to which options to purchase shall be granted
under the Employee Stock Option Plan, and any amendments thereto, shall require
the affirmative vote of both: (a) a majority of the Board of Directors of the
Corporation, and (b) the holders of a majority of the outstanding shares of
Class A Common Stock, Series 1. Except for the issuance of shares of Class A
Common Stock pursuant to the exercise of options granted under the Employee
Stock Option Plan, the Corporation shall not issue any authorized but unissued
shares of Class A Common Stock, without the affirmative vote of both: (i)
two-thirds of the total number of directors of the Board of Directors of the
Corporation; and (ii) the holders of a majority of the outstanding shares of
Class A Common Stock. As used in this certificate of incorporation, the term
"total number of directors" shall mean the total number of directors which the
Corporation would have if there were no vacancies.
2. Voting Rights.
(a) In General. Except as otherwise provided in Sections A.6(b) and
B.2(b), each share of Common Stock shall entitle the holder thereof to
vote, in person or by proxy, at any and all meetings of the stockholders of
the Corporation, or by written consent in lieu thereof, on all propositions
submitted to vote or
11
<PAGE>
consent of stockholders. Any provisions of law regarding allocation of voting
rights by class or series to the contrary notwithstanding, the number of votes
to which holders of the Common Stock shall be entitled, without distinction as
to series, shall be determined and allocated among the classes and series of
Common Stock as follows:
(i) The holder of each share of Class B Common Stock shall in all events
be entitled to one (1) vote per share; and
(ii) The holder of each share of Class A Common Stock shall be entitled
to one (1) vote, or fraction thereof, per share, as follows:
(A) so long as the aggregate number of outstanding shares of all
series of Class A Common Stock (the "Outstanding Amount"), is less than or equal
to twenty-five million (25,000,000) (such 25,000,000 being herein referred to as
the "Series 1 Amount"), each share of Class A Common Stock, without distinction
as to series, shall be entitled to one (1) vote per share; and
(B) if the Outstanding Amount is greater than the Series 1
Amount, each share of Class A Common Stock, irrespective of series, shall be
entitled to a fraction of a vote per share determined by dividing the Series 1
Amount by the Outstanding Amount.
(b) Class Voting. The capitalized terms used in this Section B.2(b)
which are not otherwise defined in this certificate of incorporation shall have
the meanings specified in the Stockholders Agreement. In addition to the voting
rights specified in Section B.2(a), the Class A Common Stock; Class A Common
Stock, Series 1; and Class B Common Stock, respectively, shall be entitled to
vote as separate classes in the following circumstances:
(i) At such time, if any, as GE Capital and GE Capital Affiliates shall
cease to own, in the aggregate, beneficially or of record, twenty percent (20%)
or more of the shares of Common Stock which GE Capital and GE Capital Affiliates
purchased in June 1988, the number of directors shall be automatically changed
to nine (9), the holders of the Class A Common Stock, voting as a class, shall
be entitled to elect seven (7) of such directors, and the holders of the Class B
Common Stock, voting as a class, shall be entitled to elect two (2) of such
directors; provided, however, that as long as the Account Purchase Agreement
referred to in the Stockholders Agreement is in effect and GE Capital or any GE
Capital Affiliate shall own beneficially or of record any shares of Class B
Common Stock, GE Capital shall have the right to elect one (1) of the two (2)
directors which the holders of the Class B Common Stock shall be entitled to
elect and all other holders of Class B Common Stock in the aggregate shall be
entitled to elect the other of the two (2) directors which the holders of Class
B Common Stock shall be entitled to elect. A vacancy in the directorships to be
elected, respectively, by the holders of the Class A
12
<PAGE>
Common Stock or the Class B Common Stock may be filled only by the vote or
written consent of the holders of Class A Common Stock or Class B Common
Stock, as the case may be.
(ii) Any amendment of this certificate of incorporation increasing
the number of authorized shares of Class A Common Stock, of any series, or
Class B Common Stock, shall not be adopted without the affirmative vote of
the holders of a majority of both (A) the shares of Class A Common Stock,
Series 1, then outstanding, and (B) the shares of Class B Common Stock then
outstanding, each voting as a class.
3. Dividends.
(a) In General. When and as dividends are declared thereon, whether payable
in cash, property or securities of the Corporation, the holders of Common Stock
shall be entitled to dividends in the proportions specified in Section B.3(b);
provided, however, that if dividends are declared which are payable in shares of
Class A Common Stock, Series 1; Class A Common Stock, Series 2; Class A Common
Stock, Series 3; or Class B Common Stock, each such dividend shall be payable
only to holders of the same class or series of Common Stock, such that dividends
payable in shares of Class A Common Stock, Series 1, shall be payable only to
holders of Class A Common Stock, Series 1; dividends payable in shares of Class
A Common Stock, Series 2, shall be payable only to holders of Class A Common
Stock, Series 2; dividends payable in shares of Class A Common Stock, Series 3,
shall be payable only to holders of Class A Common Stock, Series 3; and
dividends payable in shares of Class B Common Stock shall be payable only to
holders of Class B Common Stock.
(b) Allocation of Dividends Among Classes and Series. The term "Class A
Amount" as used in this Section B.3(b) with respect to a determination of the
allocation of dividends, shall mean a number of shares of Class A Common Stock
equal to the Series 1 Amount or, if less, the Outstanding Amount as of the date
of determination. Any provisions of law requiring allocations by class or series
to the contrary notwithstanding, and except as provided in Section B.3(a), in
connection with the payment of dividends, the aggregate amount which is payable
to holders of Common Stock, shall be allocated among the classes and series of
Common Stock as follows:
(i) The portion of such dividends which is payable to the holders of
Class A Common Stock, as a class, and without distinction as to series, at
any time when the Outstanding Amount as of the date of determination does
not exceed the Series 1 Amount, shall be the amount which bears the same
ratio to the total amount of such dividends as the Class A Amount bears to
the sum of (A) the Class A Amount, plus (B) the number of shares of Class B
Common Stock outstanding as of the date of determination; and such portion
of such dividends which is payable to the holders of the Class A Common
Stock shall be allocated among such holders in proportion to their
13
<PAGE>
respective holdings of shares of Class A Common Stock, without distinction as to
series;
(ii) The portion of such dividends which is payable to the holders of
Class A Common Stock, as a class, and without distinction as to series, at any
time when the Outstanding Amount as of the date of determination exceeds the
Series 1 Amount (but the Outstanding Amount less the number of shares of Class A
Common Stock, Series 3 outstanding in each case as of such date of determination
(such difference being the "Non-Series 3 Outstanding Amount") does not exceed
the Series 1 Amount), shall be the product of the amount which would be payable
to holders of Class A Common Stock if the immediately preceding Section
B.3(b)(i) were applicable and the Class A Amount were equal to the Series 1
Amount multiplied by a fraction the numerator of which is the Outstanding Amount
and the denominator of which is the sum of the Series 1 Amount plus fifty
percent (50.0%) of the excess of the Outstanding Amount over the Series 1
Amount; and such portion of such dividends which is payable to the holders of
the Class A Common Stock shall be allocated among such holders in proportion to
their respective holdings of shares of Class A Common Stock, without distinction
as to series;
(iii) The portion of such dividends which is payable to the holders of
Class A Common Stock, as a class, and without distinction as to series, at any
time when the Outstanding Amount as of the date of determination exceeds the
Series 1 Amount (and Section B.3(b)(ii) immediately preceding is not
applicable), shall be the product of (x) the amount which would be payable to
holders of the Class A Common Stock if Section B.3(b)(i) above were applicable
and the Class A Amount were equal to the Series 1 Amount, multiplied by (y) a
fraction the numerator of which is the Non-Series 3 Outstanding Amount and the
denominator of which is the sum of the Series 1 Amount plus eighty-one point
five percent (81.5%) of the excess of the Non-Series 3 Outstanding Amount over
the Series 1 Amount, and multiplied by (z) a fraction the numerator of which is
the Outstanding Amount and the denominator of which is the sum of the Non-Series
3 Outstanding Amount plus fifty percent (50.0%) of the number of shares of Class
A Common Stock, Series 3, outstanding as of such date of determination; and such
portion of such dividends which is payable to the holders of the Class A Common
Stock shall be allocated among such holders in proportion to their respective
holdings of shares of Class A Common Stock, without distinction as to series;
and
(iv) The portion of such dividends which is payable to the holders of
Class B Common Stock, as a class, shall be the portion of the total amount of
such dividends which is not payable to the holders of Class A Common Stock in
accordance with Section B.3(b)(i), B.3(b)(ii) or B.3(b)(iii) above, as
applicable, and such portion of such dividends which is payable to the holders
of the Class B Common Stock shall be allocated among such
14
<PAGE>
holders in proportion to their respective holdings of shares of Class
B Common Stock.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, the Corporation shall allocate the aggregate proceeds payable in
liquidation of the Corporation to the holders of Common Stock in the same
proportions as are specified for dividends in Section B.3(b) above. The
Corporation will mail written notice of such liquidation, dissolution or winding
up, not less than sixty (60) days prior to the payment date stated therein, to
each record holder of Common Stock. 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, nor the reduction
of the capital stock of the Corporation, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
unless such transaction shall be in connection with the liquidation, dissolution
or winding up of the Corporation.
5. General. Except for and subject to those rights expressly granted to
the holders of Senior Preferred Stock, or except as may be provided by the GCL,
the holders of Common Stock shall have exclusively all other rights of
stockholders including, but not by way of limitation, (i) the right to receive
dividends, when, as and if declared by the Board of Directors out of assets
lawfully available therefor, and (ii) in the event of any distribution of assets
upon liquidation, dissolution or winding up of the Corporation or otherwise the
right to receive ratably and equally all the assets and funds of the Corporation
remaining after the payment to the holders of Senior Preferred Stock of the
specific amounts which they are entitled to receive upon such liquidation,
dissolution or winding up of the Corporation as herein provided.
If the holder of any shares of Common Stock shall receive any payment of
any dividend on, liquidation of, or other amounts payable with respect to, any
shares of Common Stock which, in accordance with the terms of Part A of this
Article FOURTH, he is not entitled to receive, he will forthwith deliver the
same to the holders of shares of Senior Preferred Stock, in the form received,
and until it is so delivered will hold the same in trust for such holders.
FIFTH: In furtherance and not in limitation of the power conferred by
statute, the Board of Directors is expressly authorized to set apart out of any
of the funds of the Corporation available for dividends a reserve or reserves
for any proper purpose and to abolish any such reserve in the manner in which it
was created.
SIXTH: All power of the Corporation shall be exercised by or under the
direction of the Board of Directors except as otherwise provided herein or
required by law. For the management of the business and for the conduct of the
affairs of the Corporation, and in further creation, definition, limitation and
regulation of the power of the Corporation and of its directors and of its
stockholders, it is further provided as follows:
15
<PAGE>
1. Election of Directors. Election of directors need not be by
written ballot unless the by-laws of the Corporation shall so provide.
2. Number, Tenure and Qualifications. Subject to Sections A.6(b) and
B.2(b) of Article Fourth hereof, the total number of directors which shall
constitute the whole board shall be fixed from time to time in the manner
provided in the by-laws of the Corporation and may be increased or
decreased from time to time in the manner provided in the by-laws. Subject
to Section A.6(b) of Article FOURTH hereof, at each annual election of
directors, the directors shall be elected to a term of office expiring at
the next annual meeting of stockholders and shall hold office until heir
respective successors are elected and qualified. Directors need not be
stockholders or residents of Delaware but must satisfy such other
qualifications as may be provided in the by-laws.
3. By-Law Amendments. The Board of Directors, by the affirmative
vote of not less than two-thirds of the total number of directors of the
Board of Directors, shall have power to make, alter, amend and repeal the
by-laws (except to the extent that any by-laws adopted by the stockholders
may expressly prohibit, or determine the minimum number of directors whose
votes are required for an amendment by the Board of Directors).
4. Removal of Directors. As and to the extent provided in the
by-laws and in Article Fourth hereof, the holders of Class A Common Stock
and Class B Common Stock, respectively, shall be entitled to elect certain
directors designated by such holders and to remove such directors with or
without cause.
5. Additional Powers of Directors. In addition to the powers and
authority hereinbefore or by statute expressly conferred upon them, the
Board of Directors is hereby empowered to exercise all such powers and do
all such acts and things as may be exercised or done by the Corporation;
subject, nevertheless, to the provisions of the statutes of Delaware, of
this certificate of incorporation, and to any by-laws from time to time
made by the stockholders; provided, however, that no by-laws so made shall
invalidate any prior act of the Board of Directors which would have been
valid if such by-laws had not been made.
SEVENTH: The Corporation shall be obligated to indemnify in accordance with
the provisions of this Article Seventh:
1. Obligations to Indemnify. To the fullest extent authorized by the
GCL (but in the case of any amendment of the GCL effective subsequent to
June 17, 1988, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than the GCL
permitted the Corporation to provide prior to such amendment), the
Corporation shall indemnify, hold harmless and advance expenses to each
person (and, where applicable, and whether the person died testate or
intestate, the personal representative of the person, the estate of such
person and such person's legatees and heirs) who is or has served as
director of or officer of:
16
<PAGE>
(a) the Corporation;
(b) any predecessor of the Corporation; or
(c) any other enterprise at the request of the Corporation or of any
predecessor of the Corporation, who was or is made a party or is threatened
to be made a party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (herein referred
to sometimes as a "proceeding"), by reason of the fact that he or she, or
a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent. Such indemnification and holding
harmless shall cover all recoverable expense, liability and loss
(including, without limitation, attorneys' fees, judgments,fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be an
officer, director, employee or agent and shall inure to the benefit of his
or her heirs, executors and administrators; provided, however, that, except
as provided in Section 2 of this Article, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or
part thereof) initiated by such person only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation. The
right to indemnification conferred by this Article shall include the right
to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if
the GCL requires, the payment of such expenses incurred by a director or
officer of the Corporation in his or her capacity as a director or officer
of the Corporation (and not in any other capacity in which service was
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under this
Section or otherwise.
2. Construction and Presumption Favoring Indemnification. In connection
with each claim for indemnification, this Article shall be liberally construed
in favor of indemnification and there shall be a rebuttable presumption that the
Corporation shall bear the burden of proving by a preponderance of the evidence
that the claimant is not so entitled to indemnification.
17
<PAGE>
3. Right of Claimant to Bring Suit. If a claim under this Article is not
paid in full by the Corporation within thirty (30) days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit to recover the unpaid amount of the claim and, if successful in whole
or in part, the claimant shall also be entitled to be paid for any and all
expenses incurred in prosecuting such claim. Neither of the following shall be a
defense to any such action or create a presumption that the claimant has not met
the applicable standard of conduct:
(a) the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification
of the claimant is proper; or
(b) an actual determination by the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) that the
claimant was not entitled to indemnification.
4. Defense to Enforcement. It shall be a defense to any such action that
the claimant has not met the standards of conduct which make it permissible for
the Corporation to indemnify the claimant for the amount claimed. The burden of
proving such defense shall be on the Corporation. The defense referred to in the
first sentence of this Section 4 shall not be available in any action brought to
enforce a claim for expense incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation.
5. Confidentiality. Any finding by the Board of Directors, independent
legal counsel, or the stockholders, that a person asserting a claim for
indemnification pursuant to this Article is not entitled to such
indemnification, and any information which may support such finding, shall be
held by the Board of Directors, independent legal counsel and the stockholders
in confidence to the extent permitted by law and shall not be disclosed to any
third party. If the Corporation, the Board of Directors or the stockholders are
requested or required (by questions, interrogatories, subpoena, civil
investigative demand or other process) to disclose any such confidential
information, the person or entity so requested or required shall provide the
claimant with prompt notice of each such request and shall use its best efforts
to lawfully not disclose any such confidential information, including without
limitation, seeking a protective order at the Corporation's expense.
6. Contract Right. The foregoing provisions of this Article shall be
deemed to be a contract between the Corporation and each director and officer
who serves in such capacity at any time while this Article is in effect. Any
repeal or modification of this Article shall not impair or otherwise affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or
thereafter brought based in whole or in part upon any such state of facts.
18
<PAGE>
7. Indemnity of Others. The Board of Directors in its discretion shall
have the power on behalf of the Corporation to enter into agreements to
indemnify any person, other than a director or officer, made a party to any
action, suit or proceeding by reason of the fact that he or she or his or
her testate or intestate personal representative, legatees or heirs is or
was an employee, agent or otherwise acting on behalf of the Corporation or
a predecessor of the Corporation or serving at the request of the
Corporation or its predecessor, as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise.
8. Non-Exclusivity. The rights of indemnification and advancement of
expenses provided by this Article shall not be deemed exclusive of any
rights not provided by this Article to which any director or officer may
otherwise be entitled.
9. Severability. If for any reason a provision of this Article shall
be deemed invalid or unenforceable, the Corporation shall remain obligated
to indemnify and advance expenses pursuant to all those provisions of this
Article which are valid and enforceable.
10. Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the GCL.
EIGHTH: No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the GCL or any successor provision, or (iv) for
any transaction from which the director derived an improper personal benefit.
Any repeal or modification of this Article Eighth shall not adversely affect
any right or protection of a director of the Corporation existing under this
certificate of incorporation with respect to any act or omission occurring prior
to such repeal or modification.
NINTH: Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the by-laws of the Corporation.
TENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation; provided, however, that to be
effective, each such amendment, alteration, change or repeal must be adopted by
the affirmative vote of not less than two-thirds of the total number of
directors of the Board of Directors and, in the case of any amendment increasing
the number of authorized shares of any class or series of Common Stock, shall
19
<PAGE>
not be adopted without the affirmative vote of the holders of a majority
of the outstanding shares of Class A Common Stock, Series 1, and the
holders of a majority of the outstanding shares of Class B Common Stock,
each voting as a class.
7. At the annual meeting of the Stockholders of the Corporation duly
called, a majority of the Stockholders of the Corporation entitled to vote have
voted in favor of the aforesaid amendment and restatement of the Certificate of
Incorporation.
8. This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Sections 242 and 245 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 Sercretary, this 20th day of May, 1994.
MONTGOMERY WARD HOLDING CORP.
/s/ Bernard F. Brennan
By: _________________________
Bernard F. Brennan,
Chairman of the Board
(CORPORATE SEAL)
ATTEST:
/s/ Spencer H. Heine
By: ___________________
Spencer H. Heine,
Secretary
20
<PAGE>
Exhibit 3.3(i)
BY-LAWS
OF
MONTGOMERY WARD HOLDING CORP.
(formerly BFB ACQUISITION CORP.)
(Including Amendments through April 15, 1994)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Offices.................................................. 1
Section 1. Registered Office........................................ 1
Section 2. Other Offices............................................ 1
ARTICLE II Meetings of Stockholders................................. 1
Section 1. Place of Meetings........................................ 1
Section 2. Annual Meeting........................................... 1
Section 3. Notice of Annual Meeting................................. 1
Section 4. List of Stockholders..................................... 1
Section 5. Special Meetings of Stockholders......................... 2
Section 6. Procedure at Stockholders' Meetings...................... 2
Section 7. Quorum................................................... 2
Section 8. Majority Vote............................................ 2
Section 9. Proxies and Voting of Shares............................. 2
Section 10. Consents to Corporate Action............................. 3
ARTICLE III Directors................................................ 3
Section 1. Number, Tenure, Qualifications and Vacancies............. 3
Section 2. Resignations............................................. 4
Section 3. Removal of Directors..................................... 5
Section 4. General Powers........................................... 5
Section 5. Place of Meetings........................................ 5
Section 6. First Meeting of New Board............................... 5
Section 7. Regular Meetings......................................... 5
Section 8. Special Meetings......................................... 5
Section 9. Quorum................................................... 5
Section 10. Certain Supermajority Requirements....................... 6
Section 11. Informal Action By Directors............................. 9
Section 12. Telephone Meetings....................................... 9
Section 13. Designation of Committees................................ 10
Section 14. Absence of a Committee Member............................ 10
Section 15. Powers of Committees..................................... 10
Section 16. Record of Proceedings.................................... 10
Section 17. In General............................................... 10
ARTICLE IV Notices to Stockholders and Directors.................... 10
Section 1. Notice................................................... 10
Section 2. Waiver of Notice......................................... 11
ARTICLE V Officers................................................. 11
Section 1. Number and Title......................................... 11
Section 2. Election and Qualification............................... 11
Section 3. Appointment of Additional Officers....................... 11
Section 4. Compensation............................................. 11
</TABLE>
i
<PAGE>
Section 5. Term of Office, Removal and Vacancies ................. 11
Section 6. Resignations .......................................... 11
Section 7. The Chairman of the Board ............................. 12
Section 8. The Vice Chairman of the Board ........................ 12
Section 9. President ............................................. 12
Section 10. The Vice Presidents ................................... 12
Section 11. The Secretary ......................................... 12
Section 12. Assistant Secretaries ................................. 13
Section 13. The Treasurer ......................................... 13
Section 14. Bond .................................................. 13
Section 15. Assistant Treasurers .................................. 13
ARTICLE VI Stock and Stockholders ................................ 13
Section 1. Certificate of Stock .................................. 13
Section 2. Classes and Series .................................... 14
Section 3. Signatures ............................................ 14
Section 4. Lost Certificates ..................................... 14
Section 5. Transfers of Stock .................................... 14
Section 6. Fixing Record Date .................................... 14
Section 7. Registered Stockholders ............................... 15
ARTICLE VII Indemnification ....................................... 15
ARTICLE VIII General Provisions .................................... 15
Section 1. Dividends ............................................. 15
Section 2. Checks ................................................ 15
Section 3. Fiscal Year ........................................... 15
Section 4. Seal .................................................. 15
Section 5. Certain Definitions ................................... 15
ARTICLE IX Amendments ............................................ 19
ii
<PAGE>
ARTICLE I
Offices
Section 1. Registered Office. The registered office shall be in the City
of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings. All meetings of the stockholders for the
election of directors shall be held at such place as may be fixed from time to
time by the board of directors; at least ten (10) days' notice shall be given to
the stockholders of the place so fixed or, in the event of the failure of the
board of directors to fix such place, at the principal executive office of the
corporation. Meetings of stockholders for any purpose may be held at such time
and place, within or without the State of Delaware, as may be fixed from time to
time by the board of directors or as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. The annual meeting of stockholders shall be
held on the third Thursday in May if not a legal holiday, and if a legal
holiday, then on the next secular day following, at 2:00 P.M., or at such other
date and time as shall be designated from time to time by the board of directors
and stated in the notice of the meeting or in a duly executed waiver of notice
thereof, at which the stockholders shall elect by a plurality vote, subject to
the provisions of Section 1 of Article III, persons to the board of directors,
and transact such other business as may properly be brought before the meeting.
The meeting may be adjourned from time to time and place to place until its
business is completed. If the election of directors shall not be held on the day
designated herein for any annual meeting, or at any adjournment thereof, the
board of directors shall cause the election to be held at a special meeting of
the stockholders as soon thereafter as may be convenient.
Section 3. Notice of Annual Meeting. Written notice of the annual meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of meeting.
Section 4. List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
Chicago metropolitan area, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
<PAGE>
Section 5. Special Meetings of Stockholders. Except as otherwise provided
in the certificate of incorporation with respect to holders of preferred stock
and except as otherwise provided in Section 1 of Article III of these by-laws,
special meetings of stockholders of the corporation for any purpose or purposes,
may be called only by the chairman of the board, the vice chairman of the board,
the president, the board of directors pursuant to a resolution approved by a
majority of the board of directors, or at the written request of the holders of
not less than a majority of the stock entitled to vote thereat.
Section 6. Procedure at Stockholders' Meetings. The order of business and
all other matters of procedure at every meeting of the stockholders may be
determined by the presiding officer. The board of directors may appoint two or
more inspectors of election to serve at every meeting of the stockholders at
which directors are to be elected. In the absence of such appointment by the
board of directors, the presiding officer may appoint one or more inspectors
of election to serve at any such meeting.
Section 7. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by these by-laws, by
statute or by the certificate of incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At any meeting held for the purpose of electing directors at which
the holders of a class of stock shall have the right, voting as a class, to
elect one or more directors, the presence, in person or by proxy, of the holders
of a majority of such class of stock then outstanding shall be required to
constitute a quorum of such stock for such election. At any such meeting or
adjournment thereof, the absence of the quorum of such class of stock shall
not prevent the election of directors other than the director or directors which
the holders of such stock are entitled to elect, and the absence of a quorum for
the election of such other directors shall not prevent the election of the
directors which the holders of such class of stock are entitled to elect, and
in the absence of either or both such quorums, a majority of the holders present
in person or by proxy of the stock which lacks a quorum shall have the power to
adjourn the meeting for the election of directors which they are entitled to
elect from time to time without notice other than announcement of the meeting
until a quorum shall be present. At any adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally noticed. If the adjournment
is for more than (30) days, or if after the adjournment a new record date is
fixed for the adjournment meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 8. Majority Vote. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power, present in person
or represented by proxy, shall decide any question brought before such meeting,
unless the question is one upon which by express provision of statute, these
by-laws or of the certificate of incorporation, a different vote is required,
in which case such express provision shall govern and control the decision of
such question.
Section 9. Proxies and Voting of Shares. At any meeting of the stockholders
every stockholder having the right to vote shall be entitled to vote in person,
or by proxy appointed by an
2
<PAGE>
instrument in writing subscribed by such stockholder and bearing a date not
more than three (3) years prior to said meeting, unless said instrument
provides for a longer period. Unless a date shall have been fixed as a record
date for the determination of its stockholders entitled to vote, no share of
stock shall be voted on at any election for directors which shall have been
transferred on the books of the corporation within twenty (20) days next
preceding such election of directors.
Section 10. Consents to Corporate Action. Any action which is required to
be or may be taken at any annual or special meeting of stockholders of the
corporation may be taken without a meeting, without prior notice and without a
vote, if consents in writing, setting forth the action so taken, shall have been
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or to take such action at
a meeting at which all shares entitled to vote thereon were present and voted;
provided, however, that prompt notice of the taking of the corporate action
without a meeting and by less than unanimous written consent shall be given to
those stockholders who have not consented in writing.
ARTICLE III
Directors
Section 1. Number, Tenure, Qualifications and Vacancies. Subject to the
provisions of the certificate of incorporation, the number of directors which
shall constitute the total number of directors shall be specified in this
Section 1 and shall change in accordance with the procedures specified in this
Section 1. Whenever in these by-laws the vote, consent or waiver of two-thirds
(2/3) of the members of the board of directors is required, the number of
directors required shall be determined without regard to any vacancies on the
board of directors.
(a) Number of Directors. Except as otherwise provided in the other
paragraphs of this Section 1, the total number of directors which shall
be elected by the stockholders shall be nine (9), of which five (5)
shall be designated by the "Designator" (defined in Article VIII) and
four (4) shall be designated by "GE Capital" (defined in Article VIII).
(b) Change in Control Upon 50% GE Capital Common Stock Ownership
Change. At such time, if any, as GE Capital and "GE Capital Affiliates"
(defined in Article VIII) shall cease to own, in the aggregate, more
than fifty percent (50%) of the "Shares" (defined in Article VIII) which
GE Capital and GE Capital Affiliates have purchased on or about the date
as of which the "Stockholders' Agreement" (defined in Article VIII) was
executed and delivered, the number of directors which the Designator shall
have the right to designate shall be increased by one (1) and the number of
directors which GE Capital shall have the right to designate shall be
reduced by one (1). The Designator shall designate the director to be
elected, and GE shall designte the director to be removed and shall effect
such removal.
(c) Election of Directors After Substantial Reduction of GE Capital
Class B Common Stock Ownership. Upon the happening of the events provided
for in Section B.2(b) of ARTICLE FOURTH of the certificate of incorporation,
the total number of directors shall be automatically changed to nine (9)
(not including the "Preferred Stock Director," if any, referred to in
paragraph (e) of this Section 1) and the holders of the Class A Common
3
<PAGE>
Stock then outstanding, voting as a class, shall be entitled to elect seven (7)
of such directors, and the holders of the Class B Common Stock then outstanding,
voting as a class, shall be entitled to elect two (2) of such directors;
provided, however, that so long as the conditions specified in such Section
B.2(b) with respect to the Account Purchase Agreement (defined in Section 10(t)
of Article III) and the ownership of Class B Common Stock by GE Capital or any
GE Capital Affiliate remain in effect, GE Capital shall have the right to elect
one (1) of the two (2) directors which the holders of the Class B Common Stock
shall be entitled to elect and all holders of Class B Common Stock then
outstanding in the aggregate shall be entitled to elect the other one (1) of the
two (2) directors which the holders of Class B Common Stock shall be entitled to
elect.
