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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549-1004
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (Fee Required)
For the 52-Week Period Ended Commission File
December 30, 1995 No. 0-17540
MONTGOMERY WARD HOLDING CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3571585
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Montgomery Ward Plaza, Chicago, Illinois 60671-0042
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (312) 467-2000
Securities registered pursuant to Section 12(b) of the Act
Title of each class Name of each exchange
on which registered
Not Applicable None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, Series 1, $.01 Par Value
(Title of class)
Class A Common Stock, Series 2, $.01 Par Value
(Title of class)
Voting Trust Certificates representing Shares of Class A Common
Stock, Series 1, $.01 Par Value
(Title of class)
Voting Trust Certificates representing Shares of Class A Common
Stock, Series 2, $.01 Par Value
(Title of class)
Class B Common Stock, $.01 Par Value
(Title of class)
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. .
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
At March 20, 1996, there were 18,748,897 shares of Class A Common
Stock and 25,000,000 shares of Class B Common Stock of the
Registrant outstanding.
Part III incorporates information by reference from the proxy
statement for the annual meeting of shareholders to be held on May
31, 1996.
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<PAGE>
PART I
Item 1. Business.
General
Montgomery Ward Holding Corp., a Delaware corporation (the
Company or MW Holding), and its wholly-owned subsidiary, Montgomery
Ward & Co., Incorporated (Montgomery Ward), are engaged in retail
merchandising and direct response marketing (including insurance)
in the United States. See Note 20 to the Consolidated Financial
Statements for financial information regarding these segments.
Founded in 1872 and incorporated in Illinois in 1968, Montgomery
Ward is one of the nation's largest retail merchandising
organizations. As of December 30, 1995, Montgomery Ward and its
wholly-owned subsidiary, Lechmere, Inc., a Massachusetts
corporation (Lechmere), operated 402 retail stores in 43 states
with approximately 29 million square feet of selling space. In
addition, Montgomery Ward operated 10 liquidation centers which
sell overstock merchandise, 24 distribution facilities and 117
product service centers.
Montgomery Ward offers life and health insurance, revolving
credit insurance, club products and other consumer services through
Signature Financial/Marketing, Inc., a Delaware corporation
(Signature), and through Signature's subsidiaries (collectively,
with Signature, the Signature Group). The Signature Group is one
of the largest direct marketing companies in the United States.
Merchandising
Montgomery Ward has grown to become one of the largest privately
held retailers in the United States with over $7 billion in annual
revenues. The Company is among the largest retailers in the
country in electronics, appliances, furniture and fine jewelry. It
is also one of the largest retailers of many prominent name brands,
including Sony, Maytag, General Electric, La-Z-Boy, Sealy, Lee,
Playtex and Bugle Boy.
Montgomery Ward's specialty concepts combine a focus on specific
customer needs, dominant merchandise assortments, exclusive values,
updated presentation and aggressive marketing strategies. The
specialty categories within Montgomery Ward are the following:
Product Category Specialty Concept
Appliances and Electronics Electric Ave. and
Electric Ave. & More
Home Furnishings Home Ideas and Rooms & More
Automotive Auto Express
Apparel Apparel Store and Kids Store
Jewelry Gold 'N Gems
<PAGE>
Item 1. Business. (continued)
Merchandising (continued)
Each specialty strategy has its own business structure which
focuses on its specific competition, customer preferences and
merchandising, marketing and customer service priorities. However,
being a leading national retailer with multiple specialty concepts
provides the Company with significant buying and cost leverage.
Electric Ave. is a combined consumer electronics and appliance
superstore offering all major product categories, including video,
audio, home office, telephones, electronic games and kitchen,
laundry and other major appliances. Electric Ave. has a
significant national brand name assortment, including Sony, General
Electric, Whirlpool, Maytag, Apple, Bose, R.C.A., Magnavox,
Toshiba, Amana and J.V.C. To complement its national brands,
Montgomery Ward's exclusive proprietary brand offering in
appliances features the Admiral name under a trademark licensing
agreement.
Home Ideas offers a full complement of home furnishings with
broad selections emphasizing name brands in furniture and small
ticket lines for the bath, bedroom and kitchen. The Rooms & More
concept offers accessorized furniture room groupings to provide
customers the convenience of coordinated furniture pieces and
accessories aggressively priced through tiered discounts on the
purchase of multiple pieces. The broad name brand selection
includes Bassett and La-Z-Boy, and the Company is one of the few
retailers to offer all four major mattress brands (Simmons, Sealy,
Serta and Spring Air), and it recently added Stearns & Foster. The
success of the Home Ideas and Rooms & More specialty concepts has
resulted in Montgomery Ward being one of the three largest
furniture retailers in the United States.
Auto Express focuses on the sale and installation of tires,
batteries, brakes and shocks. Montgomery Ward is one of the
leading retailers of branded tires, including Goodyear, Firestone,
Michelin, Bridgestone and B.F. Goodrich. Other major brands
include Exide, Monroe and NAPA. Auto Express supplements its
dominant merchandise offering with a strong commitment to customer
service and a focus on those services it is capable of delivering
at a high performance level. Auto Express adds creditability to
its service commitment through its marketing pledges which include
price matching guarantees, service time guarantees and a "No
Excuses" refund/replacement guarantee for 30 days following
service.
<PAGE>
Item 1. Business. (continued)
Merchandising (continued)
The Apparel Store and Kids Store offer branded, value oriented
merchandise in women's, men's, children's and intimate apparel as
well as footwear and accessories. The apparel brand and price
point offering is targeted at the large middle market between
department stores and discounters. Each category delivers a
focused, contemporary and coordinated offering which matches middle
income casual and career lifestyles. An impressive offering of
prominent name brands has been built, including Lee, Playtex,
Bugle Boy, Bestform, Converse, Gloria Vanderbilt, Hanes and Botany.
In addition, the Company has developed licensed and proprietary
brands for certain product categories, such as Ship 'N Shore and
Connie Selleca in women's apparel and BIKE in activewear.
Gold 'N Gems is a complete jewelry specialty concept offering all
major merchandise categories: diamonds, gemstones, gold and
watches. Gold 'N Gems emphasizes a broad selection at exceptional
values through a wide range of price points that spans across first
time buyers to shoppers desiring higher priced merchandise.
Montgomery Ward has become one of the largest fine jewelry
retailers in the country, and its major vendor relationships enable
it to offer highly featured products at outstanding prices.
Montgomery Ward currently operates 340 full line stores featuring
all of the specialty concepts and 62 stores featuring a variety of
other formats, including 28 Lechmere stores and 11 Electric Ave. &
More stores. Full line Montgomery Ward stores average
approximately 75,000 square feet of selling space.
Montgomery Ward's retail business is seasonal, with over 30% of
the 1995 sales occurring in the fourth quarter. The results of
Montgomery Ward's operations are also subject to changes in
consumer demand associated with general economic conditions, which
is especially true with respect to demand for durable goods and
other "big ticket" merchandise.
Montgomery Ward's retail operations are supported by its
corporate buying division which has its principal office in
Chicago, and includes foreign purchasing offices in Italy, Hong
Kong, Taiwan, Japan, Singapore and Korea. In addition to its
buying staff, the corporate buying division employs technical teams
to ensure quality control of Montgomery Ward's merchandise.
<PAGE>
Item 1. Business. (continued)
The Company considers logistics to be important to its operations
and has continually invested in this area. The distribution
facilities opened in Phoenix, Tampa, Baltimore and southern
California in 1991 through 1994 added approximately 1.7 million
square feet of space and incorporate distribution management
systems which are dynamic in tracking merchandise and facilitating
inventory planning and customer service.
Corporate Expansion
In March 1994, Montgomery Ward acquired Lechmere, a chain of
Northeast-based superstores. The Company's acquisition of Lechmere
adds substantial volume to a highly successful specialty segment of
the Company's business and strengthened its dominance as a major
retailer of home oriented products. Lechmere offers extensive
selections of hardline merchandise and currently operates 28 stores
averaging approximately 50,000 square feet of selling space.
Lechmere has built a strong customer franchise and is believed to
be the marketshare leader in the greater Boston area in many of the
products it sells. It offers a comprehensive selection of
nationally recognized brands which are now being supplemented with
Montgomery Ward's successful proprietary brands. Leverage
opportunities from the acquisition are being realized through added
buying volume and expense consolidation.
Since 1985, Montgomery Ward has invested almost $1.4 billion in
capital expenditures to upgrade existing stores and add new stores.
In 1995, Montgomery Ward opened 5 new Electric Ave. & More stores
and relocated 3 full line stores and has opened 72 new stores
(including 4 Lechmere stores) in the last 5 years. The ongoing
store opening program has resulted in new stores representing a
significant portion, approximately 30%, of the Company's total
stores in major markets. The Electric Ave. & More retail concept
combines Montgomery Ward's most successful strategies, Electric
Ave., Rooms & More and Gold 'N Gems, with Lechmere's strong
offering in entertainment and housewares to create a dominant home-
oriented product offering. Electric Ave. & More is designed for
mid-size markets with populations of 200,000 to 250,000 and for a
superstore format of approximately 45,000 of selling square feet.
Montgomery Ward has substantial buying and operating leverage
compared to the more limited competition in these markets. In
addition to the opening of additional Electric Ave. & More stores,
the Company is planning to continue opening full line Montgomery
Ward stores in regional shopping centers and Lechmere stores in the
northeast United States.
<PAGE>
Item 1. Business. (continued)
Corporate Expansion (continued)
On August 8, 1995, Montgomery Ward purchased a 4.4% equity
interest in ValueVision International, Inc. (ValueVison), through
an agreement allowing Montgomery Ward to acquire up to 49%
ownership of the company, should ValueVision achieve certain growth
targets in the number of cable homes that carry its programming.
ValueVision also reached a 7-year, non-cancelable agreement with
Time Warner Cable Company to launch ValueVision programming in 2.5
million homes. After this addition, 14 million homes will be able
to receive ValueVision programs, and 3.4 million of these will be
able to receive programming 24 hours per day. ValueVision is now
the third largest home shopping enterprise in the United States and
has experienced over 50% sales growth since 1994. See Note 19 to
the Consolidated Financial Statements for discussion of ValueVision
as a related party.
In July, 1994, Montgomery Ward became a limited partner in
Merchant Partners, Limited Partnership (Merchant Partners). The
purpose of this partnership is to invest in new and emerging growth
businesses and leveraged buy-outs to achieve a superior rate of
return. Montgomery Ward made capital contributions of $4 million
to Merchant Partners, Limited Partnership in 1995 and $1 million in
1994. Additional funding may be required within limitations set
forth in the limited partnership agreement. The cumulative maximum
capital contribution is $40 million. See Note 19 to the
Consolidated Financial Statements regarding a year-end distribution
by the partnership.
Montgomery Ward regularly reviews opportunities for acquisitions
and joint ventures and regards such transactions as a possible
source for future growth.
