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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[X] Preliminary proxy statement
[_] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Montgomery Ward Holding Corp.
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(Name of Registrant as Specified in Its Charter)
Montgomery Ward Holding Corp.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14-a6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rules
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:/1/
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(4) Proposed maximum aggregate value of transaction:
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[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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/1/Set forth the amount on which the filing fee is calculated and state how it
was determined.
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MONTGOMERY WARD HOLDING CORP.
Montgomery Ward Plaza
Chicago, Illinois 60671
NOTICE OF ANNUAL MEETING
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Notice is hereby given that the Annual Meeting of stockholders of
Montgomery Ward Holding Corp. will be held at its corporate offices, Montgomery
Ward Plaza, Chicago, Illinois 60671, on Friday, May 20, 1994, at 8:00 A.M., to
(i) elect directors; (ii) approve an amendment and restatement of the
Certificate of Incorporation of Montgomery Ward Holding Corp. to authorize a new
series of Class A Common Stock of Montgomery Ward Holding Corp.; (iii) approve
an amendment and restatement of the Stockholders' Agreement dated as of June 17,
1988; (iv) approve an amendment and restatement of the Montgomery Ward & Co.,
Incorporated Stock Ownership Plan Terms and Conditions; (v) approve amendments
to the Montgomery Ward & Co., Incorporated Stock Ownership Plan; (vi) approve
the Senior Executive Performance Management Program; (vii) approve the Executive
Long-Term Incentive Plan; and (viii) transact such other business as properly
may come before the meeting or any adjournment thereof.
Stockholders of record at the close of business on April , 1994, are
entitled to receive notice of, and to vote at, the meeting.
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BY ORDER OF THE BOARD OF DIRECTORS, April , 1994
SPENCER H. HEINE
EXECUTIVE VICE PRESIDENT, SECRETARY
AND GENERAL COUNSEL
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PRELIMINARY MATERIALS
PROXY STATEMENT
MONTGOMERY WARD HOLDING CORP.
Montgomery Ward Plaza
Chicago, Illinois 60671
(312) 467-2000
This Proxy Statement, dated April , 1994, is furnished in connection with
the solicitation by the Board of Directors of Montgomery Ward Holding Corp. ("MW
Holding" or the "Company") of proxies to be voted at the Annual Meeting of
Montgomery Ward Holding Corp. stockholders on May 20, 1994, and any adjournment
thereof. This Proxy Statement and the accompanying Proxy and the Annual Report
on Form 10-K are being mailed to stockholders on or about April , 1994.
Business at the Annual Meeting is conducted in accordance with the procedures
determined by the presiding officer.
RECORD DATE AND OUTSTANDING VOTING SECURITIES
Stockholders of record at the close of business on April , 1994, are
entitled to receive notice of the meeting and to vote the shares held on that
date. The number of voting securities of MW Holding outstanding on April ,
1994 was shares of Class A Common Stock, Series 1, $0.01 par value
("Series 1 Shares"), owned by three stockholders of record; shares of
Class A Common Stock, Series 2, $0.01 par value ("Series 2 Shares" and together
with the Series 1 Shares, the "Class A Shares"), owned by one stockholder of
record; and shares of Class B Common Stock, $0.01 par value (the
"Class B Shares" and together with the Class A Shares, the "Common Stock"),
owned by one stockholder of record. As of April , 1994, each share of Class
A Common Stock, Series 1, Class A Common Stock, Series 2, and Class B Common
Stock is entitled to one vote.
VOTING OF PROXIES
Stockholders are urged to read carefully the material in this Proxy
Statement, specify their choice on each matter by marking the appropriate box on
the enclosed Proxy and sign, date and return the Proxy. If the enclosed Proxy
is properly executed and returned to the Company in time for the Annual Meeting,
the shares represented thereby will be voted in accordance with the instructions
of the stockholder giving the Proxy. A stockholder giving a proxy may revoke it
at any time prior to its exercise by written notice of revocation to the
Secretary of the Company, or by the execution of a proxy bearing a later date or
by attending the meeting and voting in person.
QUORUM AND REQUISITE VOTE
The holders of a majority of the outstanding shares of Common Stock must be
represented in person or by proxy at the Annual Meeting for the meeting to be
held. The affirmative vote of a majority of the shares of Common Stock
represented at the meeting, in person or by proxy, is required for
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approval of each matter to be voted upon, except as specifically provided to the
contrary in this Proxy Statement. Pursuant to applicable Delaware law, only
votes cast "for" a matter constitute affirmative votes. Votes "withheld" or
abstaining from voting are, counted for quorum purposes, but since they are not
cast "for" a particular matter, they will have the same effect as negative votes
or votes "against" a particular matter.
THE BOARD OF DIRECTORS
Pursuant to the General Corporation Law of the State of Delaware, as
implemented by MW Holding's Certificate of Incorporation and By-laws, all
corporate powers are exercised by and under the direction of the Board of
Directors, and MW Holding's business, property and affairs are managed by and
under the direction of the Board.
ELECTION OF DIRECTORS
The following persons have been nominated for election as directors of the
Company: Bernard F. Brennan, Bernard W. Andrews, Richard Bergel, Spencer H.
Heine, Myron Lieberman, Silas S. Cathcart, David D. Ekedahl, Denis J. Nayden and
James A. Parke. The Board of Directors recommends a vote for the election of
each of such persons. If elected, directors will serve until the next Annual
Meeting or until a successor is elected and qualified.
Under that certain Stockholders' Agreement dated as of June 17, 1988, as
amended, among the Company, Mr. Brennan, General Electric Capital Corporation
("GE Capital") and the other persons who are parties to the Stockholders'
Agreement (the "Stockholders' Agreement"), the By-laws of the Company shall
provide (and the By-laws of the Company do so provide), and the parties to the
Stockholders' Agreement agree to vote, for the election of a Board of Directors
consisting of nine members, five to be designated by the Designator (as defined
in the Stockholders' Agreement) and four to be designated by GE Capital. Of the
nominees listed below, Mr. Brennan, who is the Designator, has designated
himself and Messrs. Andrews, Bergel, Heine, and Lieberman and GE Capital has
designated Messrs. Cathcart, Ekedahl, Nayden and Parke to be directors of the
Company.
The persons named as proxies intend to vote all shares for which they
receive proxies for the election of those of the nominees identified above who
are so designated and available at the time of the election, unless such
authority is withheld by the stockholders giving the proxy with respect to one
or more of such nominees, in which case the shares will not be voted for the
election of any directors as to whom such authority is withheld. If any nominee
becomes unavailable for election for any reason, or is no longer designated by
Mr. Brennan or GE Capital, as the case may be, at the time of the election,
neither of which is anticipated, the shares represented by the proxies will be
voted for any substitute nominee designated by Mr. Brennan or GE Capital, as
applicable.
Information with respect to ages of the directors is as of April 2, 1994
and information as to their ownership of shares of MW Holding as of that date is
provided under the caption "OWNERSHIP OF COMMON STOCK".
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED
BELOW.
Bernard F. Brennan, age 55, 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 & Co.,
Incorporated ("Montgomery Ward") since May 13, 1985, and became Chairman of
Montgomery Ward on June 24, 1988. He served as President of Montgomery Ward
from May 13, 1985 through September 10, 1992. Mr. Brennan has been a director
of Itel Corporation since 1988 and a director of ANTEC Corporation since October
1993.
Richard Bergel, age 58, 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, Inc., an indirect
wholly-owned subsidiary of Montgomery Ward since March 30, 1994. From October
21, 1991 through March 29, 1994, Mr. Bergel served as Chief Executive Officer of
Montgomery Ward Direct, L.P., a partnership formed by subsidiaries of Montgomery
Ward and subsidiaries of Fingerhut Companies, Inc. ("MW Direct"). Mr. Bergel
also serves as a director of MW Direct.
Bernard W. Andrews, age 52, 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.
Spencer H. Heine, age 51, 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 has been Chairman and Chief Executive Officer of Signature
Financial/Marketing, Inc. ("Signature"), a wholly-owned subsidiary of Montgomery
Ward since March 8, 1993. Prior thereto, he also served as President of
Signature since September 30, 1991.
Myron Lieberman, age 63, has been a director of the Company since June 25,
1988. He is a senior partner in the law firm of Altheimer & Gray and has
practiced law in Chicago, Illinois since 1954.
Silas S. Cathcart, age 67, 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
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a director of General Electric Financial Services, Inc. and GE Capital since
1987. He also is a director of Quaker Oats Company, Baxter International and
General Electric Company.
David D. Ekedahl, age 59, 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.
Denis J. Nayden, age 39, has been a director of the Company since June 25,
1988. Mr. Nayden has been an Executive Vice President of GE Capital since
February, 1989. Mr. Nayden is a director of General Electric Financial
Services, Inc., GE Capital and Penske Truck Leasing.
James A. Parke, age 48, 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.V. and
Financial Guaranty Insurance Co.
Information with respect to the executive officers of MW Holding is
included in MW Holding's Annual Report on Form 10-K.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors of the Company holds regular meetings once each
fiscal quarter. The Board of Directors held four (4) regular meetings and no
special meetings in 1993. Messrs. Brennan, Bergel, Heine, Lieberman, Nayden and
Parke attended every meeting; Messrs. Cathcart and Ekedahl and Mr. Harold D.
Kahn, who resigned as a director of the Company effective December 15, 1993,
each attended three (3) meetings.
COMMITTEES OF THE BOARD
MW Holding does not have a nominating committee of the Board of Directors,
as the designation of directors is governed by the By-laws of the Company and by
the Stockholders' Agreement.
While MW Holding does not have an audit committee, compensation committee,
or a finance committee, its wholly-owned subsidiary, Montgomery Ward, has
created Board Committees to address audits, compensation and finance.
Audit. The Audit Committee of Montgomery Ward met three (3) times during
1993. Mr. Lieberman is chairman of the Committee, Messrs. Bergel and Parke are
members and Mr. John L. Workman, Executive Vice President, Chief Financial
Officer and Assistant Secretary of the Company and Executive Vice President and
Chief Financial Officer of Montgomery Ward, is secretary. The primary functions
of the Committee are to recommend independent public accountants to the Board of
Directors, to review the scope of the independent public accountants'
examination, to review the fees for audit and non-audit services by the
independent public accountants and to consider the results of the independent
public accountants' review of the internal accounting controls and other matters
resulting from the audit.
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Compensation. The Compensation Committee of Montgomery Ward did not hold
separate meetings during 1993. Mr. Cathcart is chairman of the Committee,
Messrs. Brennan and Ekedahl are members and Mr. Robert A. Kasenter, Executive
Vice President of MW Holding and Executive Vice President, Human Resources of
Montgomery Ward, is secretary. The function of the Committee is to review and
make recommendations upon proposals by management as to compensation, bonuses,
officers' severance arrangements and other benefits and policies respecting such
matters for the officers and associates of Montgomery Ward.
Finance. The Finance Committee of Montgomery Ward did not hold separate
meetings during 1993. Mr. Heine is chairman of the Committee, Messrs. Bergel
and Nayden are members and Mr. Workman is secretary. The functions of the
Committee are to monitor the financial affairs and treasury functions of
Montgomery Ward and report thereon, from time to time, to its Board of
Directors.
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 MW Holding and Montgomery Ward, plus $1,500 for each meeting such
director attends of a committee of MW Holding and Montgomery Ward of which such
director is a member, provided that if a meeting of the Board of Directors of MW
Holding 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 that if a meeting of a committee of MW
Holding 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 or Series 2 Shares
pursuant to the Directors 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.
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 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 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 Plan Committee not to exceed the estimated fees.
The Directors 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 Plan Committee are eligible to participate in the Directors Plan if
designated by the Directors Plan Committee. The Directors 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 Plan Committee are Messrs. Brennan and Heine. Of the
seven eligible directors, the Directors Plan Committee has designated only
Messrs. Cathcart and Lieberman as participants in the Directors Plan
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as of April 2, 1994. As of such date, Messrs. Cathcart and Lieberman have
acquired 5,039 and 5,943 Series 1 Shares, respectively, pursuant to rights
("Conversion Rights") under the Directors Plan.
The Directors 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 Plan Committee, the
Directors 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 such 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 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 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 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.
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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.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Background
During fiscal 1993, the Compensation Committee continued to implement
an executive compensation program linked to the strategic goals of the Company
by tying a significant portion of each executive's compensation to the Company's
financial performance and related shareholder value. Key program components
include base salary, annual incentives and long term incentives. The
Compensation Committee believes that the strategic use of these program
components provides the greatest opportunity to:
. Attract and retain talented key executives in the competitive marketplace;
. Provide individual performance-based awards which relate to Company and
individual performance; and
. Balance effort between short-term and long-term goals.
As stated earlier, the function of the Compensation Committee is to review
and make recommendations upon proposals by management as to the compensation,
bonuses, officers' severance arrangements and other benefits and policies
respecting such matters for the officers and associates of Montgomery Ward. The
Compensation Committee is composed of two outside directors and Mr. Brennan.
Mr. Robert A. Kasenter is secretary of the Compensation Committee. Each year
the Compensation Committee conducts a review of Montgomery Ward's executive
compensation program, including, without limitation, Mr. Brennan's compensation.