(d) Meetings of Stockholders. Upon the happening of any of the events
described in paragraphs (b), (c) or (d) of this Section 1, in the event the
board of directors shall fail to fill any vacancies resulting from the
application of said paragraphs, or in the event a party shall fail to remove a
director who that party was obligated to remove under the provisions of the
applicable paragraph, the corporation shall call a special meeting of the
stockholders at the expense of the corporation, for the purpose of electing a
new slate of directors, in accordance with the appropriate designations and
class voting rights, as the case may be, and the term of office of the existing
directors shall terminate upon the election of their successors. If the
corporation fails to so call such a special meeting, any party who is then
entitled to designate directors shall have the right to call such a meeting at
the expense of the corporation.
(e) Preferred Stock Director. Anything elsewhere in these by-laws to the
contrary notwithstanding, upon the happening, and during the continuation of the
events described in Section A.6(b) of Article FOURTH of the certificate of
incorporation, the holders of the Senior Preferred Stock, voting as a class,
shall have the right to elect one (1) director (the "Preferred Stock Director")
whereupon the total number of directors shall be automatically increased in
order to provide one (1) vacancy to be filled by electing the Preferred Stock
Director at a special meeting of stockholders called for that purpose. Upon the
happening of the events described in such Section A.6(b) which cause the
termination of the term of office of any then Preferred Stock Director, as
provided in such Section A.6(b), the total number of directors shall be
automatically decreased by one (1) so as to eliminate the vacancy created by the
termination of the term of the Preferred Stock Director, whereupon the total
number of directors shall be and remain as provided by the other provisions of
this Section 1 without regard to this paragraph (e), subject to the revesting of
voting rights in the shares of Senior Preferred Stock in the event of the
recurrence of the events described in such Section A.6(b).
(f) Designation of Replacements. At any time in which a party has the right
to designate a director pursuant to this Article III, if a director who has been
so designated shall cease to serve as such (other than by reason of his removal
as provided in this Article III), the party who designated that director shall
have the right to designate his replacement. At any time in which no party has
the right to designate directors pursuant to this Article III, vacancies shall
be filled in the manner provided in the Delaware GCL.
Section 2. Resignations. Any director may resign at any time by giving
written notice to the board of directors, the chairman of the board, the vice
chairman of the board, the
4
<PAGE>
president or the secretary of the corporation. Such resignation shall take
effect at the time specified therein; and, unless tendered to take effect upon
acceptance thereof, the acceptance of such resignation shall not be necessary to
make it effective.
Section 3. Removal of Directors. At all times when any party or the
holders of any class of stock have the right to designate any director(s) or to
elect, as a class, any director(s), only such party or class, as the case may
be, who had the right to designate director(s) or to elect director(s) shall
have the right to remove such director(s), which removals may be effected with
or without cause at any special or annual meeting of stockholders or by written
consent in lieu of a meeting. At all other times, the right of the
stockholders to remove any director shall be as provided in the applicable
provisions of the Delaware GCL.
Section 4. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors which may
exercise all such powers of the corporation and do all such lawful acts as are
not by statute or by the certificate of incorporation or by these by-laws
directed or required to be exercised or done by the stockholders.
Meetings of the Board of Directors
----------------------------------
Section 5. Place of Meetings. The board of directors of the
corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 6. First Meeting of New Board. The first meeting of the board
of directors after each election of new directors thereto shall be held at such
time and place as shall be specified in a notice given as provided in these
by-laws for special meetings of the board of directors, or as shall be specified
in a written waiver of notice signed by all of the directors.
Section 7. Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and at such place as shall
from time to time be determined by the board.
Section 8. Special Meetings. Special meetings of the board of
directors may be called by the president. Upon the request in writing of two (2)
or more directors, the president or any other officer of the corporation shall
call a special meeting of the board of directors, notice of which shall be given
to each director at his usual place of business, or at such other address as
shall have been furnished by him for such purpose. Such notice shall be given at
least forty-eight (48) hours before the meeting by telephone or by being
personally delivered, mailed or telegraphed, provided, that, if mailed, notice
shall be deemed effective upon receipt. Such notice need not include a statement
of the business to be transacted at, or the purpose of, any such meeting.
Section 9. Quorum. At all meetings of the board of directors, a
majority of the board of directors shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
5
<PAGE>
Section 10. Certain Supermajority Requirements. The affirmative vote of
not less than two-thirds (2/3) of the members of the board of directors of the
corporation (but, in the case of paragraph (t) of this Section 10, instead
of the aforesaid two-thirds (2/3) requirement, the affirmative vote of a
majority of the directors designated by the Designator or, at any time in which
class voting is in effect as proved in the certificate of incorporation, by a
majority of the directors elected by the holders of Shares of Class A Common
Stock) shall be required in order for the corporation to take, or permit any
member of the "Ward Group" (defined in Article VIII) to take, any of the
following actions:
(a) a merger, consolidation or other business combination (other than among
members of the Ward Group and other than as part of an acquisition of assets
permitted pursuant to paragraph (m) of this Section 10));
(b) any of the following sales (other than intercompany sales within the
Ward Group, sales solely of inventory in the ordinary course of business, and
sale and leaseback transactions in the ordinary course of business or, to the
extent out of the ordinary course of business, consistent with the past
practices of the Ward Group):
(i) any sale of assets of the Ward Group (including assets consisting
of shares of stock of a subsidiary of the corporation) where the gross
proceeds of sale (exclusive of assumption of liabilities) are in an amount
equal to the greater of (A) fifty million dollars ($50,000,000) or
(B) twenty percent (20%) of the amount of the consolidated common
stockholders' equity of the corporation as of the time of the sale; or
(ii) any sale of assets of the Ward Group (including assets consisting
of shares of stock of a subsidiary of the corporation) to the extend the
gross proceeds of sale (exclusive of assumption of liabilities), when
added to the gross proceeds of all other sales of assets of the Ward Group
(exclusive of assumption of liabilities) occurring during that fiscal year,
exceed an amount equal to the greater of (A) one hundred million dollars
($100,000,000) or (B) thirty percent (30%) of the amount of consolidated
common stockholders' equity of the corporation as of the time of the sale;
provided, however, that notwithstanding the foregoing limitation, any single
sale of assets for gross procceeds not exceeding one million dollars
($1,000,000) (exclusive of assumption of liabilities) shall be excluded from
the foregoing computation;
(c) amendments to the certificate of incorporation or by-laws of the
corporation (other than amendments to the by-laws permitted pursuant to
Section 8.2 of the Stockholders' Agreement);
(d) payment of dividends on Shares (other than intercompany dividends among
members of the Ward Group);
(e) redemptions of Shares, other than pursuant to the provisions of the
Stockholders' Agreement or the "Employee Stock Option Plan" (defined in
Article VIII);
(f) public or private offerings of debt or equity securities of any member
of the Ward Group, other than to other members of the Ward Group, pursuant to
the Employee Stock Option Plan or pursuant to Section 3.14 or Section 6.1 (with
respect to the offering of Shares in "Demand Registrations") (as defined in
the Stockholders' Agreement) on behalf of those Persons exercising
6
<PAGE>
their demand registration rights thereunder and Section 6.2 with respect to the
offering of Shares in "Piggyback Registrations" (as defined in the Stockholders'
Agreement) on behalf of those Persons exercising their piggyback registration
rights thereunder) of the Stockholders' Agreement;
(g) guarantees of any indebtedness in excess of five million dollars
($5,000,000) for borrowed money of any Person other than a member of the Ward
Group;
(h) setting of annual financial goals and targets;
(i) the making of, or the entry into a binding commitment to make, any
capital expenditures which would cause the amount expended (or committed to be
expended) by the Ward Group for capital expenditures during a fiscal year to
exceed the capital expenditure budget to be contained in the annual financial
goals and targets of the Ward Group for such year by more than ten percent
(10%) of the budgeted amount;
(j) borrowings by any member of the Ward Group which would cause the
aggregate consolidated indebtedness of the corporation for money borrowed to
exceed an amount equal to twenty-five million dollars ($25,000,000), plus
five percent (5%) of the amount of the consolidated common stockholders'
equity of the corporation measured at the time of such borrowings, but in
determining both the amount of such borrowings and the necessity for
approval of two-thirds (2/3) of the members of the board of directors, the
following borrowings shall be excluded:
(i) borrowings made in connection with the acquisition, pursuant
to the Purchase Agreement (defined in Article VIII) of Ward, and under
the term loan, revolving credit, tax standby letter of credit, "Tax
Loan" and commercial letter of credit facilities established in
connection with such acquisition, borrowings pursuant to the Subordinated
Loan Agreement dated June 23, 1988, borrowings of any members of the Ward
Group existing at the time of such acquisition, and borrowings made under
any whole or partial refunding or replacement thereof without increasing
the principal amount thereof, other than increases for closing costs
(including, with limitation, prepayment penalties) incurred in connection
with such refunding or replacement;
(ii) purchase money financing incurred in accordance with the annual
financial goals and targets of the Ward Group, and purchase money financing
in connection with the issuance of notes pursant to Sections 3.8 and 3.9
of the Stockholders' Agreement or Sections 3.6 and 3.7 of the Terms and
Conditions (defined in Article VIII); it being understood that purchase
money financing shall include financing, refinancing or funding of the
acquisition price of real property (or any interest therein) or other
fixed assets acquired hereafter by a member of the Ward Group, regardless
of whether said financing, refinancing or funding is done at the time of,
or subsequent to, the acquisition of any such real property (or interest
therein) or other fixed assets;
(iii) borrowings made to cure any default referred to in paragraphs
(r) (i) and (ii) of Section 1.2 of the Stockholders' Agreement;
(iv) borrowings made for the purpose of redeeming any of the Preferred
Stock; or
7
<PAGE>
(v) borrowings made pursuant to Section 4.4 of the Stockholders'
Agreement;
(k) increases in compensation and/or fringe, welfare or pension benefits for
any member of the Executive Committee of the Ward Group, other than in
accordance with the practices and guidelines of the Ward Group in effect from
time to time (it being understood that any material change from the current
practices and guidelines shall require the affirmative vote of two-thirds (2/3)
of the members of the board of directors), but in no event beyond the increases
being given for comparable executives in comparable retail businesses,
determined from published survey data and guidelines;
(l) adoption of a plan of liquidation of the corporation;
(m) acquisition of assets (other than purchases of inventory and capital
expenditures) which would cause the amount expended (or committed to be
expended) by the Ward Group for the acquisition of such assets during a fiscal
year to exceed the budget for acquisitions of such assets to be contained in the
annual financial goals and targets of the Ward Group for such year by more than
ten percent (10%) of the budgeted amount;
(n) entry into any transaction (exclusive of compensation and fringe, welfare
and pension benefit arrangements with affiliates who are officers, directors or
employees of the Ward Group for services rendered by them to the Ward Group)
with an affiliate, as that term is defined in the "Act" (defined in Article
VIII), other than affiliates constituting members of the Ward Group;
(o) seeking of a consent or waiver from a lender to a member of the Ward Group
whose loan to the member of the Ward Group has a then outstanding principal
balance in excess of thirty million dollars ($30,000,000), in any case in which
consent or waiver is required for the entry into a transaction by the Ward Group
and which, in the absence of such consent or waiver, would constitute a default
or an event of default under the documents evidencing or pertaining to the loan
made by the lender, other than any consent or waiver required in connection
with:
(i) the making of any borrowing permitted pursuant to paragraph (j)(ii),
(iii), (iv) or (v);
(ii) any mandatory prepayment obligation arising from the sale or
financing of any real property (or interests therein) or other fixed assets;
(iii) any prepayment occurring by reason of a "Change of Control" (as
defined in one or more of the loan documents evidencing the loans referred to in
subparagraph (j)(i) made in connection with the acquisition of Ward by the
corporation); or
(iv) the incurring of any liens (other than for money borrowed).
provided, however, that approval of two-thirds (2/3) of the members of the board
of directors for the seeking of such consent or waiver shall not be required if
the transaction for which such consent or waiver is being sought (x) is
specifically permitted pursuant to any of the other paragraphs of this Section
10 without the approval of two-thirds (2/3) of the members of the board of
directors, or (y) has been authorized by two-thirds (2/3) of the members of the
board of directors pursuant to any of said other paragraphs;
8
<PAGE>
(p) authorizing a Transfer of Shares pursuant to Section 2.2(a) of the
Stockholders' Agreement in a case where the transferee is not a Management
Shareholder, a Permitted Transferee (as defined in the Stockholders' Agreement),
or a present or prospective employee of the Ward Group;
(q) a waiver of the prohibitions on Transfers of Shares contained in
Sections 2.3(a) and (c) of the Stockholders' Agreement, as applied to Brennan;
provided, however, that by action of a simple majority of the members of the
board of directors, the references in those paragraphs of the third anniversary
may be amended to constitute references to the second anniversary;
(r) a waiver of the prohibitions on Transfers of Shares contained in
Section 2.3(e) of the Stockholders' Agreement;
(s) any determination, pursuant to Section 4.3 of the Stockholders'
Agreement, of a Cash Payments Limitation (as therein defined) other than that
expressly set forth in that Section;
(t) without limiting the generality of any other provision of this
Section 10, any of the following actions with respect to that certain Account
Purchase Agreement referred to in the Stockholders' Agreement:
(i) termination thereof by agreement of the parties thereto;
(ii) the exercise of a unilateral right of termination and the
exercise of all other rights, options and elections granted thereunder to
Ward;
(iii) the giving of waivers and consents with respect thereto; and/or
(iv) any amendment thereto; or
(u) the termination for Cause (as defined in the Stockholders' Agreement)
of Brennan's employment with any member of the Ward Group.
Section 11. Informal Action By Directors. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the board of directors or of
any committee thereof may be taken without a meeting if all members of the board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
Section 12. Telephone Meetings. Unless otherwise restricted by the
certificate of incorporation or these by-laws, members of the board of
directors, or any committee designated by the board of directors, may
participate in a meeting of the board of directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
9
<PAGE>
Committees of Directors
-----------------------
Section 13. Designation of Committees. The board of directors may, by
resolution passed by a majority of the board of directors, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board amy designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee.
Section 14. Absence of a Committee Member. In the absence or
disqualification of any member of a committee or committees or in the event that
any such member is unable or refuses to act, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such member.
Section 15. Powers of Committees. Any such committee, to the extent
provided in the resolution of the board of directors, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it;
provided, however, that no such committee shall (i) take any of the actions
specified in Section 10 of this Article III which require the affirmative vote
of not less than two-thirds (2/3) of the total number of directors of the board
of directors of the corporation, or (ii) take any action or do anything in the
exercise of any power or authority in excess of that permitted to be taken by a
committee of directors under any applicable provisions of the Delaware GCL. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors.
Section 16. Record of Proceedings. Each committee shall keep regular
minutes of its proceedings and report the same to the board of directors when
required.
Compensation of Directors
-------------------------
Section 17. In General. The directors may be paid their expenses, if
any, of attendance at each meeting of the board of directors and may by paid a
fixed sum for attendance at each meeting of the board of directors or a stated
salary as a director. No payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
Notices to Stockholders and Directors
Section 1. Notice. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these by-laws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, telegraph or confirmed
facsimile, addressed to such director or stockholder, at such
10
<PAGE>
address as appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail, telegraphed or received through a
telecopy or telex machine, as the case may be. Notice to directors may also be
given as provided in Section 8 of Article III.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes or of the certificate of
incorporation or of these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE V
Officers
Section 1. Number and Title. The officers of the corporation shall be
chosen by the board of directors and shall be a chairman of the board, a vice
chairman of the board, a president, a vice president, a secretary and a
treasurer. The board of directors may also choose additional vice presidents and
one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, except that where the offices of
president and secretary are held by the same person, such person shall not hold
any other office.
Section 2. Election and Qualification. The board of directors at its
first meeting after each annual meeting of stockholders shall choose a chairman
of the board, a president, one or more vice presidents, a secretary and a
treasurer. No officer need be a member of the board of directors. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as may be convenient. Vacancies may be filled or new offices
created and filled at any meeting of the board of directors.
Section 3. Appointment of Additional Officers. The board of directors
may appoint such other officers and agents as it shall deem necessary who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the board of directors.
Section 4. Compensation. The salaries and other compensation of all
officers and agents of the corporation shall be fixed by the board of directors.
Section 5. Term of Office, Removal and Vacancies. The officers of the
corporation shall hold office until their successors are chosen and qualify or
until their deaths, resignations or removal. Any officer elected or appointed
by the board of directors may be removed at any time by the affirmative vote of
a majority of the members of the board of directors. Any vacancy occurring in
any office of the corporation may be filled by the board of directors.
Section 6. Resignations. Any officer may resign at any time by
giving written notice to the board of directors, the chairman of the board, the
vice chairman of the board, the president, or the secretary of the corporation.
Such resignation shall take effect at the time specified in the written notice;
and, unless the resignation is tendered only to take effect upon
11
<PAGE>
acceptance thereof, the acceptance of such resignation shall not be necessary to
make the resignation effective.
Section 7. The Chairman of the Board. The Chairman of the board shall be the
chief executive officer of the corporation and shall have the general direction
of the affairs of the corporation, except as otherwise prescribed by the board
of directors; shall preside at all meetings of the shareholders, of the board of
directors and of the executive committee, if any, and shall designate the
acting secretary for such meetings to take the minutes thereof for delivery to
the secretary; may sign, with the secretary, assistant secretary, treasurer or
assistant treasurer, certificates for shares of the corporation; may execute
contracts in the name of the corporation; appoint and discharge agents and
employees of the corporation, and shall be ex-officio a member of all
committees.
Section 8. The Vice Chairman of the Board. The vice chairman of the board
shall be the chief operating officer of the corporation, and as such shall
direct the operations of the corporation, subject to the control and direction
of the board of directors and the chairman of the board. The vice chairman of
the board shall assume such other duties as the board of directors or the
chairman of the board may assign from time to time. The vice chairman of the
board shall report to the chairman of the board. In the event that the chairman
of the board is one of the following: absent or has allowed the office of
chairman to be vacated, or is unable or refuses to act, the vice chairman of the
board shall perform all duties and functions of the chairman of the board. He
may sign, with the secretary or any other proper officer thereunto duly
authorized certificates for shares of the corporation; may execute contracts in
the name of the corporation; appoint and discharge agents and employees of the
corporation; and shall be ex-officio a member of all committees.
Section 9. President. The president shall be the general manager of the
corporation, and as such shall look after and superintend all operations of the
corporation, subject to the control and direction of the board of directors, the
chairman of the board and the vice chairman of the board. The president shall
assume such other duties as the chairman of the board, the vice chairman of the
board or the board of directors may assign from time to time. The president
shall report to the chairman of the board or the vice chairman of the board. In
the event that each of the chairman of the board and the vice chairman of the
board is one of the following: absent or has allowed his office to be vacated,
or is unable or refuses to act, the president shall perform all duties and
functions of the chairman of the board and the vice chairman of the board. He
may sign, with the secretary or any other proper officer thereunto duly
authorized certificates for shares of the corporation; may execute contracts in
the name of the corporation; appoint and discharge agents and employees of the
corporation, and in general shall perform all duties incident to the office of
president.
Section 10. The Vice Presidents. The vice presidents in the order of their
seniority, unless otherwise determined by the board of directors, shall in the
event that the president is absent, or has allowed the office of president to be
vacated, or is unable or refuses to act, perform the duties of the president.
The vice presidents shall perform such other duties and have such other powers
as the board of directors may from time to time prescribe.
Section 11. The Secretary. The secretary shall attend all meetings of the
board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of
12
<PAGE>
the corporation and of the board of directors in a book to be kept for that
purpose and shall perform like duties for the standing committees when required;
shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the board of directors; shall perform such other duties
as may be prescribed by the board of directors, the chairman of the board or the
president, under whose supervision the secretary shall be; and shall keep in
safe custody the corporate seal of the corporation and when authorized by the
board of directors, shall affix the same to any instrument requiring it and when
so affixed, it shall be attested by the signature of the secretary or by the
signature of any assistant secretary.
Section 12. Assistant Secretaries. The assistant secretaries in the order of
their seniority shall, in the event that the secretary is absent, or has allowed
the office of secretary to be vacated, or is unable or unwilling to act, perform
the duties and exercise the powers of the secretary. They shall perform such
other duties and have such other powers as the board of directors may from time
to time prescribe.
Section 13. The Treasurer. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors. The treasurer shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements.
Section 14. Bond. If required by the board of directors, the treasurer shall
give the corporation a bond (which shall be renewed as required from time to
time) in such sum and with such surety or sureties as shall be satisfactory to
the board of directors for the faithful performance of the duties of the office
and for the restoration to the corporation, in case of the death, resignation or
removal from office of the treasurer, of all books, papers, vouchers, money and
other property or whatever kind in the possession or under the control of the
treasurer belonging to the corporation.
Section 15. Assistant Treasurers. The assistant treasurers, in the order of
their seniority, unless otherwise determined by the board of directors shall in
the event the treasurer is absent, or has allowed the office of treasurer to be
vacated, or is unable or refuses to act, perform the duties and exercise the
powers of the treasurer. They shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
ARTICLE VI
Stock and Stockholders
Section 1. Certificate of Stock. Every record holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of,
the corporation by the chairman of the board, or the vice chairman of the board,
or the president or a vice president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
registered in such stockholder's name, certifying the number of shares owned by
such holder in the corporation.
13
<PAGE>
Section 2. Classes and Series. If the corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
powers, assignations, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, provided that, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, a statement that the
corporation will furnish, without charge to each stockholder who so requests,
the powers, designations, preferences and relative participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Section 3. Signatures. Where a certificate is countersigned (i) by a
transfer agent other than the corporation or its employee, or (ii) by a
registrar other than the corporation or its employee, any of or all the
signatures on the certificate of the officers of the corporation may be a
facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be an officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if
such person were such officer, transfer agent or registrar at the date of
issue.
Section 4. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of the fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuace
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity (or otherwise require the indemnification)
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 5. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. Fixing Record Date. Except as otherwise provided in the
Delaware GCL or the certificate of incorporation, the board of directors may
fix in advance a date, not exceeding sixty (60) days preceding the date of
any meeting of stockholders, or the date for the payment of any dividend, or
other distribution or the date for the allotment of rights, or the date when
any change or conversion or exchange of capital stock shall go into effect, or
a date in connection with obtaining the consent of stockholders for any
purpose, as a record date for the determination of the stockholders entitled to
notice of, and to vote at, any such meeting, and any adjournment thereof, or
entitled to receive payment of any such dividend, or other distribtion or to any
such allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, or to give such consent, and
in such case such stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to such
14
<PAGE>
notice of, and to vote at, such meeting and any adjournment thereof, or to
receive payment of such dividend, or other distribution, or to receive such
allotment of rights or to exercise such rights, or to give such consent, as
the case may be, notwithstanding any transfer of any stock on the books of
the corporation after any such record date fixed as aforesaid.
Section 7. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments, a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of Delaware.
ARTICLE VII
Indemnification
The directors, officers, employees and agents of the corporation and
certain of their respective heirs, successors and personal representatives
shall be indemnified as provided in the certificate of incorporation.
ARTICLE VIII
General Provisions
Section 1. Dividends. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation and to Section 10
of Article III, if any, may be declared by the board of directors at any
regular or special meeting, pursuant to law. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
certificate of incorporation.
Section 2. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person
or persons as the board of directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the corporation shall end on
the Saturday closest to December 31st in each year.
Section 4. Seal. The corporate seal shall have inscribed thereon the name
of the corporation and the words "Corporate Seal, Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 5. Certain Definitions. As used in these by-laws, the following
terms shall have the following meanings:
"Act" means the Securities Act of 1933, as amended.
15
<PAGE>
"Brennan" means Bernard F. Brennan.
"Closing Date" means the date on which the closing pursuant to the Purchase
Agreement (as herein defined) occurred.
"Commission" means the Securities and Exchange Commission.
"Common Stock," "Class A Common Stock, Series 1," "Class A Common Stock, Series
2," "Class A Common Stock, Series 3" and "Class B Common Stock" shall all have
the meanings specified in the certificate of incorporation.
"Delaware GCL" means the General Corporation Law of the State of Delaware, as
the same shall be amended and in effect from time to time.
"Designator" means the Management Shareholder who has the power to designate the
Designated Management Optionees. As long as Brennan shall be a Management
Shareholder and not have died or been adjudicated incompetent, or resigned as
the Designator by written notice to the corporation, he shall be the Designator.
If Brennan shall resign as the Designator, cease to be a Management Shareholder,
die or be adjudicated incompetent, then in such event the Management Shareholder
who from time to time thereafter is employed by a member of the Ward Group, is
then the owner of the largest number of Shares, and is willing and able to serve
as the Designator shall be the Designator; provided, however, that after the
date which is the first anniversary of the date on which Brennan has resigned as
the Designator, ceased to be a Management Shareholder, died or been adjudicated
incompetent, the Designator shall consist of a committee comprised of both said
Management Shareholder and the two (2) most senior officers (other than said
Management Shareholder) from time to time of Ward who are also Management
Shareholders and who are willing to serve as the Designator. Said committee
shall act by the vote of a majority of its members. For the purposes of the
foregoing provisions of this definition, a Management Shareholder shall be
deemed to own all Shares owned by his Permitted Transferees.
"Employee Stock Option Plan" means a stock option plan for the benefit of the
employees of the Ward Group pursuant to which such employees may be granted
options to purchase Shares of Common Stock.
"Family" means a spouse or descendent or ancestor of a Management Shareholder,
or a spouse of a descendent or ancestor of a Management Shareholder, or a
trustee of a trust or a custodian of a custodianship primarily for the benefit
of one or more of the foregoing and/or a Management Shareholder.
"GE Capital" means General Electric Capital Corporation, a New York Corporation.
"GE Capital Affiliate" means any entity which, at the time of the applicable
determination, GE Capital controls, which controls GE Capital, or which is under
common control with GE Capital, but does not include the Ward Group or any
member thereof. For the purposes of the preceding sentence, "control" means the
power, direct or indirect, to direct or cause the direction of the management
and policies of a Person through voting securities, contract or otherwise.
Without limiting the generality of the foregoing, as of the date on which the
16
<PAGE>
Stockholders' Agreement was executed and delivered, Kidder, Peabody Group Inc.
is a GE Capital Affiliate.
"Management Shareholders" or "Management Shareholder" means a Type 1 Management
Shareholder (as herein defined) or a Type 2 Management Shareholder, without
distinction.
"Person" means any individual, sole proprietorship, partnership, joint venture,
unincorporated organization, association, corporation, trust, institution,
public benefit corporation, entity or government.
"Preferred Stock" and "Senior Preferred Stock" shall have the meanings specified
in the certificate of incorporation.
"Purchase Agreement" means that certain Stock Purchase Agreement dated as of
March 6, 1988, as amended, among the corporation, Mobil Corporation and Marcor
Inc.
"Rule 144" means Rule 144, as amended, promulgated by the Commission under the
Act.
"Shareholder" means a Management Shareholder, a Permitted Transferee, GE
Capital, and a GE Capital Affiliate who are the owners of Shares, and any Person
owning Shares who is no longer a GE Capital Affiliate but who was a GE Capital
Affiliate at the time such Person first acquired Shares.
"Shares," except as otherwise specifically provided herein, means the shares of
Common Stock of the corporation without distinction as to class or series, and
shall include certificates of beneficial interest issued by the Voting Trustee
(as herein defined), pursuant to the Voting Trust Agreement (as herein defined);
provided, however, that (and without implication that a contrary result was
intended, but by way of clarification):
(i) for the purpose of determining the number of Shares eligible to vote or
receive distributions, there shall be no duplication as between Shares held by
the Voting Trustee, on the one hand, and certificates of beneficial interest by
the Voting Trustee, on the other hand; and
(ii) where the right to vote Shares or execute consents is granted or
required pursuant to the provisions of this Agreement, except as expressly
provided in Section 8.17 of the Stockholders' Agreement, the term "Shares" shall
not include certificates of beneficial interest issued by the Voting Trustee
under the Voting Trust Agreement;
and these by-laws shall be interpreted in accordance with the foregoing proviso
to the extent the context so requires.
"Signature" means Signature Financial/Marketing, Inc., a Delaware corporation.
"Stockholders' Agreement" means that certain Stockholders' Agreement dated as of
June 17, 1988 among the corporation, Brennan, GE Capital and the other Persons
who are parties thereto, including all amendments thereto as in effect from
time to time.
17
<PAGE>
"Terms and Conditions" mean those certain Montgomery Ward & Co., Incorporated
Stock Ownership Plan Terms and Conditions agreed to by and between the
corporation and participants in the Employee Stock Option Plan.