Performance Initiatives
In mid-1995, a merchandising strategy offering branded, highly
featured product at extraordinary prices and value was reintroduced
as "Exclusive Values". The significant sales volume generated by
Exclusive Values provides incremental economies of scale with
aggressive pricing that differentiates Montgomery Ward from
competition and yields attractive margin rates. Based on positive
fourth quarter results in home oriented categories, Exclusive
Values are expected to achieve significant performance results in
1996. By allowing for a more focused merchandise and marketing
strategy, Exclusive Values should more effectively concentrate
Montgomery Ward's advertising and in-store marketing thrust into
compelling messages. Further, Exclusive Values are being used to
redeploy inventory investment from less productive merchandise to
core, high velocity items.
<PAGE>
Item 1. Business. (continued)
Performance Initiatives (continued)
Actions have been initiated to reduce inventories in response to
slow industry-wide sales and identify opportunities to enhance
inventory turnover and earnings' productivity. Aggressive
inventory receipt management has been undertaken using new
reporting systems. The use of foreign sourcing is being decreased
to shorten commitments and increase response to volatile sales
trends. The focus on Exclusive Values and narrower assortments
should improve inventory management by facilitating in-stock
position and higher turnover.
Merchandising enhancements originally introduced in Electric Ave.
& More were integrated in 164 of the Electric Ave. formats in
Montgomery Ward's full line stores and contributed to favorable
electronics sales in fourth quarter 1995. These enhancements
provide more dominant aisle exposure for Exclusive Values and
higher margin product. They also present certain merchandise in a
self-service, take-with format which adds shopper convenience and
prompts impulse purchases.
Two major brand additions in Fall 1995 should also benefit 1996
performance. Auto Express introduced the Goodyear brand in third
quarter 1995. Goodyear sales are growing to represent a
significant portion of the Company's tire volume, and the brand is
drawing new customers and generating added service opportunities.
In addition, Whirlpool appliances were introduced in fourth quarter
1995 and have significant market share potential in that one out of
every four major appliance purchases by consumers is the Whirlpool
brand. Management believes the Goodyear and Whirlpool additions
give Montgomery Ward's automotive and home oriented specialty
concepts the strongest brand offering among major competition.
Direct Marketing
Montgomery Ward offers life and health insurance, revolving
credit insurance, club products and other consumer services through
the Signature Group. As a recognized leader in sophisticated
segmentation scoring models, Signature is among the premier direct
marketers in the country. During 1995, Signature made more than
400 million direct mail solicitations and 60 million telemarketing
presentations from its 18 telemarketing centers equipped with the
latest technology, including proprietary software. At year-end
1995, Signature had 11.4 million policyholders and club
memberships, a 10% increase over year-end 1994.
The Company believes that Signature has the broadest major
product offering among direct marketers. Its legal services club
is the largest United States provider of voluntary legal services,
<PAGE>
Item 1. Business. (continued)
Direct Marketing (continued)
it operates one of the largest national auto clubs in the country,
and it has a unique dental plan which offers discounted and free
dental services for a monthly fee. Signature has developed a
substantial network of service providers to support these clubs.
Its dispatch towing network for Auto Club members exceeds 7,600
towing companies with a fleet of over 30,000 tow trucks. Its legal
plan network includes 2,600 attorneys with an average of thirteen
years experience and the dental plan includes 7,500 dentists with
an average of sixteen years experience.
Signature has marketing rights to the 8.3 million promotable
accounts in the Montgomery Ward credit card file, and the 1.8
million average new accounts added annually. Signature has over 29
years of experience marketing to Montgomery Ward credit accounts
and has considerable expertise in maximizing its response rates.
Montgomery Ward credit cardholders comprise the majority of
Signature's customers, and the size and customer dynamics of the
Montgomery Ward file have allowed Signature to attain economies of
scale which have lowered its marketing and operating costs.
Signature also markets its products and services to the customers
of more than 50 other entities, providing 42.9 million promotable
accounts, including some of the nation's largest financial
institutions, oil companies and retailers. Signature's major
clients include Citibank, Chemical, Chase Manhattan, First National
Bank of Chicago, National Westminster, NorWest, First Fidelity,
Wachovia, Mobil, Texaco, Unocal, G.E. Consumer Financial Services,
Federated Allied Credit Services, Limited Retail Divisions, Brylane
Catalog Divisions, Best Buy, Hudson's Bay, Associates, USAA and
Credit Union National Association, and revenues from these clients
have grown to 36% of its revenues.
Subsequent to year end, Signature acquired the Amoco Motor Club,
which provides year-round, 24-hour emergency road and towing
services to more than two million club members. Combining the
Amoco Motor Club with Signature's auto club will create the largest
national auto club in the United States. As discussed in Note 13
to the Consolidated Financial Statements, Montgomery Ward financed
this acquisition through the use of the majority of the proceeds
generated from the issuance of $175 million of a new series of
Senior Preferred Stock.
See Note 20 to the Consolidated Financial Statements for
restrictions on dividends which may be paid by insurance
subsidiaries of Signature.
<PAGE>
Item 1. Business. (continued)
Competition and Regulation
The sale of merchandise by Montgomery Ward and Lechmere is
conducted under highly competitive conditions. Buying and selling
are each done in open competitive markets. Montgomery Ward's
stores are in competition with specialty stores, department stores
and other types of retail outlets in the areas in which they
operate. The Company believes that dominance of merchandise
assortments, brand names, competitive pricing and availability of
services such as credit, delivery, installation and repair, are the
principal factors which differentiate competitors. The Company
believes it competes effectively with respect to all of these
factors despite strong competitive pressures. To meet competition,
Montgomery Ward is continuously striving to improve the efficiency
and effectiveness of its operations and to modernize and specialize
its facilities.
Signature's insurance operations are highly regulated and
conducted under highly competitive conditions. To date, Signature
has been able to compete effectively with other companies which
offer programs similar to those provided by Signature. Signature
also competes with traditional methods of marketing that enjoy
widespread consumer acceptance, including the marketing effort by
unaffiliated dentists and lawyers. Insurance companies operate
pursuant to specific state statutes as well as rules and
regulations promulgated by various state insurance departments and
are required to file reports with such agencies at least quarterly.
Telemarketing and direct mail solicitations are regulated at
state and federal levels, and management believes that these
activities will increasingly be subject to such regulation. Such
regulation may limit Signature's ability to solicit new members or
to offer more products and services to existing members and may
materially adversely affect Signature's business and revenues.
The requirements of environmental protection laws and regulations
have not had a material effect upon Montgomery Ward's operations.
Compliance may, in certain cases, lengthen the lead time of
expansion plans and could increase construction and operating
costs.
Account Purchase Agreement
Montgomery Ward extends credit to its customers under an
open-ended revolving credit plan. Montgomery Ward's private label
credit card sales were 54.2% and 55.9% of total sales for 1995 and
1994, respectively. Bankcard sales were an additional 16.4% and
14.9% of total sales for 1995 and 1994, respectively.
<PAGE>
Item 1. Business. (continued)
Account Purchase Agreement (continued)
Montgomery Ward and Montgomery Ward Credit Corporation
(Montgomery Ward Credit), a wholly-owned subsidiary of General
Electric Capital Corporation (GE Capital), operate under an Account
Purchase Agreement pursuant to which Montgomery Ward Credit
purchases receivables from time to time from, and provides services
to, Montgomery Ward. Under this agreement, Montgomery Ward Credit
has the exclusive right to operate the Montgomery Ward private
label credit card system and the obligation to purchase for their
face value (and Montgomery Ward is obligated to sell) all the
receivables generated by the Montgomery Ward private label credit
card system, including those generated through Montgomery Ward's
50% owned specialty catalog partnership, Montgomery Ward Direct
L.P. (MW Direct), up to $6 billion outstanding at any time. If
Montgomery Ward desires to sell its customer receivables at a time
when Montgomery Ward Credit owns $6 billion or more of such
receivables, alternative arrangements, such as the sale of
receivables to banks or other financial institutions, would be
required unless Montgomery Ward Credit agrees to purchase the
excess. As of December 30, 1995, there were $5.3 billion of
Montgomery Ward private label credit card receivables owned by
Montgomery Ward Credit, and the average outstanding amount of such
receivables owned by Montgomery Ward Credit during 1995 was $5.1
billion.
Pursuant to the Account Purchase Agreement, Montgomery Ward
Credit bears certain credit promotion expenses, while Montgomery
Ward retains certain specified in-store service responsibilities
with respect to credit operations. Decisions regarding certain
credit matters are determined by a management committee with
representatives from each party. Under the Account Purchase
Agreement, Montgomery Ward is required to pay Montgomery Ward
Credit the excess interest costs on a monthly basis if a blended
interest rate applicable to Montgomery Ward Credit's finance costs
with respect to the receivables exceeds 10% per annum. As of
December 30, 1995, the blended interest rate has been less than
10%.
Under the Account Purchase Agreement, Montgomery Ward and
Montgomery Ward Credit have made certain arrangements with respect
to credit losses. Previously, credit losses were shared.
Effective January 1, 1994, Montgomery Ward bears the entire risk of
credit losses until such time as Montgomery Ward or Montgomery Ward
Credit elects to revert to the prior loss sharing arrangement. In
1992, the parties agreed that Montgomery Ward's remaining liability
for credit losses for 1991 through 1994, and its liability for
credit losses for 1995 through 1997, may be deferred, and such
deferred credit losses are payable by Montgomery Ward to Montgomery
Ward Credit in early 1998. To the extent these deferred credit
<PAGE>
Item 1. Business. (continued)
Account Purchase Agreement (continued)
losses, less the deferred amount of finance charges, which the
parties agreed effective January 1, 1994 was payable to Montgomery
Ward, (other than incremental finance charges and late fees
described below) exceed $300 million at any time, such excess is to
be paid annually in cash. The Company does not expect such amounts
for the period through 1997 to exceed the $300 million limitation.
Interest on Montgomery Ward's deferred liability for credit losses
is payable at a rate equal to rates on comparable borrowings of
Montgomery Ward.
In exchange for Montgomery Ward's agreement to allow Montgomery
Ward Credit to increase finance charge rates in selected states,
Montgomery Ward receives a share of incremental finance charges.
In 1995, Montgomery Ward entered into an agreement with Montgomery
Ward Credit to increase late fee assessments and implement
previously agreed upon finance charge increases in various states,
as allowed by statute. Montgomery Ward's share of these
incremental finance charges and late fees is calculated in the same
manner as the prior 1992 agreement. These incremental finance
charges and late fees are deferred and payable by Montgomery Ward
Credit to Montgomery Ward in early 1998, together with interest at
the same rate as amounts owed by Montgomery Ward to Montgomery Ward
Credit. Incremental finance charges are generated only on
purchases subsequent to the date such finance charge rates are
increased. In the event that, due to the increase in finance
charge rates and late fees, certain refunds are required to be
made, Montgomery Ward and Montgomery Ward Credit have agreed to
share the financial risk. In addition, legislation has from time
to time been introduced in certain states which, if enacted, may
impose limitations on the ability to implement or maintain all or
a portion of such rate increases, in which case Montgomery Ward's
share of rate increases may be substantially reduced.