(Mr. Brennan does not participate in the evaluation of his own compensation.)
In determining the compensation levels and components, the Compensation
Committee considers several factors which include but are not limited to the
following:
. Independent compensation surveys of executive compensation for a peer group
of retail companies. Two surveys used are prepared by Management
Compensation Services ("MCS"), an affiliate of Hewitt Associates. One MCS
survey includes 89 retail organizations averaging $4.1 billion in annual
sales while the second MCS survey includes a sample of 10 large-volume mass
merchants selected as a peer group for Montgomery Ward. The companies in
the survey are not necessarily the same as the companies in the S&P Retail
(General Merchandise) Index for which the cumulative return is shown on the
Performance Graph;
. Independent compensation surveys of executive compensation of a group of
general industry companies. Two surveys used are the Hewitt Associates
Total Compensation Database ("Hewitt Survey") and the Sibson's Management
Compensation Survey ("Sibson Survey"). The Hewitt Survey is an annual
survey providing comparative data for each of 38 executive positions,
presented by company annual sales ranges. For 1992, 381 service and
manufacturing companies
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participated in the Hewitt Survey and the average participant's sales
volume was $6.6 billion. The Sibson Survey is an annual survey providing
comparative data for each of 77 positions with compensation data on base
salary and annual cash incentives presented by ranges such as sales. In
1992, 147 general industry corporations participated in the Sibson Survey
and 48% of these companies had annual sales over $1.0 billion and 37% of
these companies had 10,000 or more associates. The companies in the survey
are not necessarily the same as the companies in the S&P 500 Index for
which the cumulative return is shown on the Performance Graph;
. Overall performance of each executive officer in order to emphasize pay for
performance; and
. Compensation levels which allow the Company to attract, retain, and enhance
the development of knowledgeable key executives.
Base Compensation and Annual Incentives
In determining the aggregate base compensation and target annual incentives
for each executive officer, including Mr. Brennan, the Compensation Committee
averages the aggregate base compensation and short-term incentive compensation
data for the executive officer position from each of the MCS Surveys, the Hewitt
Survey and the Sibson Survey, with equal weight given to each survey.
Subjective adjustments to such arithmetic average are made to adjust for company
size, function, reporting relationships and individual performance. The
resulting adjusted average aggregate base compensation and target annual
incentive provide a guideline to the Compensation Committee for determining
executive compensation. Base compensation and target annual incentives for
individual executive officers vary from the guideline based upon the
Compensation Committee's subjective judgment of Company and individual
performance, experience and competitive considerations.
Base compensation and annual incentives for executive officers are
generally reviewed annually by the Compensation Committee. Often, as part of
the compensation package offered to attract an executive officer to Montgomery
Ward, base compensation and annual incentives, sometimes for more than one year,
as well as severance arrangements are specified in an employment agreement. See
the description of certain employment agreements under the heading "EMPLOYMENT
CONTRACTS AND SEVERANCE ARRANGEMENTS."
Base Compensation
Montgomery Ward's base compensation for its executive officers is designed
to be generally competitive in the applicable marketplace. In this regard, the
Compensation Committee evaluates the Company's base compensation levels against
base compensation levels at a group of retail companies set forth in the MCS
surveys described above. Moreover, because the pool of executives from which
Montgomery Ward considers candidates is broader than the retail peer group,
consideration is also given to general industry executive compensation levels as
set forth in the Hewitt Survey and Sibson Survey described above.
Within this general framework, an individual executive's base pay
ultimately is determined by several subjective factors relating to that
individual's historic performance and the Company's overall performance. The
executive's individual performance is evaluated based upon financial performance
and contribution of the area of the Company and its subsidiaries under his or
her supervision. Financial performance is evaluated on both a short-term and
long-term historical horizon. Factors other than pure
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financial performance are also taken into account by the Compensation Committee
in setting individuals' base pay. Such other subjective factors include the
executive's demonstrated ability to effectively implement strategic goals,
provide leadership, and develop his or her associates.
For 1993, Mr. Brennan's base compensation was increased by approximately
3.4%, which was representative of the average increases granted to Montgomery
Ward management associates. For 1994, Mr. Brennan's base compensation was
reduced to $950,000, making more of his total compensation contingent on Company
performance.
Annual Incentives
In order to motivate executives, the Company's executive compensation
program includes variable compensation components which can account for a
significant portion of each executive's overall compensation. Such annual
incentives paid for 1993 were up to 38% of base compensation. Annual incentives
for 1993 were created through the Performance Management Program ("PMP"). PMP
is an annual incentive program which links each executive's award to individual
and Company performance to a set of financial (e.g. sales dollars, expense
ratios, inventory levels) and other strategic goals. Each goal is expressed in
terms of a minimum, target and maximum payout. Separate targets are set for
each of the spring and fall seasons. Awards under the program may be increased
or decreased based on the performance level achieved.
Mr. Brennan's 1993 PMP award was based on attainment of Company pre-tax
earnings goals. For 1993, his award based on Company goal performance was
$400,000, approximately 89% of his target award.
Long Term Incentives
The Company provides long term incentives for a select group of executives
(including all executive officers named in the Summary Compensation Table)
through the Long Term Incentive Plan. This plan provides for a significant
portion of an executive's total compensation to be tied to performance against a
predetermined set of long term strategic goals of the Company. The Long Term
Incentive Plan consists of three-year cycles that can be initiated annually. If
target performance objectives for pre-tax retail earnings and return on capital
employed are achieved for any designated cycle, cash is awarded to each
participant based upon the base salary of such participant if, in the judgment
of the Chief Executive Officer, such participant contributed substantially and
positively to Montgomery Ward's overall corporate performance. In general,
target payouts for cycles ending prior to 1994 have been 75% of base salary for
Mr. Brennan and 50% of base salary for the other executive officers named in the
Summary Compensation Table. Target payouts may be adjusted with the approval of
the Chief Executive Officer upward or downward by up to 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. The actual
awards under the Long Term Incentive Plan for the cycle ending in 1993 to
executive officers named in the Summary Compensation Table are set forth in the
Summary Compensation Table under the heading "LTIP Payout".
Mr. Brennan's Long Term Incentive Plan award is linked to predetermined
long term pre-tax earnings and return on capital employed strategic goals of the
Company. For 1993, his award based on Company goal performance was $732,555.
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Equity Participation
The Compensation Committee believes that equity participation of its
executives and other key associates creates a critically important long term
partnership between the shareholders and the executives and other key
associates. The equity participation of each executive named in the Summary
Compensation Table may be found listed in the table under the caption "OWNERSHIP
OF COMMON STOCK". As reflected in such table, executive officers have equity
participation in the Company. Therefore, annual stock option grants have not
generally been provided to existing executive officers, but stock options or
awards may become part of the compensation package of existing executive
officers in the future. Significant stock option grants have been made as part
of the compensation package offered to attract a new executive officer or when
there is a significant increase in the responsibilities of an executive.
Tax Deductibility of Compensation
The Compensation Committee recently approved separate performance-based
executive compensation programs for certain executive officers to preserve the
Company's tax deduction for annual incentive and long term incentive
compensation to Mr. Brennan and the other four most highly compensated executive
officers. These compensation programs are submitted for shareholder approval
elsewhere in this Proxy Statement. If approved, these compensation programs
will be administered by a committee of outside directors (the "Incentive
Compensation Committee"). The initial members of the Incentive Compensation
Committee are Messrs. Cathcart, Ekedahl and Lieberman. One of the amendments to
the Stock Ownership Plan for which shareholder approval is sought is designed to
qualify option grants under the Stock Ownership Plan as performance-based to
preserve the tax deduction to the Company upon exercise of those options which
had been or will be granted with an exercise price at least equal to the fair
market value of the Class A Shares to which the options relate at the time of
grant.
It is the Compensation Committee's policy to maximize the effectiveness, as
well as the tax efficiency, of the Company's executive compensation programs.
Therefore, to maintain flexibility to take actions which it deems to be in the
best interests of the Company and its shareholders, the Compensation Committee
may approve executive compensation programs that may not qualify for tax
deductibility.
Silas S. Cathcart, Chairman
Bernard F. Brennan
David D. Ekedahl
-11-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
---------------------------------- -------------
Other Securities All Other
Annual Underlying LTIP Compen-
Name and Compensation Options Payout sation
Principal 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
Chief Executive 1992 1,017,500 354,200 1,497,488 --- 587,777 2,884
Officer 1991 993,333 364,210 --- --- 591,894 2,800
Richard Bergel 1993 404,167 130,000 279,336 --- 200,700 2,936
Vice 1992 350,000 125,000 136,993 --- 132,510 2,884
Chairman 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 1992 264,167 49,850 25,309 --- 82,168 2,884
President 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 1992 223,750 68,304 22,460 --- 72,870 2,694
President, Sec- 1991 181,667 60,000 --- --- 67,687 2,415
retary 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 "OTHER TRANSACTIONS AND CERTAIN RELATIONSHIPS" 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 $50,000 or 10% of
salary and bonus. Information is given for 1993 and 1992 only pursuant to
the proxy rule transitional provisions applicable to this column.
/2/ Represents Company matching contributions to the Savings and Profit Sharing
Plan.
/3/ Mr. Ball joined the Company as Executive Vice President, Apparel of
Montgomery Ward on September 18, 1992 and resigned from the Company
effective January 31, 1994.
/4/ Mr. Kahn joined the Company on September 11, 1992 as President and resigned
from the Company effective December 15, 1993.
-12-
<PAGE>
OPTION GRANTS AND EXERCISES
The following tables set forth summaries of the terms of stock options granted
to Mr. Schoeberl during the Company's 1993 fiscal year and the value of
unexercised options held by him as of January 1, 1994. No other named executive
officer received options during the 1993 fiscal year. None of the named
executive officers exercised any stock options during the 1993 fiscal year. No
stock appreciation rights were granted to or exercised by any of the named
executive officers during the 1993 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
------------------------------------------------ --------------------------
Percentage of
No. of Total
Securities Options
Underlying Granted to Exercise
Options Associates or Base Expir-
Granted in Fiscal Price ation
Name (#) Year ($/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>
================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Unexercised Value of Unexercised
Options at FY-End (#) In-the-Money Options at FY-End
------------------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert R. Schoeberl 0 50,000 0 0
</TABLE>
================================================================================
-13-
<PAGE>
LONG TERM INCENTIVE PLAN AWARDS
Certain Montgomery Ward executives recommended by Montgomery Ward's Chief
Executive Officer (the "CEO") participate in the Long Term Incentive Plan. The
Long Term Incentive Plan consists of three-year cycles that can be initiated
annually. If specific corporate, financial, strategic and operational
objectives approved by the CEO are achieved for any designated cycle, cash is
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 are 50% of average base
salary for each of the named executive officers, may 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
participates in a long term incentive plan which is the same as the Long Term
Incentive Plan, except that his maximum award is 75% of his current base salary.
The following table sets forth information regarding the participation of
Messrs. Brennan, Bergel, Schoeberl, Ball, Heine, and Kahn in the three-year
award cycle under the Montgomery Ward Long Term Incentive Plan commencing in the
Company's 1993 fiscal year. If the Executive Long-Term Incentive Plan, as
discussed below, is approved by the stockholders, Messrs. Brennan, Bergel,
Schoeberl and Heine are expected to receive payouts under the Executive Long-
Term Incentive Plan rather than the Long Term Incentive Plan.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Performance Estimated Future Payouts under Non-Stock
Number of or Other Price-Based Plans
Shares, Units Period Until
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 M. Bergel 225,000 1995 135,000 225,000 315,000
Robert R. Schoeberl 175,000 1995 105,000 175,000 245,000
Leslie A. Ball/5/ --- --- --- --- ---
Spencer H. Heine 200,000 1995 120,000 200,000 280,000
Harold D. Kahn/6/ --- --- --- --- ---
- --------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
- -----------------------
/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.
PENSION PLAN
Executive officers of Montgomery Ward, in addition to many other
associates, participate in a pension plan (the "Pension Plan"). The Pension
Plan provides benefits defined by formulae and then 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
compensation per year is considered for any purpose 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 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 three benefit formulae that are applicable
to different years of service. The post-1988 formula 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 accrued benefit under the Pension Plan as of December
31, 1988, as determined under the prior formulae. The benefit determined under
the Pension Plan is reduced by the benefit determined to be equivalent to an
annuity which could be purchased with the participant's Basic Contribution and
Transferred Contribution accounts in the Savings Plan.
-15-
<PAGE>
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 benefits, to Mr. Brennan and the four
most highly compensated other 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 Pension
Name of Participant at Retirement
<S> <C>
Bernard F. Brennan....................... $107,185
Richard M. 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.
EMPLOYMENT CONTRACTS AND SEVERANCE ARRANGEMENTS
Executive 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
agreements which set forth the general terms of the compensation arrangements
for such executive. Such agreements typically set forth, among other things, a
recipient's base salary, the target bonus under the PMP, 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 Long Term
Incentive Plan cycles, the percentage of the executive's base pay that can be
earned annually through the Long Term Incentive 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. Of the executive officers named in the Summary Compensation
Table, Mr. Bergel has an agreement of this type and Mr. Ball and Mr. Kahn 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
-16-
<PAGE>
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, and with the granting of such options to be subject to
shareholder approval of the addition of shares to the Stock Ownership Plan,
which addition has not yet been put to a vote of the Company's stockholders.