"Transfer" means any transfer, sale, assignment, pledge, encumbrance or other
disposition of Shares, or, in the case of the corporation, any issuance or sale
of Shares, irrespective of whether any of the foregoing are effected voluntarily
or involuntarily, by operation of law or otherwise, or whether inter vivos or
upon death.
"Transfer Notice" means a written notice of a proposed Transfer.
"Type 1 Management Shareholder" means Brennan and any other Person who is
designated by the Designator as a Type 1 Management Shareholder and who
concurrently with the execution and delivery of the Stockholders' Agreement or
at any time thereafter, in contemplation of that Person's acquisition of Shares,
executes a counterpart of or joins in and agrees to be bound by, the
Stockholders' Agreement as a Type 1 Management Shareholder. Other than Brennan
and Myron Lieberman, as long as GE Capital and GE Capital Affiliate own, in the
aggregate, at least twenty percent (20%) of the Shares which they acquired in
June, 1988, no Person shall be designated as a Type 1 Management Shareholder
without the prior consent of GE Capital, which consent shall not unreasonably be
withheld.
"Type 2 Management Shareholder" means any person who concurrently with the
execution and delivery of the Stockholders' Agreement or at any time thereafter,
in contemplation of that Person's acquisition of Shares, executes a counterpart
of or at any time joins in and agrees to be bound by, the Stockholders'
Agreement as a Type 2 Management Shareholder. Unless that Person has been
designated by the Designator as, or is already, a Type 1 Management Shareholder,
Type 2 Management Shareholders shall include all Persons who acquire Shares of
Class A Common Stock pursuant to the exercise of options granted to them under
the Employee Stock Option Plan, unless the Employee Stock Option Plan provides
otherwise and/or such Persons are not required pursuant to the terms of the
Employee Stock Option Plan to join in the Stockholders' Agreement.
"Voting Trust Agreement" means that certain Voting Trust Agreement, dated as of
June 21, 1988, among the corporation, Brennan and the other individuals who are
parties thereto.
"Voting Trustee" means the person serving as voting trustee under the Voting
Trust Agreement.
"Ward" means Montgomery Ward & Co., Incorporated, an Illinois corporation.
"Ward Group" means the corporation and its direct and indirect subsidiaries.
18
<PAGE>
ARTICLE IX
Amendments
The board of directors may, by vote of not less than two-thirds (2/3) of
the members of the board of directors of the corporation, alter, amend or repeal
these by-laws, or enact such other by-laws as in their judgment may be advisable
for the regulation of the conduct of the affairs of the corporation; provided,
however, that from and after the date on which the number of members of the
board of directors which GE Capital has the right to designate pursuant to
Section 1 of Article III of these by-laws has been reduced pursuant to the terms
and conditions of said Section 1 of Article III, then Section 10 of Article III
of these by-laws may be amended or terminated in whole or in part from time to
time upon the affirmative vote or consent of both (x) a majority of the members
of the board of directors, and (y) the holders of a majority of the then
outstanding shares of Class A Common Stock.
19
<PAGE>
EXHIBIT 5
August 1, 1994
Montgomery Ward Holding Corp.
One Montgomery Ward Plaza
Chicago, IL 60671-0042
Re: Montgomery Ward Holding Corp.
Post-Effective Amendment No. 6 to
Registration Statement on Form S-l
Registration No. 33-33252
(the "Registration Statement")
Gentlemen:
We have served as counsel to Montgomery Ward Holding Corp., a Delaware
corporation (the "Company"), in connection with the above-referenced
Registration Statement. We have examined the Certificate of Incorporation of
the Company, its By-laws, minutes of meetings of stockholders and directors and
such other records and documents as we consider necessary for the purpose of
rendering this opinion.
In our opinion:
1. The Company is organized and existing under the business corporation
laws of the State of Delaware.
2. The Company has an authorized capital of 25,000,000 shares of Class A
Common Stock, Series 1, $.01 par value, of which 25,000,000 shares are
issued and shares are outstanding; 5,412,000 shares of Class A
Common Stock, Series 2, $.01 par value, of which shares are issued
and shares are outstanding; 400,000 shares of Class A Common Stock,
Series 3, $0.01 par value, of which no shares are issued or outstanding;
and 25,000,000 shares of Class B Common Stock, $.01 par value, of which
25,000,000 shares are issued and outstanding.
3. The 3,000,000 shares of Class A Common Stock, Series 1 covered by the
Registration Statement and the Voting Trust Certificates issued in exchange
therefor are validly issued, fully paid, and non-assessable.
4. Based on the facts set forth in the Registration Statement, it is our
opinion that the material federal income tax consequences to the Company
and purchasers of Shares are set forth in the discussion under the caption
"CERTAIN FEDERAL INCOME TAX ASPECTS" on pages 25-26 of the Prospectus. We
hereby confirm as our opinion the entirety of said discussion. This opinion
is based on various statutory provisions, regulations promulgated
thereunder and interpretations thereof by the Internal Revenue Service and
courts having jurisdiction over such matters, all of which are subject to
change either prospectively or retroactively. Any variation or differences
in the facts as incorporated herein might affect the conclusions herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the captions "CERTAIN
FEDERAL INCOME TAX ASPECTS" and "LEGAL OPINIONS" in the Prospectus that is a
part of the Registration Statement.
Very truly yours,
ALTHEIMER & GRAY
<PAGE>
EXHIBIT 10.(ii)(B)(11)
TENTH AMENDMENT TO ACCOUNT PURCHASE AGREEMENT
AMENDMENT, made and entered into as of June 16, 1994, by and between
MONTGOMERY WARD & CO., INCORPORATED ("Seller"), an Illinois corporation
with its chief executive offices located at 619 West Chicago Avenue,
Chicago, Illinois 60671, and MONTGOMERY WARD CREDIT CORPORATION ("MWCC"),
a Delaware corporation with its chief executive offices located at
3720 Howard Hughes Parkway, Las Vegas, Nevada 89109.
W I T N E S S E T H:
--------------------
WHEREAS, Seller and MWCC are parties to an Account Purchase Agreement
dated as of June 24, 1988, as amended by a letter agreement dated April 21,
1989 (the "First Amendment"), an agreement dated December 26, 1989
(the "Second Amendment"), a letter agreement dated April 24, 1990 (the
"Third Amendment"), a letter agreement dated as of December 26, 1990 (the
"Fourth Amendment"), and agreement dated May 23, 1992 (the "Fifth Amendment"),
a letter agreement dated December 29, 1992 (the "Sixth Amendment"), a letter
agreement dated April 29, 1993 (the "Seventh Amendment"), a letter agreement
dated September 15, 1993 (the "Eighth Amendment"), and an amendment dated
February 16, 1994 (the "Ninth Amendment") (collectively, the "Agreement"),
pursuant to which MWCC agreed to purchase and has purchased Accounts and
Indebtedness from Seller upon the terms and subject to the conditions of
the Agreement; and
WHEREAS, Seller and MWCC have agreed that, in the State of Washington,
MWCC shall no longer purchase Accounts and Indebtedness arising from Credit
Agreements, but MWCC shall establish Accounts for such Account Debtors
through a Lender Credit Card Agreement (as hereinafter defined) and add
Indebtedness in connection therewith; and
WHEREAS, it is the mutual desire of Seller and MWCC that the Agreement
be amended in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and subject to
the terms and conditions hereinafter set forth, the parties hereto hereby
agree as follows:
<PAGE>
1. Capitalized terms used herein which are not otherwise defined shall
have the same meaning as in the Agreement.
2. The definition of "Account" in Section 1 is deleted and substituted
in its place is the following:
"Account" shall mean any account, account receivable, other receivable,
contract right, chose in action, general intangible, chattel paper, instrument,
document, note, or obligation and proceeds thereof, whether now owned or
hereafter acquired, and wherever located, arising out of the sale of Merchandise
by Seller, its Affiliates or any Licensees to any Account Debtor pursuant to
either a Credit Agreement or a Lender Credit Card Agreement. The term Account
shall also include (a) all of the Account Documentation evidencing the same,
the receivables therefrom (including all Indebtedness), and the proceeds
thereof, (b) all rights of Seller in any Merchandise which is security or
collateral for Accounts, and (c) all guarantees, claims, security interests, or
other security held by or granted to Seller to secure payment by any Person with
respect thereto. Notwithstanding the foregoing, "Accounts" shall not include
(a) those generated pursuant to layaway plans, and (b) those excluded pursuant
to Section 5.15. Reference in this Agreement to Accounts owned by MWCC shall
(a) also include all Accounts then owned or held by any direct or indirect
assignee or secured party of, or purchaser from, MWCC (other than Seller)
(collectively, "Assignees") and (b) to the extent any Indebtedness relating to
such Account is not owned by MWCC (including Assignees), be deemed to be a
reference to the Account only to the extent of the Indebtedness owned by MWCC
(including Assignees).
3. The definition of "Account Documentation" in Section 1 is deleted and
substituted in its place is the following:
"Account Documentation" shall mean any and all documentation relating
to an Account, including, without limitation, applications for Accounts, Credit
Agreements, Lender Credit Card Agreements, sales slips, delivery receipts,
billing statements, checks and stubs, correspondence, memoranda, magnetic
tapes, disks, or hardcopy formats, or any other computer-readable data
transmissions or software related thereto, and any other written material
related thereto, or any microfilm copy of any of the foregoing.
4. The definition of "Average Billed Indebtedness" in Section 1 is deleted
and substituted in its place is the following:
2
<PAGE>
"Average Billed Indebtedness" shall mean the sum of the gross accounts
receivable of MWCC, Assignees, and the holder of the Indebtedness subject to the
Morgan Agreement, resulting from the purchase, establishment and/or addition of
Accounts, as computed pursuant to MWCC's Accounting Practices, but without the
deduction of an allowance for bad debts, billed on each of the Billing Cycle
closing dates during the Fiscal Year in question, divided by twelve (12).
Notwithstanding the foregoing, if the Fiscal Year in question is a partial
Fiscal Year, "Average Billed Indebtedness" shall mean the sum of the gross
accounts receivable of MWCC, Assignees, and the holder of the Indebtedness
subject to the Morgan Agreement, resulting from the purchase, establishment
and/or addition of Accounts, as computed pursuant to MWCC's Accounting
Practices, but without deduction of an allowance for bad debts, billed on each
of the Billing Cycle closing dates during the complete MWCC fiscal months within
such partial Fiscal Year, divided by such number of such complete MWCC fiscal
months. In the event that the number of times an Account is billed during a
Fiscal Year is other than twelve (12), the parties hereto shall agree to an
appropriate adjustment to the calculations set forth herein.
5. The definition of "Ineligible Indebtedness" in Section 1 is deleted
and substituted in its place is the following:
"Ineligible Indebtedness" shall mean Indebtedness which Seller is
required to purchase from MWCC pursuant to Section 3.4.
6. The following definitions shall be added after the definition of "Layer
Blended Rate" in Section 1:
"Lender Credit Card" shall mean a card or similar device issued to an
Account Debtor residing in the State of Washington under a Lender Credit Card
Agreement which gives the Account Debtor the privilege of obtaining credit from
MWCC or a subsequent assignee of the Lender Credit Card Agreement from time to
time through the Account Debtor's incurring of Indebtedness as reflected in a
sales slip or memorandum (including an electronically generated or transmitted
entry) evidencing the purchase of Merchandise to be paid in accordance with that
agreement.
"Lender Credit Card Agreement" shall mean an agreement between an
Account Debtor and MWCC or a subsequent assignee of the agreement pursuant to
which the Account Debtor receives a Lender Credit Card from MWCC.
3
<PAGE>
7. The definition of "Licensee" in Section 1 is deleted and substituted
in its place is the following:
"Licensee" shall mean any Person who, now or hereafter, pursuant to
any now existing or future agreement with Seller or an Affiliate of Seller, is
permitted from time to time by Seller or such Affiliate to make credit sales of
Merchandise to Account Debtors pursuant to Credit Agreements or Lender Credit
Card Agreements, as appropriate, which would include, but not be limited to,
acceptance of Montgomery Ward credit cards by any Persons that lease or license
space in any stores or facilities owned, leased or operated by Seller or an
Affiliate of Seller.
8. The definition of "Maximum Repurchase Amount" is deleted and
substituted in its place is the following:
"Maximum Purchase Amount" shall have the meaning assigned to it in
Section 3.4 hereof.
9. The definition of "Merchandise" is deleted and substituted in its
place is the following:
"Merchandise" shall mean goods and services, including without
limitation accessories, installation, delivery services, automotive services,
repair services, service contracts, insurance and club fees, 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 and
restored to the inventory and subsequently offered for resale.
10. The definition of "Purchase Price" is deleted.
11. The section heading for Section 3 and Section 3.1 are deleted and
substituted in their place is the following:
3. ORIGINATION OF ACCOUNTS
-----------------------
3.1. Origination of Accounts and Indebtedness Following the Stated
Time.
(1) Other than with respect to persons residing in the State of
Washington and purchasing Merchandise, from and after the date of this
Amendment, subject to the provisions hereof (including but not limited to
Section 5 hereof), Seller shall offer to sell, assign, and transfer to MWCC,
free and clear of all Liens (except in the circumstances referred to in Section
4
<PAGE>
6.3(4)), all Accounts and Indebtedness originated from time to time after the
Stated Time, and MWCC shall purchase and acquire all such Accounts and
Indebtedness so offered (subject to the approval by MWCC of the credit limits
for each Account and acceptance of new Account Debtors pursuant to Section 5.1
hereof, in accordance with the credit policies as provided in Section 5.9).
(2) With respect to persons residing in the State of Washington and
purchasing Merchandise, from and after the date of this Amendment, subject to
the provisions hereof (including but not limited to Section 5 hereof), Seller
agrees that MWCC shall have the exclusive right to establish a credit facility
using the tradenames, service marks and/or trademarks under which Seller
conducts business, which use shall be governed by the terms of the License
Agreement by and between the parties hereto dated June 24, 1988 and amended May
, 1994, and MWCC agrees that it shall provide Lender Credit Card Agreements and
add Indebtedness thereunder (subject to the approval by MWCC of the credit
limits for each Account and acceptance of new Account Debtors pursuant to
Section 5.1 hereof, in accordance with the credit policies as provided in
Section 5.9). The terms of a Lender Credit Card Agreement shall be substantially
identical to the terms of the Credit Agreements currently used in the State of
Washington, except that (a) the initial parties to a Lender Credit Card
Agreement shall be MWCC and an Account Debtor and (b) MWCC shall not take a
security interest in Merchandise sold under Lender Credit Card Agreements.
(3) Notwithstanding anything otherwise provided herein, MWCC may, but
shall not be obligated to, purchase any such Accounts and Indebtedness under
Credit Agreements or establish or add Accounts and Indebtedness under Lender
Credit Card Agreements at any time during which the Net Receivable Balance owned
by MWCC (but excluding for this purpose the portion of the Net Receivable
Balance owned by any other Person, including Assignees, who have purchased such
portion of the Net Receivable Balance from MWCC on what is effectively a
non-recourse basis (such non-recourse determination to be made by MWCC in its
reasonable judgment)) equals or exceeds the Maximum Investment.
(4) MWCC 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 Account Debtors, to review any request by Seller to
increase the Maximum Investment for the ensuing two (2) year period. In making
such request, Seller may furnish to MWCC the then current five-year plan of
Seller, which plan shall be based on reasonable estimates and projections. MWCC
and GE
5
<PAGE>
Capital shall act reasonably within the context of this Agreement in responding
to any request by Seller to increase the amount of the Maximum Investment.
(5) Except as otherwise provided in Sections 3.4 and 4, all
Accounts and/or Indebtedness sold to, or established and added by, MWCC pursuant
to this Section 3.1 shall be sold to, or established and added by, MWCC on a
non-recourse basis and without a guaranty of collection.
12. The section heading of Section 3.2 and Section 3.2(1) are deleted and
substituted in their place is the following:
3.2. Payment for Indebtedness.
(1) MWCC shall pay Seller the face value of the Indebtedness for
all Indebtedness purchased, established or added to an Account pursuant to
Section 3.1 hereof. A computer-readable medium, or information in such form as
is mutually approved by the parties hereto, concerning such Indebtedness, shall
be transmitted to MWCC at the office or offices MWCC designates, as such offices
may from time to time be changed upon not less than fifteen (15) Business Days
advance notice to Seller, provided such new offices contain the necessary
computer and telecommunications capabilities. MWCC shall pay Seller the amount
of such Indebtedness on or before 2:00 PM 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 MWCC on or before 11:00 AM Eastern Time on the
prior Business Day. MWCC shall tender such payments to Seller by wire transfer
of immediately available same day federal funds into one bank account from time
to time designated by Seller, as such bank account may from time to time be
changed upon not less than fifteen (15) Business Days advance notice to MWCC.
For example, if such information on Indebtedness which arose on Friday,
Saturday and Sunday is provided to MWCC by 11:00 AM Eastern Time on the
following Monday (assuming that Monday is a Business Day), a payment for those
three (3) days shall be wired to Seller on or before 2:00 PM 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 Seller, such
information with respect to any day has not been received by 11:00 AM Eastern
Time on a Business Day, and provided Seller thereafter takes all reasonable
steps to deliver such information to MWCC by alternate means, MWCC shall pay
Seller on or before 2:00 P.M. Easterm Time the next Business Day thereafter
an estimated amount equal to the amount payable for the same day during the
preceding calendar week for which information was provided (after taking into
account appropriate differences in
6
<PAGE>
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 AM Eastern Time on such Business Day by a payment on or before 2:00 PM
Eastern Time on the following Business Day by wire transfer of immediately
available same day federal funds from Seller to MWCC, or MWCC to Seller, as the
case may be. Any such adjusting payment made by Seller to MWCC 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, Seller shall provide such information as soon as
possible and shall pay MWCC 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 AM
Eastern Time for the immediately preceding Friday, Saturday and Sunday, an
estimated payment in the circumstances described above shall be made on or
before 2:00 PM 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 Friday, Saturday and Sunday is first
available by 11:00 AM Eastern Time the following Thursday (assuming that
Thursday is a Business Day and Seller 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 PM Eastern
Time on the following Friday (assuming the following Friday is a Business
Day).
13. The Section 3.3(2)(ii) is deleted and substituted in its place is the
following:
(ii) "Net Receivable Balance" means for the day in question the
amount by which (A) the gross accounts receivable of MWCC and
its Assignees (including the portion thereof comprised of
finance and other credit charges), as of the close of
business of such day, resulting from its purchase,
establishment or addition of Accounts, as computed pursuant
to MWCC's Accounting Practices exceeds (B) the amount of
MWCC's allowance for bad debts with respect to such accounts
receivable, as of the close of business on such day, also as
computed pursuant to MWCC's Accounting Practices.
7
<PAGE>
14. The first full paragraph of Section 3.4 is deleted and substituted in
its place is the following:
3.4 Ineligible Indebtedness. When any New Indebtedness purchased,
established or added pursuant to this Agreement (including without limitation
New Indebtedness pursuant to Old Accounts and New Indebtedness that is Defaulted
Indebtedness which has been theretofore included in the calculations pursuant to
Section 4) then owned by MWCC becomes Ineligible Indebtedness, 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 to require Seller to purchase from
MWCC such Ineligible Indebtedness for the face value thereof, excluding any
finance or, if agreed to by the parties hereto, other credit charges. Until such
time as MWCC, in its sole discretion, exercises its right to require Seller to
purchase Ineligible Indebtedness, MWCC shall use its best efforts to collect
such Ineligible Indebtedness from the relevant Account Debtor to the extent such
Indebtedness is the valid obligation of the Account Debtor. The purchase price
for such Ineligible Indebtedness shall be paid directly by Seller to MWCC or
offset by MWCC against amounts then owed to Seller thirty (30) days after notice
from MWCC of the amount claimed to be due, except to the extent the claimed
amounts are disputed by Seller. Upon any such purchase, MWCC hereby assigns
Seller all of its right, title, and interest in and to such Indebtedness, free
and clear of any and all Liens created by MWCC or Assignees, but without any
other warranty, and the ownership interest of MWCC in such Indebtedness shall be
terminated. After Seller has purchased such Ineligible Indebtedness (a) MWCC's
obligation to service such Ineligible Indebtedness, as set forth in Section 5.1
hereof, shall be terminated, (b) all payments in respect of such Ineligible
Indebtedness shall be promptly forwarded by MWCC to Seller, and (c) upon
Seller's request, MWCC shall deliver to Seller all available Account
Documentation received by MWCC with respect to such Ineligible Indebtedness,
provided if Seller is unable to enforce or collect any Ineligible Indebtedness
due to MWCC's failure to deliver such Account Documentation that it previously
received, MWCC shall repurchase such Ineligible Indebtedness from Seller.
Anything contained herein to the contrary notwithstanding, the aggregate amount
of Ineligible Indebtedness, which excludes any finance or other credit charges
to the extent provided above, which Seller shall be required to purchase during
each of the first full twenty-four (24) Settlement Periods which occur during
the term of this Agreement shall not exceed six hundredths percent (.06%) of the
Credit Sales for the Settlement Period immediately preceding the one in
question, prorated for the first Settlement Period ("Maximum Purchase Amount").
At such time during any Settlement Period as Seller has purchased such
Ineligible Indebtedness in an amount
8
<PAGE>
equal to the Maximum Purchase Amount for such Settlement Period, it shall not be
required to purchase any additional Ineligible Indebtedness until the next
Settlement Period. In calculating Ineligible Indebtedness that is subject to the
Maximum Purchase Amount limitation, there shall be excluded merchandise
adjustments as provided in (4) below and unauthorized charges as provided in (2)
below to the extent the unauthorized charges under (2) below were caused by
fraudulent acts of employees of Seller, its Affiliates or the Licensees.
15. Section 3.4(1) is deleted and substituted in its place is the
following:
(1) Unidentifiable Media. Unidentifiable media are media that does
not have a valid account number, or media with an account number that is
illegibly imprinted or written in. MWCC shall directly request the media from
the issuing location. The issuing location is responsible for providing a
legible copy of the media with correct account number to MWCC within ten (10)
days of notice to the issuing location. MWCC has the right to chargeback if (a)
Seller 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
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 of the date of the sale of Accounts and
Indebtedness to, or the establishment or addition of Accounts and Indebtedness
by, MWCC. Seller 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 become Indebtedness to be purchased
by MWCC.
16. Section 3.4(5) is deleted and substituted in its place is the
following:
(5) Missing Media. Requests received by MWCC from customers for
supporting sales media shall be promptly communicated by MWCC directly to the
issuing location. Seller is responsible for providing MWCC 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
MWCC to Seller. Seller 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 MWCC. Notwithstanding the foregoing, in
no event may MWCC chargeback to Seller any items described in this subsection
later than thirty (30) days after the receipt of the request for adjustment from
the customer.
9
<PAGE>
17. In Section 4.1(1), the subparagraph beginning "Net Defaulted
Indebtedness" is deleted and substituted in its place is the following:
"Net Defaulted Indebtedness" shall mean the amount of Defaulted Indebtedness
first becoming Defaulted Indebtedness during the Fiscal Year in question less
the gross amount (without deduction for attorneys' fees or other collection
costs) of cash recoveries ("Gross Recoveries") received during the Fiscal Year
in question in respect of (a) Defaulted Indebtedness (regardless of when such
Defaulted Indebtedness occurred), or (b) Indebtedness written off prior to the
Stated Time. It is understood that Gross Recoveries would include payments made
to MWCC by Seller on Defaulted Indebtedness pursuant to Section 5.3(5), proceeds
of credit insurance, and payments made to MWCC in respect of the purchase of
Ineligible Indebtedness which was, prior to the purchase, Defaulted Indebtedness
previously included in the calculations pursuant to Section 4.
18. Section 4.2 is deleted and substituted in its place is the following:
4.2 Average Indebtedness. "Average Indebtedness" shall mean the sum of
the gross accounts receivable of MWCC, Assignees, and the holder of the
Indebtedness subject to the Morgan Agreement, resulting from the purchase,
establishment or addition of Accounts, as computed pursuant to MWCC's Accounting
Practices, but 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 Average Indebtedness shall be computed based on
the number of Settlement Periods within the Fiscal Year.
19. The introduction to Section 5.1(1) is deleted and substituted in its
place is the following:
(1) In connection with its purchase, establishment or addition of
Accounts and Indebtedness and its servicing thereof, MWCC shall:
20. Section 5.1(3) is deleted and substituted in its place is the
following:
(3) MWCC shall provide all necessary and proper (a) promotional
materials and signs in a format acceptable to
10
<PAGE>
Seller, or reimburse Seller for such promotional materials and signs that Seller
provides, (b) credit application forms, (c) Credit Agreements and Lender Credit
Card Agreements (for use in the State of Washington), and (d) legally required
credit disclosure forms and customer payment receipt forms that are compatible
with Seller's point-of-sale registers, or reimburse Seller for such customer
payment receipt forms as Seller provides. Notwithstanding the foregoing, Seller
shall bear the expense for the foregoing items in this subsection (3) that are
used in and/or distributed from its retail stores, unless MWCC changes the form
thereof, in which case MWCC shall at its expense replace those then held in the
retail stores.
21. Section 5.13 is deleted and substituted in its place is the following:
5.13. Limitation on MWCC. MWCC shall not, and shall not permit any
other Person (including pursuant to Section 5.12) to, directly or indirectly
utilize for any purpose other than the servicing of Accounts and Account Debtors
(a) personnel that handle incoming Account Debtor inquiries (other than mail
inquiries) directly with Account Debtors (unless MWCC maintains other means for
achieving Transparent Servicing), or (b) the Credit Agreements, Lender Credit
Card Agreements, Accounts and credit cards that may be issued pursuant thereto,
provided, however, that MWCC may use such Accounts for financing purposes,
including, without limitation, securitizing the sale of Indebtedness or selling
participations in Indebtedness. It is understood that the credit cards to be
issued in connection with the Accounts, Credit Agreements and Lender 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
Seller, its Affiliates and the Licensees.
22. The section heading and introductory sentence of Section 6.3 and
6.3(1) are deleted and substituted with the following:
6.3. Conditions to Each Purchase, Establishment or Addition of
Accounts and Indebtedness by MWCC. It shall be a condition precedent to the
obligation of MWCC to purchase, establish or add Accounts and Indebtedness from
Seller, its Affiliates and the Licensees (which condition may be waived by MWCC,
but any such waiver shall not apply to future purchases, establishments or
additions as to which there is no waiver) that the following statements shall be
true and correct as of the date of each subsequent purchase, establishment or
addition of Accounts and Indebtedness:
11
<PAGE>
(1) All of the representations and warranties of Seller contained in
Section 8 of this Agreement which (a) if not true and correct would constitute a
Seller Default pursuant to Section 16.1 and (b) are Remade Seller
Representations and Warranties as provided in Section 8, shall be correct in all
material respects on and as of the date of such purchase, establishment or
addition as though made on and as of such date.
23. Section 6.3(2) is deleted and substituted with the following:
(2) No event shall have occurred and be continuing, or would
result from such purchase, establishment or addition, which constitutes a Seller
Default.
24. Section 6.3(4)(a) is deleted and substituted with the following:
(4)(a) Except as provided in subsection (b) below, no outstanding
Lien in excess of Ten Million Dollars ($10,000,000) shall have been placed
against the Accounts or Indebtedness owned or being tendered for purchase,
establishment or addition by MWCC, taken as a whole (other than Liens created or
caused by MWCC or Assignees) unless Seller (i) promptly commences and diligently
proceeds to attempt to have such Lien removed, and (ii) provides, or causes to
be provided, security reasonably acceptable to MWCC, and (b) no outstanding Lien
created by an officer of Seller shall have been placed against the Accounts or
Indebtedness owned or being tendered for purchase, establishment or addition by
MWCC, taken as a whole.
25. Section 6.3(5) and the concluding paragraph of Section 6.3 are deleted
and substituted with the following:
(5) No event shall have occurred and be continuing which is
described in Section 16.1(5) or 16.1(6) hereof which, with the passage of time,
shall constitute a Seller Default, except that, during such sixty (60) day
period referred to in Section 16.1(5) or 16.1(6), upon request of Seller MWCC
shall purchase Accounts and Indebtedness at ninety percent (90%) of the face
value of the Indebtedness to be purchased, and establish or add Accounts and
Indebtedness and pay to Seller ninety percent (90%) of the face value of the
Indebtedness to be added and MWCC shall credit to a reserve account
("Liquidation Account") ten percent (10%) of such face value, provided that MWCC
shall not be obligated to purchase, establish or add, during such period after
the earliest to occur of (a) fifteen (15) days after the event described in
Section 16.1(5) or 16.1(6) shall
12
<PAGE>
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 reasonably acceptable to MWCC
approving such purchase, establishment or addition pursuant to the terms
of this Agreement (including the Liquidation Account) shall have been
entered for the benefit of MWCC by a court having jurisdiction of the matters.