In addition to sharing incremental finance charges, beginning
in 1994, and late fees, beginning in 1995, until such time as
Montgomery Ward or Montgomery Ward Credit elects to revert to the
prior loss sharing arrangements, with respect to each fiscal year,
Montgomery Ward Credit will make a payment (subject to the deferral
for 1994 through 1997) to Montgomery Ward of a share of all finance
charges in an amount equal to (a) if credit losses are 5% or less
of average gross receivables, the lesser of 3.9% of average gross
receivables or the actual credit losses; (b) if credit losses are
greater than 5% but less than or equal to 8% of average gross
receivables, 3.9% of average gross receivables plus 50% of the
amount by which actual credit losses exceed 5% of average gross
receivables; or (c) if credit losses exceed 8% of average gross
receivables, 5.4% of average gross receivables plus the amount by
which credit losses exceed 8% of average gross receivables.
<PAGE>
Item 1. Business. (continued)
Account Purchase Agreement (continued)
Notwithstanding the foregoing, in certain circumstances the amounts
payable to Montgomery Ward by Montgomery Ward Credit with respect
to its share of all finance charges are limited as follows: in the
event that total finance charges billed by Montgomery Ward Credit
during a fiscal year less Montgomery Ward's share of the
incremental finance charges are less than the amount which would
otherwise be payable to Montgomery Ward by Montgomery Ward Credit
as it's share of the finance charges as computed above, the
payments by Montgomery Ward Credit to Montgomery Ward will be
reduced to the amount of such total finance charges less such
incremental finance charges.
In connection with the foregoing arrangements, the Company has
executed notes for the deferred credit losses which totalled $224
million with respect to credit losses from 1991 through 1995. The
incremental finance charge amount owed by Montgomery Ward Credit to
Montgomery Ward as of the end of 1995 was $44 million. See Note 4
to the Consolidated Financial Statements.
Montgomery Ward Credit has the right of first refusal to
implement certain new financing programs proposed by Montgomery
Ward.
The Account Purchase Agreement will be in effect until December
31, 2006 and thereafter from year to year unless either party gives
to the other not less than ten years prior notice of its election
to terminate. Except upon the occurrence of certain events of
default, the Account Purchase Agreement may generally not be
terminated by either party prior to December 31, 2006. GE Capital
has guaranteed Montgomery Ward Credit's obligations under the
Account Purchase Agreement.
Montgomery Ward Credit purchases the customer accounts receivable
of Signature on terms similar to those contained in the Account
Purchase Agreement, except for certain fees. In 1995, Signature
paid approximately $6 million to Montgomery Ward Credit for
administrative services provided by Montgomery Ward Credit in
connection with Signature products.
<PAGE>
Item 1. Business. (continued)
Associates
At December 30, 1995, Montgomery Ward and its subsidiaries
employed the equivalent of 55,000 full-time associates. During
certain seasons, temporary associates are added and peak employment
is approximately 71,000 associates during the Christmas season.
Approximately 2,400 Montgomery Ward and Lechmere associates are
covered by various collective bargaining agreements. The majority
of the agreements expire in 1997. Montgomery Ward has experienced
no major labor-related interruption or curtailment of operations
during the last 15 years. The Company considers its labor
relations to be good.
Item 2. Properties.
At December 30, 1995, the Company owned or leased 518 retail,
distribution and other operating facilities. The Company's
properties are located throughout the continental United States and
cover approximately 60 million square feet.
These properties are summarized as follows:
Number of Approximate
Use Locations Total Square Feet
Montgomery Ward
Retail Stores:
Full Line . . . . . . . . .340 44,060,000
Limited Line. . . . . . . 34 2,051,000
Lechmere Retail
Stores. . . . . . . . . . 28 2,468,000
Corporate Office
Complex . . . . . . . . . . 1 2,975,000
Miscellaneous Operating
Locations . . . . . . . . .115 8,573,000
Total Locations. . . . .518 60,127,000
Owned and leased retail stores include approximately 29 million
square feet of selling space and 19 million square feet devoted to
storage, office and related uses. Miscellaneous operating
locations include warehouses, office buildings and distribution
centers, but exclude vacant land parcels and properties held for
disposition. See Note 12 to the Consolidated Financial Statements
for information with respect to leased properties.
<PAGE>
Item 2. Properties. (continued)
The nationwide scope of Montgomery Ward's operations helps
minimize the impact of changes in the economies of specific regions
on the overall performance of its retail stores and allows
Montgomery Ward to merchandise to a variety of demographic
profiles. The regional distribution of Montgomery Ward and
Lechmere retail stores as of December 30, 1995 is indicated in the
following table:
State Total
Alabama 3
Arizona 11
Arkansas 5
California 57
Colorado 13
Connecticut 4
Florida 23
Georgia 3
Idaho 1
Illinois 32
Indiana 9
Iowa 6
Kansas 6
Kentucky 2
Louisiana 6
Maine 1
Maryland 16
Massachusetts 13
Michigan 16
Minnesota 10
Missouri 10
Montana 2
Nebraska 2
Nevada 3
New Hampshire 6
New Mexico 3
New York 18
North Carolina 4
North Dakota 1
Ohio 5
Oklahoma 5
Oregon 8
Pennsylvania 14
Rhode Island 1
South Carolina 5
Tennessee 2
Texas 45
Vermont 1
Virginia 17
Washington 3
West Virginia 5
Wisconsin 4
Wyoming 1
402
<PAGE>
Item 3. Legal Proceedings.
The Company and its subsidiaries are engaged in various
litigation and have a number of unresolved claims. While the
amounts claimed are substantial and the ultimate liability with
respect to such litigation and claims cannot be determined at this
time, management is of the opinion that such liability, to the
extent not provided for through insurance or otherwise, is not
likely to have a material impact on the financial condition or the
results of operations of the Company.
In 1979, a suit entitled "United States v. Midwest Solvent
Recovery, Inc., et.al." (Civil Action Number H-79-556) was
initiated by the United States Department of Justice on behalf of
the Environmental Protection Agency in the U.S. District Court for
the Northern District of Indiana, and an Amended Complaint was
filed in January 1984. This suit is against Standard T Chemical
Company, Inc., a Delaware corporation and wholly-owned subsidiary
of Montgomery Ward (Standard T), which ceased operations in 1994
and is currently an inactive entity, and others involving two waste
disposal sites and seeks reimbursement for the cost of surface
clean-up, investigation studies concerning possible contamination
of the soil and ground water and remedial action. In January 1990,
the United States filed a second Amended Complaint seeking inter
alia, treble damages and monetary sanctions. Standard T signed a
consent decree, whereby it was obligated to provide a financial
assurance up to $3 million for remediation of the site. The
Company currently anticipates that its obligation will not exceed
that amount.
In 1985, the New York Environmental Protection Agency brought an
action for remediation of a site in Staten Island, New York against
the owner of the property. The owner asserted that Standard T,
among others, generated wastes that were disposed of by a prior
owner of the site. Standard T is in the process of completing the
cleanup of this site and has purchased the site from the owner for
$1.45 million.
In February 1986, Standard T, along with approximately 330 other
companies, was notified by the United States Environmental
Protection Agency that the agency was mandating a remediation of
the contamination of the American Chemical Services, Inc. (A.C.S.)
site located in Griffith, Indiana, under authority vested in it by
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980. Standard T and a Montgomery Ward paint
factory were each identified as a Potentially Responsible Party
(PRP), under the terms of the Act, because of their alleged status
as generators of hazardous waste ultimately disposed of at the
A.C.S. site. The Company will pay its proportionate share of the
<PAGE>
Item 3. Legal Proceedings. (continued)
costs of the studies, and may ultimately pay a share of the costs
of abating the contamination of the A.C.S. site. One estimate by
the EPA of future costs is $69 million with the Company alleged to
be responsible for 2 to 2 1/2% of total costs. However, these
costs cannot be estimated with any degree of accuracy at this time.
Thus, the Company is currently not in a position to estimate the
range or amount of potential exposure in this matter with a high
degree of certainty.
On or about December 10, 1990, the Company was served with a
Complaint and Notice of Opportunity for Hearing (Complaint),
alleging certain violations by the Company of the Federal Toxic
Substances Control Act (TSCA). The Complaint contains twenty-two
counts and alleges that the Company violated various regulations
concerning the use, disposal, storage and marking of
polychlorinated biphenyls (PCBs) at a warehouse facility located in
Kansas City, Missouri. The matter has been settled with a nominal
civil penalty and the Company agreeing to remove certain CFC-
containing chillers from certain stores in the Kansas City area.
Standard T and Montgomery Ward are also involved at various
stages with several other sites where Standard T and Montgomery
Ward have been notified or sued as a PRP. The potential liability
related to these sites cannot be estimated at this time.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names and ages of the executive officers of
the Company as of March 20, 1996, and the positions each has held
during the past five years:
Bernard F. Brennan, 57, has been Chief Executive Officer
and a director of the Company since February 9, 1988, Chairman
since June 17, 1988 and was President from February 9, 1988 through
September 10, 1992. Mr. Brennan has been Chief Executive Officer
and a director of Montgomery Ward since May 13, 1985 and became
Chairman of Montgomery Ward on June 24, 1988. He served as
President of Montgomery Ward from May 13, 1985 through September
10, 1992. Mr. Brennan has been a director of Itel Corporation
since 1988.
<PAGE>
Executive Officers of the Registrant (continued)
Spencer H. Heine, 53, has been an Executive Vice President,
Secretary and General Counsel of the Company since September 30,
1991 and a director since May 15, 1992. Prior thereto, he was
Senior Vice President, Secretary and General Counsel of the Company
from June 17, 1988 through September 29, 1991. Mr. Heine has been
Executive Vice President, Secretary and General Counsel of
Montgomery Ward and President-Montgomery Ward Properties since
April 12, 1994. Prior thereto, Mr. Heine served as Executive Vice
President, Legal and Financial Services of Montgomery Ward from
September 30, 1991 through April 11, 1994. He served as Senior
Vice President-Legal and Real Estate from March 28, 1990 through
September 29, 1991. Mr. Heine was Chairman and Chief Executive
Officer of Signature from March 8, 1993 through April 11, 1994.
Prior thereto, he also served as President of Signature since
September 30, 1991.
Robert A. Kasenter, 49, has been an Executive Vice President of
the Company since February 21, 1992. Prior thereto, he was a
Senior Vice President of the Company from June 17, 1988 through
February 20, 1992. Mr. Kasenter has served as Executive Vice
President, Human Resources of Montgomery Ward since January 27,
1992 and was Senior Vice President-Human Resources and Customer
Satisfaction from June 23, 1988 to January 26, 1992.
Edwin G. Pohlmann, 48, has been an Executive Vice President since
September 30, 1991 and served as Chief Financial Officer of the
Company from September 30, 1991 to August 30, 1992. Prior thereto,
he was Senior Vice President and Chief Accounting Officer from May
18, 1990 to September 29, 1991. Mr. Pohlmann has been Executive
Vice President, Merchandise and Store Operations of Montgomery Ward
since November 16, 1993. Prior thereto, he was Executive Vice
President, Merchandise Control from June 25, 1993 through November
15, 1993, Executive Vice President, Stores and Finance of
Montgomery Ward from January 27, 1992 to June 24, 1993 and prior
thereto, Executive Vice President and Chief Financial Officer since
September 30, 1991. He served as Senior Vice President-Store
Operations of Montgomery Ward from June 16, 1991 through September
29, 1991 and was Senior Vice President-Finance of Montgomery Ward
from March 1, 1988 through June 15, 1991.