Mr. Bergel has not yet been granted such option. 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.
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 twenty (20) senior officers of the Company.
-17-
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Brennan, Chief Executive Officer of the Company and Chief
Executive Officer 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.
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative
total stockholder return on its Common Stock for the period beginning January 1,
1989 and ending January 1, 1994, with the cumulative total return of the
Standard & Poor's 500 stock index and the cumulative total return of a peer
group of companies consisting of the Standard & Poor's Retail (General
Merchandise) Group (the "Peer Group") for the period beginning on January 1,
1989 and ending on December 31, 1993. In all cases, a $100 investment at the
Initial Measuring Point and dividend reinvestment has been assumed, although
divided reinvestment is not currently available with respect to the Company's
Common Stock.
COMPARISON OF FIVE YEAR CUMULATIVE RETURN AMONG
MW HOLDING, S&P 500 INDEX AND S&P RETAIL (GENERAL MERCHANDISE)
INDEX
<TABLE>
<CAPTION>
Company / Index Name Dec. 1988 1989 1990 1991 1992 1993
- -------------------- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Montgomery Ward Holding Corp. $100 $315 $516 $654 $796 $945
Standard & Poor's 500 Index $100 $132 $128 $166 $179 $197
The Peer Group $100 $124 $127 $225 $256 $235
</TABLE>
-18-
<PAGE>
OWNERSHIP OF COMMON STOCK
The following table sets forth the beneficial ownership, as of April
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, (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) 17,357,914 88.8%
Myron Lieberman (b) 2,510,532 12.8%
Richard M. Bergel (c)(d) 852,500 4.4%
Spencer H. Heine (c) 251,250 1.3%
Bernard W. Andrews (c) 350,000 1.8%
Silas S. Cathcart (c)(e) 15,322 0.1%
Robert R. Schoeberl (c)(f) 228,333 1.2%
Leslie A. Ball (c)(g) 75,000 0.4%
Harold D. Kahn (h) 0 0%
Tamara Brennan (i) 2,200,000 11.2%
All directors and executive
officers as a group (18 persons) (j) 18,941,040 93.9%
</TABLE>
_______________________________________________________
(a) Comprised of 13,025,750 Class A Shares (66.6% of the Class A Shares and
29.2% of the Common Stock outstanding as of April 2, 1994) owned of record
by Mr. Brennan and with respect to which Mr. Brennan has sole investment
and voting power, and 4,332,164 Class A Shares (22.2% of the Class A shares
and 9.7% of the Common Stock outstanding as of April 2, 1994) owned of
record by Mr. Brennan as voting trustee 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 (11.2% of the Class A Shares and
4.9% of the Common Stock outstanding as of April 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 (i) below. Mr. Brennan disclaims beneficial ownership of
such 2,200,000 Class A Shares. Mr. Brennan's business address is
Montgomery Ward Plaza, Chicago, Illinois 60671.
(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
-19-
<PAGE>
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
339 Class A Shares which Mr. Lieberman acquired on April 8, 1994 pursuant
to Conversion Rights which arose on April 1, 1994 and which, pursuant to a
prior election by Mr. Lieberman, were automatically exercised on April 8,
1994. Does not include Class A Shares which can be acquired pursuant to
Conversion Rights which will arise on July 1, 1994 (a date within 60 days
of the Company's Annual Meeting to which this Proxy Statement relates), and
which, pursuant to a prior election by Mr. Lieberman, will automatically be
exercised, because the number of such shares is not determinable as of the
date of this Proxy Statement. Mr. Lieberman's business address is 10 South
Wacker Drive, Chicago, Illinois 60606.
(c) Represents ownership of Voting Trust Certificates with respect to shares
held in a voting trust (the "Voting Trust") as to which Mr. Brennan, as
voting trustee, has sole voting power and the persons indicated 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 283 Class A Shares which Mr. Cathcart acquired on April 8, 1994
pursuant to Conversion Rights which arose on April 1, 1994 and which,
pursuant to a prior election by Mr. Cathcart, were automatically exercised
on April 8, 1994. Does not include Class A Shares which can be acquired
pursuant to Conversion Rights which will arise on July 1, 1994 (a date
within 60 days of the Company's Annual Meeting to which this Proxy
Statement relates), and which, pursuant to a prior election by Mr.
Cathcart, will automatically be exercised, because the number of such
shares is not determinable as of the date of this Proxy Statement.
(f) Does not include 21,667 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.
(g) Mr. Ball resigned from the Company effective January 31, 1994. On April
12, 1994, the Company exercised an option pursuant to which it will
purchase all such shares from Mr. Ball on or before May 16, 1994.
(h) Mr. Kahn resigned from the Company effective December 15, 1993. All shares
of Common Stock owned by Mr. Kahn have been sold by Mr. Kahn prior to April
2, 1994.
(i) 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.
-20-
<PAGE>
(j) 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 1,219,924 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 548,650 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 April 2, 1994. Includes 622 Class
A Shares which were acquired by directors on April 8, 1994 pursuant to
Conversion Rights which arose on April 1, 1994 and which, pursuant to prior
elections by such directors, were automatically exercised on April 8, 1994.
Does not include Class A Shares which can be acquired by directors pursuant
to Conversion Rights which will arise on July 1, 1994 (a date within 60
days of the Company's Annual Meeting to which this Proxy Statement
relates), and which, pursuant to prior elections by Messrs. Cathcart and
Lieberman, will automatically be exercised, because the number of such
shares is not determinable as of the date of this Proxy Statement.
Includes 54,400 Class A Shares which can be acquired pursuant to options
which become exercisable on May 15, 1994, June 14, 1994, June 22, 1994,
June 23, 1994 or July 10, 1994 (all dates within 60 days of the Company's
Annual Meeting to which this Proxy Statement relates).
GE Capital owns 100% of the 25,000,000 Class B Shares currently
outstanding. GE Capital's address is 260 Long Ridge Road, Stamford, Connecticut
06902. Such shares represent 56.1% of the outstanding Common Stock. Pursuant
to a proposed Certificate of Amendment to the Company's Certificate of
Incorporation, which was approved by the Company's Board of Directors on April
15, 1994 and which will be acted upon by the Company's stockholders pursuant to
a written consent in lieu of a special meeting, the Company plans to issue to GE
Capital 100% of the 750 shares of Senior Preferred Stock, having a liquidation
value of $100,000 per share (the "Senior Preferred Stock") which will be
authorized by such Certificate of Amendment. Such shares will represent 100% of
the Company's outstanding Preferred Stock.
CONTROL MATTERS
Voting of Shares. In the event that the Voting Trust is not in effect or
in the event shares of Common Stock of MW Holding deposited therein are not
subject to the Voting Trust, all such shares held by the stockholders, except
those held by Mr. Brennan and certain trusts for the benefit of members of his
family, are subject to a voting agreement under which the holders agreed to vote
their shares in the same way Mr. Brennan votes his shares until June 17, 1998.
Directors. The Board of Directors consists of nine members. As noted
above, the Stockholders' Agreement provides that five of the Company's directors
shall be designated by the Designator, presently Mr. Brennan, and four shall be
designated by GE Capital.
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 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 to be
elected by the holders of Class A Common Stock, voting as a class, and two to be
elected by the holders of Class B Common Stock, voting as a class, provided
-21-
<PAGE>
that, so long as the Account Purchase Agreement between Montgomery Ward and
Montgomery Ward Credit Corporation, a wholly-owned subsidiary of GE Capital
("Montgomery Ward Credit"), relating to the purchase by Montgomery Ward Credit
of customer receivables of Montgomery Ward remains in effect, and GE Capital or
any of its affiliates owns any Common Stock, GE Capital will have the right to
elect one of the two directors to be elected by the holders of Class B Common
Stock.
Upon the authorization and issuance of the Senior Preferred Stock,
discussed above, the holders of the Senior Preferred Stock will have the right
to elect one director to be an additional member of the Company's Board of
Directors (a) during the period following a default in the payment of accrued
dividends on the 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 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.
OTHER TRANSACTIONS AND CERTAIN RELATIONSHIPS
Under the terms of a line of credit agreement ("Line of Credit Agreement")
between Mr. Brennan and GE Capital, Mr. 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 and 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, of which $4,000,000 is currently
available to 11 executive officers, including directors who are 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 vested Class A Shares 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 lending 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 by the
Company to the borrower to repurchase the Class A Shares. Such payments are to
be made to the Bank on the borrower's behalf to the extent of outstanding
indebtedness. 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 Robert R. Schoeberl, Executive Vice President of the Company,
for $150,000 and one to Robert A. Kasenter, Executive Vice President of the
Company, for $130,730.
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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
(the "IRS") 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. Edwin G. Pohlmann, Executive Vice President of the Company and Executive
Vice President, Merchandise and Store Operations of Montgomery Ward, $224,691;
Mr. Schoeberl, $63,353; and Mr. Tommy T. Cato, Executive Vice President of the
Company (currently on leave of absence), $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 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.
Montgomery Ward extends credit to its customers under an open-end revolving
credit plan and in connection therewith, Montgomery Ward and Montgomery Ward
Credit Corporation, a wholly-owned subsidiary of GE Capital, have entered into
an Account Purchase Agreement pursuant to which Montgomery Ward Credit purchases
receivables from time to time and provides services to Montgomery Ward. Under
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
April 2, 1994, Montgomery Ward Credit has purchased approximately $855.6 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, finance charge rates assessed on the Montgomery Ward credit card
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 $9.6
million. Under the letter agreement, Montgomery Ward Credit also provides
administrative services
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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 million.
Montgomery Ward has entered into a Program Agreement dated October 12, 1989
with GE Capital, under which GE Capital pays certain manufacturers and
distributors a discounted invoice price of products acquired by Montgomery Ward
and Montgomery Ward reimburses GE Capital for such payments according to a
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. 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.
General Electric Corporation, 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's stores in the ordinary course of its business.
Myron Lieberman, a director of the Company and Montgomery Ward, is a senior
partner in the law firm of Altheimer & Gray. Altheimer & Gray renders legal
services to the Company and its subsidiaries as the regular outside counsel to
the Company and its subsidiaries.
AMENDMENTS TO ORGANIZATIONAL DOCUMENTS IN CONNECTION WITH THE AUTHORIZATION OF
SERIES 3 SHARES
In connection with the acquisition by Montgomery Ward of Lechmere Inc.,
which acquisition closed on March 30, 1994 (as more fully described below), the
former stockholders of LMR Acquisition Corporation, a Massachusetts corporation
and presently a wholly-owned subsidiary of Montgomery Ward, may, depending on
the fulfillment of certain conditions described below, be entitled to receive up
to 400,000 shares of Common Stock in consideration for the acquisition of
Lechmere. The following information is presented on behalf of the Board of
Directors in connection with the Board of Directors' recommendation of (a) the
amendment and restatement of the Stockholders' Agreement as set forth on Annex A
attached to this Proxy Statement to permit the issuance of shares of Class A
Common Stock, Series 3 of the Company ("Series 3 Shares"), with such rights and
limitations as set forth below; (b) the amendment and restatement of the Terms
and Conditions as set forth on Annex B attached to this Proxy Statement to
permit the issuance of Series 3 Shares; and (c) the amendment and restatement of
the Certificate of Incorporation of the Company as set forth on Annex C to this
Proxy Statement to authorize the issuance of up to 400,000 Series 3 Shares and
define the rights thereof. The Company proposes to authorize Series 3 Shares as
a means to have the dilution resulting from the issuance of shares of Common
Stock in connection with the acquisition of Lechmere be borne in equal
proportions by the holders of Class A Common Stock and Class B Common Stock.
The amendments to the above-referenced documents also include several changes to
correct and update such documents to reflect prior events and to reflect
conditions as currently are in place, including, without limitation, addition of
certain defined terms, cross-references and the following: (i) amendments to the
Certificate of Incorporation, the Stockholders' Agreement and the Terms and
Conditions to eliminate references to certain preferred stock of the Company
which is no longer outstanding; (ii) elimination of a provision in the
Certificate of Incorporation with respect to compromise of creditors' claims;
(iii) amendments to the Stockholders' Agreement and the Terms and Conditions to
permit extension of certain option periods intended to permit
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repurchases of shares without recapture of profits under Section 16(b) of the
Securities Exchange Act of 1934, as amended; and (iv) revisions to the
Stockholders' Agreement and the Terms and Conditions to reflect that most future
purchasers of Class A Stock will receive such shares in a registered offering
and will not hold restricted stock.
DESCRIPTION OF TRANSACTION
Introduction
Montgomery Ward has acquired Lechmere, Inc. ("Lechmere"), a Massachusetts
corporation, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") among Montgomery Ward; MW Merger Corp. ("Merger Sub"), a
Massachusetts corporation and a wholly-owned subsidiary of Montgomery Ward
formed solely for the purpose of consummating the transactions proposed in the
Merger Agreement; LMR Acquisition Corporation ("LMR"), a Massachusetts
corporation; Lechmere, which is a wholly-owned subsidiary of LMR; and certain
parties who owned common stock (the "LMR Shares") of LMR (individually, a
"Seller" and collectively, the "Sellers").