Seller 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 Seller
upon the earlier of the time(s) when (a) an event under Section 16.1(5) or
16.1(6) is no longer continuing, or (b) all of Seller's Obligations hereunder
have been paid or otherwise satisfied in full, including, without limitation,
the payment for Defaulted Indebtedness pursuant to Section 4.1, which obligation
pursuant to Section 4.1 shall survive any termination of this Agreement due to
a Seller Default under Section 16.1(5) or 16.1(6) until all Accounts are either
collected or written off by MWCC. Such Liquidation Account shall bear interest
at the Commercial Paper Rate, calculated on a simple basis, in effect from time
to time during 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. To the extent, if any, that Seller has an
interest in such Liquidation Account, Seller hereby grants a security interest
to MWCC in such Liquidation Account.
The acceptance by Seller of the proceeds of each purchase, establishment or
addition of Indebtedness shall be deemed to constitute representations and
warranties by Seller that the conditions in this Section 6.3 have been
satisfied.
26. Section 6.4 is deleted and substituted with the following:
6.4 Conditions to Each Sale or Addition of Indebtedness. It shall be a
condition precedent to the obligation of Seller to sell Accounts and
Indebtedness to MWCC or tender Accounts and Indebtedness to MWCC for purchase,
establishment or addition (which condition may be waived by Seller, but any
such waiver shall not apply to future sales or tenders as to which there is no
waiver) that the following statements shall be true and correct as of the date
of each sale of Accounts and Indebtedness:
(1) All of the representations and warranties of MWCC contained
in Section 9 of this Agreement which (a) if not true and correct would
constitute a MWCC Default pursuant to Section 16.2, and (b) are Remade MWCC
Representations and Warranties as provided in Section 9 shall be correct in all
13
<PAGE>
material respects on and as of the date of each such sale or tender as though
made on and as of such date.
(2) No event shall have occurred and be continuing, or would
result from such sale or tender, which constitutes a MWCC Default.
27. Section 7.1 is deleted and substituted with the following:
7.1. Security Interest. The parties hereto intend that the transactions
contemplated by Section 3.1(1) shall be treated as a purchase and sale of
Accounts and Indebtedness for all purposes and that the transactions
contemplated by Section 3.1(2) hereof shall be treated as an extension of credit
under Lender Credit Card Agreements to Account Debtors who wish to obtain
financing to purchase Merchandise. The parties do not intend that the
transactions contemplated by Section 3.1 of this Agreement be deemed a loan from
MWCC to Seller. In recognition of the applicability of Article 9 of the Code to
some of the contemplated transactions, and without conceding any such
applicability to all of the property and interests specified herein, and as
additional security for the payment of and performance by Seller of any and all
obligations whatsoever to MWCC, Seller, to the extent of its interest, hereby
grants to MWCC continuing first priority Liens in and to all Accounts and
Indebtedness either purchased from Seller and then owned by MWCC or established
and added by MWCC (all subject to the Morgan Lien, if any), which Liens are
granted to secure the Obligations, together with an assignment to MWCC (subject
to the Morgan Lien, if any) of Liens, if any, in and to all Merchandise
purchased by Account Debtors pursuant to Accounts then owned by MWCC, to the
extent of the Liens of Seller thereon; provided, however, that such Liens shall
not include Liens, if any, on Merchandise purchased pursuant to Accounts after
such Merchandise has been returned to Seller until such time as such Merchandise
may again be sold pursuant to an Account creating Indebtedness then owned by
MWCC. In addition, Seller grants to MWCC a continuing first priority Lien in and
to the Liquidation Account, to the extent Seller has an interest in such
Liquidation Account, as provided in Section 6.3(5).
28. Section 7.4 is deleted and substituted with the following:
7.4. Further Assurances. In addition to the undertakings specifically
provided for in this Agreement, Seller and MWCC shall each do all other things
and sign and deliver all other documents and instruments reasonably requested
by the other
14
<PAGE>
to perfect, protect, maintain and help enforce the Liens of MWCC 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 Seller that Accounts and Indebtedness have been sold and assigned to, or
established and/or added by MWCC (to the extent so sold or established and/or
added) 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 then owned by MWCC; and the delivery
of any Account Documentation (including, without limitation, computer tapes) the
physical possession of which MWCC requires in connection with the ownership,
collection and enforcement of Accounts and Indebtedness owned by it. If Seller
fails to do so within ten (10) Business Days after request, Seller irrevocably
authorizes MWCC to execute alone any financing statement or any other document
or instrument which may be required to perfect or protect any Lien granted to
MWCC pursuant to this Agreement, and authorizes MWCC to sign Seller's name on
the same.
29. Section 7.6 is deleted and substituted with the following:
7.6. Continued Liability. Anything herein to the contrary
notwithstanding, (a) Seller, its Affiliate and the Licensees shall remain liable
under any contracts and agreements with any Account Debtor that relate to the
Merchandise sold (as opposed to the Credit Agreement or Lender 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 MWCC of any
rights pursuant to this Agreement shall not release Seller, its Affiliates or
the 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 be obligated to perform any of the obligations or
duties of Seller pursuant to this Agreement.
30. The introductory paragraph of Section 8 is deleted and substituted in
its place is the following:
Seller 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 except for those set forth in Sections 8.5 and 8.10 which shall only
survive to the extent MWCC gives Seller written notice of any misrepresentation
or breach of warranty (specifying in reasonable
15
<PAGE>
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, and 8.9 shall be deemed to be restated and remade ("Remade Seller
Representations and Warranties") on each date on which MWCC purchases,
establishes or adds Accounts and Indebtedness. 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 Seller 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 Two Million Dollars ($2,000,000), and then only to the
extent of the excess of such aggregate amount recoverable over Two Million
Dollars ($2,000,000).
31. Section 8.9 is deleted and substituted with the following:
8.9. Accounts. Each item of Indebtedness on an Account owned by MWCC
(and, to the extent applicable, each Account pursuant to which such Indebtedness
is incurred) at the time of a purchase, establishment or addition: (a) is free
and clear of any and all Liens, other than Liens resulting from an act or
omission of MWCC or Assignees, in favor of any Person other than MWCC and the
Morgan Lien (if any); (b) arises in connection with a bona fide sale and
delivery of Merchandise by Seller, its Affiliates, or the Licensees, or the
predecessors of any of the foregoing, to an Account Debtor; and (c) is for a
liquidated amount as stated in the Account Documentation relating thereto,
subject to returns, allowances and other adjustments in the ordinary course of
business.
32. The following is added as Section 8.11:
8.11. Accounts. Treatment of Washington Residents. On and after the
date of this Amendment, Seller shall utilize Lender Credit Card Agreements in
connection with the establishment of Accounts for residents of the State of
Washington who purchase Merchandise and shall not knowingly utilize Credit
Agreements for residents of the State of Washington who purchase Merchandise.
33. The first paragraph of Section 9 is deleted and substituted with the
following:
16
<PAGE>
MWCC makes the following representations and warranties to Seller 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. 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 on which MWCC purchases, establishes or adds Accounts and Indebtedness.
Notwithstanding anything to the contrary contained in this Agreement, in no
event shall MWCC be liable (by way of indemnification or otherwise) for any
misrepresentations 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 Two Million Dollars
($2,000,000), and then only to the extent of the excess of such aggregate amount
recoverable over Two Million Dollars ($2,000,000).
34. Section 12.1 is deleted and substituted with the following:
12.1. MWCC's Instructions. Seller shall use only forms and contracts
evidencing the Credit Agreement, the Lender Credit Card Agreement and comprising
Account Documentation, in connection with Accounts owned by MWCC, approved by
MWCC 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.
35. Section 12.3 is deleted and substituted with the following:
12.3. Seller's Licensees. Seller shall, upon the request of MWCC,
forward an executed copy of any now existing or future contract with any
Licensee pertaining to an Account or Indebtedness which is to be sold to, or
established and/or added by, MWCC pursuant to this Agreement.
36. Section 13.1 is deleted and substituted with the following:
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,
without limitation, court and FTC orders (to the extent such FTC
17
<PAGE>
orders are set forth in Schedule 13.1 annexed hereto, as they may be modified,
or entered against MWCC after the date hereof), 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, MWCC shall additionally be obligated to cause
all Accounts, Indebtedness, Credit Agreements, Lender Credit Card Agreements,
periodic billing statements, other Account Documentation (other than those
forms for which Seller is responsible as provided in Section 12.2), any other
documents utilized by MWCC, insurance (to the extent of limitations on finance
charges thereon), finance charges, and credit procedures 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 Seller with revisions to credit
procedures, Credit Agreements, Lender Credit Card Agreements, periodic billing
statements, other Account Documentation (other than those forms for which Seller
is responsible as provided in Section 12.2) and any other documents utilized by
MWCC, including those previously prepared by or on behalf of Seller, so that
they so comply. Notwithstanding any of the foregoing, MWCC shall not be
responsible during the period ending five (5) months after the date hereof for
any non-compliance with any such laws, statutes, ordinances, rules, regulations,
orders or rulings relating to any Account Documentation or credit procedures
of Seller or Affiliates used or in effect at the Stated Time, unless such
non-compliance arises out of a change in any such laws, statutes, ordinances,
rules, regulations, ordinances or rulings after the Stated Time. It is
understood that MWCC is not entitled to rely (except during the period ending
five (5) months after the date hereof to the extent set forth above), as a basis
for not complying with this section, at any time after the date hereof, on
insurance (to the extent of limitations on finance charges thereon), finance
charges, credit procedures, Credit Agreements, Lender Credit Card Agreements,
periodic billing statements, other Account Documentation (other than those forms
for which Seller is responsible as provided in Section 12.2), and other
documents prepared or utilized by Seller during any period prior to the date
hereof. MWCC shall not be responsible for noncompliance pursuant to this
Section 13.1 where noncompliance is a result of Seller's failure to comply with
any such matters, to the extent Seller is required by this Agreement to so
comply.
37. Section 15.2(2)(iv) is deleted and substituted with the following:
18
<PAGE>
(iv) If Seller chooses option (C) above, Seller 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, Seller'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.
38. The first sentence of Section 15.2(3)(ii) is deleted and substituted
with the following:
(ii) If Seller 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 Investment limitation
on MWCC's obligation to purchase, establish or add) until a
date at which time this Agreement shall terminate (the
"Termination Date") twelve (12) months from the Response
Date, (II) if option (A) is chosen, Seller shall purchase,
as of the opening of business on the Termination Date, all
existing Accounts and Indebtedness then owned by MWCC at a
price equal to the Net Receivable Balance on the opening of
business on such date, and MWCC shall continue to service
Accounts and Indebtedness in the same manner and with the
same degree of care with which it had serviced Accounts and
Indebtedness prior to the Termination Date for a fee equal
to MWCC's fully allocated cost of operations relating to the
Accounts plus ten percent (10%) of such costs, for a period
of twelve (12) months after the Termination Date (in which
case such costs shall be computed in accordance with MWCC's
Accounting Practices, MWCC shall not 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
19
<PAGE>
Termination Date, but such costs shall include additional
out-of-pocket expenses to MWCC required for the servicing
of Accounts and Indebtedness, other than transition costs,
and payments received on Accounts shall be remitted to
Seller on the next Business Day after receipt), (III) if
option (B) is chosen, MWCC 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 referred
to therein, (IV) at any time during and at the end of the
twelve (12) month period after the Termination Date, Seller
shall have the right to purchase (and MWCC shall have the
same obligation to sell) all Accounts and Indebtedness 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 Seller on the Response Date or upon
three (3) months prior written notice, Seller 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.
39. Section 15.2(3)(iii) is deleted and substituted with the following:
(iii) If Seller 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)(iv) shall apply. In addition,
Seller's obligations under Section 3.4 shall continue for
a period of twelve (12) months after termination, provided
20
<PAGE>
that the aggregate of such purchases shall not exceed the
amount of such purchases for the twelve (12) months
immediately prior to termination.
40. Section 15.2(4) is deleted and substituted with the following:
(4) If MWCC decides not to raise the Maximum Investment and Seller does
not elect pursuant to Section 15.1(2) to terminate this Agreement as a result of
such refusal (it being understood that Seller shall still, 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
Investment 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 Net Receivable Balance exceeds ninety
percent (90%) of the Maximum Investment, at Seller's option
(A) random selections of whole new and old Accounts,
excluding Accounts with Defaulted Indebtedness (new Accounts
being Accounts for which Credit Agreements and Lender Credit
Card Agreements are executed after the Response Date), or
Accounts selected by some other method agreed to by the
parties, shall be purchased, held or otherwise sold, financed
or disposed of by Seller, such that the amount of Net
Receivable Balance owned by MWCC is at all times no less than
eighty percent (80%) of the Maximum Investment, and/or (B)
Seller may require MWCC to increase the minimum monthly
payments on all or specified Accounts, without the necessity
of obtaining the Management Committee's approval, to the
amounts provided in the forms of Credit Agreements annexed
hereto as Exhibit 8.10, or such higher minimum payments as
Seller requests, provided such higher minimum payments that
are greater than those described in the forms of Credit
Agreements annexed hereto as Exhibit 8.10 shall be
implemented by MWCC, unless such change shall cause MWCC to
receive less than a fair and reasonable
21
<PAGE>
profit, as to which, if there is a dispute, shall be
determined by the Management Committee.
(ii) In the event that MWCC owns less than fifty percent (50%) of
the aggregate of non-written-off Indebtedness (which may
result from a growth in aggregate Indebtedness), a Person
other than MWCC may at Seller's election service Accounts
and Indebtedness that were purchased, held or otherwise
sold, financed or disposed of by Seller pursuant to (i)
above.
(iii) Seller, at its election, may either continue to hold or
otherwise sell, finance or dispose of any and all Accounts
and Indebtedness not sold to MWCC or so purchased from MWCC,
or sell to MWCC or request that MWCC establish and/or add
(in which case MWCC shall purchase, establish and/or add)
any or all of such Accounts and Indebtedness in accordance
with the terms of this Agreement as though such sale and
purchase or establishment and/or addition were originally
being made and there had not been any refusal to increase
the Maximum Investment, provided, however, that no Person
other than MWCC shall have serviced such Accounts and
Indebtedness, and, provided further, MWCC may, but shall not
be obligated to, so purchase, establish and/or add any such
Accounts and Indebtedness during any time during which the
Net Receivable Balance owned by MWCC (but excluding for this
purpose the Net Receivable Balance owned by any other
Person, including Assignees, with respect to which MWCC has,
in effect, no recourse liability (such recourse
determination to be made by MWCC in its reasonable
judgment)), equals or exceeds the Maximum Investment.
(iv) If Seller purchases Credit Agreements, Lender Credit Card
Agreements and Accounts and Indebtedness relating thereto
pursuant to Section
22
<PAGE>
15.2(4)(i)(A) above, it shall pay MWCC (A) a cash purchase price
therefor equal to the then face value of the Indebtedness
purchased, and (B) the unamortized portion of the reasonable
marketing costs incurred by MWCC in initially obtaining and
opening such transferred Accounts. The amortization schedule and
determination of the amount of marketing cost incurred by MWCC in
obtaining and opening such transferred Accounts shall be mutually
approved by the parties hereto on a reasonable basis. In such
event MWCC shall transfer to Seller free and clear of all Liens
the Account Documentation, Accounts and Indebtedness relating
thereto in a manner similar to that in which such items were
originally transferred to MWCC, and shall execute and cooperate in
the filing by Seller of all Code statements and other documents
needed to so transfer such items. If Seller holds or otherwise
sells new Credit Agreements or Lender Credit Card Agreements
pursuant to Section 15.2(4)(i)(A), and if such new Credit
Agreements or Lender Credit Card Agreements were generated through
marketing efforts (as determined based on the source of account
code) performed at MWCC's expense, Seller shall pay to MWCC the
marketing cost incurred by MWCC allocable to each such new Credit
Agreement or Lender Credit Card Agreement. The amount of such
allocable marketing cost shall be mutually approved by the parties
hereto on a reasonable basis. If any Credit Agreements or Lender
Credit Card Agreements for which Seller paid a portion of the
marketing cost pursuant to this subsection (iv) is purchased by
MWCC pursuant to Section 15.2(4)(iii), MWCC shall pay to Seller
any then-remaining unamortized marketing cost relating to such
Credit Agreements or Lender Credit Card Agreements, all as
mutually approved by the parties hereto on a reasonable basis.
23
<PAGE>
(v) Subject to the provisions of subsection (ii) above, if Seller
elects the option described in Section 15.2(4)(i)(A) above,
MWCC shall collect and service any Accounts in question for
Seller's or its designee's account in the manner MWCC collects
and services the Accounts and Indebtedness owned by it, and
Seller shall pay, or cause to be paid, to MWCC a service fee
equal to its pro rata share of MWCC's fully allocated cost of
operations relating to the Accounts not owned by MWCC but
serviced by MWCC, plus ten percent (10%) of such costs. Such
costs shall be computed in accordance with MWCC's Accounting
Practices. MWCC 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 MWCC required for the servicing of
Accounts and Indebtedness. Payments received on such Accounts
shall be remitted to Seller on the next Business Day after
receipt.
41. Section 16.1(2) is deleted and substituted in its place is the
following:
(2) Seller 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 and sustained basis with a conscious disregard
of Seller's obligations with respect thereto, and relate to laws and regulations
governing Credit Agreements, Lender Credit Card 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 Seller, or if
such failure or neglect is not reasonably susceptible of being cured within such
thirty (30) day period, if Seller fails to commence to cure such failure or
neglect during such thirty (30) day period and diligently proceed to cure
thereafter, or (b) intentionally (1) refuse to sell, or cause to be sold,
Accounts and Indebtedness to MWCC or (2) interfere with the establishment or
addition of Accounts and Indebtedness by MWCC as required by this Agreement with
the intent to avoid its obligations hereunder (which intent shall be deemed not
to exist if there is a good
24
<PAGE>
faith dispute as to whether Seller is so obligated to sell or allow MWCC to
establish or add).
42. Section 16.2(3) is deleted and substituted in its place is the
following:
(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 Credit Agreements, Lender Credit Card 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 Seller 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.
43. Except as specifically provided herein, the terms and conditions of the
Agreement as heretofore amended shall continue in full force and effect and
shall be fully binding on the parties hereto. Upon the execution of this
Amendment, each reference in the Agreement to "this Agreement," "hereunder,"
"hereof," or words of like import, shall mean and be a reference to the
Agreement as amended previously and hereby. In the event of any conflict between
the terms of the Agreement as amended and the terms of this Amendment, the terms
of this Amendment shall prevail.
44. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same amendatory instrument,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
IN WITNESS WHEREOF, Seller and MWCC have executed this Amendment as of
the date first set forth above.
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Philip D. Delk
---------------------------------
Name: Philip D. Delk
-------------------------------
Title: Vice President
------------------------------
25
<PAGE>
MONTGOMERY WARD CREDIT CORPORATION
By: /s/ Colleen R. Goldhammer
-------------------------
Name: Colleen R. Goldhammer
-------------------------
Title: President
-------------------------
General Electric Capital Corporation, as guarantor of MWCC's obligations
under the Account Purchase Agreement, has approved the terms of the First
Amendment, Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment
and Ninth Amendment and hereby approves the terms of the Sixth Amendment,
Seventh Amendment, Eighth Amendment and this Tenth Amendment, and agrees that
its Guaranty is neither invalidated by the amendments heretofore made nor by
this Tenth Amendment to the Account Purchase Agreement and that its Guaranty,
dated June 24, 1988, and amended May __, 1994, continues in full force and
effect in accordance with its terms with respect to the Account Purchase
Agreement as so amended.
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Gail N. Lanik
-----------------------------
Name: Gail N. Lanik
---------------------------
Title: Vice President
--------------------------
26
<PAGE>
Exhibit 10(ii)(C)(2)
SECOND AMENDMENT TO EXHIBITS A & B
OF THE SIGNATURE CREDIT AGREEMENT
AMENDMENT, made and entered into as of June 16, 1994, by and among
SIGNATURE FINANCIAL/MARKETING, INC. ("Signature"), MONTGOMERY WARD & CO.,
INCORPORATED ("Montgomery Ward"), and MONTGOMERY WARD CREDIT CORPORATION
("MWCC").
W I T N E S S E T H:
--------------------
WHEREAS, Montgomery Ward and MWCC are parties to an Account Purchase
Agreement dated as of June 24, 1988, as amended by a letter agreement dated
April 21, 1989, an agreement dated December 26, 1989, a letter agreement dated
April 24, 1990, a letter agreement dated as of December 26, 1990, an agreement
dated May 23, 1992, a letter agreement dated December 29, 1992, a letter
agreement dated April 29, 1993, a letter agreement dated September 15, 1993 and
an amendment dated February 16, 1994 pursuant to which MWCC agreed to purchase,
and has purchased, Accounts and Indebtedness from Montgomery Ward upon the terms
and subject to the conditions of the Account Purchase Agreement; and
WHEREAS, Montgomery Ward and MWCC, pursuant to an amendment to the Account
Purchase Agreement dated as of the date hereof (with the Account Purchase
Agreement and amendments referenced above, collectively referred to as the
"Account Purchase Agreement"), have agreed that, in the State of Washington,
MWCC will no longer purchase Accounts and Indebtedness from Montgomery Ward and
instead will itself establish Accounts and add Indebtedness pursuant to Lender
Credit Card Agreements; and
WHEREAS, Signature, Montgomery Ward and MWCC have entered into a letter
agreement dated as of June 24, 1988, as amended by a letter agreement dated
September 14, 1988, and an amendment dated May 23, 1992 (collectively, the
"Signature Credit Agreement"); and
WHEREAS, Signature, Montgomery Ward and MWCC desire to amend Exhibits A & B
of the Signature Credit Agreement in accordance with the terms and conditions
hereinafter set forth to take into account the use of Lender Credit Card
Agreements in the State of Washington;
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and subject to the
terms and conditions hereinafter set forth, the parties hereto hereby agree as
follows:
1. Capitalized terms used herein which are not otherwise defined shall
have the same meaning as in the Account Purchase Agreement.
2. Paragraph 1 of Exhibit A to the Signature Credit Agreement is deleted
and substituted in its place is the following:
1. Purchases of Products; Definitions. MWCC will allow customers of
Signature who hold valid Montgomery Ward credit cards or who are authorized
users of Montgomery Ward credit cards to pay for Products (as hereafter defined)
purchased from Signature or its Subsidiaries or licensees pursuant to the
payment terms of (a) the Credit Agreement between the customer and Montgomery
Ward or (b) the Lender Credit Card Agreement between the customer and MWCC in
the State of Washington. As used herein, the term "Account Debtor" means each
customer of Signature who elects to pay for Products pursuant to a Credit
Agreement or, in the State of Washington, a Lender Credit Card Agreement; the
term "Products" means all insurance products, financial services
products, membership or continuity-type products or services and all other
related products or services now or hereafter marketed and sold by Signature or
its Subsidiaries or licensees; and the term "Effective Date" means the effective
date of the definitive Servicing Agreement, as agreed to by MWCC and Signature.
Capitalized terms used but now defined herein have the same meaning as in the
Account Purchase Agreement.
3. Paragraph 1 of Exhibit B to the Signature Credit Agreement is deleted
and substituted in its place is the following:
1. Montgomery Ward will continue to pay to Signature the face value
of all insurance premiums, club fees and other revenue which result from a sale
of Products to an Account Debtor. The Indebtedness thereby created will be
purchased by MWCC and sold by Montgomery Ward as provided in Section 3.1(1) of
the Account Purchase Agreement, except that, with respect to Indebtedness of
Account Debtors that purchase Products pursuant to Lender Credit Card Agreements
in the State of Washington, MWCC will establish and/or add such Indebtedness and
pay the face value thereof to
2
<PAGE>
Montgomery Ward as provided in Section 3.1(2) of the Account Purchase Agreement
and Montgomery Ward will pay the face value of such Indebtedness to Signature.
4. Except as specifically provided herein, the terms and conditions of
the Signature Credit Agreement shall continue in full force and effect and shall
be fully binding on the parties hereto. Upon the execution of this Amendment,
each reference in the Signature Credit Agreement to "this Agreement,"
"hereunder," "hereof," or words of like import, shall mean and be a reference to
the Signature Credit Agreement as amended hereby. In the event of any conflict
between the terms of the Signature Credit Agreement and the terms of this
Amendment, the terms of this Amendment shall prevail.
5. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same amendatory instrument,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
IN WITNESS WHEREOF, Signature, Montgomery Ward and MWCC have executed
this Amendment as of the date first set forth above.
SIGNATURE FINANCIAL/MARKETING, INC.
By: /s/ John B. Euwema
--------------------------------
Name: John B. Euwema
-----------------------------
Title: Sr VP, Sec. & General Counsel
-----------------------------
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Philip D. Delk
--------------------------------
Name: Philip D. Delk
------------------------------
Title: Vice President
-----------------------------
MONTGOMERY WARD CREDIT CORPORATION
By: /s/ Colleen R. Goldhammer
--------------------------------
Name: Colleen R. Goldhammer
------------------------------
Title: President
-----------------------------
3
<PAGE>
EXHIBIT 10.(iv)(A)(ii)(a)
MONTGOMERY WARD & CO., INCORPORATED
STOCK OWNERSHIP PLAN
1. Purpose. The Montgomery Ward & Co., Incorporated Stock Ownership Plan
("Program") is comprised of two Plans, the Associate Plan and the Director Plan
(Associate Plan and Director Plan, collectively or individually, "Plan"). The
purpose of the Associate Plan of the Program is to attract and retain
outstanding individuals as associates, advisors and consultants of Montgomery
Ward Holding Corp. ("Company"), Montgomery Ward & Co., Incorporated ("Ward"),
and their subsidiaries and affiliates (Company, Ward and their subsidiaries
and affiliates, collectively or individually, "Ward Group"), excluding
associates, advisors and consultants who are also directors of the Company, and
to provide incentives for such associates, advisors and consultants to expand
and improve the profits and achieve the objectives of the Ward Group by
providing to such individuals opportunities to acquire shares of Class A Common
Stock, Series 1 (par value $.01 per share) ("Series 1 Shares") and Class A
Common Stock, Series 2 (par value $.01 per share) ("Series 2 Shares") of the
Company (the Series 1 Shares and the Series 2 Shares being hereinafter
collectively referred to as "Shares") and thereby provide such individuals
with a greater proprietary interest in and closer identity with the Ward Group
and its financial success. The purpose of the Director Plan of the Program is
to attract and retain outstanding individuals as directors of the Company and to
provide incentives for such directors to expand and improve the profits and
achieve the objectives of the Ward Group by providing to such individuals
opportunities to acquire Shares and thereby provide such individuals with a
greater proprietary interest in and closer identity with the Ward Group and its
financial success. Pursuant to this Program, associates, directors, advisors
and consultants of the Ward Group may be awarded Shares ("Awards"), provided
opportunities to purchase Shares ("Purchase Rights"), and granted nonqualified
stock options ("Options") to acquire Shares.
2. Administration. This Program will be administered by two separate committees.
The Associate Plan will be administered by the Associated Plan Committee and
the Director Plan will be administered by the Director Plan Committee
(Associate Plan Committee and Director Plan Committee, collectively or
individually, "Committee"). Each Committee shall be comprised of such persons
as the Board of Directors of the Company ("Board") may from time to time
designate and shall be constituted as to permit this Program to comply with
Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of
1934, as amended ("Securities Exchange Act of 1934") or any successor provision.
Each Committee shall interpret the respective Plan it administers and shall
prescribe, amend and rescind rules and regulations relating thereto and make
all other determinations necessary or advisable for the administration of
such Plan. Any such action by either Committee shall be final and conclusive.
A majority of the members of a Committee shall constitute a quorum and all
determinations of a Committee shall be made by a majority of its members. Any
determination of a Committee under this Program may be made without notice of
meeting of the Committee by a writing signed by a majority of the Committee
members.
The Associate Plan Committee shall determine, within the limits of the
express provisions of this Program, those associates, advisors and consultants
of the Ward Group (excluding associates, advisors and consultants who are also
directors of the Ward Group) to whom, and the time or times at which, Awards,
Purchase Rights and Options shall be granted. The Director Plan Committee shall
determine, within the express provisions of this Progam, those directors of the
Company to whom, and the time or times at which, Awards, Purchase Rights and
Options shall be granted to directors of
<PAGE>
the Company. Notwithstanding the foregoing, Awards, Purchase Rights and Options,
in the aggregate, granted on or after January 1, 1990 with respect to Series 2
Shares in excess of the following amounts on a cumulative basis prior to
December 31 of the following years may only be granted with the prior approval
of the Board:
Year Shares
---- ------
1990 1,500,000
1991 2,300,000
1992 3,100,000
1993 3,700,000
Each respective Committee shall also determine the number of Shares to be
subject to each Award, Purchase Right and Option, the duration of each Purchase
Right and Option, the exercise price (Option Price) under each Option, the
purchase price under each Purchase Right, the time or times within which (during
the term of the Option) all or portions of each Option may be exercised, and
whether cash, Shares, or other property may be accepted in full or partial
payment upon exercise of an Option or purchase of Shares pursuant to a Purchase
Right. In making such determinations, the respective Committee may take into
account the nature of the services rendered by the Participants, their present
and potential contributions to the Ward Group's success and such other factors
as the Committee in its discretion shall deem relevant.