John L. Workman, 44, has been Executive Vice President, Chief
Financial Officer and Assistant Secretary of the Company since
January 28, 1994 and a director since May 12, 1995. Prior thereto,
he served as Senior Vice President, Chief Financial Officer and
Assistant Secretary from August 31, 1992 through January 27, 1994
and Vice President and Assistant Secretary from May 15, 1992
through August 30, 1992. Mr. Workman has been Executive Vice
President and Chief Financial Officer of Montgomery Ward since
January 28, 1994 and served as Senior Vice President and Chief
<PAGE>
Executive Officers of the Registrant (continued)
Financial Officer from August 31, 1992 to January 27, 1994. Prior
thereto, he served as Vice President and Corporate Controller from
January 16, 1991 through August 30, 1992 and Corporate Controller
from August 2, 1988 through January 15, 1991. Mr. Workman has been
a director of ValueVison International, Inc. since August 8, 1995.
Richard C. Rusthoven, 54, served as an Executive Vice President
of the Company from May 15, 1992 until his current leave of absence
which began on November 1, 1992. Mr. Rusthoven was Executive Vice
President-Apparel of Montgomery Ward from February 20, 1992 through
October 31, 1992 and was Senior Vice President-Apparel from July 3,
1991 to February 19, 1992. He served as Vice President and General
Merchandise Manager, Men's Apparel, Footwear and Accessories from
June 6, 1990 to July 2, 1991. Mr. Rusthoven is also on a leave of
absence from Montgomery Ward.
Carol J. Harms, 42, has been Vice President and Treasurer of the
Company since January 1, 1989. Ms. Harms has been Vice President
and Treasurer of Montgomery Ward since May 1, 1988.
G. Joseph Reddington, 54, has been a director of the Company and
of Montgomery Ward since September 22, 1994. Mr. Reddington has
been Chairman and Chief Executive Officer of Signature since April
12, 1994. Prior thereto, he was President of Sears Canada, Inc.
from 1989 until his retirement in December 1993. Mr. Reddington
has been a director of TransWorld Airlines since August 1993 and a
director of Loblaw Companies Ltd. since August 1994.
Robert J. Stevenish, 52, has been Executive Vice President,
Operations of Montgomery Ward since November 1, 1995. Prior
thereto, he was with Hills Department Stores, Inc. from October,
1992 where his most recent position was Senior Executive Vice
President and Chief Operating Officer. Prior to joining Hills
Department Stores, Mr. Stevenish worked for J.C. Penney Company for
25 years in positions of increasing responsibility.
Frederick E. Meiser, 52, has been Chairman and Chief Executive
Officer of Lechmere since November 30, 1995. Prior to joining
Lechmere, Mr. Meiser was Executive Vice President, Merchandising
and Marketing of Builders Square. Prior thereto, he was Vice
President Marketing and Importing for SPS Industries.
Alan E. DiGangi, 49, has been Executive Vice President, Electric
Ave., Rooms & More/Soft Home of Montgomery Ward since January 5,
1996. Prior thereto, he was Executive Vice President, Electric
Ave. & More from April, 1995 to January, 1996. Mr. DiGangi joined
Montgomery Ward in April, 1970 and has held various positions
within Store Management, Field Operations, Marketing and Sales
Promotion.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
There is no established public trading market for the Common
Stock of the Company. All shares are subject to restrictions on
transfers contained in the Stockholders' Agreement dated as of June
17, 1988, as amended and restated (Stockholders' Agreement), or the
Terms and Conditions (Terms and Conditions) imposed under the
Montgomery Ward & Co., Incorporated Stock Ownership Plan (Stock
Ownership Plan). It is not expected that a market will develop in
the near term.
Transfers of shares of Class A Common Stock are restricted for
a period of three years from certain applicable dates under the
Stockholders' Agreement and the Terms and Conditions. Transfers of
Class A shares purchased other than pursuant to the Stock Ownership
Plan are restricted for a period of three years from the holder's
first acquisition of any such shares, while transfers of shares
received under the Stock Ownership Plan are restricted for a period
of three years after the award of such shares, exercise of purchase
rights for such shares or grant of options with respect to such
shares, as applicable. After the applicable three-year periods,
limited transfers of such shares which have become vested in
accordance with the Stockholders' Agreement or the Terms and
Conditions, as applicable, are permitted, subject to certain rights
of first refusal. All of the Class B shares and virtually all of
the outstanding Class A shares are eligible for transfer.
Montgomery Ward declared and paid preferred stock dividends of
$4 million to the Company in 1995, which declared and paid
preferred stock dividends of $4 million in 1995. For information
concerning limitations on the amount of dividends which Montgomery
Ward may pay, see Note 11 to the Consolidated Financial Statements.
Future payments of dividends, if any, are dependent upon future
levels of earnings and capitalization.
As of March 20, 1996, there were three holders of record of Class
A Common Stock, Series 1, one such holder of Class A, Common Stock,
Series 2, and one such holder of Class B Common Stock. No shares
of Class A Common Stock, Series 3, were outstanding as of that
date. As of March 20, 1996, there were 109 holders of record of
Voting Trust Certificates representing beneficial ownership in
shares of Class A Common Stock, Series 1, of which 711,774 shares
are pledged as collateral for notes issued to effect the repurchase
of shares. See Note 14 to the Consolidated Financial Statements.
There were 248 holders of record of Voting Trust Certificates
representing beneficial ownership in shares of Class A Common
Stock, Series 2.
<PAGE>
Item 6. Selected Financial Data
The following summary of certain financial information for each
of the five fiscal years in the period ended December 30, 1995 has
been derived from the Consolidated Financial Statements of MW
Holding. Such information for each fiscal year should be read in
conjunction with the Consolidated Financial Statements and notes
thereto and the report of Arthur Andersen LLP beginning on page 29.
As of and for the
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Dec. 28, Jan. 2, Jan. 1, Dec. 31, Dec. 30,
1991 1993 1994 1994 1995
(Dollars in millions, except per share amounts)
Total
Revenues $5,673 $5,803 $6,023 $7,029 $7,085
Net Income
(a) 135 100 101 117 11
Net Income
Applicable
to Common
Share-
holders(a) 122 92 101 115 7
Net Income
per Class A
Common
Share (a) 2.40 2.01 2.29 2.68 .16
Total
Assets 3,948 3,485 3,835 4,537 4,884
Long-Term
Debt 521 125 213 228 423
Obligations
Under
Capital
Leases 104 95 89 81 66
Total Share-
holders'
Equity 520 553 607 687 700
Redeemable
Preferred
Stock 90 - - 75 175
Cash Divi-
dends per
Common
Share - .25 .50 .50 -
(a) 1992 amounts are presented before cumulative effect of
changes in accounting principles of $40 as a result of
adoption of Financial Accounting Standards Board Statements
No. 106, "Employees Accounting for Postretirement Benefits Other Than
Pensions" and No. 109 "Accounting for Income Taxes".
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis of results of operations
for the Company compares 1995 to 1994, as well as 1994 to 1993.
Montgomery Ward is on a 52- or 53- week fiscal year basis. As a
result, 1995, 1994 and 1993 are 52-week years. All dollar amounts
are in millions, and all income and expense items and gains and
losses are shown before income taxes, unless specifically stated
otherwise.
The Company's retail business is seasonal, with more than 30% of
the 1995 sales occurring in the fourth quarter.
Results of Operations: 1995 Compared with 1994
Increasingly difficult industry conditions further challenged
retailers' ability to provide profitable, value-driven products,
appropriate assortment and maintain disciplined inventories. The
Company's performance reflected this with consolidated net income
decreasing $106, or 90%, from the prior year. Consolidated net
income applicable to common shareholders for 1995 was $7, which was
94% less than the prior year. Net income for 1995 includes the
first quarter loss from operations of Lechmere. Lechmere was
acquired on March 30, 1994, therefore, 1994 results exclude
Lechmere's first quarter 1994 results. Given the seasonality of
Lechmere's business, it has historically experienced losses in the
first quarter of the year.
Consolidated total revenues (net sales and direct response
marketing revenues, including insurance) were $7,085 compared with
$7,029 in 1994, increasing by $56 million or 1%. The $56 million
total revenue increase consisted of a $33 million decrease in net
sales and an $89 million increase in direct marketing revenues.
The change in total net sales represented a 1% decline, however,
excluding Lechmere's first quarter 1995 impact of $192, as
described above, net sales decreased $225, or 3%. Apparel and
domestics sales declined 6% and included the negative impact of
exiting the sale of paint and paint supplies. Hardlines sales
decreased by 2%. Sales on a comparable store basis, which reflect
only the stores in operation for both 1995 and 1994, decreased 5%.
Montgomery Ward did experience favorable results in fourth quarter
1995 in the performance of "Exclusive Values" which leverage the
Company's alliances with large vendors to offer branded, highly
featured product that produces extraordinary sales volume at
attractive margin rates. The increase in direct response marketing
revenues was primarily due to increased clubs' membership and
insurance policyholder levels.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Results of Operations: 1995 Compared with 1994 (continued)
Gross margin (net sales less cost of goods sold) dollars,
including Lechmere, were $1,353, a decrease of $118, or 8%, from
1994. This decrease was due to the gross margin impact of the
decreased sales of $10, a decrease in the margin rate on sales of
$99, and increased occupancy costs of $29 related to increased
depreciation on capital investments in new and existing stores,
partially offset by decreased buying and other expenses of $20.
The 1995 gross margin rate reflects the gross margin results for
Lechmere for twelve months while the 1994 rate reflects Lechmere's
results for only nine months. While Lechmere added to gross margin
dollars, its emphasis in appliances and electronics, which tend to
have lower gross margin rates, contributed to the decrease in the
1995 gross margin rate. Continued competitive pressures also had
an impact on margin rates, and Montgomery Ward's margin trends are
consistent with overall industry results.
Operating, selling, general and administrative expenses increased
$107, or 6%, from the prior year. Excluding Lechmere's 1995 first
quarter impact, operating, selling, general and administrative
expenses increased by $73, or 4%. The increase includes the impact
of new store openings of $39, a provision for severance costs and
relocation of certain administrative functions of both Montgomery
Ward and Lechmere of $25 (See Note 16 to the Consolidated Financial
Statements), increased provision for bad debt expense under the
Account Purchase Agreement of $21, increased advertising and other
promotional costs of $17 and increased operating and administrative
expenses of $8, partially offset by increased income generated from
the sale of product service contracts of $37 (See Note 9 to the
Consolidated Financial Statements).
Net interest expense increased $33, or 57%, from the prior year.
The increase is due to increased borrowings resulting from a
combination of costs associated with the acquisition of, and added
investment in, Lechmere, higher average working capital levels from
slower than anticipated sales and capital expenditures for new and
existing stores, as well as increased interest rates in 1995.
Income tax benefit was $1 for 1995 as compared to income tax
expense of $62 for 1994. See Note 8 to the Consolidated Financial
Statements.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Results of Operations: 1994 Compared with 1993
Consolidated net income increased $16, or 16%, from the prior
year. Consolidated net income applicable to common shareholders
for 1994 was $115, which was 14% greater than the prior year.