The Company and Montgomery Ward had decided that it was advisable for
Montgomery Ward to purchase the Companies in order for Montgomery Ward to expand
geographically and to acquire a company with merchandising strength in product
categories that currently represent high market share for Montgomery Ward.
Prior to the closing of the Merger (the "Closing"), LMR effected a 500-for-
1 reverse stock split. LMR paid the holders of fractional interests resulting
from such reverse stock split approximately $46,880 per share (less a deduction
for certain expenses and for withholding taxes, if applicable). The holders of
such fractional interests will be entitled to future cash payments in connection
with the contingent merger consideration discussed below. The aggregate amount
payable thereby is sometimes referred to herein as the "Aggregate Contingent
Non-Shareholder Amount."
As a part of the Merger transaction, Montgomery Ward advanced to Lechmere
approximately $106,000,000 to pay off in full certain debt owed by Lechmere to
its senior lenders. Montgomery Ward has established a $170,000,000 credit
facility between Montgomery Ward and Lechmere, of which the $106,000,000 advance
referred to above was the first borrowing.
Pursuant to the Merger Agreement and to Massachusetts law, Merger Sub
merged with and into LMR (the "Merger"), the separate existence of Merger Sub
ceased and LMR (sometimes referred to herein as the "Surviving Corporation")
continues as the surviving corporation. As a result of the Merger, LMR is
presently a direct wholly-owned subsidiary of Montgomery Ward, and Lechmere is
an indirect wholly-owned subsidiary of Montgomery Ward. At the same time, the
LMR Shares are no longer outstanding and the former holders thereof hold solely
the right to receive the "Merger Consideration" as described below.
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Merger Consideration
By virtue of the Merger, each of the LMR Shares issued and outstanding at
the Closing was converted into the Merger Consideration, which is the right to
receive an initial cash payment (which has been made) plus, if certain
conditions are met, an additional future payment which may consist of cash
and/or shares of common stock of the Company. The initial cash payment was
$95,840,982, or approximately $46,880 per LMR Share (less a deduction for
certain expenses and with respect to the Promissory Note, discussed below). Ten
million dollars of the amount due at the Closing to LMR shareholders (equivalent
to approximately $4,430 per LMR Share) is payable under the terms of a
Promissory Note secured by a Standby Letter of Credit, which Promissory Note is
subject to certain offsets for indemnification and other matters, as discussed
below.
Contingent Price Per Share
Each of the LMR Shares is entitled to receive the "Contingent Price". The
Contingent Price Per Share will equal the "Contingent Cash Amount" plus the
"Contingent Stock Amount". The Contingent Cash Amount will equal the "Aggregate
Contingent Cash Value" divided by the number of whole LMR Shares remaining after
the reverse stock split, and the Contingent Stock Amount will equal the
"Aggregate Contingent Stock Value" divided by such number of whole LMR Shares.
The Aggregate Contingent Cash Value and the Aggregate Contingent Stock
Value will each be determined from the Adjusted Gross Profit of Lechmere for the
period commencing February 27, 1994 and ending February 25, 1995 (the "Test
Period"). If the Adjusted Gross Profit during the Test Period is equal to or
less than $191,591,000, as adjusted with respect to the 1994 New Stores (as
defined herein), the Aggregate Contingent Cash Value and the Aggregate
Contingent Stock Value will each equal zero, and no Contingent Price will be
paid. If the Adjusted Gross Profit during the Test Period equals or exceeds
$198,400,000, as adjusted with respect to the 1994 New Stores, (x) the Aggregate
Contingent Cash Value will equal the amount by which $20,000,000 exceeds the
Aggregate Contingent Non-Shareholder Amount (the "Maximum Aggregate Contingent
Cash Value") and (y) the Aggregate Contingent Stock Value will equal the
aggregate Value (as defined below) of 400,000 Series 1 Shares or shares of Class
A Common Stock, Series 3, par value $.01, of the Company ("Series 3 Shares"),
with such rights as set forth below (the "Maximum Aggregate Contingent Stock
Value"). If the Adjusted Gross Profit during the Test Period exceeds
$191,591,000, but is less than $198,400,000, each as adjusted with respect to
the 1994 New Stores, (A) the Aggregate Contingent Cash Value will equal the
result obtained by (i) multiplying $20,000,000 by the Applicable Percentage, and
(ii) subtracting from such result the Aggregate Contingent Non-Shareholder
Amount; and (B) the Aggregate Contingent Stock Value will equal the Maximum
Aggregate Contingent Stock Value multiplied by the Applicable Percentage. The
"Applicable Percentage" equals a fraction, the numerator of which is equal to
the amount of the Adjusted Gross Profit in excess of $191,591,000 and the
denominator of which is $6,809,000, each as adjusted with respect to the 1994
New Stores. The value of each of the Series 3 Shares (the "Value") will be
$26.50 per Series 3 Share.
As of the present time, the Company is not authorized to issue Series 3
Shares. The Company, however, agreed in the Merger Agreement to include in this
Proxy Statement a proposal to permit the issuance of up to 400,000 Series 3
Shares to satisfy its obligation to pay part or all of the aggregate Contingent
Price, if any, and to endorse such proposal. The Company has also agreed to
take all such actions as may be required to ensure that the recipients of the
Series 3 Shares will, except as otherwise described in the Merger Agreement,
have all the same rights and benefits as they would have been
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entitled to had they received Series 1 Shares. Accordingly, the Company has
agreed that the Company will take such actions as shall be required, including
amending the Stockholders' Agreement, as may be required to ensure that
recipients of Series 3 Shares have all the same rights and benefits that they
would have had if they had received Series 1 Shares. In addition, Mr. Brennan,
both individually and as voting trustee of the Voting Trust, has delivered to
the Sellers an irrevocable proxy in favor of the Stockholders' Committee (as
defined herein), to vote all shares of the Company which he is entitled to vote,
for the sole purpose of authorizing the transfer to the Sellers of Series 1
Shares in accordance with the terms of the Merger Agreement, if prior to the
expiration of the Test Period, the Company has not authorized the Series 3 Stock
in accordance with the terms of the Merger Agreement. The proposed amendments
to the Organizational Documents are intended to satisfy these obligations of
Montgomery Ward, the Company and Mr. Brennan. See "RIGHTS OF SERIES 3 STOCK"
for a description of the proposed dividend, liquidation and voting rights of the
holders of Series 3 Stock.
Montgomery Ward's obligation to pay the Aggregate Contingent Stock Value
portion of the Contingent Price will be satisfied by the transfer by Montgomery
Ward to the persons or entities entitled thereto of an aggregate number of
Series 3 Shares, the aggregate Value of which is equal to the Aggregate
Contingent Stock Value payable. If the foregoing calculation results in
fractional Series 3 Shares being transferable, at Montgomery Ward's option, the
persons or entities entitled thereto may receive an equivalent amount of cash
(computed by reference to the Value of each Series 3 Share) in lieu of
fractional Series 3 Shares.
Adjusted Gross Profit
"Adjusted Gross Profit" is defined as Lechmere's gross profit during the
Test Period, less certain expenses, to be determined in accordance with
generally accepted accounting principles applied on a basis consistent with
those used in the preparation of Lechmere's and LMR's most recent audited
financial statements, consistent with the retail method of accounting, with
certain exceptions specified in the Merger Agreement.
With certain exceptions specified in the Merger Agreement, for purposes of
the Adjusted Gross Profit calculation, Lechmere's business will be conducted in
the ordinary course during the Test Period, although any combined operations of
Montgomery Ward and Lechmere which result in certain synergies and efficiencies
and that result in an increase in the Adjusted Gross Profit will be included in
the calculation of the Contingent Price and inure to the benefit of the
recipients of the Contingent Price. Montgomery Ward has covenanted that it will
not take any action or refrain from taking any action during the Test Period
where such action or inaction is intended to limit or otherwise reduce the
Adjusted Gross Profit, except to the extent that such action or inaction is
taken or omitted, as the case may be, in good faith in pursuit of valid
corporate purposes. Any inter-company transactions between Montgomery Ward and
Lechmere will be on terms and conditions no less favorable to Lechmere than on
an arm's length basis.
Lechmere's performance during the Test Period will be based upon the
twenty-four (24) stores existing as of the end of the 1993 fiscal year, plus
four (4) stores scheduled to open during the Test Period (the "1994 New
Stores"). The dollar figures used in determining the Contingent Price will be
adjusted (as set forth in the Merger Agreement) to the extent that any of the
1994 New Stores opens earlier or later than its scheduled opening (or if the
opening thereof is cancelled).
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Montgomery Ward will deliver its calculation of the Adjusted Gross Profit
to the Stockholders Committee (as defined below) by April 15, 1995. The payment
of the Contingent Price, if any, will be made after the Adjusted Gross Profit
calculation is final and binding under the terms of the Merger Agreement. The
Aggregate Contingent Cash Value will bear interest at rates set forth in the
Merger Agreement from the date 45 days after which the Adjusted Gross Profit
calculation is delivered to the Stockholders' Committee.
Restrictions on Shares
Series 3 Shares will be subject to the terms, conditions and limitations
contained in the Stockholders' Agreement and the Voting Trust Agreement. Each
person or entity entitled to receive any Series 3 Shares in accordance with the
Merger Agreement (a "Series 3 Recipient") must, as a condition to and prior to
receiving such shares, agree to be bound by the Stockholders' Agreement by
executing a counterpart signature page to a Joinder and Waiver. Each Series 3
Recipient will be designated as a Type 1 Management Shareholder under the
Stockholders' Agreement and will be bound by all the provisions of the
Stockholders' Agreement, subject to the following exceptions: (a) pursuant to
Section 2.2(a) of the Stockholders' Agreement, the Board of Directors of the
Company will consent: (x) to the transfer by a Series 3 Recipient which is a
partnership of such Series 3 Shares to the Series 3 Recipient's partners or,
upon liquidation, to a liquidating trust for the benefit of such partners (and,
in turn, by the liquidating trust to such partners), and (y) to a transfer by
certain Series 3 Recipients specified in the Merger Agreement (the "Berkshire
Group") of Series 3 Shares to another member of the Berkshire Group, provided
that the Series 3 Shares so transferred shall remain subject to the
Stockholders' Agreement and that the Company's counsel opines that such transfer
would not violate the registration requirements under any federal and state
securities laws; (b) a Series 3 Recipient (if an individual) and his or her
personal representative will not have any rights pursuant to Section 3.6 of the
Stockholders' Agreement; (c) a Series 3 Recipient will not be subject to Article
VII of the Stockholders' Agreement; and (d) a Series 3 Recipient must make the
representations and warranties set forth in Section 1.3 of the Stockholders'
Agreement. The Series 3 Recipients will become parties to and will agree to be
bound by the Voting Trust Agreement, or a separate agreement to the same effect,
and will deliver to the Voting Trustee the certificates for the Series 3 Shares
together with appropriate stock powers, and the Voting Trustee will in return
deliver Voting Trust Certificates (as defined in the Voting Trust Agreement).
In addition, no Series 3 Recipient will be deemed to be a Controlling
Shareholder (as defined in the Stockholders' Agreement) to the extent of (but
not only to the extent of) the Series 3 Shares.
If there should be a stock split, reverse stock split, recapitalization,
exchange offer, stock dividend or other dividend or distribution (other than
cash dividends not exceeding $.50 per share in the aggregate) or similar
adjustment or transaction on account of the Company's Common Stock, Montgomery
Ward will take such actions as may be necessary to ensure that the Sellers will,
to the extent and at such time as the Contingent Price becomes payable to such
Sellers, be entitled to be immediately placed in the same position as the
position in which such Sellers would have been on account of any of the
foregoing events or occurrences as if such Seller would have owned such Series 3
Shares as of the Closing. The right to receive the Contingent Price will not:
(i) be represented or evidenced by any form of certificate or instrument; (ii)
entitle any person or entity entitled thereto to any rights as a stockholder of
the Company prior to the transfer of Series 3 Shares to such person or entity;
(iii) entitle any person or entity entitled thereto to receive any interest with
respect to such right (except as discussed above); or (iv) be transferable or
assignable by any person or entity entitled thereto, other than by operation of
law (but in no instance shall the rights be transferable if Montgomery Ward and
its counsel reasonably
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believe such transfer would require registration under state or federal
securities laws). Each Seller has represented and warranted that (a) the Seller
was an "accredited investor," as that term is used in the Securities Act of
1933, as amended (the "Securities Act"), and the rules promulgated thereunder or
(b) the Seller had such knowledge and experience in financial and business
matters that it was capable of evaluating the merits and risks of voting its LMR
Shares in favor of the Merger and the transactions contemplated under the Merger
Agreement.
Indemnification
Under the Merger Agreement, the Sellers agreed to jointly and severally
indemnify Montgomery Ward and certain other parties ("Purchaser Indemnitees")
for breaches of representations and warranties made by Lechmere and LMR (other
than representations and warranties made by the Sellers individually, for which
any breaching Sellers shall be liable severally), failure to comply with its
covenants to be performed under the Merger Agreement, certain environmental
liabilities of Lechmere and LMR, litigation and claims related to certain
litigation to which Lechmere and LMR are parties, and certain matters relating
to information regarding Lechmere and LMR. Montgomery Ward also agreed to
indemnify the Sellers for any inaccuracies or breaches of its representations
and warranties, and for its failure to comply with its covenants under the
Merger Agreement. Recovery on certain indemnification claims are subject to
limitations set forth in the Merger Agreement. The Merger Agreement also
contains procedures for administering claims made by third parties which would
be subject to indemnification. Certain Sellers specified in the Merger
Agreement (the "Management Group") are not liable for Damages (as defined in the
Merger Agreement) in excess of 50% of the Merger Consideration.