3. Participants. The Participants in the Associate Plan will consist of such
associates, advisors and consultants of the Ward Group (excluding associates,
advisors and consultants who are also directors of the Company) as the Associate
Plan Committee in its sole discretion from time to time designates within the
limits of the express provisions of this Program. The Participants in the
Director Plan will consist of such directors of the Ward Group as the Director
Plan Committee in its sole discretion from time to time designates within the
limits of the express provisions of this Program. A Committee's designation of a
Participant in any year shall not require either Committee to designate such
person in any other year. Each Committee shall consider such factors as it deems
pertinent in selecting Participants and in determining the terms of their
respective Awards, Purchase Rights and Options, including without limitation:
(i) the financial condition of the Ward Group, (ii) anticipated profits of the
current or future years, (iii) contributions of Participants to the
profitability and development of the Ward Group, both present and future, and
(iv) other compensation provided to Participants.
4. Terms and Conditions of Awards. Awards granted under this Program shall
be upon such terms and conditions as the respective Committee shall from time to
time determine, subject to the provisions of this Program. Awards may be subject
to provisions (whether or not applicable to the Awards granted to any other
Participant) as the respective Committee, in its sole discretion determines
appropriate, including, without limitation, restrictions on resale or other
disposition, such provisions as may be appropriate to comply with federal or
state securities laws and stock exchange requirements, and undertakings or
conditions as to the Participant's employment in addition to those specifically
provided for under this Program including the establishment of vesting schedules
with respect to the ownership of Shares awarded hereunder.
5. Terms and Conditions of Purchase Rights. The Purchase Rights granted under
this Program shall be in such form and upon such terms and conditions as the
respective Committee shall from time to time determine, subject to the
provisions of this Program. Shares may be purchased pursuant to Purchase Rights
by giving written notice to the Treasurer of the Company stating the number of
2
<PAGE>
Shares which are being purchased and tendering payment therefor. In the
discretion of the respective Committee, payment for Shares may be made in
cash, other Shares or other property. The purchase of Shares pursuant to any
Purchase Right may be subject to other provisions (whether or not applicable
to the Purchase Right awarded to any other Participant) as the respective
Committee, in its sole discretion determines appropriate, including, without
limitation, restrictions on resale or other disposition, such provisions as
may be appropriate to comply with federal or state securities laws and
stock exchange requirements, and undertakings or conditions as to the
Participant's employment in addition to those specifically provided for under
this Program including the establishment of vesting schedules with respect to
the ownership of Shares purchased hereunder.
6. Terms and Conditions of Options. The Options granted under this Program shall
be in such form and upon such terms and conditions as the respective Committee
shall from time to time determine, subject to the provisions of this Program,
including the following:
(a) Option Price
The Option price of each Option to purchase Shares shall be at 100%
of the fair market value of the Shares subject to such Option at the
time such Option is granted or at such other price determined by the
respective Committee; provided, however, that the Option price shall
in no event be less than the par value of the Shares subject to such
Option. The fair market value of Shares is to be determined in
accordance with procedures established by the respective Committee.
(b) Option Term
Each Option granted under this Program shall be for such period as
the respective Committee shall determine, which period may include,
without limitation, early termination of the Option upon the
Participant's termination of employment. No Option, however, may be
for a period more than ten years from the date the Option is granted.
(c) Method of Exercise
Options may be exercised by giving written notice to the Treasurer
of the Company, stating the number of Shares with respect to which
the Option is being exercised and tendering payment therefor. In
the discretion of the respective Committee, payment for Shares may
be made in cash, other Shares or other property.
The award of any Option may be subject to other provisions (whether or not
applicable to the Option awarded to any other Participant) as the respective
Committee, in its sole discretion determines appropriate, including, without
limitation, restrictions on resale or other disposition, installment exercise
limitations, such provisions as may be appropriate to comply with federal or
state securities laws and stock exchange requirements, and undertakings or
conditions as to the Participant's employment in addition to those specifically
provided for under this Program including the establishment of vesting schedules
with respect to the ownership of Shares purchased upon the exercise of Options
granted hereunder.
7. Shares. The total number of Shares allocated to this Program and available
to designated
3
<PAGE>
Participants under this Program is One Million (1,000,000) Series 1 Shares and
Five Million Four Hundred Twelve Thousand (5,412,000) Series 2 Shares, except as
such numbers of Shares shall be adjusted in accordance with the provisions of
Section 11. The maximum number of Shares available to any Participant under this
Program through Awards, Purchase Rights and Options is one million (1,000,000)
Shares, except as such number of Shares shall be adjusted in accordance with the
provisions of Section 11. Each Award, Purchase Right and Option when granted
shall state the number of Shares to which it pertains. Such Shares may be either
authorized but unissued Shares or treasury Shares. If any Purchase Right or
Option granted under this Program expires unexercised, or is terminated or
ceases to be exercisable for any other reason without having been fully
exercised prior to the end of the period during which Purchase Rights or Options
may be granted under this Program, or if any Award, Purchase Right or Option is
surrendered by a Participant for cancellation, the Shares theretofore subject to
such Award, Purchase Right or Option or to the unexercised portion of such
Purchase Right or Option shall again become available for new Awards, Purchase
Rights and Options to be granted under this Program to any eligible person
(including the holder of such former Award, Purchase Right or Option). If any
Shares awarded under this Program or purchased pursuant to Purchase Rights or
the exercise of Options ("Plan Shares") are repurchased by the Company pursuant
to Section 10 prior to the end of the period during which Awards, Purchase
Rights and Options may be granted under this Program, the repurchased Shares
shall again become available for new Awards, Purchase Rights and Options to be
granted under this Program to any eligible person; provided, however, that in no
event may the total number of Shares issued under this Program exceed the
aggregate number of Shares so reserved in this Section for issuance.
8. Notices.
-------
(a) Awards
------
Awards granted pursuant to this Program shall be authorized by the
respective Committee and shall be evidenced by notices ("Award Notices")
in such form as the respective Committee shall from time to time
determine. Such Award Notices shall state: (i) the number of Shares
awarded, and (ii) such other information as the respective Committee
deems appropriate or necessary. The terms and conditions of each Award
Notice must be consistent with the provisions of this Program and will be
applicable only to the Award that it announces.
(b) Purchase Rights
---------------
Purchase Rights granted pursuant to this Program shall be authorized by
the respective Committee and shall be evidenced by notices ("Purchase
Right Notices") in such form as the respective Committee shall from time
to time determine. Such Purchase Right Notices shall state: (i) the
number of Shares with respect to which the Purchase Right is granted,
(ii) the purchase price, (iii) the duration of the Purchase Right, (iv)
the method of purchasing such Shares, and (v) such other information as
the respective Committee deems appropriate or necessary. The terms and
conditions of each Purchase Right Notice must be consistent with the
provisions of this Program and will be applicable only to the grant that
it announces.
4
<PAGE>
(c) Options
-------
Options granted pursuant to this Program shall be authorized by the
respective Committee and shall be evidenced by notices ("Option
Notices") in such form as the respective Committee shall from time to
time determine. Such Option Notices shall state: (i) the number of
Shares with respect to which the Option is granted, (ii) the Option
price, (iii) the Option exercise schedule, (iv) the Option term, (v)
the method of exercising such Option, and (vi) such other information
as the respective Committee deems appropriate or necessary. The terms
and conditions of each Option Notice must be consistent with the
provisions of this Program and will be applicable only to the grant
that it announces.
9. Nontransferability. During the lifetime of a Participant, any Purchase
Right or Option granted to the Participant shall be exercisable only by the
Participant's guardian or legal representative. No Purchase Right or Option
shall be assignable or tranferable, except by will or by the laws of descent and
distribution. The granting of a Purchase Right or Option shall impose no
obligation upon the Participant to purchase Shares pursuant to the Purchase
Right or exercise the Option, respectively.
10. Plan Share Agreements. Each holder of an Award, Purchase Right or Option
shall agree to such terms and conditions in connection with the Award or the
purchase of Shares pursuant to the Purchase Right or the exercise of the Option,
including restrictions on the disposition of Plan Shares, as the respective
Committee may deem appropriate. The certificates evidencing the Plan Shares may
bear a legend referring to the terms and conditions contained in the respective
Plan Share agreement and this Program, and the Company may place a stop transfer
order with its transfer agent against the transfer of such Plan Shares.
11. Adjustments.
-----------
(a) Capital Adjustments
-------------------
If the Shares should, as a result of any stock dividend, stock split,
other subdivision or combination of Shares, or any reclassification,
recapitalization or otherwise, be increased or decreased, the number of
Shares covered by each outstanding Purchase Right or Option, the
exercise price for each outstanding Purchase Right or Option and the
total number of Shares reserved for issuance under this Program shall
be adjusted as determined by the respective Committee to reflect such
action. Any new shares or other securities issued with respect to
Shares shall be deemed Shares.
(b) Transactional Adjustments
-------------------------
Subject to any required action by the Company's or Ward's stockholders,
if the Company or Ward shall be a party to a transaction involving a
merger or consolidation (except a merger or consolidation which does
not require approval of the Company's or Ward's stockholders under the
provisions of the applicable state corporation law) or a sale of all or
substantially all of its assets, or if the Company or Ward shall
dissolve or be liquidated, or upon the occurrence of the sale or
issuance of shares of the Company pursuant to one or more registration
statements under the
5
<PAGE>
Securities Act of 1933 and under Rule 144 (other than pursuant to this
Program) which sale or issuance results in 25% or more of the total
number of outstanding shares of voting common stock of the Company
having been so issued or sold (any such merger, consolidation, sale,
dissolution, liquidation or sale of shares being herein referred to as
a "Transaction"), the respective Committee may authorize the issuance,
exercise or assumption of Purchase Rights and Options in connection
with such Transaction upon such terms and conditions as it may deem
appropriate. The respective Committee shall also have the right to
provide for the continuation of Purchase Rights and Options or for
other equitable adjustments (by any means, such as, for example, cash
payment or conversion into other property or securities) in connection
with a Transaction.
12. Legal and Other Requirements. The obligation of the Company to deliver
Shares pursuant to Awards, Purchase Rights and Options granted under this
Program shall be subject to all applicable laws, regulations, rules and
approvals, including, but not by way of limitation, the effectiveness of a
registration statement under the Securities Act of 1933, if deemed necessary or
appropriate by the respective Committee, covering the Shares reserved for
issuance upon Awards, purchases pursuant to Purchase Rights and exercise of
Options. A participant shall have no rights as a stockholder with respect to any
Shares covered by Awards, Purchase Rights or Options granted to or Purchase
Rights or Options exercised by, the Participant until the date of delivery of a
stock certificate to the Participant for such Shares. Shares issued hereunder
may be legended as the respective Committee shall deem appropriate to reflect
the restrictions imposed under the Program or by securities laws generally. No
adjustment other than pursuant to Section 11 hereof shall be made for dividends
or other rights for which the record date is prior to the date such stock
certificate is delivered.
13. Tax Withholding. The Ward Group shall comply with the obligations imposed on
the Ward Group under applicable tax withholding laws, if any, with respect to
Awards, Purchase Rights and Options granted hereunder, and shall be entitled
to do any act or thing to effectuate any such required compliance, including,
without limitation, withholding from amounts payable by the Ward Group to a
Participant and including making demand on a Participant for the amounts
required to be withheld.
A Participant, or upon the Participant's death, the Participant's beneficiary,
may satisfy, in whole or in part, the obligation to pay the Ward Group any
amount required to be withheld under the applicable federal, state and local
income tax laws in connection with the grant of an Award or exercise of a
Purchase Right or Option under this Program by either: (1) having the Ward Group
withhold from the Shares to be acquired upon the grant of the Award or exercise
of the Purchase Right or Option, or (ii) delivering to the Ward Group either
previously acquired Shares or Shares acquired upon the grant of the Award or
exercise of the Purchase Right or Option which the Participant or beneficiary
was unconditionally obligated to deliver to the Ward Group. The Shares withheld
or delivered shall be valued at their fair market value as of the date the
amount of tax to be withheld is determined ("Tax Date"). The fair market value
of Shares shall be determined in accordance with procedures established by the
respective Committee. Any amounts required to be withheld in excess of the value
of Shares withheld or delivered shall be paid in cash or withheld from other
compensation paid by the Ward Group.
Elections by Participants or beneficiaries to have Shares withheld or delivered
for this purpose shall be subject to the following restrictions: (i) elections
must be made prior to the Tax Date, (ii) elections are irrevocable, (iii)
elections are subject to the disapproval of the respective Committee,
6
<PAGE>
(iv) if the Participant is subject to Section 16(b) of the Securities Exchange
Act of 1934 ("Section 16(b)"), the election may not be made with respect to any
Award or within six months after the grant of the Purchase Right or Option
unless the election is made after the Participant becomes disabled or dies, and
(v) if the Participant is subject to Section 16(b), the election must be made at
least six months prior to the Tax Date or within a period beginning on the third
business day following the release of the Company's quarterly or annual summary
statements of sales and earnings and ending on the twelfth business day
following such date.
14. No Contract of Employment. Neither the adoption of this Program nor the
grant of any Awards, Purchase Rights or Options, nor ownership of Shares shall
be deemed to obligate the Ward Group to continue the appointment, employment, or
engagement of any eligible person for any particular period.
15. Indemnification of Committee. The members of the Committee shall be
indemnified by the Company to the fullest extent permitted by Delaware law, the
Company's Certificate of Incorporation and the Company's by-laws.
16. Amendment and Termination of Program. The Company may amend this Program
from time to time or terminate this Program at any time, but no such action
shall reduce the number of Shares subject to the then outstanding Purchase
Rights or Options granted to any Participant or adversely to the Participant
change the terms and conditions of outstanding Purchase Rights or Options
without the Participant's consent; provided, however, that to the extent deemed
appropriate by the Committee, shareholder approval shall be necessary to adopt
any amendment if the adoption of such amendment without shareholder approval
would cause this Program to no longer comply with Rule 16b-3 or any successor
rule or regulatory requirement. Without further action by the Board or the
stockholders of the Company, this Program shall terminate on the tenth
anniversary of the effective date of this Program.
17. Delaware Law to Govern. This Program shall be governed by and construed in
accordance with the laws of the State of Delaware.
18. Effective Date of Program. This Program originally became effective July 19,
1988.
7
<PAGE>
Exhibit
10.(iv)(A)(v)
MONTGOMERY WARD & CO., INCORPORATED
STOCK OWNERSHIP PLAN TERMS AND CONDITIONS
as amended and restated
May 20, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
Definitions and Introductory Matters............... 1
1.1 Adoption of Recitals............................................ 1
1.2 Definitions..................................................... 1
1.3 Transferability of Certain Shares............................... 11
1.4 Duration of Certain Portions of Article II and Certain
Portions of Article III....................................... 11
1.5 Duration of Certain Portions of Article V....................... 11
1.6 Applicability of Terms and Conditions; Continuation of Terms
and Conditions................................................ 11
1.7 Withholding..................................................... 11
1.8 Shortening or Lengthening of Option Periods..................... 12
1.9 Execution of Voting Trust Agreement............................. 12
ARTICLE II
Voluntary Transfers of Shares.................. 12
2.1 General Effect of Terms and Conditions.......................... 12
2.2 Certain Permitted Transfers of Shares........................... 12
2.3 Certain Prohibited Transfers.................................... 13
2.4 Notice of Transfer of Shares.................................... 14
2.5 Form of Transfer Notice......................................... 14
2.6 Approval of Board of Directors.................................. 14
2.7 Options......................................................... 14
2.8 Transfer if Options Not Exercised............................... 15
2.9 Exercise of Options for Less than All of the Shares............. 15
2.10 Closing of Exercise of Options.................................. 16
2.11 Effect of Shares in the Hands of Third-Party Transferee......... 16
2.12 Termination of GE Capital's Rights.............................. 16
ARTICLE III
Purchases of Shares Upon Termination of Employment........... 16
3.1 Termination of Employment of Participant........................ 16
3.2 Death or Total Permanent Disability of a Participant............ 17
3.3 Death of Participant Following Termination of Employment........ 18
3.4 Notice of Death................................................. 18
3.5 Purchase Price of Shares........................................ 18
3.6 Manner of Payment............................................... 19
3.7 Notes and Security.............................................. 19
3.8 Fair Market Value............................................... 20
3.9 Closing......................................................... 23
3.10 Priorities...................................................... 24
3.11 Failure to Deliver Shares....................................... 24
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
3.12 Resale of Shares............................. 24
3.13 Modification of Options...................... 25
ARTICLE IV
Certain Limitations on Purchases of Shares. 25
4.1 Restrictions on the Company's Rights and/or
Obligation to Purchase Shares.............. 25
4.2 Definition of the Limitations................ 27
4.3 Cash Payments Limitation..................... 27
ARTICLE V
Corporate Governance Matters.............. 28
5.1 Voting of Shares Held by Participants........ 28
5.2 Election of Directors........................ 28
5.3 Recapitalization............................. 29
ARTICLE VI
Confidential Information.................. 29
6.1 No Disclosure of Confidential Information.... 29
6.2 Limitations on No Disclosure Covenant........ 29
6.3 Return of Documents.......................... 29
6.4 Enforcement.................................. 30
ARTICLE VII
General Matters........................... 30
7.1 Legend on Certificates....................... 30
7.2 Termination and Amendment of Terms and
Conditions................................. 30
7.3 Not an Employment Agreement.................. 31
7.4 Notices...................................... 31
7.5 Miscellaneous................................ 32
7.6 Descriptive Headings......................... 32
7.7 Waivers...................................... 32
7.8 Binding Effect; Enforcement.................. 32
7.9 Applicable Law............................... 33
7.10 Severability................................. 33
7.11 Resolution of Certain Ambiguities and
Conflicts.................................. 33
7.12 Authority to Give Consents, Approvals, etc... 33
</TABLE>
ii
<PAGE>
MONTGOMERY WARD & CO., INCORPORATED STOCK OWNERSHIP PLAN
TERMS AND CONDITIONS
AS AMENDED AND RESTATED
RECITALS:
A. Montgomery Ward Holding Corp., a Delaware corporation ("Company") owns
all of the outstanding stock of Montgomery Ward & Co., Incorporated, an Illinois
corporation ("Ward").
B. The Company currently has an authorized capitalization of 25,000,000
shares of Class A Common Stock, Series 1, par value $.01 per share;
5,412,000 shares of Class A Common Stock, Series 2, par value $.01 per share;
400,000 shares of Class A Common Stock, Series 3, par value $.01 per share;
25,000,000 shares of Class B Common Stock, par value $.01 per share; and 750
shares of Senior Preferred Stock, par value $1.00 per share.
C. The Company has adopted, for the benefit of its employees and the
employees of Ward and its subsidiaries, a stock ownership plan known as the
Montgomery Ward & Co., Incorporated Stock Ownership Plan ("Plan").
D. The parties desire to set forth certain restrictions with respect to
the ownership of shares of Class A Common Stock, Series 1 ("Series 1 Shares"),
Class A Common Stock, Series 2 ("Series 2 Shares"), and Class A Common Stock,
Series 3 ("Series 3 Shares"), of the Company (the Series 1 Shares, Series 2
Shares and Series 3 Shares being hereinafter collectively referred to as
"Class A Shares") and shares of Class B Common Stock of the Company ("Class B
Shares"), certain options and obligations to purchase such shares, and
certain matters relating to corporate governance of the Company, all as herein
set forth.
E. Except as otherwise provided herein, all of the Awards and grants of
Purchase Rights or Options made under the Plan are subject to the following
Terms and Conditions, and each Participant shall be required to agree to
execute a counterpart hereof prior to or concurrently with receipt of his or
her Award, or exercise of a Purchase Right or Option.
AGREEMENTS:
NOW, THEREFORE, the undersigned Participant hereby agrees as follows:
ARTICLE I
Definitions and Introductory Matters
1.1 Adoption of Recitals. The undersigned hereby adopts the foregoing
Recitals and agrees and affirms that the construction of these Terms and
Conditions will be guided thereby.
1.2 Definitions. For the purposes hereof:
<PAGE>
(a) "Acquisition Price" shall mean the price paid to the Company (as
herein defined) for a Share (as herein defined) purchased from the Company and
$.01 per Share for Shares received as Awards (in each case as adjusted by the
Company on an equitable basis for stock dividends, stock splits,
reclassifications and like actions);
(b) "Act" shall mean the Securities Act of 1933, as amended;
(c) "Adjustment Period" shall have the meaning set forth in
Section 3.8(a)(i);
(d) "Applicable Date" shall have the meaning set forth in
Section 3.8(a);
(e) "Article III Closing" and "Article III Closing Date" shall have the
meanings set forth in Section 3.9;
(f) "Average Closing Price" shall have the meaning set forth in
Section 3.8(b);
(g) "Award" shall mean an award of Shares without cash consideration
pursuant to the terms of the Plan;
(h) Intentionally omitted;
(i) "Board of Directors" shall mean the board of directors of the
Company;
(j) "Brennan" shall mean Bernard F. Brennan;
(k) "Cash Payments Limitation" shall have the meaning set forth in
Section 4.3;
(l) "Cause" shall mean any of the following with respect to a
Participant (as herein defined):
(i) the commission of any crime, whether or not involving any
member of the Ward Group (as herein defined), which constitutes a felony in
the jurisdiction involved;
(ii) the sale, use or possession on the premises of any member of
the Ward Group of a controlled substance whose sale, use or possession is
illegal in the manner used or possessed and in the jurisdiction involved;
(iii) the repeated consumption of drugs or alcohol that interferes
with a Participant's ability to discharge his or her assigned
responsibilities;
(iv) an intentional violation of the provisions of Section 6.1 of
these Terms and Conditions;
(v) the intentional and repeated failure on the part of a
Participant to perform such duties as may be delegated to him or her and
which are commensurate with his or her employment position; or
2
<PAGE>
(vi) the unlawful taking or misappropriation of any property belonging
to any member of the Ward Group or in which any member of the Ward Group
has an interest;
(m) "Class A Amount" shall mean a number of Class A Shares equal to the
Series 1 Amount (as herein defined) or, if less, the Outstanding Amount (as
herein defined). For the purposes of Section 3.8(a)(iii), Shares which are
subject to purchase under outstanding Purchase Rights or Options (whether or
not currently exercisable) granted under the Plan shall be deemed to be
outstanding;
(n) "Class A Shares" shall mean shares of Class A Common Stock, par value
$.01 per share, of the Company without distinction as to series;
(o) "Commission" shall mean the Securities and Exchange Commission;
(p) "Common Stock" shall, except as otherwise specifically provided
herein, mean the shares of common stock of the Company, without distinction
as to class or series, and shall include certificates of beneficial interest
issued by the Voting Trustee (as herein defined), pursuant to the Voting
Trust Agreement (as herein defined);
(q) "Company" shall mean Montgomery Ward Holding Corp., a Delaware
corporation;
(r) "Competing Business" shall mean any person or entity engaged, in any
area of the world, directly or indirectly, in any retail merchandising business
conducted from multiple retail locations, of a type engaged in by any member
of the Ward Group, or any business of the type engaged in by Signature Financial
Marketing, Inc. ("Signature") or any of its subsidiaries (as long as Signature
or such subsidiary is a member of the Ward Group), other than the insurance
business, as of the time of the complained of act;
(s) "Confidential Information" shall mean competitive data, trade secrets
or confidential trade information in the possession of the Ward Group which is
not generally known to others and the confidentiality of which the Ward Group
has taken reasonable steps to protect, but does not include general business
knowledge acquired by a Participant;
(t) Intentionally omitted;
(u) "Designated Management Optionees" shall mean those Management
Shareholders (as herein defined) or any member or members of their Families
(as defined in the Management Stockholders Agreement, as herein defined) or
Participants or any member or members of their respective Families (as herein
defined), who are designated in writing by the Designator (as herein defined),
with concurrent notice to the Company, as having the right to exercise a
specifically designated option to purchase a specifically designated number of
Shares pursuant to Article II or III. The options so designated may not, in
the aggregate, exceed the number of Shares which, at the time of the
designation, are subject to purchase pursuant to Article II or Article III, but
in making such designation, the Designator may designate alternate Designated
Management Optionees who shall have options to purchase Shares if the Persons
designated as primary Designated Management Optionees do not exercise the
designated options. The Designator may designate a member of the Committee (as
herein defined), or a member of his
3
<PAGE>
Family, as a Designated Management Optionee only as provided elsewhere in this
Agreement. Each designation of a Designated Management Optionee shall be made in
writing and delivered by the Designator to the Designated Management Optionee
and the Company. By written notice delivered to a Designated Management
Optionee, with concurrent notice to the Company, the Designator may change or
revoke the designation of any Person as a Designated Management Optionee and/or
the designation of the number of Shares to be purchased, at any time prior to
exercise of the designated option for any reason or for no reason. In the event
one or more Designated Management Optionees are granted an option to purchase
Shares pursuant to Article III, and the Shares as to which such option is
exercisable are not Vested Shares in the hands of the Participant (or his or her
Permitted Transferees) whose Shares are subject to purchase or sale under
Article III, the Designator may, as part of the designation of the identity of
the Designated Management Optionee(s), designate that all or any portion of such
Shares shall be Vested Shares in the hands of the Designated Management
Optionee(s);
(v) "Designator" shall mean the person or the committee of three Management
Shareholders, as set forth below and as the case may be, which has, among other
powers, the power to designate the Designated Management Optionees. Prior to the
occurrence of an Event (as defined below) for all purposes other than
designating (and in connection with the designation of) Designated Management
Optionees, the Designator shall be Brennan. At all times for purposes of
designating (and in connection with the designation of) Designated Management
Optionees, and from and after the occurrence of an Event for all purposes
(including, without limitation, designating (and in connection with the
designation of) Designated Management Optionees), the Designator shall be such
committee of three Management Shareholders (the "Committee").
The Committee shall, except as provided below, be comprised of Brennan,
Edwin G. Pohlmann ("Pohlmann") and Myron Lieberman ("Lieberman"). Prior to the
occurrence of an Event, if any member of the Committee shall resign from the
Committee or cease to be Qualified Management Shareholder (as defined below),
then such person shall cease to be a member of the Committee and the remaining
members of the Committee shall as soon as practicable appoint a Qualified
Management Shareholder as a member of the Committee and thereby fill the vacancy
on the Committee so created. From and after the occurrence of an Event, the
Committee shall be comprised of Pohlmann, Daniel H. Levy ("Levy") and Lieberman
(each of Pohlmann, Levy and Lieberman being a "Continuing Member" and
collectively being the "Continuing Members") so long as each is a Qualified
Management Shareholder; provided, however, that at any time from and after the
occurrence of an Event (i) if one, but only one, Continuing Member has resigned
from the Committee or ceased to be a Qualified Management Shareholder, then the
Committee shall be comprised of the two remaining Continuing Members who have
not resigned from the Committee and are Qualified Management Shareholders and
the Largest Management Shareholder (as defined below) (but the Second Largest
Management Shareholder (as defined below) if the Largest Management Shareholder
is one of such remaining Continuing Members, but the Third Largest Management
Shareholder (as defined below), if both the Largest Management Shareholder and
the Second Largest Management Shareholder are such remaining Continuing
Members), (ii) if each of two, but only two, of the Continuing Members has
either resigned from the Committee or ceased to be a Qualified Management
Shareholder, then the Committee shall be comprised of the remaining Continuing
Member who has not resigned from the Committee and is a Qualified Management
Shareholder, the Largest Management Shareholder and the Second Largest
Management Shareholder (but the Second Largest Management Shareholder and the
Third Largest
4
<PAGE>
Management Shareholder if the Largest Management Shareholder is such Continuing
Member, but the Largest Management Shareholder and the Third Largest Management
Shareholder if the Second Largest Management Shareholder is such Continuing
Member), and (iii) if each of the Continuing Members has either resigned from
the Committee or ceased to be a Qualified Management Shareholder, the Second
Largest Management Shareholder and the Third Largest Management Shareholder.
In all cases, the Committee shall act by the vote of a majority of its
members; provided, however, that neither a member of the Committee nor a member
of his Family may be designated as a Designated Management Optionee except upon
the affirmative vote of all other members of the Committee.