Consolidated total revenues (net sales and direct response
marketing revenues, including insurance) were $7,029 compared with
$6,023 in 1993. Net sales increased $941, or 17%. Sales on a
comparable store basis, which reflects only the stores in operation
for both 1994 and 1993, increased 3%. Non-comparable sales include
Lechmere sales of $694. Lechmere was acquired on March 30, 1994.
Non-comparable sales also include the sales of six "Electric Ave.
& More" stores opened during 1994. This new specialty power format
combines the appliances/electronics (Electric Ave.), furniture
(Rooms & More) and fine jewelry (Gold 'N Gems) specialty formats.
The stores have a broad assortment of home oriented merchandise and
contain Montgomery Ward's and Lechmere's most successful
merchandise categories in a format designed for mid-sized markets.
Direct response marketing revenues increased $65, or 16%, to
$465. The increase was primarily due to increased clubs'
membership and insurance policyholder levels.
Gross margin (net sales less cost of goods sold) dollars,
including Lechmere, were $1,471, an increase of $106, or 8%, from
1993. This increase was due to the gross margin impact of the
increased sales of $272, partially offset by the decrease in the
margin rate on sales of $107, increased occupancy costs of $45
related to new store openings and increased buying and other
expenses of $14. The decrease in the margin rate was impacted by
a heavier emphasis in appliances and electronics and the lower
margin rates that accompany these businesses (which includes
Lechmere) and continued competitive pressures.
Operating, selling, general and administrative expenses increased
$137 or 9%, from the prior year. Excluding Lechmere's expenses,
operating, selling, general and administrative expenses increased
by $35. The increase was due to the impact of new store openings
of $48 and increased benefits and losses of direct response
operations of $9, partially offset by increased income generated
from the sale of product service contracts of $18 (See Note 9 to
the Consolidated Financial Statements) and decreased other
operating and administrative costs of $4.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Results of Operations: 1994 Compared with 1993 (continued)
Net interest expense increased $15, or 35%, from the prior year.
The increase is due to a combination of increased borrowings,
primarily due to the acquisition of Lechmere, as well as increased
rates in 1994.
Income tax expense was $62, or 34% of income before income taxes,
for 1994 as compared to $59, or 37% of income before income taxes,
for 1993. The decrease in the effective income tax rate was caused
by an income tax adjustment due to the settlement of issues with
the Internal Revenue Service for the 1988 through 1990 tax years.
Discussion of Financial Condition
Montgomery Ward is the only direct subsidiary of MW Holding and
therefore Montgomery Ward and its subsidiaries are MW Holding's
sole source of funds.
Montgomery Ward has entered into a Long Term Credit Agreement
(Long Term Agreement) dated as of September 15, 1994 with various
lenders. The Long Term Agreement, which was extended during 1995
and currently expires September 6, 2000, provides for a revolving
facility in the principal amount of $603. As of December 30, 1995,
no borrowings were outstanding under the Long Term Agreement.
Concurrently, Montgomery Ward also entered into a Short Term Credit
Agreement (Short Term Agreement) dated as of September 15, 1994
with various lenders. The Short Term Agreement, which was extended
during 1995 and currently expires September 6, 1996, provides for
a revolving facility in the principal amount of $297. As of
December 30, 1995, $160 was outstanding under the Short Term
Agreement.
Under the Long Term Agreement and the Short Term Agreement
(collectively, the Agreements), Montgomery Ward may select among
several interest rate options, including a rate negotiated with one
or more of the various lenders. The interest rates for the
aforementioned bank borrowings are based on market rates, and
significant increases in market interest rates will increase
interest payments required. A commitment fee is payable based upon
the unused amount of each facility, and under certain
circumstances, an additional fee may be payable to lenders not
participating in a negotiated rate loan.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
Montgomery Ward has entered into interest rate exchange and cap
agreements with various banks to offset the market risk associated
with an increase in interest rates under both the Long Term
Agreement and the Short Term Agreement. The aggregate notional
principal amounts under the interest rate exchange agreements are
$175 in 1995 through 1997 and $75 in 1998 and 1999. Under the
terms of the interest rate exchange agreements, Montgomery Ward
pays the banks a weighted average fixed rate of 7.4% from 1995
through 1997 and 7.6% from 1998 through 1999 and will receive the
one-month daily average London Inter-bank Offered (LIBO) rate in
each case multiplied by the notional principal amount. The average
aggregate notional principal amounts under the various cap
agreements are $154 in 1995, $158 in 1996 and $113 in 1997. Under
the terms of the cap agreements, Montgomery Ward receives payments
from the banks when the one-month daily average LIBO rate exceeds
the 5.5% cap strike rate in 1995, 6% cap strike rate in 1996 and
7.0% cap strike rate in 1997. Such payments will equal the amount
determined by multiplying the notional principal amount by the
excess of the percentage rate, if any, of the one-month daily
average LIBO rate over the cap strike rate.
On July 11, 1995, Montgomery Ward entered into a Note Purchase
Agreement (1995 Note Purchase Agreement) with various lenders
involving the private placement of $180 of Senior Notes which have
maturities of from five to ten years at fixed interest rates
varying from 6.52% to 6.98%. Proceeds from the debt issue were
used to repay short-term borrowings incurred to fund the Company's
acquisition of Lechmere. See Note 11 to the Consolidated Financial
Statements.
On September 29, 1995, Montgomery Ward borrowed $25 under a Term
Loan Agreement (Term Loan Agreement) with a bank. The borrowings
mature on September 30, 1999. Under the Term Loan Agreement,
Montgomery Ward may select several interest rate options which are
based on market rates. See Note 11 to the Consolidated Financial
Statements.
The Agreements, the Term Loan Agreement, the 1993 Note Purchase
Agreements, and the 1995 Note Purchase Agreement impose various
restrictions on Montgomery Ward, including the satisfaction of
certain financial tests which include restrictions on payments of
dividends. Under the terms of the Agreements and the Term Loan
Agreement, which are currently the most restrictive of the
financing agreements as to dividends, distributions and
redemptions, Montgomery Ward may not pay dividends or make any
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
other distributions to the Company or redeem any common stock in
excess of (1) $63 on a cumulative basis, plus (2) 50% of
Consolidated Net Income of Montgomery Ward (as defined in the
Agreements) after January 1, 1994, plus (3) any repayment by the
Company of any loan or advance made by Montgomery Ward to the
Company which was received after January 1, 1994, plus (4) capital
contributions received by Montgomery Ward after January 1, 1994,
plus (5) net proceeds received by Montgomery Ward from (a) the
issuance of capital stock including treasury stock but excluding
Debt-Like Preferred Stock (as defined in the Agreements), or (b)
any indebtedness which is converted into shares of capital stock
other than Debt-Like Preferred Stock of Montgomery Ward or the
Company, after January 1, 1994, plus (6) an adjustment of $45 for
1994 through 1996, $30 in 1997 and $15 in 1998. At December 30,
1995, Montgomery Ward could pay dividends and make other
distributions to the Company of $108 pursuant to the terms of the
Agreements. To date, Montgomery Ward has been in compliance with
all such financial tests.
On April 27, 1994, the Company issued 750 shares of a new series
of Senior Preferred Stock (Senior Preferred Stock) to GE Capital in
exchange for $75 in cash. The Company used the proceeds to acquire
750 shares of a new issue of Senior Preferred Stock of Montgomery
Ward (Montgomery Ward Preferred) for $75 and Montgomery Ward used
the proceeds to reduce short-term borrowings. On December 29,
1995, Montgomery Ward redeemed the Montgomery Ward Preferred held
by the Company for $75. The Company used the proceeds to redeem
the Senior Preferred Stock held by GE Capital for $75. The source
of funds for these transactions was borrowings under the
Agreements. See Note 13 to the Consolidated Financial Statements.
On December 29, 1995, Montgomery Ward issued 1,750 shares of a
new series of senior preferred stock (MW Senior Preferred Stock),
to GE Capital in exchange for $175 in cash. Subsequent to year
end, Montgomery Ward used a portion of the proceeds to finance the
purchase of the Amoco Motor Club by its wholly-owned subsidiary,
Signature. The MW Senior Preferred Stock constitutes Debt-Like
Preferred Stock under the Agreements and the Term Loan Agreement.
The subscription agreement for the 1995 Senior Preferred Stock
contains an exchange option which gives GE Capital the option to
exchange the MW Senior Preferred Stock for senior preferred stock
of the Company with identical terms. On January 31, 1996, GE
Capital exercised the exchange option. See Note 13 to the
Consolidated Financial Statements.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
The Company has repurchased 5,632,147 shares held by certain
former officers of the Company, Montgomery Ward and Signature and
their permitted transferees by making cash payments and issuing
installment notes in the aggregate of approximately $47. As of
December 30, 1995, the outstanding balance of these notes was $14.
See Note 14 to the Consolidated Financial Statements. These
installment notes bear interest at varying rates, are payable over
multi-year periods (generally three to five years) and are secured
by shares of Common Stock, the fair market value of which is equal
to the outstanding principal amount under each note. Under the
Agreements, Montgomery Ward expects to be able to advance the
Company sufficient funds to allow the Company to make the required
installment payments in 1996.
Currently available external sources of funds include $900 in
multi-year revolving loan commitments under the Agreements which
were obtained in September 1994 of which $297 will expire on
September 6, 1996 and $603 will expire on September 6, 2000.
During 1995, the average daily balance of borrowings under these
commitments was $623.
Under the laws and regulations applicable to insurance companies,
some subsidiaries of Signature are limited in the amount of
dividends they may pay. For information concerning limitations on
the amount of dividends Signature may pay, see Note 20 to the
Consolidated Financial Statements. During 1994, Signature paid
dividends to Montgomery Ward aggregating $22. Signature did not
pay dividends to Montgomery Ward in 1995.
Future cash needs are expected to be satisfied by ongoing
operations, the sale of customer receivables to Montgomery Ward
Credit, borrowings under the Agreements, and the disposition of
capital assets related to facility closings. See "Business -
Account Purchase Agreement" for a discussion of the terms of the
sales of customer receivables by Montgomery Ward to Montgomery Ward
Credit.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
Montgomery Ward and Lechmere's capital expenditures of $122 for
1995 were primarily related to opening 5 new Electric Ave. & More
stores and relocating 3 full line stores and implementing
conversion strategies in conventional retail stores and various
merchandise fixture and presentation programs. Montgomery Ward
regularly reviews opportunities for acquisitions and joint ventures
and regards such transactions as a possible source for future
growth.
1995 1994 1993
Total Capital Expenditures . . .$ 122 $ 184 $ 142
Capital appropriations
authorized during the year . .$ 152 $ 247 $ 149
Cancellations of prior
year's appropriations. . . . .$(75) $(25) $(23)
Unexpended capital
appropriations at year-end . .$ 136 $ 181 $ 143
Montgomery Ward and Lechmere are not contractually committed to
spend all of the capital appropriations unexpended at December 30,
1995, but generally expect to do so.
Item 8. Financial Statements.