Promissory Note
All amounts owed to the Purchaser Indemnitees pursuant to any
indemnification claim will first be satisfied by means of reduction to the
principal amount of, and accrued interest under, the Promissory Note to the
extent the amounts are then outstanding. Under the Promissory Note, Montgomery
Ward, as Maker, agrees to pay the Obligation Amount (as defined below) to the
Stockholders' Committee, as attorney-in-fact for the former stockholders of LMR,
as Payee. The "Obligation Amount" is $10,000,000, (a) increased by applying to
the balance of the Obligation Amount from time to time outstanding an annual
simple rate of interest equal to 4.87%, commencing on March 30, 1994 (with
overdue interest compounded and payable monthly), and (b) decreased by (i) the
amount of indemnification payments made to the Purchaser Indemnitees pursuant to
the Merger Agreement; (ii) the amount of the payments to be made by Sellers on
account of any Income Continuance Agreement (as defined below); (iii) certain
accountant's fees; and (iv) partial payments of the Obligation Amount made under
the Promissory Note. Any payment of the Obligation Amount (or portion thereof)
under the Promissory Note will be deemed to consist fully of a principal amount
and interest on such principal amount at the rate set forth above.
On September 21, 1995, Montgomery Ward will pay in cash to Payee an amount
equal to 75% of the then outstanding Obligation Amount; provided, however, that
if on such date any claims by the Purchaser Indemnitees for indemnification
pursuant to the Merger Agreement are pending, Montgomery Ward will pay to Payee
on such date the lesser of (i) 75% of the then outstanding Obligation Amount or
(ii) the excess of the then outstanding Obligation Amount over the amount
Montgomery Ward and the Stockholders' Committee reasonably determine in good
faith to be necessary to be withheld from payment in order to satisfy any such
pending claims for indemnification. On March 30, 1997 (the "Final Payment
Date"), Montgomery Ward will pay in cash to Payee the then outstanding
Obligation Amount; provided,
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however, that if on such date any claims by the Purchaser Indemnitees for
indemnification are pending, the Final Payment Date will be extended until the
date on which such pending claims for indemnification are resolved in accordance
with the terms and provisions of the Merger Agreement; provided, further, that
in such event, Montgomery Ward will pay to Payee on March 30, 1997, the excess
of the then outstanding Obligation Amount over the amount Montgomery Ward and
the Stockholders' Committee reasonably determine in good faith to be necessary
to be withheld from payment to Payee in order to satisfy such pending claims for
indemnification. At such time or times as such pending claims for
indemnification are resolved by Montgomery Ward and Payee, the then outstanding
Obligation Amount (less the amount, if any, that Montgomery Ward and the
Stockholders Committee reasonably determine in good faith to be necessary to be
withheld from payment to Payee in order to satisfy remaining claims for
indemnification) will be paid by Montgomery Ward to Payee. Partial payments of
the Obligation Amount will be paid as and when such pending claim or claims are
resolved. The Promissory Note also contains certain other terms and waivers
customary of notes of this type.
Standby Letter of Credit
The initial Standby Letter of Credit has been issued by The Sumitomo Bank,
Ltd. in the amount of $10,487,000 at the request of and for the account of
Montgomery Ward in favor of the Stockholders' Committee as attorney-in-fact for
the former stockholders of LMR. The Standby Letter of Credit's purpose is to
secure the indebtedness owing by Montgomery Ward to the Payee pursuant to the
terms of the Promissory Note. The Standby Letter of Credit is non-negotiable
and non-transferrable, except together with the evidence of indebtedness which
the Standby Letter of Credit secures.
At such time or times as the Purchaser Indemnitees are entitled to
indemnification which reduces the Obligation Amount due under the Promissory
Note, the Standby Letter of Credit will be reduced by an amount equal to such
reduction in the Obligation Amount, and such reduction will, to the extent of
such reduction, be in complete satisfaction of an equal amount of the
indemnification payment payable to the Purchaser Indemnitees. At least twenty
(20) days prior to the expiration of the Standby Letter of Credit then
outstanding, Montgomery Ward must cause to be delivered to the Stockholders'
Committee a renewal Standby Letter of Credit in substantially the same form of
the Standby Letter of Credit then expiring, the amount of such renewal Standby
Letter of Credit to be equal to the Obligation Amount then outstanding. Any
amounts payable to the Purchaser Indemnitees will be satisfied first by
reduction to the Obligation Amount in accordance with the terms of the
Promissory Note, although such reduction will not be deemed to limit Sellers'
indemnification obligations pursuant to the Merger Agreement.
Funds under the Standby Letter of Credit will be available to the
Stockholders' Committee upon presentation of a draft accompanied by a signed
certificate relating to certain matters. Each reduction of the Obligation
Amount will reduce the amount available under the Standby Letter of Credit upon
the delivery to the bank of a certificate signed by Montgomery Ward and the
Stockholder's Committee.
Interests of Certain Parties
Under the terms of the Merger Agreement, the Surviving Corporation is
responsible for all of the obligations of Lechmere and LMR. These obligations
include certain agreements made with current or former officers and/or directors
of Lechmere and LMR, as well as parties who owned more than 1% of the LMR Shares
and Affiliates (as defined in the Merger Agreement) of Lechmere and LMR. In
particular, Lechmere will remain liable and bear all costs under certain "Income
Continuance Agreements" entered into between Lechmere and eight (8) members of
its executive management.
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However, the Sellers and Lechmere will each pay one-half of any amounts payable
pursuant to any Income Continuance Agreement arising from the voluntary
resignation of any employee party thereto prior to June 28, 1994, subject to
terms provided in the Merger Agreement. The obligations of the Sellers pursuant
to the immediately preceding sentence will be satisfied first by reduction to
the Obligation Amount.
The Stockholders' Committee
As a term of the Merger Agreement, the Sellers have formed a Stockholders'
Committee. The Stockholders' Committee is comprised of four (4) members, each
member representing one of four groups delineated in the Merger Agreement. The
Stockholders' Committee is attorney-in-fact and agent on behalf of the Sellers.
The Stockholders' Committee's power is irrevocable and coupled with an interest,
and will not be affected by the death, incapacity, illness, dissolution or other
inability to act of any of the Sellers.
Each of the Sellers has irrevocably granted the Stockholders' Committee
full power and authority (subject to certain limitations) (a) to execute and
deliver, on behalf of such Seller, and to accept delivery of, on behalf of such
Seller, such documents as may be deemed by the Stockholders' Committee, in its
sole discretion, to be appropriate to consummate the Merger Agreement; (b) to
certify, on behalf of such Seller, as to the accuracy of the representations and
warranties of such Seller under, or pursuant to the terms of, the Merger
Agreement; (c) to (x) dispute or refrain from disputing, on behalf of such
Seller, any claim made by Montgomery Ward under the Merger Agreement; (y)
negotiate and compromise, on behalf of such Seller, any dispute that may arise
under, and to exercise or refrain from exercising any remedies available under
the Merger Agreement, and (z) execute, on behalf of such Seller, any settlement
agreement, release or other document with respect to such dispute or remedy; (d)
to waive, on behalf of such Seller, any closing condition contained in the
Merger Agreement and to give or agree to, on behalf of such Seller, any and all
consents, waivers, amendments or modifications, deemed by the Stockholders'
Committee, in its sole discretion, to be necessary or appropriate, and, in each
case, to execute and deliver any documents that may be necessary or appropriate
in connection therewith; (e) to enforce, on behalf of such Seller, any claim
against Montgomery Ward arising under the Merger Agreement; (f) to engage
attorneys, accountants and agents at the expense of Sellers; (g) to amend the
Merger Agreement (other than the section dealing with the Stockholders'
Committee) or any of the instruments to be delivered to Montgomery Ward by each
Seller pursuant to the Merger Agreement, provided that any such amendment will
require the approval of members of the Stockholders' Committee representing
Voting Percentages (as defined in the Merger Agreement) of at least 85% in the
aggregate; and (h) to give such instructions and to take such action or refrain
from taking such action, on behalf of each Seller, as the Stockholders'
Committee deems, in its sole discretion, necessary or appropriate to carry out
the provisions of the Merger Agreement.
Montgomery Ward may rely on any vote of the Stockholders' Committee to
which votes representing 51 percent or more of the Voting Percentages agree to
the matter at issue.
The Sellers, jointly and severally, agreed to indemnify the Purchaser
Indemnitees against, and agree to hold the Purchaser Indemnitees harmless from,
any and all damages incurred or suffered by any Purchaser Indemnitee arising out
of, with respect to or incident to the operation of, or any breach of any
covenant or agreement pursuant to, matters regarding the Stockholders'
Committee, or the designation, appointment and actions of the Stockholders'
Committee pursuant to the provisions of the Merger Agreement, including without
limitation, with respect to (x) actions taken by the Stockholders' Committee
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or any member thereof, and (y) reliance by any Purchaser Indemnitee on, and
actions taken by any Purchaser Indemnitee in response to or in reliance on, the
instructions of, notice given by or any other action taken by the Stockholders'
Committee. In addition each Seller agreed to severally indemnify each member of
the Stockholders' Committee against any damages (except such as result from such
member's gross negligence or willful misconduct) that such member may suffer or
incur in connection with any action taken by such member as a member of the
Stockholders' Committee. Each Seller is required to bear its pro-rata portion
of such damages. No member of the Stockholders' Committee will be liable to any
Seller with respect to any action or omission taken or omitted to be taken by
the Stockholders' Committee, except for such member's gross negligence or
willful misconduct.
RIGHTS OF SERIES 3 STOCK
Except as described herein, all shares of Class A Common Stock as such will
be identical in all respects and shall entitle the holders thereof to the same
rights and privileges as holders of existing Class A Shares.
Dividend and Liquidation Rights.
Class A Common Stock, Series 3, will have the same dividend and liquidation
rights as Class A Common Stock, Series 1 and Class A Common Stock, Series 2.
That is, the portion of dividends and liquidation amounts 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; provided, however, that dividends paid in kind
by series shall be payable only to the holders of shares of the respective
series.
Proposed dividend and liquidation rights for the Series 3 Shares are more
fully described below.
The portion of such dividends or proceeds 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 aggregate number of outstanding shares of all series of Class A
Common Stock (the "Outstanding Amount") does not exceed twenty-five million
(25,000,000) (such 25,000,000 being herein referred to as 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 (as defined below) 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 or proceeds which is payable to the holders of 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. The "Class
A Amount" 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.
The portion of such dividends or proceeds 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 paragraph 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
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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 or proceeds 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.
The portion of such dividends or proceeds which is payable to 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 the immediately preceding paragraph is not applicable),
shall be the product of (x) the amount which would be payable to holders of the
Class A Common Stock if the second next preceding paragraph 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, 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 as of such date of determination; and such
portion of such dividends or proceeds which is payable to the holders of 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.
The portion of such dividends or proceeds which is payable to the holders
of Class B Common Stock shall be the portion of the total amount of such
dividends or proceeds that is not payable to the holders of Class A Common Stock
in accordance with the foregoing, and such portion of such dividends or proceeds
which is payable to the holders of Class B Common Stock shall be allocated among
such holders in proportion to their respective holdings of Class B Common Stock.
Aggregate proceeds payable in liquidation shall be payable to the holders
of Common Stock in the same proportions as described above for dividends.
Voting Rights.
All series of Class A Common Stock will have the same general voting
rights. Notwithstanding the foregoing, the Class A Common Stock, Series 1
currently has certain voting rights that the Class A Common Stock, Series 2 does
not have and that the Class A Common Stock, Series 3 will not have.
Accordingly, except as described below, each share of Class A Common Stock,
without distinction as to series, shall have the same number of votes per share
and shall be entitled to vote on the same matters.
Proposed voting rights for the Series 3 shares are more fully described
below.
So long as the Outstanding Amount is less than or equal to 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. 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.
In addition to the voting rights specified above, any amendment to the
Charter increasing the number of shares of any class or series of Class A Common
Stock 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
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Common Stock, Series 1, then outstanding, and (B) the shares of Class B Common
Stock then outstanding, each voting as a class. In addition, amendments to the
Employee Stock Option Plan and the determination of the number of shares as to
which options to purchase thereunder shall be granted shall require the
affirmative vote of holders of a majority of the Class A Common Stock, Series 1.
RECOMMENDATION AND REQUIRED VOTE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDED
AND RESTATED STOCKHOLDERS' AGREEMENT, TERMS AND CONDITIONS AND CERTIFICATE OF
INCORPORATION ATTACHED HERETO AS ANNEXES A, B AND C, RESPECTIVELY.