A "Qualified Management Shareholder" is each of Lieberman and any other
person who is a Management Shareholder and employed by a member of the Ward
Group. A person (including Lieberman) shall cease to be a Qualified Management
Shareholder if he (i) ceases to be a Management Shareholder, (ii) dies, (iii) is
adjudicated incompetent, (iv) in the case of Lieberman, ceases to be a director
of the Company or (v) in the case of any Management Shareholder other than
Lieberman, no member of the Ward Group employs such Management Shareholder.
An "Event" means that Brennan has resigned from the Committee or ceased to
be a Qualified Management Shareholder.
The "Largest Management Shareholder" shall be the Management Shareholder
(other than Brennan and any Management Shareholder who is not willing or able to
serve on the Committee) who, from time to time, is employed by a member of the
Ward Group and is the owner of the largest number of shares of Common Stock as
compared to each other Management Shareholder (other than Brennan and any
Management Shareholder who is not willing or able to serve on the Committee) and
who is willing and able to serve as a member of the Committee.
The "Second Largest Management Shareholder" shall be the Management
Shareholder (other than Brennan, the Largest Management Shareholder and any
Management Shareholder who is not willing or able to serve on the Committee)
who, from time to time, is employed by a member of the Ward Group and is the
owner of the largest number of shares of Common Stock as compared to each other
Management Shareholder (other than Brennan, the Largest Management Shareholder
and any Management Shareholder who is not willing or able to serve on the
Committee) and who is willing and able to serve on the Committee.
The "Third Largest Management Shareholder" shall be the Management
Shareholder (other than Brennan, the Largest Management Shareholder, the Second
Largest Management Shareholder and any Management Shareholder who is not willing
or able to serve on the Committee) who, from time to time, is employed by a
member of the Ward Group and is the owner of the largest number of shares of
Common Stock as compared to each other Management Shareholder (other than
Brennan, the Largest Management Shareholder, the Second Largest Management
Shareholder and any Management Shareholder who is not willing or able to serve
on the Committee) and who is willing and able to serve on the Committee.
5
<PAGE>
For the purposes of the foregoing provisions of this paragraph (v), a
Management Shareholder shall be deemed to own all shares of Common Stock owned
by his Permitted Transferees (as defined in the Management Stockholders
Agreement). In the event that two or more persons own the same number of shares
of Common Stock so that each, in the absence of the other (or others, as the
case may be) would be the Largest Management Shareholder, the Second Largest
Management Shareholder or the Third Largest Management Shareholder (as the case
may be), then the remaining member (or members, as the case may be) of the
Committee from time to time shall determine which of such person or persons
shall be deemed to be the Largest Management Shareholder, the Second Largest
Management Shareholder or the Third Largest Management Shareholder, as the case
may be.
(w) "Escrow Agent" shall have the meaning set forth in Section 3.11;
(x) "Fair Market Value per Share" shall have the meaning set forth in
Section 3.8;
(y) "Family" shall mean a spouse or descendant or ancestor of a
Participant, or a spouse of a descendant or ancestor of a Participant, or a
trustee of a trust or custodian of a custodianship primarily for the benefit of
one or more of the foregoing and/or a Participant;
(z) "First Period" shall have the meaning set forth in Section 2.3(c);
(aa) "GE Capital" shall mean General Electric Capital Corporation, a New
York corporation;
(bb) "GE Capital Affiliate" shall mean any entity which, at the time of
the applicable determination, GE Capital controls, which controls GE Capital, or
which is under common control with GE Capital, but does not include the Ward
Group or any member thereof. For the purposes of the preceding sentence,
"control" means the power, direct or indirect, to direct or cause the direction
of the management and policies of a Person through voting securities, contract
or otherwise. Without limiting the generality of the foregoing, as of the date
hereof, Kidder, Peabody Group Inc. is a GE Capital Affiliate;
(cc) "Limitations" shall have the meaning set forth in Section 4.2;
(dd) "Management Shareholder" shall mean any Person who, in
contemplation of that Person's acquisition of shares of Common Stock executed or
executes a counterpart of, or joined in or joins in and agreed or agrees to be
bound by, the Management Stockholders Agreement as a Type 1 Management
Shareholder or a Type 2 Management Shareholder, as therein defined;
(ee) "Management Stockholders Agreement" shall mean the Stockholders
Agreement dated June 17, 1988 between the Company and certain of its
stockholders, as amended and in effect from time to time;
(ee)(A) "Non-Series 3 Outstanding Amount" shall mean the Outstanding Amount
less the number of Series 3 Shares outstanding as of the date of determination;
(ff) "Option" shall mean a nonqualified stock option to acquire Shares
granted pursuant to the Plan;
6
<PAGE>
(gg) "Originally Scheduled Article III Closing Date" shall have the
meaning set forth in Section 4.1(b);
(gg)(A) "Outstanding Amount" shall mean the number of Class A Shares of all
series which are outstanding as of the date of determination;
(hh) "Participant" shall mean any person who has been either granted an
Award, provided a Purchase Right and/or granted an Option by the Company;
(ii) "Period" shall have the meaning set forth in Section 2.3(c);
(jj) "Permanent Disability" shall mean the total permanent disability
of a Participant, who is an employee of the Ward Group, as determined in
accordance with the published policies (in effect on the applicable date) of the
Ward Group with respect to the determination of total permanent disability;
(kk) "Permitted Transferee" shall mean:
(i) a Person, other than a Participant, to whom Shares are
Transferred pursuant to and in compliance with the provisions of Section
2.2(b); and
(ii) a member of the Family of a Participant who has acquired
Shares by virtue of having been designated a Designated Management
Optionee by the Designator.
Each reference herein to a Permitted Transferee of a particular
Participant shall mean (x) a Permitted Transferee owning Shares which that
Participant was the last Participant to own, and (y) a member of the Family of
that Participant who has acquired Shares in a manner set forth in subparagraph
(ii) above;
(ll) "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, unincorporated organization, association,
corporation, trust, institution, public benefit corporation, entity or
government;
(mm) "Plan" shall mean the Montgomery Ward & Co., Incorporated Stock
Ownership Plan, as amended and in effect from time to time;
(nn) "Post-Termination Death" shall have the meaning set forth in
Section 3.3;
(oo) "Preferred Stock" shall mean all shares of Senior Preferred Stock,
par value $1.00 per share, of the Company and all shares of Junior Preferred
Stock, par value $1.00 per share, of the Company.
(pp) "Public Offering Termination Date" shall mean the date, if any, on
which, as a result of the sale or issuance of shares of Common Stock pursuant to
one or more registration statements under the Act and under Rule 144 (other than
pursuant to the Plan or pursuant to a Registration Statement to register shares
of Common Stock primarily or exclusively for Transfer (as hereinafter defined)
upon exercise of options pursuant to the Management Stockholders Agreement or in
connection therewith), 25% or more of the outstanding shares of voting common
7
<PAGE>
stock of the Company consist of shares of voting common stock of the Company
which have been so issued or sold;
(qq) "Purchase Price" shall have the meaning set forth in Section 3.5;
(rr) "Purchase Right" shall mean a nonqualified stock option to
acquire Shares, identified as such and generally to be exercised during a
shorter period of time than an Option granted pursuant to the terms of the Plan;
(ss) "Rule 144" shall mean Rule 144, as amended, promulgated by the
Commission under the Act;
(tt) "Second Period" shall have the meaning set forth in Section
2.3(c);
(tt)(A) "Series 1 Amount" shall mean the number twenty-five million
(25,000,000);
(uu) "Shareholder" shall mean each owner of Shares;
(vv) "Shares" shall mean all shares of Class A Common Stock of the
Company, and shall include certificates of beneficial interest issued by the
Voting Trustee (as herein defined) pursuant to the Voting Trust Agreement (as
herein defined); provided, however, that (and without implication that a
contrary result was intended, but by way of clarification);
(i) for the purpose of determining the number of Shares
eligible to vote or receive distributions, there shall be no duplication
as between Shares held by the Voting Trustee, on the one hand, and
certificates of beneficial interest issued by the Voting Trustee, on the
other hand; and
(ii) where the right to vote Shares or execute consents is
granted or required pursuant to the provisions of these Terms and
Conditions, except as otherwise expressly provided in Section 7.13, the
term "Shares" shall not include certificates of beneficial interest
issued by the Voting Trustee under the Voting Trust Agreement;
(ww) "Third Party Offer" shall mean a bona fide written offer to
purchase Shares;
(xx) "Trading Period" shall have the meaning set forth in Section
3.8(b);
(yy) "Transfer" shall mean any transfer, sale, assignment, pledge,
encumbrance or other disposition of Shares, or, in the case of the Company, any
issuance or sale of Shares, irrespective of whether any of the foregoing are
effected voluntarily or involuntarily, by operation of law or otherwise, or
whether inter vivos or upon death;
(zz) "Transferee" shall mean a Person who has made a Third Party Offer
or a Person named in a Transfer Notice (as herein defined) to whom a Transferor
(as herein defined) desires to Transfer Shares without consideration;
(aaa) "Transferor" shall mean a Person who shall propose to Transfer
Shares pursuant to Article II;
8
<PAGE>
(bbb) "Transfer Notice" shall mean a written notice of a proposed Transfer;
(ccc) "Valuation Date" shall mean the date on which the employment of a
Participant with the Ward Group terminates for any reason whatsoever, including
death or Permanent Disability;
(ddd) "Vested Shares" shall mean that number of Shares owned by a Participant
and his or her Permitted Transferees, as a group, equal to that amount
determined, as of the date of determination ("Vesting Date") by (i) adding the
aggregate number of Shares theretofore acquired by them as a group (other than
from each other) which, at the time of acquisition by any member of the group
were Vested Shares in the hands of the person who transferred such Shares, plus
(ii) the number of Shares determined by multiplying the total number of Shares
theretofore acquired by them as a group (other than from each other) not
described in (i) above, including the number of Shares Awarded to them or
purchased pursuant to exercise of Purchase Rights, but excluding the number of
Shares acquired pursuant to exercise of Options, by the "Percentage of Vesting"
(as herein defined) applicable to each of such Shares in effect on the Vesting
Date, plus (iii) the lesser of (x) the number of Shares determined by
multiplying the total number of Shares purchased or subject to purchase by them
under outstanding or previously exercised Options (whether or not exercisable)
by the "Percentage of Vesting" applicable to each Share so purchased or subject
to purchase pursuant to an Option on the Vesting Date, and (y) the number of
Shares theretofore acquired by them pursuant to exercise of Options, and (iv)
subtracting from such sum the aggregate number of Vested Shares theretofore
disposed of by them, as a group (other than to or among each other).
For purposes hereof, the "Percentage of Vesting" shall be the following
percentage: in the event of a Participant's death or Permanent Disability while
employed with the Ward Group, 100%; in the event a Participant's employment with
the Ward Group has been terminated for Cause, 0%; and generally in all other
cases, if the Vesting Date is before the first anniversary of the Vesting Period
Commencement Date (as herein defined), 0%; on or after the first anniversary and
before the second anniversary of the Vesting Period Commencement Date, 20%; on
or after the second anniversary and before the third anniversary of the Vesting
Period Commencement Date, 40%; on or after the third anniversary and before the
fourth anniversary of the Vesting Period Commencement Date, 60%; on or after the
fourth anniversary and before the fifth anniversary of the Vesting Period
Commencement Date, 80%; and on or after the fifth anniversary of the Vesting
Period Commencement Date, 100%.
The number of Vested Shares and Shares which are not Vested Shares owned in
the aggregate by a Participant and his or her Permitted Transferees shall be
allocated among them proportionately to the numbers of Shares owned by each of
them.
In the following instances the Vesting Date shall be the following date:
(i) in the case of a Transfer of Shares pursuant to Article II (other than
Section 2.2(a) or 2.2(e) thereof), the date on which a Transfer Notice is
served;
(ii) in the case of a Transfer of Shares pursuant to Section 2.2(a), the
date of approval of the proposed Transfer by the Board of Directors;
9
<PAGE>
(iii) in the case of a sale of Shares permitted by Section 2.2(e), the
date the Participant or his or her Permitted Transferee Transferred Shares
in reliance on said Section 2.2(e);
(iv) in the case of a purchase of Shares pursuant to Article III, the
date of termination of the Participant's employment with the Ward Group for
any reason whatsoever;
Notwithstanding the foregoing provisions of this paragraph (ddd):
(v) in the case of a purchase of Shares pursuant to Article III from a
Participant whose Percentage of Vesting, in accordance with the foregoing,
is less than 100%, the Board of Directors, in its discretion, may increase
the Percentage of Vesting as determined in accordance with the foregoing,
but not in excess of 100%;
(vi) in the case of termination of employment of a Participant with the
Ward Group (other than for Cause), where not all Shares owned by that
Participant and his or her Permitted Transferees were purchased in
accordance with Section 3.1, on the Article III Closing Date those Shares
not so purchased which were not Vested Shares as of the date of termination
of employment shall become Vested Shares for all purposes of these Terms and
Conditions other than Section 3.3, and for the purposes of Section 3.3 said
Shares shall not thereafter become Vested Shares;
(vii) in connection with any issuance or sale of Shares by the Company,
the Company may designate all or any portion of such Shares as Vested
Shares;
(viii) at any time and from time to time, after June 23, 1988, upon
written notice delivered to the Company, the Designator may increase the
Percentage of Vesting otherwise applicable to a Participant and his or her
Permitted Transferees, but not in excess of 100%;
(ix) on the Public Offering Termination Date, except for the purposes of
Section 3.3, all Shares which are not then Vested Shares shall become Vested
Shares;
(eee) "Vesting Period Commencement Date" shall mean (i) in the case of an
Award, the date of the grant of the Award; (ii) in the case of a Purchase Right,
the date of exercise of the Purchase Right; and (iii) in the case of an Option,
the date of grant of the Option;
(fff) "Voting Trust Agreement" shall mean that certain Voting Trust
Agreement, dated as of June 21, 1988, among Brennan and the other individuals
who are parties thereto;
(ggg) "Voting Trust Certificates" shall mean certificates of beneficial
interest issued by the Voting Trustee in exchange for Shares deposited in the
Voting Trust;
(hhh) "Voting Trustee" shall mean the Person serving as voting trustee under
the Voting Trust Agreement;
10
<PAGE>
(iii) "Ward" shall mean Montgomery Ward & Co., Incorporated, an
Illinois corporation;
(jjj) "Ward Group" shall mean the Company, Ward and its subsidiaries.
1.3 Transferability of Certain Shares. Shares issued by the Company
pursuant to a stock dividend, stock split, reclassification, or like action,
or pursuant to the exercise of a right granted by the Company to all its
stockholders to purchase shares of Common Stock on a proportionate basis,
shall be Transferred only, and for all purposes be treated, in the same
manner as, and be subject to the same options with respect to, the Shares
which were split or reclassified or with respect to which a stock dividend
was paid or rights to purchase shares on a proportionate basis were granted.
In the event of a merger of the Company where these Terms and Conditions do
not terminate pursuant to Section 7.2(c), shares of stock and/or securities
convertible into shares of stock issued in exchange for Shares shall thereafter
be deemed to be Shares which are subject to the terms of these Terms and
Conditions.
1.4 Duration of Certain Portions of Article II and Certain Portions of
Article III. From and after the Public Offering Termination Date:
(a) the provisions of Article II shall cease to be in effect as
to any Participant; and
(b) the provisions of Section 3.2(a) shall terminate, and all
references in Sections 3.2(b) and (c) to the 90-day period referred
to in Section 3.2(a) shall be eliminated from said Sections.
1.5 Duration of Certain Portions of Article V. Anything herein to the
contrary notwithstanding, the provisions of Article V hereof, to the extent they
constitute an agreement with respect to the manner in which Shares shall be
voted, shall be in effect only until June 17, 1998, unless sooner terminated
pursuant to other provisions contained herein.
1.6 Applicability of Terms and Conditions; Continuation of Terms and
Conditions. Unless otherwise required by the terms of a specific Award or grant
of a Purchase Right or Option, these Terms and Conditions shall not apply to a
Participant, or to any Person acquiring Shares pursuant to the provisions
hereof, who is a Management Shareholder, but, rather, all Shares issued to or
acquired by a Participant who is a Management Shareholder shall be governed by
the terms and provisions of the Management Stockholders Agreement. Except as
contemplated herein, Shares shall not be Transferred by any Participant or any
of his or her Permitted Transferees to any Person who is not a signatory to
these Terms and Conditions or bound by the provisions of the Management
Stockholders Agreement unless that Person shall have executed and delivered
such documents as are deemed reasonably necessary by the Company, in
consultation with its counsel, to evidence such Person's acceptance of, and
agreement to be bound by, these Terms and Conditions.
1.7 Withholding. Each Participant shall pay, or make arrangements to pay,
all federal, state and local income taxes which may be assessed upon such
Participant in connection with his or her ownership of Shares, including,
without limitation, taxes which may be imposed in connection with the lapse or
release of any restrictions set forth herein with respect to the Shares. In any
case in which any member of the Ward Group is legally required to withhold
such taxes, such payment shall be made on or before the date such withholding
is required. In the event any such payment is not made when due and any
member of the Ward Group is legally required to withhold such taxes, then, to
the extent
11
<PAGE>
permitted by law, the Company shall have the right to do any of the following
in its sole discretion: (i) direct the Voting Trustee to sell such number of
Shares subject to the Voting Trust Agreement which are beneficially owned by the
Participant as may be necessary in order that the net proceeds of sale will
equal the member of the Ward Group's withholding obligation (with such Shares
remaining subject to the Voting Trust Agreement), and pay such net proceeds to
such member of the Ward Group; (ii) deduct the amount required to be withheld
from funds otherwise due the Participant by the Ward Group (including, without
limitation, salaries and proceeds of the sale of Shares sold to the Company
pursuant to the provisions of these Terms and Conditions), and pay the amount so
deducted to such member of the Ward Group; or (iii) pursue any other legal or
equitable right or remedy.
1.8 Shortening or Lengthening of Option Periods. Whenever in Article II or
Article III the Company or a Shareholder is given an option to purchase or sell
Shares which is exercisable during a given period of time, if the Company or
that Shareholder chooses not to exercise that option, the Company or that
Shareholder may deliver written notice of that fact to the Company (in the case
where a Shareholder is relinquishing an option) and the Designator. In such
event, the applicable option period shall be deemed to have ended with respect
to the Company or such Shareholder (as the case may be) on the date on which
such notice is delivered. Any period during which an option to purchase is
exercisable may be extended by agreement of the party subject thereto. In such
event, options to purchase which are subsequent to the option with respect to
which the period is extended shall become exercisable on the date upon which
they would have been exercisable, unless otherwise agreed by the holders of such
options, and shall be extended to the same extent as that the prior options are
extended from time to time.
1.9 Execution of Voting Trust Agreement. At any time in which the Voting
Trust Agreement is in effect, as a condition to any Award, grant of a Purchase
Right, or exercise of an Option, the Participant shall be required to execute a
counterpart of the Voting Trust Agreement, transfer the Shares to be acquired to
the Voting Trustee in exchange for certificates of beneficial interest
representing a like number of Shares, and take such other steps as may be
necessary in order that the Voting Trustee shall have the sole voting power with
respect to the Shares acquired by the Participant.
ARTICLE II
Voluntary Transfers of Shares
2.1 General Effect of Terms and Conditions. Unless a Transfer of Shares by a
Participant or his or her Permitted Transferees or by a Transferee is made in
accordance with the provisions hereof, it shall not be valid or have any force
or effect.
2.2 Certain Permitted Transfers of Shares. Anything contained herein to the
contrary notwithstanding, Shares may be Transferred:
(a) with the prior approval of the Board of Directors, by the
affirmative vote of not less than 2/3 of its members, either subject to these
Terms and Conditions or otherwise as the Board of Directors shall determine;
(b) (i) by Participant to any member of his or her Family;
12
<PAGE>
(ii) by a member of the Family of a Participant to any other
member of the Family of that Participant or to that Participant;
(iii) to the personal representative of a Participant or
Permitted Transferee who is deceased or adjudicated incompetent;
(iv) subject to the provisions of Section 3.2 or 3.3 (as the
case may be), by the personal representative of a Participant or
Permitted Transferee who is deceased or adjudicated incompetent to any
member of said Participant's Family; and
(v) upon termination of a trust or custodianship which is a
Permitted Transferee, by the trustee of such trust or custodian of
such custodianship to the person or persons who, in accordance with
the provisions of said trust or custodianship, are entitled to receive
the Shares held in trust or custody;
(c) pursuant to Articles III or IV;
(d) by a Participant or by any of his or her Permitted Transferees to
Brennan; and
(e) provided that such Shares are not subject to the Voting Trust
Agreement, and provided that Section 2.3 has been complied with as if the
Transfer was being made pursuant to Sections 2.4 through 2.10, both
inclusive, and, if there was not an effective registration statement under
the Act covering the issuance of the Shares to the Participant by the
Company, pursuant to Rule 144.
Regardless of the party to whom a Transfer of Shares is made pursuant to this
Section 2.2, the Shares so Transferred shall thereafter continue to be subject
to the terms, provisions and conditions of these Terms and Conditions; provided,
however, that (x) if the Board of Directors has so determined, Shares
Transferred pursuant to paragraph (a) hereof, and (y) Shares Transferred
pursuant to paragraph (e) hereof shall not be subject to the terms, provisions
and conditions of these Terms and Conditions.
2.3 Certain Prohibited Transfers. Without the prior written approval of
the Board of Directors the following Transfers of Shares are prohibited:
(a) no Participant or Permitted Transferee may Transfer Shares prior
to the first to occur of (i) the third anniversary of the applicable
Vesting Period Commencement Date and (ii) the Public Offering Termination
Date;
(b) no Participant or Permitted Transferee may Transfer Shares which
are not Vested Shares;
(c) during the 12-month period ("First Period") beginning on the
first to occur of the third anniversary of the applicable Vesting Period
Commencement Date and the Public Offering Termination Date, and during the 12-
month period immediately following the First Period (the "Second Period," the
First Period and the Second Period being referred to generally as "Period"),
neither a Participant nor any Permitted Transferee may Transfer Shares to the
extent such Transfer would result in the Transfer of more than 33 1/3% for the
First Period and
13
<PAGE>
50% for the Second Period of the Vested Shares collectively owned by the
Participant and all of his or her Permitted Transferees at the beginning of the
applicable Period; and
(d) no Transferor may Transfer Shares unless he or she has received a
Third Party Offer.
2.4 Notice of Transfer of Shares. Even though the requirements of Section
2.3 shall have been met, no Shares shall be Transferred by a Transferor, except
as may be required or permitted pursuant to the provisions of Section 2.2,
Article III or Article IV, unless the Transferor first serves a Transfer Notice
upon the Company, the Designator and GE Capital and complies with the remaining
provisions of this Article II.
2.5 Form of Transfer Notice. Each Transfer Notice shall specify:
(a) the number of Shares which the Transferor proposes to Transfer
and the consideration per Share to be received for said Transfer;
(b) the name, and business and residence addresses of the
Transferee(s);
(c) all of the terms and conditions, including the terms and
conditions of payment, upon which the Transferor proposes to Transfer said
Shares; and
(d) the address of the Transferor to which notices of the exercise of
the options herein provided shall be sent.
The Transferor shall attach to the Transfer Notice a true and correct copy of
the Third Party Offer, and the information to be contained in the Transfer
Notice required by paragraphs (a) and (c) above shall be the corresponding
information as set forth in the Third Party Offer.
2.6 Approval of Board of Directors. The options set forth in Section 2.7
shall be exercisable, and a Transfer of Shares to a Transferee can be made, only
if the Board of Directors, within the 10-day period next following the date of
service of the Transfer Notice, shall approve the Transferee as a prospective
holder of Shares. Subject to the following sentence, the Board of Directors
shall not unreasonably withhold its approval of any Transferee, and shall not
withhold its approval if the Transferee is then a Management Shareholder, GE
Capital or a GE Capital Affiliate. However, the Board of Directors may, in its
sole discretion, withhold its approval of any Transferee which is then engaged
in a Competing Business. The Board of Directors shall be conclusively deemed to
have approved the Transferee unless, prior to the expiration of the 10-day
period, it shall notify the Transferor in writing of its disapproval.
2.7 Options. Upon the service of a Transfer Notice, and provided that the
Transferee has been approved by the Board of Directors as set forth in Section
2.6, options to purchase the Shares described therein shall be created, and may
be exercised, as follows:
(a) the service of a Transfer Notice by a Transferor shall create:
(i) options in each of the Designated Management Optionees
(exercisable by service of written notice upon the Transferor, the
Designator, GE Capital and the
14
<PAGE>
Company within the 45-day period next following the date of service of
the Transfer Notice) to purchase all or any portion of the Shares
described in the Transfer Notice, at the price and on the terms
therein contained;
(ii) an option in the Company (exercisable by service of written
notice upon the Transferor, the Designator and GE Capital within the
15-day period next following the date of expiration of the 45-day
period described in subparagraph (i) of this paragraph (a)) to
purchase all or any portion of the Shares described in the Transfer
Notice which were not purchased by the Designated Management
Optionees, at the price and on the terms therein contained; and
(iii) an option in GE Capital (exercisable by service of written
notice upon the Transferor, the Designator and the Company within the
15-day period next following the date of expiration of the 15-day
period described in subparagraph (ii) of this paragraph (a)) to
purchase all or any portion of the Shares described in the Transfer
Notice which were not purchased by the Designated Management Optionees
and the Company, at the price and on the terms therein contained;
(b) the service of a Transfer Notice by a Permitted Transferee shall
create an option in his or her Participant to own the Shares sought to be
Transferred (exercisable by service of written notice upon the Transferor,
the Designator, the Company and GE Capital within the 30-day period next
following the date of service of the Transfer Notice) to purchase all or
any portion of the Shares described therein, at the price and on the terms
therein contained. If said Participant does not exercise the foregoing
option with respect to all Shares described in the Transfer Notice, the
optionees described in paragraph (a) above shall have the options to
purchase the Shares with respect to which said Participant has not
exercised his or her foregoing option that would have been created if said
Participant had been the person desiring to Transfer the Shares and if the
Transfer Notice had been served on the last day of the 30-day period during
which said Participant could have exercised his or her option pursuant to
this paragraph (b).
2.8 Transfer if Options Not Exercised. If none of the options provided in
Section 2.7 are exercised, or if such options are exercised only in part, or if
such options are treated, pursuant to Section 2.9, as if not exercised, then,
during a period of 60 days beginning on the day following the date of expiration
of the last applicable option period, the Transferor may Transfer all, but not
less than all, Shares sought to be Transferred as to which such options were not
exercised (or treated, pursuant to Section 2.9, as if not exercised), to the
Transferee(s), at the price specified in the Transfer Notice and on terms and
conditions not less favorable to the Transferor than those specified in the
Transfer Notice. In the event said Shares are not so Transferred, they shall
remain subject in all respects to the terms hereof and may not thereafter be
Transferred except in compliance with all terms, conditions and provisions
hereof.
2.9 Exercise of Options for Less than All of the Shares. If options
exercised pursuant to Section 2.7 call for the purchase of less than all of the
Shares sought to be Transferred, then, at the election of the Transferor
(exercised by the service of written notice of such election upon the Company
and each Person exercising an option to purchase Shares within 10 days next
following the expiration of the last period in which such options may be
exercised), the exercise of all or any such options shall be deemed null and
void and treated, for purposes hereof, as if said options had not been
exercised.
15
<PAGE>
2.10 Closing of Exercise of Options. To the extent Shares are to be
purchased by Designated Management Optionees, the Company or GE Capital by
reason of their exercises of options under Section 2.7, the closing of all such
purchases shall take place, at the principal offices of the Company, on the 30th
day next following the date on which the last applicable option period expired.
2.11 Effect of Shares in the Hands of Third-Party Transferee. Shares which
are Transferred, pursuant to Section 2.8, to a Transferee who is not a
Participant, a Permitted Transferee or a party to the Management Stockholders
Agreement, shall thereafter continue to be subject to all restrictions on
Transfer and all other agreements, provisions, terms and conditions which are
contained herein, and, without limiting the generality of the foregoing, the
Transferee must comply with:
(a) the provisions of Sections 2.4 through 2.10, both inclusive, if
the Transferee shall desire to Transfer any such Shares, as if the
Transferee was a Participant; and
(b) the voting agreement provisions of Article V, as if the
Transferee was a Participant.
2.12 Termination of GE Capital's Rights. From and after the date that GE
Capital and the GE Capital Affiliates cease to own, in the aggregate, at least
20% of the shares of Common Stock which GE Capital and the GE Capital Affiliates
purchased on June 22, 1988, all rights of GE Capital under Sections 2.7(a) (iii)
and (b) of this Article II shall terminate.