Page
Report of Independent Public
Accountants . . . . . . . . . . . . . . . 29
Consolidated Balance Sheet at
December 30, 1995 and
December 31, 1994 . . . . . . . . . . . . 31
For the 52-Week Periods Ended
December 30, 1995,
December 31, 1994 and January 1,
1994
Consolidated Statement of
Income. . . . . . . . . . . . . . . . . 30
Consolidated Statement of
Shareholders' Equity. . . . . . . . . . 32
Consolidated Statement of
Cash Flows. . . . . . . . . . . . . . . 35
Notes to Consolidated Financial
Statements. . . . . . . . . . . . . . . . 37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Montgomery Ward Holding Corp.:
We have audited the accompanying consolidated balance sheets of
MONTGOMERY WARD HOLDING CORP. (a Delaware Corporation) AND
SUBSIDIARY as of December 30, 1995 and December 31, 1994, and the
related consolidated statements of income, shareholders' equity and
cash flows for the fiscal years ended December 30, 1995, December
31, 1994 and January 1, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Montgomery Ward Holding Corp. and Subsidiary as of
December 30, 1995 and December 31, 1994 and the results of their
operations and their cash flows for the fiscal years ended December
30, 1995, December 31, 1994 and January 1, 1994, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois,
February 13, 1996
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF INCOME
(Millions of dollars)
52-Week
Period Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Revenues
Net sales, including
leased and licensed
department sales. . . . $6,531 $6,564 $5,623
Direct response
marketing revenues,
including insurance . . 554 465 400
Total Revenues . . . . 7,085 7,029 6,023
Costs and Expenses
Cost of goods sold,
including net
occupancy and
buying expense. . . . . 5,178 5,093 4,258
Operating, selling,
general and adminis-
trative expenses,
including benefits
and losses of direct
response operations
(Note 16) . . . . . . . 1,806 1,699 1,562
Interest expense
(Note 17) . . . . . . . 91 58 43
Total Costs and
Expenses. . . . . . . 7,075 6,850 5,863
Income Before
Income Taxes . . . . . . 10 179 160
Income Tax (Benefit)
Expense (Note 8) . . . . (1) 62 59
Net Income . . . . . . . . 11 117 101
Preferred Stock
Dividend Requirements
(Note 13). . . . . . . . 4 2 -
Net Income Applicable to
Common Shareholders. . . $ 7 $ 115 $ 101
Net Income per Class A
Common Share
(Note 14) . . . . . . . . $ .16 $ 2.68 $ 2.29
Net Income per Class B
Common Share
(Note 14) . . . . . . . $ .14 $ 2.30 $ 2.04
Cash Dividends declared
per Common Share
Class A . . . . . . . . $ - $ .50 $ .50
Class B . . . . . . . . $ - $ .50 $ .50
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED BALANCE SHEET
(Millions of dollars)
ASSETS
December 30, December 31,
1995 1994
Cash and cash equivalents. . . . . . . . .$ 37 $ 33
Short-term investments . . . . . . . . . . 1 3
Investments of insurance operations
(Note 3) . . . . . . . . . . . . . . . . 345 314
Total Cash and Investments . . . . . . 383 350
Trade and other accounts receivable. . . . 166 112
Accounts and notes receivable from
affiliates (Note 4). . . . . . . . . . . 22 6
Total Receivables. . . . . . . . . . . 188 118
Merchandise inventories (Note 5) . . . . . 1,770 1,625
Prepaid pension cost (Note 6). . . . . . . 335 324
Properties, plants and equipment,
net of accumulated depreciation
and amortization (Note 7). . . . . . . . 1,366 1,396
Direct response and insurance
acquisition costs. . . . . . . . . . . . 395 322
Other assets . . . . . . . . . . . . . . . 447 402
Total Assets . . . . . . . . . . . . . . . $4,884 $4,537
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt (Note 11). . . . . . . . . $ 160 $ 144
Trade accounts payable . . . . . . . . . . 1,804 1,719
Federal income taxes payable (Note 8) . . 6 14
Accrued liabilities and other
obligations (Notes 2, 4, 6, 9
and 14). . . . . . . . . . . . . . . . . 1,195 1,231
Insurance policy claim reserves
(Note 10). . . . . . . . . . . . . . . . 236 236
Long-term debt (Note 11) . . . . . . . . . 423 228
Obligations under capital leases
(Note 12). . . . . . . . . . . . . . . . 66 81
Deferred income taxes (Note 8) . . . . . . 119 122
Total Liabilities. . . . . . . . . . . 4,009 3,775
Commitments and Contingent
Liabilities (Notes 11 and 18)
Redeemable Preferred Stock (Note 13) . . . 175 75
Shareholders' Equity
Common stock (Note 14) . . . . . . . . . 1 -
Capital in excess of par value . . . . . 45 23
Retained earnings. . . . . . . . . . . . 758 751
Unrealized gain on marketable
equity securities . . . . . . . . . . . 10 2
Less: Treasury stock, at cost . . . . . (114) (89)
Total Shareholders' Equity . . . . . . 700 687
Total Liabilities and
Shareholders' Equity . . . . . . . . . . $4,884 $4,537
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Millions of dollars, except per share amounts)
Class A Class B Capital
Common Common in
Stock Stock Excess Treasury Total
$ .01 $ .01 of Unre- Stock, Share-
Par Par Par Retained alized at holders'
Value Value Value Earnings Gains Cost Equity
(Number of shares
in thousands)
Balance,
January 2,
1993, as
restated 20,672 25,000 $16 $580 $ 3 $(46) $553
Net
income - - - 101 - - 101
Cash
dividends
paid - - - (23) - - (23)
Tax benefit
of stock
option exer-
cises and
other share
exchanges - - 2 - - - 2
Shares repur-
chased as
Treasury
stock (1,258) - - - - (27) (27)
Shares
issued
upon exer-
cise of
options 193 - 1 - - - 1
Shares
issued
upon exer-
cise of
conversion
rights 3 - - - - - -
Balance,
January
1,1994 19,610 25,000 19 658 3 (73) 607
Cumulative
effect of
change in
accounting
principle - - - - 13 - 13
Balance,
January 1,
1994 as
restated 19,610 25,000 $19 $658 $16 $(73) $620
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued)
(Millions of dollars, except per share amounts)
Class A Class B Capital
Common Common in
Stock Stock Excess Treasury Total
$ .01 $ .01 of Unre- Stock, Share-
Par Par Par Retained alized at holders'
Value Value Value Earnings Gains Cost Equity
(Number of shares
in thousands)
Balance,
January 1,
1994, as
restated 19,610 25,000 $19 $658 $16 $(73) $620
Net
income - - - 117 - - 117
Cash
dividends
paid - - - (24) - - (24)
Tax benefit
of stock
option exer-
cises - - 1 - - - 1
Change in
unrealized
gain on
marketable
securities - - - - (14) - (14)
Shares repur-
chased as
Treasury
stock (629) - - - - (16) (16)
Shares
issued
upon exer-
cise of
options 297 - 3 - - - 3
Shares
issued
upon exer-
cise of
conversion
rights 2 - - - - - -
Balance,
December
31,1994 19,280 25,000 $23 $751 $ 2 $(89) $687
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued)
(Millions of dollars, except per share amounts)
Class A Class B Capital
Common Common in
Stock Stock Excess Treasury Total
$ .01 $ .01 of Unre- Stock, Share-
Par Par Common Par Retained alized at holders'
Value Value Stock Value Earnings Gains Cost Equity
(Number of shares
in thousands)
Balance,
January
1, 1995 19,280 25,000 $ - $23 $751 $ 2 $(89) $687
Net
income - - - - 11 - - 11
Cash
dividends
paid - - - - (4) - - (4)
Compensation
expense on
stock option
grants/repur-
chases - - - 5 - - - 5
Change in
unrealized
gain on
marketable
securities - - - - - 8 - 8
Shares repur-
chased as
Treasury
stock (1,052) - - - - - (25) (25)
Shares
issued
upon exer-
cise of
options 980 - 1 17 - - - 18
Shares
issued
upon exer-
cise of
conversion
rights 2 - - - - - - -
Balance,
December
30,1995 19,210 25,000 $ 1 $45 $758 $10 $(114) $700
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
52-Week
Period Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Cash flows from operating
activities:
Net income. . . . . . . . $ 11 $ 117 $ 101
Adjustments to reconcile
net income to net cash
provided by (used in)
operations:
Depreciation and
amortization. . . . . . 119 109 98
Deferred income taxes . . (7) 29 25
Gain on sale of assets. . (11) (1) -
Gain on stock
distribution. . . . . (16) - -
Compensation expense on
stock option grants/
repurchases . . . . . . 4 1 -
Changes in operating
assets and liabilities,
net of businesses
acquired:
(Increase) decrease in:
Trade and other accounts
receivable (54) (38) (9)
Accounts and notes
receivable from
affiliates (16) (2) 14
Merchandise
inventories. . . . . . (145) (243) (204)
Prepaid pension
cost . . (11) (15) (19)
Other assets. . . . . . (77) (50) (50)
Increase (decrease) in:
Trade accounts
payable. . 85 291 148
Federal income taxes
payable, net . . . . . . (9) 5 (1)
Accrued liabilities
and other
obligations. . . . . . .(55) (41) 33
Insurance policy
claim reserves . . . . . - (1) (4)
Deferred income taxes - (8) -
Net cash (used in)
provided by
operations . . . . . (182) 153 132
Cash flows from investing
activities:
Investment in ValueVision . (8) - -
Investment in Merchant
Partners . . . . . . . . (4) (1) -
Acquisition of Lechmere,
net of cash acquired . . - (109) -
Acquisition of Smilesaver,
net of cash acquired . . - (11) -
Purchase of short-term
investments. . . . . . . . (60) (231) (248)
Purchase of investments
of insurance
operations . . . . . . . (791) (691) (688)
Sale of short-term
investments. . . . . . . 62 247 240
Sale of investments
of insurance
operations . . . . . . . 775 671 669
Disposition of
properties, plants
and equipment, net . . . 39 8 3
Capital expenditures. . . (122) (184) (142)
Net cash used in
investing
activities . . . . . .$ (109) $(301) $(166)
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Millions of dollars)
52-Week
Period Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Cash flows from financing
activities:
Proceeds from issuance
of short-term
debt, net . . . . . . . . $ 16 $144 $ -
Proceeds from issuance
of long-term
debt . . . . . . . . . . . 205 168 100
Payments of Montgomery
Ward long-term
debt . . . . . . . . . . . (10) (179) (12)
Payments of Lechmere
long-term debt . . . . . - (88) -
Payments of obligations
under capital leases . . (7) (8) (6)
Proceeds from issuance
of common stock. . . . . 18 3 1
Proceeds from issuance
of preferred stock . . . 175 75 -
Payments to redeem
preferred stock. . . . . (75) - -
Cash dividends paid . . . . (4) (24) (23)
Purchase of treasury
stock, at cost . . . . . (23) (9) (11)
Tax benefit of stock
options exercised
and other share
exchanges. . . . . . . . . - 1 2
Net cash provided
by financing
activities. . . . . . . 295 83 51
Increase (Decrease) in cash
and cash equivalents . . . 4 (65) 17
Cash and cash equivalents
at beginning of period . . 33 98 81
Cash and cash equivalents
at end of period . . . . . . $ 37 $ 33 $ 98
See notes to consolidated financial statements.