The affirmative vote of the holders of record of a majority of the shares
of the Company's outstanding Common Stock is required for approval of the
amendments to the Certificate of Incorporation and certain of the contemplated
amendments to the Stockholders' Agreement are required to permit the amendments
to the Certificate of Incorporation. The affirmative vote of 66 2/3% of the
outstanding shares of Class A Common Stock and Class B Common Stock, each voting
as a class, is required for the approval of the amendment and restatement of the
Stockholders' Agreement. The affirmative vote of 66 2/3% of the outstanding
shares of Class A Common Stock, voting as a class, is required for approval of
the amendment and restatement of the Terms and Conditions.
AMENDMENT OF STOCK OWNERSHIP PLAN
THE STOCK OWNERSHIP PLAN
Equity participation of associates is an important aspect of employment
with the Company and its subsidiaries. The Montgomery Ward Stock Ownership Plan
facilitates such equity participation. Pursuant to the Stock Ownership Plan,
key associates of the Company, Montgomery Ward and its subsidiaries may be
granted Awards, Purchase Rights or Options (as such terms are defined in the
Stock Ownership Plan) to acquire Class A Shares. Purchase Rights are non-
qualified stock options to acquire Class A Shares identified as such and
generally to be exercised during a shorter period of time than Options. Options
are non-qualified stock options to acquire Class A Shares which will generally
be exercisable only over time beginning one year from the date of grant. A
total of 5,412,000 Series 2 Shares and 1,000,000 Series 1 Shares have been
reserved for issuance under the Stock Ownership Plan. The number of Class A
Shares available for issuance under the Stock Ownership Plan and the number of
Class A Shares subject to outstanding Purchase Rights and Options and the
exercise price for outstanding Purchase Rights and Options are subject to
adjustment in the event of a stock dividend, recapitalization or other similar
change affecting the number of outstanding shares of the Company.
Pursuant to an amendment for which approval of stockholders is sought, key
associates (currently approximately 3,500), consultants and advisors (currently
approximately ten) and directors (currently seven) of the Company or its
subsidiaries or affiliates are eligible to participate in the Stock Ownership
Plan.
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The Stock Ownership Plan will terminate on July 19, 1998, without further
action by the Board of Directors or stockholders. The Board of Directors may at
any time amend or terminate the Stock Ownership Plan except that no such action
by the Board of Directors may change the terms and conditions of any Purchase
Right or Option previously granted in a manner adverse to the holder of the
Purchase Right or the optionee without the consent of the holder of the Purchase
Right or the optionee, and, pursuant to an amendment for which approval of
stockholders is sought, approval by the stockholders of the Company is required
to the extent deemed appropriate by the Plan Committee, as herein defined, if
adoption of such amendment without approval by the stockholders would cause the
Stock Ownership Plan to no longer comply with Rule 16b-3.
Pursuant to an amendment for which approval of stockholders is sought, the
Stock Ownership Plan is administered by two committees (collectively, the "Plan
Committee") 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
members of the Plan Committee for grants to individuals other than directors are
Messrs. Brennan, Heine and Lieberman. The members of the Plan Committee for
grants to directors are Messrs. Nayden and Parke.
The Plan Committee determines, within the limits of the express provisions
of the Stock Ownership Plan, those key individuals to whom, and the time or
times at which, Awards, Purchase Rights and Options shall be granted. The Plan
Committee interprets the Stock Ownership Plan, adopts rules relating thereto and
determines the terms and provisions of Awards, Purchase Rights and Options
grants, including the number of Class A Shares to be subject to each Award,
Purchase Right and Option, the duration of each Purchase Right and Option, the
exercise price under each Option, the purchase 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 of Common Stock or other
property may be accepted in full or partial payment upon purchase of Class A
Shares pursuant to a Purchase Right or exercise of an Option. The Plan
Committee also has the right to accelerate Purchase Rights or Option exercise
rights or make other adjustments if Montgomery Ward or the Company is a party to
a transaction involving certain mergers or consolidations, sales of all or
substantially all of its assets, or if Montgomery Ward or the Company dissolves
or is liquidated or upon the occurrence of a public offering of Shares of the
Company.
Under the Stock Ownership Plan, Options are exercisable as provided by the
Plan Committee but no Option is exercisable more than ten years from the date of
the Option grant. It is currently anticipated that the Plan Committee will
generally provide that an Option is exercisable only to the extent of 33% of the
number of Shares to which the Option pertains after the expiration of one year
following the date of Option grant, to the extent of 66% following two years and
in full following three years. If an optionee's employment with the Ward Group
is terminated for any reason other than "cause", such optionee may exercise
options up to 60 days after the date of such termination. If an optionee
becomes permanently disabled or dies while employed by the Company or any of its
subsidiaries, the optionee or the optionee's personal representative or
successor in interest will have 90 days following the optionee's permanent
disability or death to exercise the optionee's Options.
Purchase Rights and Options are exercisable during the lifetime of the
holder of the Purchase Right and the optionee only by the holder of the Purchase
Right or the optionee, respectively, or by the guardian or legal representative
of such holder of the Purchase Right or the optionee, respectively. Payment
upon exercise of Purchase Rights or Options may be made in cash or shares of
Common Stock or in other property having a fair market value equal to the
exercise price, in each case as the Plan
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Committee determines. To satisfy income tax withholding obligations, the Plan
Committee may, in lieu of cash withholding, permit withholding obligations to be
satisfied through the withholding or delivery of shares of Common Stock.
In connection with an Award or the purchase of Class A Shares pursuant to
the exercise of a Purchase Right or the exercise of an Option, individuals are
required to agree to such conditions on their ownership and disposition of the
Class A Shares awarded or purchased upon the exercise of a Purchase Right or
Option as the Plan Committee may deem appropriate, including, but not limited
to, joinder in the Voting Trust Agreement. The Company anticipates that each
person who acquires Class A Shares pursuant to the Stock Ownership Plan will be
required to agree to significant restrictions on the transfer of Class A Shares,
to grant rights of refusal in the event of certain proposed transfers, and to
agree to certain obligations or options to sell shares contained in the
Stockholders' Agreement or the Terms and Conditions.
As of April 2, 1994, 659,863 Series 2 Shares have been granted as Awards or
issued upon the exercise of Options, and Options to purchase an additional
5,296,571 Class A Shares at an average price of $16.63 per Share were
outstanding under the Stock Ownership Plan. The fair market value of a Class A
Share, as determined pursuant to the Stockholders' Agreement, as of April 2,
1994, was $26.50 per share.
TAX CONSEQUENCES
The following summary describes the material federal income tax aspects of
the grant of Class A Shares to Award recipients and the purchase of Class A
Shares through the exercise of Purchase Rights or Options, with respect to the
Company, Award recipients and purchasers. The federal income tax laws are
technical and complex, whereas the discussion herein is in general terms and is
not tax advice. Furthermore, the tax laws are subject to change (even
retroactively) by legislation, administrative rulings and regulations, and
judicial decisions.
Neither the grant nor the lapse of a Purchase Right or Option is a taxable
event. Both Class A Shares granted to Award recipients and Class A Shares
purchased by exercising Purchase Rights or Options are 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 on the sale of Class A Shares,
it is anticipated that Class A Shares granted to Award Recipients or purchased
pursuant to Purchase Rights granted under the Stock Ownership Plan will be
considered nontransferable and subject to a substantial risk of forfeiture for
purposes of the federal income tax laws to the extent such shares are not vested
upon award or purchase. If, as is currently anticipated, Options will only be
exercisable for Class A Shares which are vested at the date of exercise, the IRS
may take the position that Class A Shares purchased by the exercise of Options
under the Stock Ownership Plan will not be subject to substantial risk of
forfeiture for purposes of the federal income tax laws. By making a Section
83(b) election, discussed below, a purchaser through the exercise of an Option
can ensure inclusion in income in the year the Option is
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exercised of the difference at exercise between the fair market value
(determined without regard to any lapse restriction) of the Class A Shares with
respect to which the Option was exercised and the Option exercise price
multiplied by the number of Class A Shares with respect to which the Option was
exercised. (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.) By making a section 83(b) election, an
Award recipient or purchaser pursuant to a Purchase Right elects inclusion in
income in the year of the Award or purchase of the excess, if any, of the fair
market value (determined without regard to any lapse restriction) of Class A
Shares at the time of the Award or purchase over the amount, if any, paid for
the Class A Shares.
Subject to the effect of a section 83(b) election, discussed below, as long
as the Class A Shares awarded or purchased are nontransferable and subject to a
substantial risk of forfeiture, they will in effect, be treated as not having
been transferred to the Award recipient or purchaser, respectively. 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 Class A 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 deemed to be paid by the Company or its
subsidiaries or affiliates to the Award recipient or 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
Class A Shares. The Award recipient or purchaser will include such compensation
as ordinary income and the Company or its subsidiaries or affiliates will be
entitled to a deduction for compensation paid. The tax basis for Class A Shares
will be the amount paid for such Class A 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 Class A
Shares become transferable or are not subject to a substantial risk of
forfeiture. Any appreciation or decline in value of Class A 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 an Award recipient or
purchaser within 30 days after the Award or the purchase of Class A Shares
through the exercise of Purchase Rights or Options may file an election under
section 83(b) of the Code, to treat the acquisition of such Class A Shares as a
taxable compensation event. If the Award recipient or purchaser files such
election he or she will include in his or her gross income as compensation for
the year of the Award or the purchase of Class A Shares, respectively), the
excess, if any, of the fair market value of such Class A Shares (determined
without regard to any lapse restriction) over the amount he or she paid
therefor, and the Company or its subsidiaries or affiliates will be entitled to
a compensation deduction in the amount of such excess. If the Award recipient
makes the section 83(b) election, the Award recipient will realize the fair
market value of Class A Shares. In determining the fair market value of Plan
Shares (determined without regard to any lapse restriction) for the purpose of
computing the amount of compensation includable in an Award recipient or
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 fact and circumstances.
The disadvantage of a section 83(b) election is that if Class A 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 Class A Shares are subsequently sold, the
Award recipient or purchaser generally will
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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 Class A Shares, i.e., the fair market value of the Class A Shares
(determined without regard to any lapse restriction) at the time of the Award or
purchase of Class A Shares, respectively.
In general, amounts treated as compensation income to a participant in the
Stock Ownership Plan (such as amounts treated as compensation under the rules
described above) constitute wages subject to withholding of income tax and
social security taxes.
AMENDMENTS TO THE STOCK OWNERSHIP PLAN
The amendments to the Stock Ownership Plan are designed to: (i) permit
directors, advisors and consultants to the Company and its subsidiaries and
affiliates to participate in the Stock Ownership Plan; (ii) limit the number of
shares available to any participant under the Stock Ownership Plan through
Awards, Purchase Rights and Options to one million shares, as adjusted in
accordance with the Stock Ownership Plan; and (iii) clarify certain Stock
Ownership Plan provisions. A copy of the Stock Ownership Plan as proposed to be
amended is attached to this Proxy Statement as Annex D.
The additional benefits which are to be received by associates of the
Company and its subsidiaries and affiliates (including the named executive
officers) during the 1994 fiscal year under the Stock Ownership Plan as amended
cannot be determined at this time. Certain consultants to the Company and its
subsidiaries will receive Options to purchase a total of 630,000 Class A Shares
under the Stock Ownership Plan as amended, based on (i) grants of options
previously made but made expressly subject to the approval by the stockholders
of the Company of the amendments to the Stock Ownership Plan and (ii)
contractual obligations of the Company or its affiliates which are expressly
subject to such approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENTS TO THE
STOCK OWNERSHIP PLAN.
The affirmative vote of the holders of record of a majority of the shares
of the Company's outstanding Common Stock and the affirmative vote of the
holders of a majority of the outstanding Series 1 Shares is required for
approval of the amendments to the Stock Ownership Plan.
APPROVAL OF CERTAIN INCENTIVE PLANS
Approval of stockholders is being sought with respect to the Executive
Long-Term Incentive Plan and the Senior Executive Performance Management Program
to preserve the federal income tax deduction of the Company and its subsidiaries
for performance-based compensation paid to certain executive officers. These
plans are similar to the Long Term Incentive Plan and PMP previously described,
and it is anticipated that executive officers will not participate in the Long-
Term Incentive Plan and PMP while participating in the Executive Long-Term
Incentive Plan and the Senior Executive Performance Management Program.
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Executive Long-Term Incentive Plan
Montgomery Ward executives in salary grades 28 and above are eligible to
participate in the Executive Long-Term Incentive Plan, a copy of which is
attached to this Proxy Statement as Annex E. The Executive Long-Term Incentive
Plan consists of three-year cycles that can be initiated annually. However, in
1994 three cycles were initiated -- a one-year cycle ending in 1994, a two-year
cycle ending in 1995, and a three-year cycle ending in 1996. If specific
objectives for the pre-tax earnings and return on equity for the Company and its
subsidiaries established by the Incentive Compensation Committee are achieved
for any designated cycle, cash is awarded based upon a target Executive Long-
Term Incentive Plan payout which is a percentage (determined by the Incentive
Compensation Committee) of the base salary of each participant, but in no event
may the target Executive Long-Term Incentive Plan payout for any participant
exceed $2,000,000 for any cycle. For 1994 the Incentive Compensation Committee
has set performance goals for the initial three cycles based on pre-tax earnings
and return on equity for all three cycles. Until the Incentive Compensation
Committee determines otherwise, the target payout will be based on 85% of base
salary at time of payout for the chief executive officer and 50% of base salary
at time of payout for all other participants. Executives who are hired into the
eligible participant group after the beginning of a cycle will have a target
Executive Long-Term Incentive Plan payout prorated based on the proportion of
the cycle objectives achieved after the first day of the quarter following their
commencement of employment through the end of the cycle.