ARTICLE III
Purchases of Shares Upon Termination of Employment
3.1 Termination of Employment of Participant. Upon the termination of a
Participant's employment with the Ward Group for any reason other than death or
Permanent Disability (including, without limitation, resignation or discharge
for or without Cause), the Company shall forthwith notify the Designator of such
termination, and:
(a) each of the Designated Management Optionees shall have an option
(exercisable by service of written notice upon such Participant, each of
his or her Permitted Transferees, and the Designator, within the 45-day
period next following the date on which the Company has notified the
Designator that such Participant's employment has terminated), to purchase
all or any portion of the Shares owned by such Participant and each of his
or her Permitted Transferees; and
(b) the Company shall have an option (exercisable by service of
written notice upon such Participant, each of his or her Permitted
Transferees, and the Designator, within the 30-day period next following
the last day of the 45-day period referred to in paragraph (a)), to
purchase all or any portion of the Shares which were not purchased by the
Designated Management Optionees; and
(c) each of the Designated Management Optionees shall have an
additional option (exercisable by service of written notice upon such
Participant, each of his or her Permitted Transferees, and the Designator,
within the 105-day period next following the date on which the
16
<PAGE>
Company has notified the Designator that such participant's employment has
terminated), to purchase all or any portion of the Shares owned by such
Participant and each of his or her Permitted Transferees which were
purchased upon exercise of an option after termination of the Participant's
employment; and
(d) the Company shall have an option (exercisable by service of
written notice upon such Participant, each of his or her Permitted
Transferees and the Designator, within the 30-day period next following the
last day of the 105-day period referred to in paragraph (c)), to purchase
all or any portion of the Shares which were not purchased by the Designated
Management Optionees;
all in the manner, for the price and on the terms and conditions contained in
Sections 3.5 through 3.11, both inclusive, of this Article III.
3.2 Death or Total Permanent Disability of a Participant. Upon the death
of a Participant while such Participant is an employee of the Ward Group; or in
the event the employment of a Participant with the Ward Group shall be
terminated by reason of Permanent Disability:
(a) the personal representative of the deceased or Permanently
Disabled Participant or the Permanently Disabled Participant (as the case
may be), and each Permitted Transferee of the deceased or Permanently
Disabled Participant, shall each have the option (exercisable by written
notice delivered to the Company and the Designator not later than 90 days
after the date of death or the date of termination of the Participant's
employment with the Ward Group by reason of Permanent Disability, as the
case may be, of the Participant), to sell all or any portion of the Shares
then owned by such respective Shareholders in accordance with paragraph
(b);
(b) if the options described in paragraph (a) are exercised, the
Designated Management Optionees shall each have the option (exercisable by
written notice delivered to the Company and each Shareholder having an
option to sell Shares pursuant to paragraph (a), within the 30-day period
next following the expiration of the 90-day period described in paragraph
(a)) to purchase all or any portion of the Shares as to which the options
to sell described in paragraph (a) were exercised, and the Company shall
purchase the Shares as to which the options described in paragraph (a) to
sell were exercised which the Designated Management Optionees have not
elected to purchase pursuant to this paragraph (b);
(c) if and to the extent the options described in paragraph (a) are
not exercised, the Designated Management Optionees shall have the option
(exercisable by written notice delivered to each Shareholder having an
option to sell Shares to the Company pursuant to paragraph (a) and the
Company within the 30-day period next following the 90-day period referred
to in paragraph (a)), to purchase from such Shareholders all or any portion
of the Shares then owned by such Shareholders as to which they did not
exercise their respective options to sell as set forth in paragraph (a);
and
(d) the Company shall have the option (exercisable by written notice
to each Shareholder having an option to sell Shares to the Company pursuant
to paragraph (a) within the 30-day period next following the expiration of
the 30-day period referred to in paragraph (c)), to purchase from such
Shareholders all or any portion of the Shares then owned by such
Shareholders as to which they did not exercise their respective options to
sell as set forth in
17
<PAGE>
paragraph (a) and as to which the Designated Management Optionees did
not exercise their respective options to purchase as set forth in
paragraph (c);
all in the manner, for the price, and on the terms and subject to the conditions
contained in Sections 3.5 through 3.11, both inclusive, of this Article III.
3.3 Death of Participant Following Termination of Employment. Upon the
death of a Participant following termination of the Participant's employment
with the Ward Group (a "Post-Termination Death"), in the case where that
Participant and his or her Permitted Transferees did not previously sell all
Shares owned by them, respectively, pursuant to Section 3.1 or Section 3.2:
(a) each of the Designated Management Optionees shall have an option
(exercisable by service of written notice upon such Participant, each of
his or her Permitted Transferees, and the Designator, within the 90-day
period next following the date on which the Company has notified the
Designator that such Participant has died), to purchase all or any portion
of the Shares owned by such Participant and each of his or her Permitted
Transferees; and
(b) the Company shall have an option (exercisable by service of written
notice upon such Participant's personal representative, each of such
Participant's Permitted Transferees, and the Designator, within the 30-day
period next following the last day of the 90-day period referred to in
paragraph (a)), to purchase all or any portion of the Shares which were not
purchased by the Designated Management Optionees;
all in the manner, for the price and on the terms and conditions contained in
Sections 3.5 through 3.11, both inclusive, of this Article III.
3.4 Notice of Death. In order to effectuate the exercise of the options set
forth in Sections 3.2 and 3.3 in the event of the death of a Participant, the
personal representative of the deceased Participant shall give written notice of
such Participant's death to the Company within 90 days after the date of such
death, regardless of whether such personal representative shall be entitled
to exercise any option granted to him or her pursuant to this Article III.
Forthwith following the receipt of such notice, the Company shall deliver a copy
thereof to the Designator. In the event such notice is not so given by the
personal representative of the deceased Participant, the period of time during
which the options set forth in Sections 3.2 and 3.3 may be exercised shall be
extended appropriately.
3.5 Purchase Price of Shares. The aggregate purchase price ("Purchase
Price") of Shares to be purchased pursuant to Sections 3.1, 3.2, or 3.3, shall
be the following:
(a) if the product of the Fair Market Value per Share (as defined
below) multiplied by the aggregate number of Shares to be purchased is
equal to or less than the aggregate Acquisition Price of the Shares to
be purchased, then the Purchase Price shall be the product of the Fair
Market Value per Share, multiplied by the aggregate number of Shares to
be purchased;
(b) if paragraph (a) is not applicable, subject to paragraph (c)
below, the Purchase Price shall be equal to the sum of (x) the product
of the Fair Market Value per Share multiplied by the number of Vested
Shares to be purchased, plus (y) the product of the Acquisition Price
multiplied by the number of Shares which are not Vested Shares to be
purchased;
18
<PAGE>
(c) where options are exercised pursuant to Section 3.1 or 3.3 for
less than all of the Shares owned by a Participant and his or her Permitted
Transferees, in determining the Purchase Price in accordance with
paragraph (a) or (b), the Shares which are not Vested Shares shall be
deemed to have been purchased or sold first; and
(d) for the sole purpose of computing the Purchase Price in connection
with a purchase of Shares pursuant to Section 3.3, in computing that
portion of the Purchase Price which is allocable to Shares which are not
Vested Shares, the Acquisition Price of each of the Shares which are not
Vested Shares shall be increased by a simple interest factor of 8% per
annum calculated from the Valuation Date to the Article III Closing Date,
but the Acquisition Price, as so increased, shall not exceed the Fair
Market Value per Share.
3.6 Manner of Payment. Subject to the provisions of Article IV, the
Purchase Price shall be paid in the following manner:
(a) except as otherwise provided in paragraph (c), an amount equal
to 25% of the Purchase Price of all Shares shall be paid in cash on the
Article III Closing Date;
(b) except as otherwise provided in paragraph (c), the balance of the
Purchase Price shall be paid in three equal annual installments on the
first through third anniversaries, both inclusive, of the Article III
Closing Date. The principal amount of the balance of the Purchase Price
remaining from time to time unpaid shall bear interest, payable on the
same dates as each installment of principal, at a rate per annum equal
to the lowest rate of interest which will not result in any portion of the
Purchase Price being deemed to be unstated interest or original issue
discount under the provisions of the Internal Revenue Code of 1986, as
amended. If said provisions are inapplicable for any reason, the interest
rate shall be 8% per annum;
(c) notwithstanding the preceding provisions of this Section 3.6, in
the event of a purchase of Shares following the voluntary termination of
employment of a Participant with the Ward Group (other than by reason of
normal retirement in accordance with such entity's retirement policies), or
the termination of employment of such Participant with the Ward Group for
Cause, the amount which shall be paid on the Article III Closing Date shall
equal 16% of the Purchase Price, and the balance of the Purchase Price
shall be paid in five equal annual installments on the first through fifth
anniversaries, both inclusive, of the Article III Closing Date, plus
interest, payable on the same dates as each installment of principal, at
the rate determined pursuant to paragraph (b); and
(d) the Purchase Price shall be payable by the Designated Management
Optionees and the Company in proportion to their respective purchases of
Shares pursuant to this Article III.
3.7 Notes and Security. The portion of the Purchase Price which has not
been paid in cash on the Article III Closing Date shall be evidenced and secured
as follows:
(a) the portion of the Purchase Price which is not paid on the Article
III Closing Date shall be evidenced by a non-negotiable secured promissory
installment note(s) made by the Company and/or the Designated Management
Optionees purchasing Shares (as the case may be). Each such note or notes
shall be in a commercially reasonable form of promissory note given to
19
<PAGE>
evidence an installment indebtedness, providing for payment of the unpaid
balance of the Purchase Price, and interest thereon, all as provided in
Section 3.6. Each such promissory installment note shall provide for
acceleration in the event of non-payment after a reasonable grace period,
and that it may be prepaid at any time or from time to time, in whole or
in part, without premium, penalty or notice. All prepayments shall be
applied against installments coming due in the inverse order of their
maturity. If there is more than one seller of such Shares, a separate note
shall be issued to each seller of such Shares. Each promissory note which
is made by the Company shall provide that the obligations thereunder are
subordinated to the extent provided in, and are subject to the provisions
of, Article IV. Each note shall provide that a default under any note made
by the party issuing it to a Participant or his or her Permitted
Transferees pursuant to this Article III shall be a default under all
notes made by that party to such Participant and his or her Permitted
Transferees pursuant to this Article III; and
(b) each note shall be secured, at the option of the purchaser of
the Shares, by either (x) a pledge, meeting the requirements of the
Illinois Uniform Commercial Code, of a number of the Shares purchased
which would have an aggregate purchase price at the time of the pledge
(determined in the manner provided in Section 3.5 and in the following
sentences) equal to the original principal amount of such note, or (y) a
standby letter of credit reasonably satisfactory to the Shareholder whose
Shares are being sold. If Shares are to be pledged, for the purposes of
determining the type and number thereof, on the Article III Closing Date
the Company and the Designated Management Optionees shall be deemed to
have made payment in full for a type (Vested Shares or Shares which are
not Vested Shares, as the case may be) and number of Shares which would
have had an aggregate purchase price (determined as provided herein) equal
to the amount so paid, and the Shares which are so deemed to have been
paid for in full shall not be subject to the pledge, and only the balance
of the Shares shall be subject to the pledge. In determining the value of
the Shares which are deemed to have been paid for in full on the Article
III Closing Date in accordance with the two preceding sentences, Shares
which are not Vested Shares shall first be deemed to have been paid for in
full, until all of such Shares have been deemed to have been paid for in
full. If Shares are to be pledged, at the option of the pledgor, the
Shares to be pledged shall be held by an escrowee reasonably satisfactory
to the pledgor, pursuant to an Escrow Agreement containing terms and
provisions which are reasonably satisfactory to the pledgor.
3.8 Fair Market Value. The Fair Market Value per Share of Shares
purchased pursuant to this Article III shall be determined as follows:
(a) unless a public market for the Shares exists, the Fair Market
Value per Share of each of the Shares shall be based upon the fair market
value of the consolidated common equity of the Company for the fiscal year
in which the termination of the employment of a Participant (the
"Valuation Date") occurs (in the case of a purchase of Shares pursuant to
Section 3.1 or 3.2) or the fiscal year in which the Article III Closing
Date occurs (in the case of a purchase of Shares pursuant to Section 3.3),
adjusted as provided herein. The Valuation Date (in the case of a purchase
of Shares pursuant to Section 3.1 or 3.2) or the Article III Closing Date
(in the case of a purchase of Shares pursuant to Section 3.3) is referred
to herein as the "Applicable Date". Subject to the following provisions,
the fair market value of the consolidated common equity of the Company
shall be determined annually by the Board of Directors, as of the first
day of the then-current fiscal year of the Company, in its reasonable
discretion and in good faith, as soon after the commencement of each
fiscal year of the Company as possible. In
20
<PAGE>
the event the fair market value of the consolidated common equity of the
Company, as so determined, would exceed 150% of the consolidated common equity
of the Company (determined in accordance with the generally accepted accounting
principles applied by the Company) as of the first day of the fiscal year for
which the determination is to be made, the affirmative vote of not less than 2/3
of the members of the Board of Directors shall be required in order to determine
the amount of the excess. The Board of Directors may in its discretion retain an
independent investment banker to make recommendations to the Board of Directors
as to the fair market value of the consolidated common equity of the Company.
Each such determination shall be effective as of the first day of the
then-current fiscal year, and remain in effect with respect to all Applicable
Dates occurring during that fiscal year provided, however, that the fair market
value of the common equity as so determined by the Board of Directors shall be
adjusted by adding:
(i) an amount equal to the Fair Market Value at the date of grant
for all outstanding and unexpired Options and Purchase Rights and other
options or rights to acquire shares of common stock during the period
commencing on the first day of the fiscal year in which the Applicable Date
occurs and ending on the Article III Closing Date (the "Adjustment
Period");
(ii) the amount of cash and other consideration (including any
difference between the Fair Market Value at the date of grant and the
exercise price) received or receivable by the Company during the Adjustment
Period on account of the exercise of any Options, Purchase Rights, or other
options or rights to acquire shares of common stock;
(iii) the aggregate consideration received by the Company for shares
of common stock issued during the Adjustment Period and not accounted for
in either (i) or (ii) above;
and by subtracting:
(iv) the aggregate amount of dividends paid or payable by the Company
on its common stock during the Adjustment Period; and
(v) the aggregate amount paid by the Company to redeem, repurchase
or otherwise acquire for consideration shares of its common stock during
the Adjustment Period;
and the said fair market value of the consolidated common equity of the Company,
as so adjusted, shall be the fair market value of the consolidated common equity
of the Company. The foregoing adjustments shall be made by the Company's chief
financial officer, acting reasonably and in good faith and in accordance with
the provisions of this Section 3.8. For the first fiscal year of the Company,
the parties agree that the fair market value of the consolidated common equity
of the Company as of the first day of such first fiscal year shall be
$10,000,000. Once the fair market value of the consolidated common equity of the
Company has been determined as provided in the foregoing provisions of this
paragraph (a), the Fair Market Value per Share of each of the Shares to be
purchased pursuant to this Article III shall be determined as follows:
21
<PAGE>
(vi) the Fair Market Value per Share of each of the Class A Shares shall be
the amount determined as follows:
a. First, at any time when the Outstanding Amount as of the date of
determination does not exceed the Series 1 Amount, the fair market value of the
consolidated common equity of the Company shall be multiplied by a fraction the
numerator of which is the Class A Amount and the denominator of which is the sum
of the Class A Amount plus the number of outstanding Class B Shares on the day
immediately preceding the Article III Closing Date; or
b. at any time when the Outstanding Amount as of the date of determination
exceeds the Series 1 Amount, but the Non-Series 3 Outstanding Amount does not
exceed the Series 1 Amount, the fair market value of the consolidated common
equity of the Company shall be multiplied by a fraction the numerator of which
is the product of the amount which would be determined if the immediately
preceding Section 3.8(a)(vi)a. were applicable and the Class A Amount were equal
to the Series 1 Amount multiplied by a fraction the numerator of which is the
Outstanding Amount plus the number of Shares which are subject to purchase
pursuant to options granted under the Employee Stock Option Plan on the day
immediately preceding the Article III Closing Date and the denominator of which
is the sum of the Series 1 Amount plus fifty percent (50.0%) of the excess of
the Outstanding Amount over the Series 1 Amount; plus eighty-one point five
percent (81.5%) of the number of Shares which are subject to purchase pursuant
to options granted under the Employee Stock Option Plan; or
c. at any time when the Outstanding Amount as of the date of determination
exceeds the Series 1 Amount (and Section 3.8(a)(vi)b. is not applicable), the
fair market value of the consolidated common equity of the Company shall be
multiplied by a fraction the numerator of which is the product of (a) the amount
which would be determined if Section 3.8(a)(vi)a. were applicable and the Class
A Amount were equal to the Series 1 Amount multiplied by (b) a fraction the
numerator of which is the Outstanding Amount plus the number of Shares which are
subject to purchase pursuant to options granted under the Employee Stock Option
Plan on the day immediately preceding the Article III Closing Date; and the
denominator of which is the sum of the Series 1 Amount plus eighty-one point
five percent (81.5%) of the sum of (i) the Non-Series 3 Amount plus (ii) the
number of Shares which are subject to purchase pursuant to options granted under
the Employee Stock Option Plan, plus (iii) fifty percent (50.0%) of the number
of Series 3 shares outstanding as of the date of such determination; and
d. Second, the amount determined pursuant to subparagraph a., b. or c., as
applicable, shall be divided by the aggregate number of Class A Shares (without
distinction as to series) on the day immediately preceding the Article III
Closing Date, with Shares which are subject to purchase pursuant to options
granted under the Employee Stock Option Plan being treated, for the purposes of
this subparagraph d., as being outstanding Shares;
22
<PAGE>
provided, however, that no adjustment to the Fair Market Value per Class A
Share as calculated as of the first day of the then-current fiscal year
shall be required unless such adjustment would result in an increase or a
decrease of at least 1% from the amount as so determined as of the
beginning of the then-current fiscal year;
(vii) the Fair Market Value per Share of each of the Class B Shares
shall be the amount determined by (x) subtracting from the fair market
value of the consolidated common equity of the Company the aggregate Fair
Market Value per Share of all of the Class A Shares of all series, as
determined pursuant to subparagraph (vi), and (y) dividing the resulting
number by the total number of Class B Shares which are outstanding as of
the day immediately preceding the Article III Closing Date.
In the event the Article III Closing Date occurs prior to the date on which the
appropriate fair market value of the consolidated common equity of the Company
has been determined, the Purchase Price shall initially be determined on the
basis of the most recent determination of the fair market value of the
consolidated common equity of the Company and shall thereafter be adjusted as
soon as the fair market value of the consolidated common equity of the Company
for the current fiscal year has been determined. If necessary in order to
accomplish any such adjustment, the parties shall immediately substitute new
notes and/or exchange cash payments as soon as practicable after the amount of
such adjustment is determined, so that the parties are placed in the same
positions in which they would have been if the appropriate fair market value of
the consolidated common equity of the Company had been known on the Article III
Closing Date;
(b) if a public market for the Shares exists, the Fair Market Value per
Share shall be the Average Closing Price of the Shares during the period
("Trading Period") consisting of the ten trading days ending on the day
immediately preceding the Valuation Date (in the case of a purchase of Shares
pursuant to Section 3.1 or 3.2) or the date on which the first option arising
under Section 3.3 was exercised (in the case of a purchase of Shares pursuant to
Section 3.3). For the purposes of the preceding sentence:
(i) if the Shares are listed on any national securities exchange or
traded in the over-the-counter market and included in the NASDAQ National
Market System, the Average Closing Price shall be the arithmetic mean of
the last sale prices of the Shares on each day of the Trading Period on the
national securities exchange where the Shares are principally traded if the
Shares are listed for trading on such exchange, or in the over-the-counter
market as reported by NASDAQ if the Shares are included in the National
Market System; and
(ii) if the Shares are traded over-the-counter but are not included
in the NASDAQ National Market System, the Average Closing Price shall be
the arithmetic mean of the average of the closing bid and asked quotations
on each day of the Trading Period.
3.9 Closing. Subject to the remainder of this Section 3.9 and to Section
4.1, any purchase of Shares pursuant to this Article III shall be consummated
("Article III Closing") at the Company's principal office at 10:00 a.m.,
prevailing business time, on the 30th day next following the last day on which
the last option to purchase or sell such Shares which is granted pursuant to
this Article III is
23
<PAGE>
exercisable ("Article III Closing Date"), or on such earlier day as designated
by the purchaser(s) in the sole discretion of the purchaser(s) upon not less
than three days prior notice to the Participant or his or her personal
representative, as the case may be, and to the Participant's Permitted
Transferees. If said date is a Saturday, Sunday or legal holiday, the Article
III Closing shall occur at the same time and place on the next succeeding
business day. At the Article III Closing, each person selling Shares shall
deliver certificates representing the Shares being purchased, duly endorsed, and
each shall furnish such other evidence, including applicable inheritance and
estate tax waivers and releases, as may reasonably be necessary to effect the
Transfers of Shares. The Company and/or the Designated Management Optionees
purchasing Shares shall make the payments, deliver the notes, and effect the
pledges, which are set forth in Sections 3.6 and 3.7.
3.10 Priorities. In the event options to purchase Shares owned by a
Participant or a Permitted Transferee shall arise under both Article II and
Article III, as between the provisions of Article II, on the one hand, and
Article III, on the other hand, if on the date on which an option to purchase or
sell Shares arises under Article III, any option under Article II has not been
exercised, or, if exercised, the purchase to be made pursuant to said exercise
has not been closed, the priority of such Articles shall be determined by the
Designator, but if the Designator fails to make any such determination by
written notice delivered to the Company within 30 days next following the date
on which the option or obligation under Article III arose, Article III shall
have priority.
3.11 Failure to Deliver Shares. In the event the Company or any of the
Designated Management Optionees exercise one or more options to purchase Shares
pursuant to this Article III, or the Company becomes obligated to purchase
Shares pursuant to this Article III, and in the event a Participant or
Permitted Transferee whose Shares are to be purchased pursuant to this Article
III fails to deliver them on the Article III Closing Date, the Company and/or
the Designated Management Optionees purchasing Shares may elect to deposit the
cash and promissory note(s) representing the Purchase Price with the Company's
general counsel ("Escrow Agent"). In the event the Company and/or said
Designated Management Optionees do so, the Shares shall be deemed for all
purposes (including the right to vote and receive payment of dividends) to have
been Transferred to the purchasers thereof, the Company or the Voting Trustee
(as the case may be) shall issue new certificates representing the Shares to the
purchasers thereof, and the certificates registered in the name of the
Shareholders obligated to sell them (or the voting trust certificates, as the
case may be) shall be deemed to have been cancelled and to represent solely a
right to receive payment of the Purchase Price, with interest (if any) earned
thereon, from the escrow. If the proceeds of sale have not been claimed by the
former Shareholders whose Shares were purchased pursuant to this Article III
prior to the third anniversary of the Article III Closing Date, the escrow
deposits, and all interest (if any) earned thereon, shall be returned to the
respective depositors, and the former Shareholders whose Shares were purchased
shall look solely to the purchasers for payment of the Purchase Price. The
Escrow Agent shall not be liable for any action or inaction taken by him in good
faith, and shall have no liability whatsoever for failure to earn interest (or
with respect to the amount of interest earned) on the escrow deposits.
3.12 Resale of Shares. The Company may resell or redistribute by way of
Award, Purchase Right or Option or in any other manner pursuant to the Plan or
the Management Stockholders Agreement, any Shares repurchased by the Company
pursuant to this Article III or Article II. At any time in which the Voting
Trust Agreement is in effect, the party to whom the Shares are reissued shall,
if not already a party to the Voting Trust Agreement, join in and become a party
thereto, the Company shall, on behalf of said party, issue Shares to the Voting
Trustee for the benefit of said party, and the Voting Trustee shall issue to
said party Voting Trust Certificates constituting an equal number of Shares.
24
<PAGE>
3.13 Modification of Options. Notwithstanding anything to the contrary
contained herein, with respect to any options created upon termination of
employment pursuant to Section 3.1 or 3.2 hereof, for all purposes of this
Agreement, with respect to any Person subject to Section 16 of the Securities
Exchange Act of 1934, as amended, such options shall not arise until six months
and one day after such termination of employment and all other time periods with
respect thereto contained herein shall be adjusted accordingly.
ARTICLE IV
CERTAIN LIMITATIONS ON PURCHASES OF SHARES
4.1 Restrictions on the Company's Right and/or Obligation to Purchase
Shares. Notwithstanding anything to the contrary contained herein, the Company:
(x) shall have the right to exercise conditionally any option arising under
Article III to purchase Shares; (y) shall not be obligated to purchase Shares;
and (z) shall not be obligated to make payments with respect to the Purchase
Price of Shares it has theretofore purchased; to the extent unconditional
exercise of such option, the purchase of such Shares or the making of such a
payment, when taken together with all other unconditional exercises of options
by the Company, all other purchases by the Company of shares of its Common Stock
and the making of all other payments by the Company on account of shares of its
Common Stock which the Company has purchased either under these Terms and
Conditions or under the Management Stockholders Agreement, would result in a
violation of one of the Limitations (as herein defined). If this Section 4.1 is
applicable, the following shall govern the exercises of such options and the
making of such purchases and payments:
(a) in the event the Company has an option to purchase Shares but, by
virtue of the Limitations, is unable to purchase all Shares as to which it
desires to exercise its option to purchase, it may unconditionally exercise
its option as to the number of Shares which it may purchase without violation
of the Limitations, and shall purchase those Shares on the Article III Closing
Date, and may exercise said option as to the remaining Shares it desires to
purchase conditioned upon its being able to do so without violation of the
Limitations. In the event the Company is obligated to purchase Shares but is
unable, by virtue of the Limitations, to pay the full amount which is payable
by the Company on the Article III Closing Date with respect to the Shares
which it is obligated to purchase, the Article III Closing shall take place
with respect to the purchase of those Shares which the Company is able to
purchase without violation of the Limitations;
(b) with respect to those Shares which the Company was obligated, or
conditionally exercised an option, to purchase but was unable, on the Article
III Closing Date to purchase by virtue of the Limitations, the Article III
Closing Date shall be extended with respect to such Shares by the period of
such inability, but not in excess of one year from the date on which the
Article III Closing Date would have occurred with respect to such Shares but
for this Section 4.1. If said inability is cured in whole prior to the
expiration of said one year period, the Article III Closing shall occur with
respect to such Shares on the 30th day after the date on which the inability
has been cured. If as of the end of said one year period the inability to
purchase such Shares was cured in part, the Article III Closing shall take
place with respect to the Shares as to which the inability was cured, on the
30th day after the expiration of said one-year period. If the Article III
Closing Date is extended as to any Shares pursuant to this paragraph (b), the
Purchase
25
<PAGE>
Price of such Shares shall be computed as if the Article III Closing had
occurred with respect to such Shares on the date set forth in Section 3.9,
without regard to this Section 4.1 (the "Originally Scheduled Article III
Closing Date"). The Purchase Price of such Shares, as so computed, shall be
reduced by the amount of any cash dividends paid or declared and distributions
made or delivered with respect to such Shares, during the period commencing on
the Originally Scheduled Article III Closing Date and ending on the actual
Article III Closing Date with respect to such Shares, and shall bear interest
for the period commencing on the Originally Scheduled Article III Closing Date
and ending on the actual Article III Closing Date, at the rate of interest which
would be applicable under Section 3.6(b) if the Article III Closing had occurred
with respect to such Shares on the Originally Scheduled Article III Closing
Date, and shall be payable on the Article III Closing Date, and the rate of
interest which is payable on the portion of the Purchase Price which is payable
in installments pursuant to Section 3.6(b) or (c) shall be that rate of interest
which would be applicable, by virtue of the application of the provisions of
Section 3.6(b) or (c), on the actual Article III Closing Date. To the extent
that after the expiration of said one year period, the Company remains unable to
purchase any of the Shares which it is otherwise obligated to purchase or has
conditionally exercised an option to purchase, the Company shall be relieved of
the obligation which it was unable to fulfill, the Company's conditional
exercise of its option to purchase such Shares shall terminate, and the Shares
which the Company was otherwise obligated, or had conditionally exercised an
option, to purchase shall thereafter remain subject to all applicable provisions
hereof;
(c) in applying the foregoing provisions of this Section 4.1, the
Shares which are not Vested Shares shall be deemed to have been purchased or
sold first;
(d) if after the Article III Closing the Company is precluded from
making all or any portion of an installment payment on account of the unpaid
balance of the Purchase Price, the Company's obligation to make such payment
(or portion thereof) shall be tolled until the earlier of the date on which it
is no longer precluded from making such payment (or portion thereof) or the
first anniversary of the date on which the payment (or portion thereof) was
due. During the time in which the Company's obligation is so tolled, interest
shall continue to accrue on the payment which was due but not made, but the
holder of any note made by the Company which represents the unpaid portion of
the Purchase Price of the Shares purchased by the Company shall not take any
action to collect the payment due, or to accelerate the maturity of any
payments not then due;
(e) if after the expiration of the period of time in which the
Company's obligation has been tolled pursuant to paragraph (d) the Company has
not made the payment in full of the total amount then due, the holder of the
note made by the Company shall have the right to foreclose the pledge of the
Shares pledged by the Company, or draw against the letter of credit provided by
the Company, as security therefor. If the holder does so, or takes other legal
action to collect on the note, the holder's right to collect the amount owed by
the Company to such holder (other than by way of foreclosure of the pledge of
Shares pledged as collateral therefor or drawing on the letter of credit
furnished by the Company in connection therewith) shall be subordinated to the
Company's obligations under its then most junior subordinated debt and all debt
which is senior thereto, and such holder's right to enforce its right to collect
such amount shall be restricted to the extent of the maximum restriction
contained in any of such debt with respect to such enforcement; provided,
however, that notwithstanding any subordination provisions which may be
contained in the instruments evidencing such debt, the holder of the note
26
<PAGE>
shall be entitled to collect the amount owing from the Company on
account of the purchase of the Shares to the extent that payment of
the amount sought to be collected would not result in a violation of
any provisions of the instruments evidencing any debt of the Company
which is senior to the holder's note and which permit distributions by,
and/or intercompany dividends to, the Company in connection with its
repurchases of Shares. For the purposes of the immediately preceding
sentence, references to the Company shall be deemed to include
references to Ward;
(f) if any of the Designated Management Optionees shall
have exercised options to purchase any of the Shares which are subject
to purchase under Article III, the Article III Closing shall nonetheless
take place with respect to the Shares as to which said options have been
exercised, and the provisions of this Section 4.1 shall have no effect
on the Shares as to which such options have been exercised, or on the
obligations of the Designated Management Optionees with respect to
payment of the Purchase Price thereof.