<PAGE> MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions)
1. Major Accounting Policies
Business Segments
Montgomery Ward Holding Corp. (the Company or MW Holding) and its
wholly owned subsidiary, Montgomery Ward & Co., Incorporated
(Montgomery Ward), are engaged in retail merchandising and direct
response marketing (including insurance) in the United States.
Retail merchandising operations are conducted through Montgomery
Ward and Montgomery Ward's, wholly-owned subsidiary Lechmere, Inc.
(Lechmere), while direct response marketing operations are
conducted primarily through Signature Financial/Marketing, Inc.
(Signature), a wholly-owned subsidiary of Montgomery Ward.
Signature markets consumer club products and insurance products
through its subsidiaries. See Note 20 for information regarding
these segments.
Principles of Consolidation; Use of Estimates
The consolidated financial statements include the Company and all
subsidiaries. Investments in 20 percent to 50 percent owned
affiliates where significant influence exists are accounted for on
the equity method. All significant intercompany accounts and
transactions are eliminated in consolidation. Certain prior period
amounts have been reclassified to be comparable with the current
period presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fiscal Year
The Company operates on a 52- or 53- week fiscal year basis. The
Company's fiscal year ends on the Saturday closest to December 31.
The fiscal years ended December 30, 1995, December 31, 1994 and
January 1, 1994 included 52 weeks.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
1. Major Accounting Policies (continued)
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, time deposits and
highly liquid debt instruments with an original maturity of three
months or less from the date of purchase. The carrying amount
reported in the financial statements for cash and cash equivalents
approximates the fair value of these assets.
Following is a summary of cash payments for interest and income
taxes and non-cash financing and investing activities:
52-Week
Period Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Cash paid for:
Income taxes . . . . . . $ 24 $ 33 $ 46
Interest . . . . . . . . $ 82 $ 56 $ 55
Non-cash financing
activities:
Notes issued for
purchase of
Treasury stock. . . . $ 2 $ 7 $ 16
Non-cash investing
activities:
Change in unrealized
gain on marketable
securities. . . . . . $ 8 $(14) $ -
Like-kind exchange of
assets. . . . . . . . $ - $ 5 $ 6
Gain on Stock
distribution. . . . . $ 16 $ - $ -
The net cumulative effect of changes in accounting principles of
$13 in 1994 has no cash impact.
Investments of Insurance Operations
The Company accounts for investments under Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments
In Debt and Equity Securities". Under SFAS No. 115, all debt and equity
securities are classified as "available-for-sale" and are stated at
fair market value with all changes in unrealized gains or losses
included in Shareholder's Equity.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
1. Major Accounting Policies (continued)
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or
market, using the retail last-in, first-out (LIFO) method.
Properties, plants and equipment
Depreciation is computed on a straight-line basis over the
estimated useful lives of the properties, with annual rates ranging
between 2% and 3% for buildings and between 12% and 25% for
fixtures and equipment. Leasehold improvements and assets under
capital leases are amortized on a straight-line basis over no
longer than the primary term of the lease. Upon retirement or
disposition, the cost and the related depreciation or amortization
are removed from the accounts, with the gains or losses included in
income.
Interest relating to construction in progress is capitalized and
amortized over the useful life of the property. Pre-operating
expenditures which are not capital in nature are charged against
income in the year the store is opened. Normal maintenance and
repairs are expensed as incurred. Major repairs that materially
extend the lives of properties are capitalized, and the assets
replaced, if any, are retired.
In March, 1995, the Financial Accounting Standards Board issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". The Company will implement SFAS
No. 121 during fiscal year 1996. The provisions require a review
of long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. If it is determined that an impairment loss has
occurred based on expected undiscounted future cash flow, the loss
will be recognized in the income statement and certain disclosures
will be made regarding the impairment. The impact of the adoption
of this statement is not reasonably estimatable at this time.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
1. Major Accounting Policies (continued)
Direct Response Marketing Revenues
Life and accident and health insurance premiums, which are
recognized as revenue when due from policyholders, are associated
with related benefits and expenses to result in the recognition of
profit over the terms of the policies. Property-liability
insurance premiums and club membership dues are deferred and earned
on a pro-rata basis over the terms of the policies and memberships.
Unearned premiums and club memberships of $61 and $63 at December
30, 1995 and December 31, 1994, respectively, are included in
Accrued liabilities and other obligations.
Direct Response and Insurance Acquisition Costs
Costs allocated to the insurance and club memberships in force at
June 24, 1988, as well as the costs of acquiring new club
memberships and insurance business (primarily marketing expenses),
are included in Direct response and insurance acquisition costs.
Costs of acquiring new business have been deferred when considered
recoverable.
Acquisition costs are amortized in proportion to the revenue
recognized. The time period over which deferred policy and
membership acquisition costs are being amortized and the
recoverability of such costs could differ from estimates due to
changing market conditions. Amortization of deferred policy and
membership acquisition costs is continually reviewed, and, as
adjustments become necessary, they are reflected in current
operations. Amortization charged to income was $151, $124 and $111
for 1995, 1994 and 1993, respectively, and is included in
Operating, selling, general and administrative expenses.
Interest Rate Exchange and Cap Agreements
Amounts paid or received pursuant to interest rate exchange and
cap agreements are deferred and amortized as interest expense or
income over the remaining life of the applicable agreement.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
1. Major Accounting Policies (continued)
Insurance Policy Claim Reserves
Liabilities for future policy benefits have been determined
principally by the net level premium method. These amounts have
been computed by using assumptions that include provisions for risk
of adverse deviation. The assumptions developed for interest rates
(average 6%-8%) and withdrawal rates are based on the experience of
Montgomery Ward Life Insurance Company, a wholly-owned subsidiary
of Signature. The principal mortality tables used to develop the
assumed mortality rates are the 1960 Commissioners' Standard Group
Table, the 1955-1960 and 1965-1970 Basic Mortality Tables and the
1969-1971 U.S. Life Tables. The reserve for claims and related
adjustment expenses is based on estimates of the costs of
individual claims reported and incurred but not reported prior to
year-end. While management believes the reserve for claims and
related adjustment expenses is adequate, the reserve is continually
reviewed and as adjustments become necessary, they are reflected in
current operations.
Federal Income Tax
The Company and its subsidiaries file a consolidated Federal
income tax return. Beginning in 1994, insurance subsidiaries which
had previously filed separate Federal income tax returns are
included in the consolidated return.
The Company determines its income tax expense and related
deferred federal income taxes in accordance with SFAS No. 109.
2. Acquisition of Lechmere, Inc.
Montgomery Ward acquired in a merger transaction all the stock of
LMR Acquisition Corporation, which owned 100% of the stock of
Lechmere, on March 30, 1994. The aggregate purchase price was
$113.
The closing price included a $10 promissory note (the Note) of
Montgomery Ward, which bears interest at a rate of 4.87% per annum.
The Note balance is $3 at December 31, 1995 and is included in
Accrued liabilities and other obligations. The balance is payable
three years after the date of the Note. The Note is secured by a
standby letter of credit.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
2. Acquisition of Lechmere, Inc. (continued)
As part of the closing, Montgomery Ward advanced approximately
$88 and assumed $3 in obligations to enable Lechmere to retire its
outstanding bank debt and subordinated debt.
The acquisition was accounted for as a purchase. The purchase
price has been allocated to Lechmere's net assets based upon
results of asset valuations and liability and contingency
assessments.
The allocation is summarized as follows:
Inventory . . . . . . . . . . . . . . . . . . . . $140
Properties, Plants & Equipment. . . . . . . . . . 54
Goodwill . . . . . . . . . . . . . . . . . . . . 124
Other Assets. . . . . . . . . . . . . . . . . . . 50
Due to Montgomery Ward. . . . . . . . . . . . . . (88)
Accounts Payable and Other Liabilities. . . . . .(167)
$113
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
3. Investments of Insurance Operations
Following is a summary of Investments of insurance operations
in securities other than related party investments. The fair
values for marketable debt and equity securities are based on
quoted market prices.
December 30, 1995
Gross Gross
Type of Unrealized Unrealized Market
Investment Cost Gains Losses Value
Fixed maturities
Bonds:
United States
Govern-
ment and
government
agencies
and author-
ities. . . . . $ 54 $ 1 $ - $ 55
Public
utilities. . . . 70 8 - 78
All other
corporate
bonds. . . . . . 19 2 - 21
Mortgage-backed
securities. . . 133 3 (1) 135
Total
fixed
maturi-
ties. . 276 14 (1) 289
Equity
securities:
Common
stock. . . . . 13 4 - 17
Total
equity
securi-
ties. . 13 4 - 17
Policy
loans. . . . . . 7 - - 7
Short-term
investments. . . 32 - - 32
Total
Invest-
ments . $328 $18 $(1) $345
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
3. Investments of Insurance Operations
December 31, 1994
Gross Gross
Type of Unrealized Unrealized Market
Investment Cost Gains Losses Value
Fixed maturities
Bonds:
United States
Govern-
ment and
government
agencies
and author-
ities. . . . . $ 51 $ - $(2) $ 49
Public
utilities. . . . 73 6 - 79
All other
corporate
bonds. . . . . 26 1 (1) 26
Mortgage-backed
securities. . . 115 - (6) 109
Total
fixed
maturi-
ties. . 265 7 (9) 263
Equity
securities:
Common
stock. . . . . 8 5 - 13
Total
equity
securi-
ties. . 8 5 - 13
Policy
loans. . . . . . . 7 - - 7
Short-term
investments. . . 31 - - 31
Total
Invest-
ments . $311 $12 $(9) $314
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
3. Investments of Insurance Operations (continued)
The amounts of fixed maturities as of December 30, 1995 are as
follows:
Amortized Market
Cost Value
Due in 1995. . . . . . . . . . . . . . . . .$ 21 $ 21
Due in 1996 through 2000 . . . . . . . . . . 103 113
Due in 2001 through 2005 . . . . . . . . . . 17 18
Due in 2006 and beyond . . . . . . . . . . . 2 2
Mortgage-backed securities . . . . . . . . . 133 135
$276 $289
Realized capital gains before income tax and changes in
unrealized gains (losses) after income tax on fixed maturities,
mortgage loans and equity securities are as follows:
Fixed
Maturities
and Mortgage Equity
Loans Securities
52-Week Period Ended December 30, 1995
Realized. . . . . . . . . . . . . . . . . .$ 1 $ 5
Unrealized. . . . . . . . . . . . . . . . .$ 8 $ 3
52-Week Period Ended December 31, 1994
Realized. . . . . . . . . . . . . . . . . .$ - $ -
Unrealized. . . . . . . . . . . . . . . . $(2) $ 4
52-Week Period Ended January 1, 1994
Realized. . . . . . . . . . . . . . . . . .$ 1 $ -
Unrealized. . . . . . . . . . . . . . . . .$ - $ 3
4. Accounts and Notes Receivable from Affiliates
Montgomery Ward and Montgomery Ward Credit Corporation
(Montgomery Ward Credit), a subsidiary of GE Capital Corporation
(GE Capital) have entered into an Account Purchase Agreement
pursuant to which Montgomery Ward Credit purchases receivables from
time to time and provides services to Montgomery Ward. Under this
agreement, Montgomery Ward Credit has the exclusive right to
operate the Montgomery Ward private label credit card system and
the obligation to purchase for their face value (and Montgomery
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
4. Accounts and Notes Receivable from Affiliates (continued)
Ward is obligated to sell) all the receivables generated by the
Montgomery Ward private label credit card system, including those
generated through MW Direct, up to $6,000 outstanding at any
time. Montgomery Ward accounts for the transfer as a sale of the
applicable receivables. Sales of receivables to Montgomery Ward
Credit were $3,938, $4,092 and $3,991 for 1995, 1994 and 1993,
respectively. At December 30, 1995 and December 31, 1994, there
were $5,348 and $5,221, respectively, of Montgomery Ward credit
card receivables owned by Montgomery Ward Credit. Amounts
receivable from Montgomery Ward Credit pursuant to the sale of
such receivables are included in Accounts and notes receivable
from affiliates.