Target Executive Long-Term Incentive Plan payouts will also be
proportionately reduced to the extent the cycle objectives are not met. Until
the Incentive Compensation Committee determines otherwise with respect to
subsequent cycles not yet commenced, the pre-tax earnings and return on equity
objectives are weighted sixty percent (60%) and forty percent (40%),
respectively. To receive an award, the participant must on the last day of the
applicable cycle be the chief executive officer of the Company or be among the
four highest compensated officers of the Company (not taking into account the
chief executive officer). The Incentive Compensation Committee may in its
discretion reduce the target Executive Long-Term Incentive Plan payout of any
participant. No award shall be made if the Incentive Compensation Committee
determines that the participant's conduct has been detrimental to the Company or
its subsidiaries.
Senior Executive Performance Management Program
Executives of the Company or its subsidiaries in salary grades 28 and above
also are eligible to participate in the Senior Executive Performance Management
Program (the "SEPMP"), a copy of which is attached to this Proxy Statement as
Annex F. Awards are based on achievement by the Company and its subsidiaries of
a pre-tax earnings goal, which is expressed in terms of a minimum, a target, and
a maximum goal. Each participant will be assigned an annual award target which
will not be less than $50,000 nor more than $2,000,000. The annual incentive
awards targets set for 1994 by the Incentive Compensation Committee are $700,000
for Mr. Brennan, $200,000 for Mr. Bergel, and $100,000 for Messrs. Heine and
Schoeberl. Attainment of the minimum, target or maximum goal results in the
opportunity to receive 50%, 100% or 150%, respectively, of the annual award
target. Awards for attainment of more than the minimum performance but less
than the target performance or for attainment of more than the target
performance but less than the maximum performance are established by arithmetic
interpolation. Executives who were hired into the eligible participant group
after the beginning of a cycle will have an annual award target prorated based
on the proportion of the pre-tax earnings goal achieved after the first day of
the quarter following their commencement of employment through the end of the
year. The Incentive Compensation Committee may exercise its discretion to
reduce the award payment
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of any participant. To receive an award, the participant must on the last day
of the applicable cycle be the chief executive officer of the Company or be
among the four highest compensated officers of the Company or its subsidiaries
(not taking into account the chief executive officer). No incentive award shall
be made if the Incentive Compensation Committee determines the participant's
conduct has been detrimental to the Company or its subsidiaries.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE EXECUTIVE
LONG-TERM INCENTIVE PLAN AND THE SEPMP.
The affirmative vote of the holders of record of a majority of the shares
of the Company's outstanding Common Stock is required for approval of the
Executive Long-Term Incentive Plan and the SEPMP.
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The following table sets forth the benefits which are currently expected to
be granted during 1994 under the Executive Long Term Incentive Plan and the
SEPMP to the persons or groups indicated. Additional benefits may be granted
during 1994, but such grants are not determinable at this time.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
SENIOR
EXECUTIVE
EXECUTIVE LONG- PERFORMANCE
TERM INCENTIVE MANAGEMENT
PLAN PROGRAM
-------------- ------------
Name and Dollar Value Dollar Value
Position or Group ($)/1/ ($)/2/
----------------- -------------- ------------
<S> <C> <C>
Bernard F. Brennan -
Chief Executive Officer $ 807,500 $ 700,000
Richard Bergel -
Executive Vice President $ 300,000 $ 200,000
Robert R. Schoeberl -
Executive Vice President $ 175,000 $ 100,000
Spencer H. Heine -
Executive Vice President, $ 200,000 $ 100,000
Secretary and General Counsel
Leslie A. Ball/3/ 0 0
Harold D. Kahn/3/ 0 0
All current executive officers as $1,832,500 $1,100,000
a group
All current directors who are not 0 0
executive officers as a group
All employees, including all $1,832,500 $1,100,000
current officers who are not
executive officers, as a group
- ---------------------------------
</TABLE>
/1/ Based on current 1994 salary and assumes attainment of performance goals.
/2/ Assumes the target pre-tax earnings goal is met. The dollar value of
awards under the plan could increase by as much as 50% if the target pre-
tax earnings goal is exceeded.
/3/ Messrs. Ball and Kahn have resigned from the Company and will receive no
new benefits under these plans.
-41-
<PAGE>
OTHER MATTERS
INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Arthur Andersen & Co. as
independent auditors for the Company and its subsidiaries for the fiscal year
ending December 31, 1994. Arthur Andersen & Co. has served as the Company's
independent auditors since the Company's organization in 1988 and as independent
auditors for Montgomery Ward and its subsidiaries for many years.
It is not anticipated that representatives of Arthur Andersen & Co. will be
present at the meeting.
OTHER BUSINESS
MW Holding is not aware of any business or matter other than those
indicated above which may properly be presented at the meeting.
PROXY SOLICITATION AND REVOCATION
The enclosed proxy is solicited on behalf of the Board of Directors and is
revocable at any time prior to the voting. The cost of soliciting proxies will
be borne by MW Holding.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1995 annual
meeting of stockholders must be received by the Company no later than December
23, 1994, in order to be considered for inclusion in the Company's proxy
statement and form or proxy relating to such meeting.
By Order of the Board of Directors,
Spencer H. Heine
Executive Vice President,
Secretary and General Counsel
-42-
<PAGE>
ANNEX A
-------
STOCKHOLDERS' AGREEMENT
dated as of
June 17, 1988
as amended and restated
May 20, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I
Definitions and Introductory Matters..... 1
1.1 Adoption of Recitals................................. 1
1.2 Definitions.......................................... 2
1.3 Securities Law Restrictions.......................... 13
1.4 Transferability of Certain Shares.................... 14
1.5 Duration of Certain Portions of Article II and
Certain Portions of Article III...................... 14
1.6 Duration of Certain Portions of Article V............ 15
1.7 Withholding.......................................... 15
1.8 Consummation of Acquisition.......................... 15
1.9 Joinder in Agreement................................. 16
1.10 Adjustment for Dilutive Events....................... 16
1.11 Shortening or Lengthening of Option Periods.......... 16
1.12 Action by 2/3 of Members of Board of Directors....... 16
ARTICLE II
Voluntary Transfers of Shares............ 16
2.1 General Effect of Agreement.......................... 16
2.2 Certain Permitted Transfers of Shares................ 16
2.3 Certain Prohibited Transfers......................... 18
2.4 Notice of Transfer of Shares......................... 19
2.5 Form of Transfer Notice.............................. 19
2.6 Approval of Board of Directors....................... 20
2.7 Options.............................................. 21
2.8 Transfer if Options Not Exercised.................... 23
2.9 Exercise of Options for Less than All of the Shares.. 24
2.10 Closing of Exercise of Options....................... 24
2.11 Effect of Shares in the Hands of the Transferee...... 24
2.12 Termination of GE Capital's Rights................... 24
ARTICLE III
Purchases of Shares upon Termination
of Employment..................................... 24
3.1 Termination of Employment of Type 2 Management
Shareholder.......................................... 24
3.2 Death or Permanent Disability of a Type 2 Management
Shareholder.......................................... 25
3.3 Death of Type 2 Management Shareholder Following
Termination of Employment............................ 26
3.4 Notice of Death...................................... 26
3.5 Termination of Brennan's Employment or Death......... 27
3.6 Death of Other Type 1 Management Shareholder......... 28
3.7 Purchase Price of Shares............................. 29
3.8 Manner of Payment.................................... 30
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
3.9 Notes and Security 31
3.10 Fair Market Value.................................... 31
3.11 Closing.............................................. 35
3.12 Priorities........................................... 35
3.13 Failure to Deliver Shares............................ 35
3.14 Resale of Shares..................................... 36
3.15 Modification of Options.............................. 36
3.16 Offset of Purchase Price............................. 36
ARTICLE IV
Certain Limitations on Purchases of Shares.... 36
4.1 Restrictions on the Company's Right and/or
Obligation to Purchase Shares........................ 36
4.2 Definition of the Limitations........................ 38
4.3 Cash Payments Limitation............................. 39
4.4 Right of GE Capital to Cure Limitations.............. 39
ARTICLE V
Corporate Governance Matters.................. 39
5.1 Voting of Shares held by Management Shareholders..... 39
5.2 Election of Directors................................ 39
5.3 Certain Supermajority Requirements................... 40
5.4 Certain Required Provisions of Certificate of
Incorporation........................................ 44
5.5 By-laws of Members of the Ward Group................. 46
5.6 Election of Chief Executive Officer.................. 46
5.7 Agreement to Vote.................................... 46
5.8 Recapitalization..................................... 46
ARTICLE VI
Registration Rights........................... 46
6.1 Demand Registration Rights........................... 46
6.2 Piggyback Registration Rights........................ 49
6.3 Registration Procedures.............................. 50
6.4 Restrictions on Public Sale.......................... 54
6.5 Other Registrations.................................. 54
6.6 Registration Expenses................................ 55
6.7 Indemnity and Contribution........................... 55
6.8 Rule 144............................................. 58
6.9 Participation in Underwritten Registrations.......... 58
6.10 Other Registration Rights............................ 58
6.11 Amendments and Waivers............................... 59
6.12 Inclusion of Vested Shares........................... 59
6.13 Exception............................................ 59
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE VII
Restrictive Covenants...................... 60
7.1 Restrictive Covenants................................ 60
7.2 Limitations on Restrictive Covenants................. 60
7.3 Return of Documents.................................. 61
7.4 Cooperation.......................................... 61
7.5 Enforcement.......................................... 61
7.6 Survival; Waiver of Offset........................... 61
7.7 Jurisdiction......................................... 62
7.8 Construction......................................... 62
7.9 Exception............................................ 62
ARTICLE VIII
General Matters............................ 62
8.1 Legend on Certificates............................... 62
8.2 Termination and Amendment of Agreement............... 63
8.3 Termination of Status as Management Shareholder...... 64
8.4 Not an Employment Agreement.......................... 64
8.5 Indemnification...................................... 64
8.6 Notices.............................................. 64
8.7 Miscellaneous........................................ 65
8.8 Counterparts......................................... 65
8.9 Descriptive Headings................................. 65
8.10 Entire Agreement..................................... 65
8.11 Waivers.............................................. 65
8.12 Binding Effect; Enforcement.......................... 65
8.13 Applicable Law....................................... 65
8.14 Severability......................................... 66
8.15 Resolution of Certain Ambiguities and Conflicts...... 66
8.16 Joinder by Brennan................................... 66
8.17 Authority to Give Consents, Approvals, etc........... 66
</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, Senior
Preferred Stock and Junior Preferred Stock of the Company, and Kidder, Peabody
Group, Inc., an affiliate of GE Capital, has purchased shares of Class B Common
Stock and Junior Preferred Stock of the Company (the Senior Preferred Stock and
Junior Preferred Stock of the Company being sometimes referred to herein as 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.
<PAGE>
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 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)(i);
(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 Plan (as herein defined);
(j) Intentionally omitted;
(k) "Board of Directors" shall mean the board of directors of the
Company;
(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;
2
<PAGE>
(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 and chief operating officer of the Company; or
(vi) the unlawful taking or misappropriation of any property
belonging to any member of the Wards 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). For the purposes of Section 3.10(a)(vi), but not for
the purposes of Section 5.4(f), Shares which are subject to purchase
(whether or not currently exercisable) under outstanding options granted
under the Employee Stock Option Plan shall be deemed to be outstanding;
(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;
(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
3
<PAGE>
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 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 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 Qualified Management Shareholder
(as defined below), then such person shall cease to be a member of the
Committee and the remaining members of the Committee shall as soon as
practicable appoint a Qualified Management Shareholder as a member of the
Committee and thereby fill the vacancy on the Committee so created. From
and after the occurrence of an Event, the Committee shall be comprised of
Pohlmann, Spencer H. Heine ("Heine") and Lieberman (each of Pohlmann, Heine
and Lieberman being a "Continuing Member" and collectively being the
"Continuing Members") so long as each is a Qualified Management
Shareholder; provided, however, that at any time from and after the
occurrence of an Event (i) if one, but only one, Continuing Member has
resigned from the Committee or ceased to be a Qualified Management
Shareholder, then the Committee shall be comprised of the two remaining
Continuing Members who have not resigned from the Committee and are
Qualified Management Shareholders and the Largest Management Shareholder
(as defined below) (but the Second Largest Management Shareholder (as
defined below) if the Largest Management Shareholder is one of such
remaining Continuing Members, but the Third Largest Management Shareholder
(as defined below) if both the Largest Management Shareholder and the
Second Largest Management Shareholder are such remaining Continuing
Members), (ii) if each of two, but only two, of the Continuing Members has
either
4
<PAGE>
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 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 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
5
<PAGE>
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 (v), 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, 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" shall mean a stock option plan for
the benefit of the employees of the Ward Group which may be adopted
hereafter by the Board of Directors, pursuant to which such employees may
be granted options to purchase Class A Shares. The Shares issued pursuant
to the Employee Stock Option Plan shall be subject to options to purchase
the employee's 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);
(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. 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;
6
<PAGE>
(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 as of the date of
determination.