4.2 Definition of the Limitations. The Limitations shall consist
of the following:
(a) any provision of the law of the Company's state of
incorporation which restricts the Company's ability to repurchase its
shares of Common Stock or restricts payments on account of the purchase
price thereof;
(b) any provision of any material contract to which the
Company or any of its subsidiaries is a party (including, without
limitation, loan agreements), and any provision of any Certificate of
Incorporation of the Company or any of its subsidiaries, which would
be violated by the Company's repurchase of its shares of Common Stock,
the making of payments on account of the purchase price thereof, or the
payment of intercompany dividends or other distributions or advances to
the Company so that it can repurchase shares of its Common Stock or make
payments on account of the purchase price thereof; and
(c) the Cash Payments Limitation then in effect.
4.3 Cash Payments Limitation. Except as otherwise determined by the
Board of Directors, the Cash Payments Limitation shall be determined with
respect to each fiscal year of the Company, and shall be equal to the sum of
$5,000,000 (increased by $2,000,000 per fiscal year after the Company's initial
fiscal year) plus, with respect to a fiscal year, the aggregate proceeds,
collected during said fiscal year, of any insurance on the life of a Management
Shareholder whose shares of Common Stock are to be purchased pursuant to the
Management Stockholders Agreement during said fiscal year. To the extent the
Cash Payments Limitation restricts the aggregate amount which can be paid by the
Company in a fiscal year with respect to repurchases of its shares of Common
Stock, obligations of the Company to make payments for purchase of shares of its
Common Stock (whether under these Terms and Conditions or the Management
Stockholders Agreement) shall be honored in the order in which they arose.
27
<PAGE>
ARTICLE V
CORPORATE GOVERNANCE MATTERS
5.1 Voting of Shares Held by Participants. At any time in which this
Article V of these Terms and Conditions is in effect and the Voting Trust
Agreement is not in effect, and, in addition, with respect to any Shares which
are owned by Participants or Permitted Transferees which for any reason are not
subject to the provisions of the Voting Trust Agreement, on all matters
requiring a vote of the Shareholders, all Shares held by Participants and
Permitted Transferees shall be voted, (x) as long as Brennan is the owner of any
shares of Common Stock and votes any of such shares, in the same manner that
Brennan votes such shares of Common Stock with respect to that matter, and, (y)
if Brennan is no longer the owner of any shares of Common Stock or if Brennan
does not vote any of his shares of Common Stock, to effectuate the provisions
of, and in accordance with the agreements contained in, this Article V.
5.2 Election of Directors. Subject to the limitations set forth herein,
and in addition to any provisions relating to the election of directors by the
holders of Preferred Stock which are contained in the Certificate of
Incorporation and By-laws of the Company, at all times in which this Article V
is in effect, the By-laws of the Company shall provide, and the Participants
agree to vote, for the election of a Board of Directors consisting of nine
members, five to be designated by the Designator and four to be designated by GE
Capital. The Bylaws shall further provide, and the Participants agree, that,
disregarding any directors which may be elected by the holders of Preferred
Stock pursuant to the provisions of the Company's Certificate of Incorporation:
(a) upon the occurrence of a Control Default, and provided that GE
Capital has given written notice to the Company of the exercise of its
rights under this paragraph (a), the number of members of the Board of
Directors shall be expanded to eleven and the Participants shall vote for
two nominees designated by GE Capital to fill the vacancies thereby
created;
(b) at such time, if any, as GE Capital and the GE Capital Affiliates
shall cease to own, in the aggregate, more than 50% of the shares of Common
Stock which GE Capital and the GE Capital Affiliates purchased on June 22,
1988, the number of members of the Board of Directors which the Designator
shall have the right to designate shall be increased by one and the number
of members of the Board of Directors which GE Capital shall have the right
to designate shall be reduced by one; and
(c) at such time, if any, as GE Capital and the GE Capital Affiliates
shall cease to own, in the aggregate, 20% or more of the shares of Common Stock
which GE Capital and the GE Capital Affiliates purchased on June 22, 1988, GE
Capital shall no longer have the right to designate members of the Board of
Directors in accordance with the foregoing provisions of this Section 5.2; and
the number of directors to be elected shall be reduced to seven, five to be
elected by the holders of Class A Shares, voting as a class, and two to be
elected by the holders of Class B Common Stock, voting as a class; provided,
however, that as long as that certain Account Purchase Agreement, dated as of
June 24, 1988, between Ward and Montgomery Ward Credit Corporation shall be in
effect and GE Capital or any GE Capital Affiliate shall own any shares of Class
B Common Stock, GE Capital shall have the right to elect one of the two
directors to be elected by the holders of Class B Common Stock.
28
<PAGE>
In the event of a vacancy on the Board of Directors, the party who had the right
to designate the director whose seat is vacant shall have the right to designate
the party who shall fill the vacancy. The party who had the right to designate a
director shall also have the right to cause that director to be removed.
5.3 Recapitalization. In connection with any public offering of
Shares (other than pursuant to the Plan), the Company shall have a right to
cause a recapitalization of the Company to occur, in order to facilitate such
public offering. Any such recapitalization, as nearly as possible, shall put the
parties in the same relative positions with respect to equity ownership and
voting control of the Company in which they were prior to the recapitalization,
after taking into account any dilution resulting from outstanding but
unexercised Purchase Rights or Options under the Plan. Each of the Participants
agrees to vote his or her Shares in favor of any recapitalization of the Company
which meets the foregoing requirements, and to treat the shares of stock and
other securities issued in such recapitalization as Shares under these Terms
and Conditions.
ARTICLE VI
CONFIDENTIAL INFORMATION
6.1 No Disclosure of Confidential Information. In consideration of
the issuance of Shares to him or her, each Participant individually covenants
and agrees that during the time that he or she is employed by the Ward Group,
and thereafter following the termination of his or her employment by the Ward
Group for any reason whatsoever, he or she will not divulge to persons not
employed by the Ward Group or use for his or her own benefit or the benefit of
Persons not employed by the Ward Group, any Confidential Information.
6.2 Limitations on No Disclosure Covenant. For the purposes of
Section 6.1:
(a) information which is at any time Confidential Information
shall cease to be such, and the Participant shall thereafter be under no
obligations with respect thereto, at such time that:
(i) it shall be disclosed by the Ward Group to the
public; or
(ii) it shall become known by the public other than
by reason of the disclosure thereof in violation of applicable
confidentiality agreements; and
(b) notwithstanding the provisions thereof, nothing
contained therein shall be construed to prohibit the Participant from
making any disclosure of information, either to his legal counsel in
connection with the defense of any claim, under these Terms and
Conditions or otherwise, made by any member of the Ward Group, or in
connection with the enforcement of any right, under these Terms and
Conditions or otherwise, existing in favor of the Participant against
any member of the Ward Group, or to any governmental agency to the
extent the Participant is required by law to do so.
6.3 Return of Documents. Promptly on the termination of his or her
employment with the Ward Group for any reason, each Participant (or in the event
of his or her death, his or her personal representative) shall return to the
Company any and all copies (whether prepared by such Participant or by any
member of the Ward Group), of books, records, notes, materials, memoranda and
other data
29
<PAGE>
pertaining to Confidential Information which are in his or her possession or
control at the time of termination of employment. Each Participant acknowledges
that he or she does not have, nor can he or she acquire, any property rights or
claims to any of such materials or the underlying data.
6.4 Enforcement. Each Participant agrees and acknowledges that his or her
violation or breach of the covenants contained in this Article VI shall cause
the Company irreparable injury and, in addition to any other right or remedy
available to the Company at law or in equity, the Company shall be entitled to
enforcement by court injunction. Notwithstanding the foregoing sentence, nothing
herein shall be construed as prohibiting the Company from also pursuing any
other rights, remedies or defenses, for such breach or threatened breach
including receiving damages and attorney's fees. In addition to the foregoing,
in the event of a breach or violation of this Article VI by a Participant which
occurs after the Company and/or the Designated Management Optionees have
purchased his or her Shares or the Shares of his or her Permitted Transferees
pursuant to Article III, to the extent that the Purchase Price of the Shares
purchased exceeds the Purchase Price which would have been paid if his or her
employment with the Ward Group had been terminated for Cause by reason of a
violation of Section 6.1, the Purchase Price shall be reduced to such latter
amount, and if at the time the Purchase Price is so reduced the Participant and
his or her Permitted Transferees shall have received payments on account of the
Purchase Price which, in the aggregate, exceed the amount to which they would
have been entitled by virtue of such reduction, they shall forthwith pay the
difference to the purchasers of such Shares. The election of any remedy shall
not be construed as a waiver on the part of the Company of any rights it might
otherwise have at law or in equity. Said rights and remedies shall be
cumulative.
ARTICLE VII
GENERAL MATTERS
7.1 Legend on Certificates. All certificates evidencing Shares (other than
certificates of beneficial interest issued by the Voting Trustee under the
Voting Trust Agreement) shall bear the following legend:
"The sale, transfer and encumbrance of the shares represented by this
Certificate are subject to certain Terms and Conditions agreed to by the
Shareholder as of _________, 19__. A copy of said Terms and Conditions is
on file in the office of the Secretary of the corporation. No sale or other
transfer of the shares represented by this Certificate may be effected
except pursuant to provisions of such Terms and Conditions. In addition,
the right to vote the shares represented by this Certificate is restricted
in the manner provided in said Terms and Conditions. The corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof authorized to be
issued by the corporation and the qualifications, limitations or
restrictions of such preferences and/or rights."
Upon termination of these Terms and Conditions, certificates for Shares (other
than certificates of beneficial interest issued by the Voting Trustee pursuant
to the Voting Trust Agreement) may be surrendered to the Company in exchange for
new certificates without the foregoing legend.
7.2 Termination and Amendment of Terms and Conditions. These Terms and
Conditions shall be terminated:
30
<PAGE>
(a) by the Company with the approval of the Board of Directors and with
the written consent of the holders of not less than 66 2/3% of the Shares;
(b) upon a sale by the Ward Group of all or substantially all of their
aggregate assets (other than an intercompany sale within the Ward Group) to
a single purchaser or a related group of purchasers in a single transaction
or a related series of transactions;
(c) upon a merger or consolidation of the Company as a result of which
the aggregate percentage of ownership of the surviving or resulting entity
by Management Shareholders, GE Capital and GE Capital Affiliates and
persons who were GE Capital Affiliates at the time of purchase of shares of
Common Stock is less than 50% of their aggregate percentage of ownership of
the Company immediately prior to such merger or consolidation; or
(d) upon a sale, to a single purchaser or a related group of
purchasers, in a single transaction or a related series of transactions, of
not less than 66 2/3% of the outstanding shares of each class of Common
Stock of the Company.
Termination of these Terms and Conditions shall not affect any rights or
obligations which arose prior to termination, nor shall it terminate Article VI.
Except as otherwise provided in the following sentence, these Terms and
Conditions may be amended by the Company with the consent of the holders of not
less than 66 2/3% of the outstanding Shares, but no such amendment shall
adversely affect the method of valuation of any Participant's Shares for the
purposes of Article III without his or her specific consent. As long as the
Voting Trust Agreement is in effect, the Voting Trustee, and once the Voting
Trust Agreement is no longer in effect, the Designator, shall have the power, as
attorney in fact, to act for each of the Participants and each Permitted
Transferee in connection with termination, or any amendment or restatement, of
these Terms and Conditions which has been authorized by the holders of Shares as
provided in this Section 7.2. Said power shall be deemed to be coupled with an
interest and shall be irrevocable. Notwithstanding the foregoing, any amendment
to provisions of Section 5.2 of the Management Stockholders Agreement which is
adopted as provided in the Management Stockholders Agreement shall be deemed to
constitute a corresponding amendment to comparable provisions of Section 5.2 of
these Terms and Conditions, and, to the extent that there is any conflict
between said sections, the terms of the Management Stockholders Agreement shall
control.
7.3 Not an Employment Agreement. Nothing contained herein shall be deemed
or construed as creating any agreement of employment between a Participant and
any member of the Ward Group or a right of a Participant to employment by any
member of the Ward Group.
7.4 Notices. All notices required hereunder shall be in writing and shall
be deemed served when delivered personally to the person for whom intended or
sent by confirmed facsimile, or two days after deposit in the United States
Mail, certified mail, return receipt requested, addressed to the persons for
whom intended at the following respective addresses:
The Company:
One Montgomery Ward Plaza
Chicago, IL 60671-0042
Attention: President
31
<PAGE>
The Designator:
c/o The Company
One Montgomery Ward Plaza
Chicago, IL 60671-0042
Any Participant, or
Permitted Transferee,
as the case may be:
at the last known address
of said Participant or
Permitted Transferee,
as the case may be,
as disclosed by the books
and records of the Company;
GE Capital:
260 Long Ridge Road
Stamford, CT 06902
Attention: General Manager, Corporate Finance Group
with a copy to:
Associate General Counsel, Corporate Finance Group
at the same address
and/or to such other persons and/or at such other addresses as may be designated
by written notice served in accordance with the provisions hereof.
7.5 Miscellaneous. The use of the singular or plural or masculine, feminine
or neuter gender shall not be given an exclusionary meaning and, where
applicable, shall be intended to include the appropriate number or gender, as
the case may be.
7.6 Descriptive Headings. Title headings are for reference purposes only
and shall have no interpretative effect.
7.7 Waivers. No action taken pursuant to any provisions herein, including,
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action. The waiver
by any party hereto of a breach of any provision of these Terms and Conditions
shall not operate or be construed as waiver of any preceding or succeeding
breach and no failure by any party to exercise any right or privilege hereunder
shall be deemed a waiver of such party's rights or privileges hereunder or
shall be deemed a waiver of such party's rights to exercise the same at any
subsequent time or times hereunder. The preceding sentence shall not apply to
the failure of a party to exercise a specific option granted to that party
pursuant to the terms hereof within the period of time provided herein. Any
waiver shall be in writing, signed by the waiving party.
7.8 Binding Effect; Enforcement. These Terms and Conditions shall be
binding upon and inure to the benefit of the parties hereto, their heirs,
representatives, successors and permitted assigns. Each Participant and each
of his or her Permitted Transferees agrees and acknowledges that its
breach
32
<PAGE>
of any of the provisions contained herein would cause irreparable injury and
that monetary damages would be inadequate. Accordingly, each Participant and
each of his or her Permitted Transferees agrees that, in addition to all
other legal rights and remedies, the aggrieved party shall be entitled to
specific performance of the rights granted to it hereunder.
7.9 Applicable Law. These Terms and Conditions shall be governed as to
validity, construction and in all other respects by the internal laws of the
State of Delaware.
7.10 Severability. The invalidity of any provision hereof or portion of
a provision shall not affect the validity of any other provision or the
remaining portion of the applicable provision.
7.11 Resolution of Certain Ambiguities and Conflicts. In the event of any
ambiguity or conflict in these Terms and Conditions (i) with respect to whether
any particular Shares constitute Vested Shares, (ii) the Percentage of Vesting
applicable thereto, or (iii) the application of the provisions of Article III
to any particular Participant and his or her Permitted Transferees, the
ambiguity or conflict shall be resolved by the Designator in his sole
discretion.
7.12 Authority to Give Consents, Approvals, etc. As long as the Voting
Trust Agreement shall be in effect, any votes, approvals, waivers or consents
of Shareholders whose Shares are subject to the Voting Trust Agreement shall
be made by the Voting Trustee, rather than the beneficial owners of such Shares,
except that for the purposes of Section 7.2(a), the beneficial owner of such
Shares rather than the Voting Trustee, shall be the person to give such
approval, waiver or consent.
33
<PAGE>
IN WITNESS WHEREOF, the undersigned Participant agrees to and has
executed these Terms and Conditions as of the ____ day of _______, 19__.
PARTICIPANT:
-----------------------------------------
signature
-----------------------------------------
printed name
-----------------------------------------
street address
-----------------------------------------
city, state, zip code
Accepted and agreed to:
MONTGOMERY WARD HOLDING CORP.
By: _______________________
34
<PAGE>
EXHIBIT 10.(iv)(B)(i)
MONTGOMERY WARD & CO., INCORPORATED
EXECUTIVE LONG-TERM INCENTIVE PLAN
PLAN DESIGN
- -----------
The Plan generally consists of three-year cycles that can be initiated annually;
however, in 1994 three cycles will be established--a one-year cycle ending in
1994, a two-year cycle ending in 1995 and a three-year cycle ending in 1996. The
basis of payment from the Plan is the achievement of specific pre-tax earnings
and return on equity objectives established by a compensation committee of the
board of directors of Montgomery Ward Holding Corp. which is comprised solely
of two or more outside directors ("Committee").
AWARDS
- ------
The target Plan payout is a cash award based upon a percentage, determined by
the Committee, of the base salary of each participant at the time of Plan
payout but in no event shall such target Plan payout for any cycle for any
participant exceed two million dollars ($2,000,000). Subject to the limitations
and provisions set forth in this Plan, the target Plan payout will be paid if
Montgomery Ward Holding Corp. and its subsidiaries ("Montgomery Ward") achieve
the cycle objectives and the Committee certifies such achievement. To the
extent the cycle objectives have not been met, the target Plan payouts will
be proportionately reduced. The Committee may exercise its discretion to
reduce the target Plan payout with respect to any Plan participant.
The amount of the award for a cycle will be announced as soon after the
Committee determines that the cycle objectives have been achieved as possible.
The actual payout, however, will be made no later than March 15th of the year
following the cycle. No award will be made unless the participant is on the last
day of the last year of the applicable cycle the chief executive officer of
Montgomery Ward or among the four highest compensated officers (other than the
chief executive officer) as determined pursuant to the executive compensation
disclosure rules under the Securities Exchange Act of 1934, as amended. Without
limiting the Committee's discretion set forth in the preceding paragraph, no
award will be made if the Committee determines that the participant's conduct
has been detrimental to Montgomery Ward.
PARTICIPATION
- -------------
Montgomery Ward executives in salary grades 28 and above are eligible to
participate in the Plan but only those executives who meet the requirements
set forth in the preceding section may receive an award under the Plan.
Executives who are hired into the eligible participant group after the
beginning of a cycle will have a target Plan payout prorated based on the
proportion of the cycle objectives
<PAGE>
achieved from the beginning of the first quarter after their commencement of
employment through the end of the cycle.
SHAREHOLDER APPROVAL OF PLAN AND
COMMITTEE ESTABLISHMENT OF OBJECTIVES
- -------------------------------------
Payment of awards under this Plan is contingent on the material terms of this
Plan being approved by a majority of the vote in a separate shareholder vote.
Notwithstanding the preceding sentence, the Committee shall establish the
specific pre-tax earnings and return on equity objectives for each cycle and
certify whether such objectives have been met.
INTERPRETATION
- --------------
Awards under this Plan are intended to qualify as performance-based compensation
described in section 162(m)(4)(C) of the Internal Revenue Code of 1986, as
amended or any successor provision thereof and this Plan shall be interpreted
consistent wih such intention.
<PAGE>
Exhibit
10.(iv)(C)(i)
MONTGOMERY WARD & CO., INCORPORATED
SENIOR EXECUTIVE PERFORMANCE MANAGEMENT PROGRAM
PLAN DESIGN
- -----------
The Plan provides for annual incentive awards based on achievement of pre-tax
earnings goals established by a compensation committee of the board of directors
of Montgomery Ward Holding Corp. which is comprised solely of two or more
outside directors ("Committee").
The pre-tax earnings goal for Montgomery Ward Holding Corp. and its subsidiaries
("Montgomery Ward") is expressed in terms of a minimum, target and maximum. The
minimum goal represents a threshold of acceptable performance which must be
achieved before any bonus award will be paid. The target goal represents a fully
satisfactory performance for the bonus period. The maximum goal represents a
stretch goal that the Committee believes can be obtained through superior
performance.
AWARDS
- ------
Each Plan participant will be assigned by the Committee an annual incentive
award target which will not be less than fifty thousand dollars ($50,000) nor
more than two million dollars ($2,000,000).
A Plan participant must achieve the minimum pre-tax earnings goal to receive any
annual incentive award. Attainment of the minimum, target or maximum goal
results in the opportunity to receive 50%, 100% or 150%, respectively, of the
target award. Awards for attainment of more than the minimum goal but less than
the target goal or for attainment of more than the target goal but less than the
maximum goal are established by arithmetic interpolation. The Committee may
exercise its discretion to reduce the Plan payout with respect to any Plan
participant.
Annual incentive award payments under this Plan will be made in March following
the end of the year for which the award applies and after receipt of the outside
auditor's report. The Committee will calculate bonus payouts in accordance with
the provisions of the Plan and certify the achievement of the goals.
No annual incentive award will be made under this Plan unless the participant is
on the last day of the year to which the incentive award applies the chief
executive officer of Montgomery Ward or among the four highest compensated
officers (other than the chief executive officer) as determined pursuant to the
executive compensation disclosure rules under the Securities Exchange Act of
1934, as amended. Without limiting the Committee's discretion set forth in the
preceding paragraph, no annual incentive award will be made if the Committee
determines that the participant's conduct has been detrimental to Montgomery
Ward.
<PAGE>
PARTICIPATION
- -------------
Montgomery Ward executives in salary grades 28 and above are eligible to
participate in the Plan but only those executives who meet the requirements set
forth in the preceding section may receive an award under the Plan. Executives
who are hired into the eligible participant group after the beginning of a year
will have an annual incentive award target prorated based on the proportion of
the pre-tax earnings goal achieved from the beginning of the first quarter after
their commencement of employment through the end of the year.
SHAREHOLDER APPROVAL OF PLAN AND
COMMITTEE ESTABLISHMENT OF OBJECTIVES
- -------------------------------------
Payment of awards under this Plan is contingent on the material terms of this
Plan being approved by a majority of the vote in a separate shareholder vote.
Notwithstanding the preceding sentence, the Committee shall establish the
specific pre-tax earnings goal for each year and certify whether such goal has
been met.
INTERPRETATION
- --------------
Awards under this Plan are intended to qualify as performance-based compensation
described in section 162(m)(4)(C) of the Internal Revenue Code of 1986, as
amended or any successor provision thereof and this Plan shall be interpreted
consistent with such intention.
<PAGE>
[MONTGOMERY WARD LETTERHEAD APPEARS HERE]
Exhibit 10.(xi)(A)
March 1, 1994
Richard Bergel
939 Suffield Terrace
Northbrook, IL 60062
Dear Dick:
This letter will confirm our agreements concerning your assignment as Chairman
and CEO Lechmere, reporting directly to Bernie Brennan, Chairman & CEO,
Montgomery Ward Holding Corporation. In your new position, you will continue
to be Vice Chairman of Montgomery Ward and a Director of Montgomery Ward and
Montgomery Ward Holding Corporation.
Your compensation agreement will be:
1. Base salary will be $600,000 annually paid semi-monthly effective
April 1, 1994.
2. Your short term target bonus will be $200,000 annually. For 1994,
your target of $200,000 will be guaranteed.
3. Your long term bonus target will be 50% of your base salary. Your
incentive will be determined using the Montgomery Ward Holding
objectives.
4. You will receive stock options for 200,000 shares of Montgomery Ward
Holding Stock at $22.50 per share. These options will vest on
April 1, 1996 and will have a ten year duration from April 1, 1994.
The granting of these options is subject to Shareholder approval of
granting of options to a Director and the approval of the creation
of additional options to the Stock Ownership Plan at the Stock
Holders meeting.
5. You will receive a housing allowance of $3,000 per month to use for
temporary living in the Boston area until April 1, 1996. The Company
will gross up and pay your taxes of interim living allowance.
6. Upon your retirement, you will be permitted to sell back 25% of your
shares of Montgomery Ward Holding for cash immediately and 25% for
cash per year in each of the next three years following your
retirement or, you may elect to hold your shares and not resell them
to Montgomery Ward. If a public market is created for Montgomery
Ward Holding stock prior to your retirement, this section will be
modified to conform to
[MONTGOMERY WARD LOGO APPEARS HERE]
<PAGE>
Richard Bergel
March 1, 1994
Page Two
normal S.E.C. regulations for such stock.
7. If your assignment at Lechmere ends before April 1, 1996 and you
elect not to accept another assignment at Montgomery Ward or its
subsidiaries or, if your reporting relationship to Bernie Brennan,
Chairman and CEO Montgomery Ward Holding should change, then you
may elect to retire immediately upon 30 days notice and receive
the benefits in points 4 and 6. In this event, the stock options
in Point 4 will immediately vest. Additionally, you will remain
eligible for all bonus payments in accordance with the retirement
provisions of the incentive plans.
8. The company will provide a 100% relocation package to move you from
the Chicago area to a location of your choice in Continental United
States in accordance with the Company's relocation plans. This
section does not apply to your temporary assignment to Lechmere nor
any interim living that may be necessary to that assignment.
9. You will retain all of your Montgomery Ward benefits and perquisites,
including the Senior Officer Severance Plan.
10. In the event that there is a public offering of Montgomery Ward
Holding Stock during the next two years and on dividends paid during
the next two years, you will be "grossed-up" for state taxes in
excess of 3% on your taxable gain for those years.
If you are in agreement with this letter, please sign below and return a copy
to me.
Sincerely,
Robert A. Kasenter
Executive Vice President
Human Resources
/s/ Richard Bergel
---------------------------------------
Richard Bergel
---------------------------------------
Date
cc: Bernie Brennan
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
July 28, 1994.
<PAGE>
EXHIBIT 24.(D)
MONTGOMERY WARD HOLDING CORP.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, BERNARD W.
ANDREWS, a director of Montgomery Ward Holding Corp., a Delaware corporation
(the "Corporation"), hereby constitutes and appoints JOHN L. WORKMAN,
EDWIN G. POHLMANN, JEFFREY S. TORF and G. T. MORGAN, and each of them, his
true and lawful attorney-in-fact and agent to execute in his name and
capacity a post-effective amendment to the Registration Statement No.
33-33252 relating to the 3,000,000 shares of Class A Common Stock, Series 1
($.01 Par Value) of the Corporation and Voting Trust Certificates representing
3,000,000 shares of Class A Common Stock, Series 1 ($.01 Par Value) of the
Corporation and any further post-effective amendments and supplements to such
Registration Statement, with all exhibits thereto, each of them with full power
to act without the others;
AND FURTHER, that the undersigned director of the Corporation hereby grants
to said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform any and all acts and things essential and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person in connection with the proper exercise of the powers
granted hereunder.
IN WITNESS WHEREOF, the undersigned as a director of said Montgomery Ward
Holding Corp. has hereunto set my hand and seal as of this 26th day of July,
1994.
NAME AND TITLE: /s/ Bernard W. Andrews
____________________________________
BERNARD W. ANDREWS, Director