(kk) "Option" shall mean a nonqualified stock option to acquire Shares
granted pursuant to the Plan;
(ll) "Originally Scheduled Article III Closing Date" shall have the
meaning set forth in Section 4.1;
(mm) "Outstanding Amount" shall mean the number of Class A Shares of
all series which are outstanding as of 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;
7
<PAGE>
(rr) "Piggyback Registration" shall have the meaning set forth in
Section 6.2(a);
(ss) "Plan" shall mean the Montgomery Ward & Co., Incorporated Stock
Ownership Plan, as amended and in effect from time to time;
(tt) "Plan Shares" shall mean any shares received by the holder
thereof (or as a Permitted Transferee (as herein defined) of such holder)
pursuant to the 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 and under
Rule 144 (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), 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
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);
(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 twenty-five million (25,000,000);
(fff) "Shareholder" shall mean a Management Shareholder, a Permitted
Transferee, GE Capital, and a GE Capital Affiliate who are 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
8
<PAGE>
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 under the Act and disposed
of in accordance with the Registration Statement (as herein defined)
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) "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;
(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;
9
<PAGE>
(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 Lieberman Investment Limited Partnership 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) "Unused Amount" shall have the meaning set forth in Section
2.3(e);
(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, as of 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
10
<PAGE>
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;
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:
11
<PAGE>
<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 Wards Group for any reason
whatsoever;
12
<PAGE>
(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).
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;
(iv) 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;
(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:
13
<PAGE>
(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);
(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
14
<PAGE>
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 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 of Ward pursuant to 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.
15
<PAGE>
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 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 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.
1.12 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.
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;
16
<PAGE>
(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)C., 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
the Shares, or whose principal asset consists of the 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;
17
<PAGE>
(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.
(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 (the "Line of Credit Program") and by the Pledgee to the Company or
any other member of the Ward Group pursuant to such 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:
18
<PAGE>
(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
the aggregate number of Shares sought to be so Transferred during such
Period by the Management Shareholder and all of his Permitted Transferees
would result in the Transfer of more than the following percentage of the
Vested Shares which were collectively owned by the Management Shareholder
and all of his Permitted Transferees at the beginning of the applicable
Period:
<TABLE>
<CAPTION>
IF THE TRANSFER NOTICE IS
DURING THE FOLLOWING PERIOD: THE PERCENTAGE IS
---------------------------- ------------------
<S> <C>
First Period................... 33-1/3%
Second Period.................. 50 %
</TABLE>
(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 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
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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 the Transfer Notice, GE Capital or a present or former GE Capital
Affiliate 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 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)
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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 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 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
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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);
(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 therein contained; 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 therein contained.
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.
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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;
(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)(ii) 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.
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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, 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 hereof, 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:
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(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; and
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.
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);
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(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.
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
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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 date hereof; 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 date hereof, 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:
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(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 after the
date of termination of the 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
(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 date
hereof;
(d) the death of Brennan following the termination of his employment
with the Wards 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 after 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
optionors 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;
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(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:
(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;
[(b) 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
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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 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);
(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);
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(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
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
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 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 value 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
value 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 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:
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(a) unless a public market for the Shares of the Class 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 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;
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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 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 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 3.10(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
3.10(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 3.10(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
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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;
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, 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
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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
Optionees 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 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,
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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 Wards Group, including any person who is already a
Management Shareholder, any Shares which the Company has repurchased pursuant to
this Article III, 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 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
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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;
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(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 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;
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(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.
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:
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(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 Shareholders shall elect 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 which GE
Capital and the GE Capital Affiliates have purchased in June 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;
(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 have purchased in June 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 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.
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):
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(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 sum of (x) consolidated common stockholders' equity of the Company
as of the time of the sale, plus (y) $100,000 multiplied by the number
of shares of junior Preferred Stock outstanding 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 sum of (x) consolidated
common stockholders' equity of the Company as of the time of the sale,
plus (y) $100,000 multiplied by the number of shares of junior
Preferred Stock outstanding 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;
(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
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$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 of 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) borrowings made to cure any default referred to in
paragraphs (r)(i) and (ii) of Section 1.2:
(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
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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);
(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;
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(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 Class A, 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 Class A
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;
(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
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(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 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 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 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 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 sum of the Non-Series 3 Outstanding Amount and the
denominator of which is 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 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 which is payable to the
holders of Class B Shares as a class, shall be the portion of the
total amount of such dividends which is not payable to the holders of
Class A Shares in accordance with Section 5.4(f)(i),
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5.4(f)(ii) or 5.4(f)(iii) above, as applicable; and such portion of
such dividends 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 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 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
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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;
(iii) if:
a. the Company has filed, or has taken substantial steps
toward filing, a Registration Statement 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 (a) (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;
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(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;
(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
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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
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(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 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;
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(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 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;
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(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
other 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 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;
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(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.
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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
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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 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 expiration of 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:
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(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 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:
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(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 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;
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(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 l5(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 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
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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.
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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 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 the 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;
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(b) and notwithstanding the provisions thereof, nothing contained
therein shall be construed to prohibit the 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, the 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 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 Shareholder's Shares 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 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
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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.
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
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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."
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;
(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
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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:
One 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 Capital Affiliate, as the case may be,
as disclosed by the books and records of the Company;
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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.
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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.
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.
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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
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ANNEX B
-------
MONTGOMERY WARD & CO., INCORPORATED
STOCK OWNERSHIP PLAN TERMS AND CONDITIONS
as amended and restated
May 20, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <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
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<TABLE>
<CAPTION>
<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 Right 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>
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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:
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(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
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(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
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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
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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;
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(gg) "Originally Scheduled Article III Closing Date" shall have the
meanin 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
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<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;
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(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;
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(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;
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(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
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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;
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(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 a "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
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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
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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.
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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
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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, with 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
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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;
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(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
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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
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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:
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(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;
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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
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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.
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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
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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
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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 its 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.
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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.
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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 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 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 that 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
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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:
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(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
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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.
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<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:__________________________
JEL04286.C
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ANNEX C
-------
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 ___, 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 229 South State Street, 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").
<PAGE>
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:
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.
2
<PAGE>
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 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
3
<PAGE>
or before the Proposed Junior Distribution Date, have
completed both of the following:
(1) declared on the outstanding shares of
Senior Preferred Stock, and paid or set apart for
payment, all "Accrued Dividends" (defined in
Section A.4(c)(i)) to the Proposed Junior
Distribution Date; and
(2) paid or deposited as required in this
Part A all amounts payable to holders of Senior
Preferred Stock in respect of all mandatory
redemptions required to have been paid or
deposited for their benefit on or before the
Proposed Junior Distribution Date; and
(ii) the Corporation may redeem or purchase any shares
of Common Stock in accordance with either (x) the terms,
conditions and provisions of the "Stockholders' Agreement"
(defined in Section B.1) or (y) the terms, 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 (whether or not declared) and shall be payable in the same
manner and at such times as provided
4
<PAGE>
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
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
6
<PAGE>
have been received by the Corporation on the date of such
notification and all rights relating thereto shall cease and
terminate.
(b) Optional Redemption.
(i) So long as any shares of Senior Preferred Stock
are outstanding, except as may be prohibited by Section A.5,
the Corporation may, at the option of the Board of
Directors, at any time or from time to time after the
Issuance Date, redeem the whole or any part of such Senior
Preferred Stock. Any redemption pursuant to this Section
A.4(b)(i) shall be at the Redemption Price. If less than
all the shares of Senior Preferred Stock at any time
outstanding shall be called for redemption, the redemption
shall be made pro rata with respect to such shares and in
such manner as may be prescribed by resolution of the Board
of Directors. The date of each such redemption is herein
sometimes referred to as an "Optional Redemption Date".
(ii) Notice of every redemption pursuant to this
Section A.4(b) shall be sent by first-class mail, postage
prepaid, to the holders of record of the shares of Senior
Preferred Stock so to be redeemed at their respective
addresses as the same shall appear on the books of the
Corporation. Such notice shall be mailed not less than ten
(10) business days in advance of the Optional Redemption
Date to the holders of record of the shares of Senior
Preferred Stock so to be redeemed. On and after the
Optional Redemption Date, unless default shall be made by
the Corporation in providing moneys to the bank or trust
company for the account of the holders of record of the
Senior Preferred Stock as provided in Section A.4(a)(iii)
for the payment of the Redemption Price, all rights of the
holders of Senior Preferred Stock as stockholders of the
Corporation with respect to those shares of Senior Preferred
Stock to be redeemed, except the right to receive the
Redemption Price, shall cease and terminate whether or not
the certificates for the shares so redeemed have been
received by the Corporation as provided in Section
A.4(a)(iii). In this Section A.4(b)(ii), a business day
refers to any day, except a Saturday, Sunday or any day on
which banks in the City of Chicago are authorized or
required by law to close.
(c) Definitions.
(i) The term "Accrued Dividends" with respect to the
Senior Preferred Stock shall mean, as of any given time, the
then "Full Cumulative Dividends" (defined in Section
A.4(c)(ii)) less the amount of all dividends theretofore
paid upon the relevant shares of Senior Preferred Stock.
(ii) The term "Full Cumulative Dividends" with respect
to the Senior Preferred Stock shall mean (whether or not in
any Dividend Period, or any part thereof, in respect of
which such term is used there
7
<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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
10
<PAGE>
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 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
11
<PAGE>
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
July 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 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
12
<PAGE>
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 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;
13
<PAGE>
(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 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.
14
<PAGE>
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:
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 their 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
15
<PAGE>
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:
(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
16
<PAGE>
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.
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
17
<PAGE>
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.
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
18
<PAGE>
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 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 Secretary, this 20th day of May, 1994.
MONTGOMERY WARD HOLDING CORP.
By:
-------------------------------------
Bernard F. Brennan,
Chairman of the Board
(CORPORATE SEAL)
ATTEST:
By:
----------------------------
Spencer H. Heine,
Secretary
JEL04280.F
19
<PAGE>
ANNEX D
-------
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 Associate 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 Program, 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:
<TABLE>
<CAPTION>
Year Shares
---- ---------
<S> <C>
1990 1,500,000
1991 2,300,000
1992 3,100,000
1993 3,700,000
</TABLE>
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 it 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
<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
it 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 or by the Participant's guardian or legal representative. No
Purchase Right or Option shall be assignable or transferable, 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: (i) 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>
ANNEX E
-------
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 with such intention.
<PAGE>
ANNEX F
-------
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 HOLDING CORP.
One Montgomery Ward Plaza
Chicago, Illinois 60671
Proxy for Annual Meeting of Stockholders on May 20, 1994
This Proxy is solicited on behalf of the Board of Directors
Bernard F. Brennan and Spencer H. Heine, or either of them, with full power
of substitution, are hereby authorized to vote the shares of Common Stock of
Montgomery Ward Holding Corp. which the undersigned is entitled to vote at the
1994 Annual Meeting of Stockholders to be held at the corporate offices of
Montgomery Ward Holding Corp., One Montgomery Ward Plaza, Chicago, Illinois
60671 on Friday, May 20, 1994 at 8:00 a.m., and at all adjournments thereof as
indicated on this card for the proposals described in the Notice and Proxy
Statement for such meeting and in their discretion on other matters which may
properly come before the meeting.
UNLESS OTHERWISE INSTRUCTED, THIS PROXY WILL BE VOTED FOR THE NOMINEES
LISTED IN PROPOSAL 1.
Please mark, sign and mail this proxy promptly in the enclosed envelope.
1. Election of Director Nominees:
Messrs. Brennan, Bergel, Andrews, Heine, Lieberman, Cathcart, Ekedahl,
Nayden and Parke
[_] FOR nominees [_] WITHHELD from nominees [_] FOR, except vote
WITHHELD from the
following nominee(s):
---------------
---------------
---------------
---------------
---------------
---------------
---------------
---------------
---------------
2. Approval of the amendment and restatement of the Certificate of
Incorporation of Montgomery Ward Holding Corp. to authorize a new series of
Class A Common Stock of Montgomery Ward Holding Corp.:
[_] FOR approval [_] AGAINST approval [_] ABSTAIN
3. Approval of the amendment and restatement of the Stockholders' Agreement
dated as of June 17, 1988:
[_] FOR approval [_] AGAINST approval [_] ABSTAIN
<PAGE>
4. Approval of the amendment and restatement of the Montgomery Ward & Co.,
Incorporated Stock Ownership Plan Terms and Conditions:
[_] FOR approval [_] AGAINST approval [_] ABSTAIN
5. Approval of the amendments to the Montgomery Ward & Co., Incorporated Stock
Ownership Plan:
[_] FOR approval [_] AGAINST approval [_] ABSTAIN
6. Approval of the Senior Executive Performance Management Program:
[_] FOR approval [_] AGAINST approval [_] ABSTAIN
7. Approval of the Executive Long-Term Incentive Plan:
[_] FOR approval [_] AGAINST approval [_] ABSTAIN
Signature:
-----------------------------
Capacity / Title:
----------------------
Date:
----------------------------------
Sign the exact name of the shareholder as it appears on your certificate(s). If
acting as administrator, trustee or in representative capacity, sign name and
title.
MHA04470.D