Montgomery Ward is exposed to both market risk and credit risk
under the Account Purchase Agreement. Under the Account Purchase
Agreement, Montgomery Ward is required to pay Montgomery Ward
Credit the excess interest costs on a monthly basis if a blended
interest rate applicable to Montgomery Ward Credit's finance costs
with respect to the receivables exceeds 10% per annum. To date,
the blended interest rate has been less than 10%.
Should Montgomery Ward Credit or its guarantor, GE Capital, fail
to perform its obligations under the Account Purchase Agreement,
Montgomery Ward would suffer an accounting loss up to the amount of
Montgomery Ward's share of finance charges and late fees (as
described below), net of applicable reserves carried by Montgomery
Ward Credit. Montgomery Ward estimates that any accounting loss
would be immaterial at December 30, 1995. Montgomery Ward Credit's
obligations under the Account Purchase Agreement are not
collateralized.
Effective January 1, 1994, Montgomery Ward bears the entire risk
of credit losses. Previously credit losses were shared.
Montgomery Ward's remaining liability for credit losses for 1991
through 1994 are payable to Montgomery Ward Credit in early 1998.
In addition, the amounts payable by Montgomery Ward for credit
losses for 1995 through 1997 may be deferred, and such deferred
credit losses are also payable at Montgomery Ward's election in
early 1998. Interest on Montgomery Ward's liability for credit
losses is payable at a rate equal to rates on comparable borrowings
of Montgomery Ward.
In exchange for Montgomery Ward's agreement to allow Montgomery
Ward Credit to increase finance charge rates in selected states,
Montgomery Ward receives a share of incremental finance charges
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
4. Accounts and Notes Receivable from Affiliates (continued)
resulting from such increases which is available for offset
against the credit losses, and earns interest at the same rate as
amounts owned by Montgomery Ward to Montgomery Ward Credit. In
1995, Montgomery Ward entered into an agreement with Montgomery
Ward Credit to increase late fee assessments and implement
previously agreed upon finance charge increases in various
states, as allowed by statute. Montgomery Ward's share of these
incremental finance charges and late fees is calculated in the
same manner as the prior 1992 agreement. Incremental finance
charges are generated only on purchases subsequent to the date
such finance charge rates are increased. In the event that, due
to the increase in finance charge rates and late fees, any
refunds are required to be made, Montgomery Ward and Montgomery
Ward Credit have agreed to share the financial risk. Legislation
has from time to time been introduced in certain states which, if
enacted, may require rescinding all or a portion of such rate
increases, in which case, Montgomery Ward's share of rate
increases may be substantially reduced.
In addition to sharing incremental finance charges and late
fees, with respect to each fiscal year, Montgomery Ward Credit will
make a payment to Montgomery Ward of a share of all finance charges
in an amount equal to (a) if credit losses are 5% or less of
average gross receivables, the lesser of 3.9% of average gross
receivables or the actual credit losses; (b) if credit losses are
greater than 5% but less than or equal to 8% of average gross
receivables, 3.9% of average gross receivables plus 50% of the
amount by which actual credit losses exceed 5% of average gross
receivables; or (c) if credit losses exceed 8% of average gross
receivables, 5.4% of average gross receivables plus the amount by
which credit losses exceed 8% of average gross receivables. In the
event that finance charges billed during a fiscal year less the
incremental finance charges and late fee assessments referred to
below are less than the amount computed above, the payments will be
reduced to the amount of the finance charge less the incremental
finance charge.
The Company has executed notes for the credit losses which
totalled $224 with respect to credit losses through 1995. The
incremental finance charges and late fee assessments due to
Montgomery Ward at the end of 1995 were $44. All amounts are
included in Accrued liabilities and Other obligations at December
30, 1995. Under the agreement, the notes payable to Montgomery
Ward Credit are limited to $300 at any time, with any excess to be
paid currently in cash. The Company does not expect credit losses
for the period through 1997 to exceed the $300 limitation.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
4. Accounts and Notes Receivable from Affiliates (continued)
The Account Purchase Agreement will be in effect until December
31, 2006, and thereafter from year to year unless either party
gives ten years prior notice of its election to terminate.
5. Merchandise Inventories
Merchandise inventories are valued using the retail LIFO method,
which matches current costs with current sales. If inventories had
been valued using the first-in, first-out (FIFO) method, they would
have been $124, $133 and $117 higher than those reported as of
December 30, 1995, December 31, 1994 and January 1, 1994,
respectively.
6. Retirement Plans
Retirement plans of a contributory nature cover a majority of
full-time associates of Montgomery Ward and its subsidiaries.
Retirement benefits are provided by a defined benefit pension plan
as well as by a savings and profit sharing plan. Montgomery Ward
and its subsidiaries contribute to the defined benefit pension plan
to cover any excess of defined minimum benefits over the benefits
available.
The components of the net pension credit were as follows:
52-Week
Period Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Service cost-benefits
earned during the
period. . . . . . . . . .$(10) $(13) $(11)
Interest cost on
projected benefit
obligation. . . . . . . (51) (46) (45)
Actual return on
assets . . . . . . . . . 185 4 101
Deferral of unantici-
pated investment
performance . . . . . . (110) 72 (26)
Amortization of
unrecognized
net loss. . . . . . . . . (3) (2) -
Net pension credit . . . .$ 11 $ 15 $ 19
Assumptions:
Discount rate . . . . . 8.5% 7.5% 8.5%
Increase in future
compensation . . . . . . 6.0% 6.0% 6.0%
Rate of return
on plan assets . . . . . 9.5% 9.5% 9.5%
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
6. Retirement Plans (continued)
The funded status of the defined benefit pension plan was as
follows:
December 30, December 31,
1995 1994
Actuarial present value of
accumulated benefit
obligation:
Vested . . . . . . . . . . . . . . . $(660) $(576)
Nonvested. . . . . . . . . . . . . . (3) (4)
Accumulated benefit obligation . . . . .(663) (580)
Additional amounts related
to projected increases in
compensation levels . . . . . . . . . (16) (23)
Projected benefit obligation . . . . . .(679) (603)
Plan assets at fair value,
primarily in equity
and fixed income securities . . . . . . 898 789
Plan assets in excess of projected
benefit obligation. . . . . . . . . . .$ 219 $ 186
Unrecognized net loss
since initial
application of FAS 87. . . . . . . . .$ 118 $ 140
Unrecognized prior
service cost since
initial application
of FAS 87. . . . . . . . . . . . . . $ (2) $ (2)
Prepaid pension cost . . . . . . . . $ 335 $ 324
The projected benefit obligation was determined using an assumed
discount rate of 7.5% at December 30, 1995 and 8.5% at December 31,
1994 and an assumed rate of increase in future compensation levels
of 6% for 1995 and 1994. Excess unrecognized net gains and losses
and prior service costs are amortized over the average future
service period.
The savings and profit sharing plan includes a voluntary savings
feature for eligible associates and matching company contributions
based on a fixed percentage of certain associates' contributions.
The company matching expense was $6 for each of 1995, 1994 and
1993.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
6. Retirement Plans (continued)
Substantially all associates who retire after participattion in
the retirement plan for ten years and who were members of the
health care plan for the year prior to retirement are eligible for
certain post-retirement health care and life insurance benefits,
the cost of which is shared with the retirees. Associates who
retire as of January 1, 1996 are no longer eligible for post-
retirement life insurance benefits. In 1992, the Company
established a limit on its future annual contributions on behalf of
retirees at a maximum of 125% of the projected 1992 company
contributions.
The Company accounts for postretirement benefits under the
provisions of SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions".
The components of the net periodic postretirement benefit cost
were as follows:
52-Week Period Ending
1995 1994 1993
Service Cost. . . . . . . . . . . . .$ 2 $ 2 $ 2
Interest cost on accumulated
postretirement benefit
obligation . . . . . . . . . . . . . 10 11 12
Curtailment gain on life insurance
benefit termination. . . . . . . . (3) - -
Net periodic postretirement
benefit cost . . . . . . . . . . . .$ 9 $13 $14
The status of the Company's liability for postretirement benefits
at December 30, 1995 and December 31, 1994, which are included in
Accrued liabilities and other obligations is as follows:
1995 1994
Accumulated postretirement
benefit obligation:
Retirees. . . . . . . . . . . . . . . . . .$ 90 $104
Fully eligible active associates. . . . . . 17 18
Other active associates . . . . . . . . . . 22 26
Total accumulated
postretirement benefit
obligation. . . . . . . . . . . . . . . . 129 148
Unrecognized prior service cost. . . . . . . 15 -
Net gain (loss). . . . . . . . . . . . . . . (4) (4)
Accumulated postretirement
benefit obligation. . . . . . . . . . . . .$140 $144
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
6. Retirement Plans (continued)
The weighted average discount rate used in measuring the
accumulated postretirement benefit obligation was 7.5% at December
30, 1995 and 8.5% at December 31, 1994. The assumed health care
cost trend rate and the impact of a 1% increase in the medical
trend rate on the accumulated postretirement benefit obligation,
service cost and interest cost are not applicable due to caps
established on current cost levels.
The Company continues to evaluate ways in which it can better
manage retiree benefits and control costs. Any changes in the plan
or revisions to assumptions that affect the amount of expected
future benefits may have a significant effect on the amount of the
reported obligation and annual expense.
7. Properties, Plants and Equipment
The details of the properties, plants and equipment accounts are
shown below at cost:
December 30, December 31,
1995 1994
Land . . . . . . . . . . . . . .$ 201 $ 197
Buildings. . . . . . . . . . . . . . . 867 860
Leasehold improvements . . . . . . . . 534 319
Fixtures and equipment . . . . . . . . 355 503
Assets under capital leases. . . . . . 101 111
Less accumulated depreciation
and amortization. . . . . . (692) (591)
Properties, Plants, and
Equipment, net. . . . . . . $1,366 $1,399
Gains or (losses) on the sale of properties were $11, $1 and $0
for 1995, 1994 and 1993, respectively. Accumulated amortization on
capital lease assets was $50 and $49 for 1995 and 1994,
respectively.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
8. Income Taxes
The Company has alternative minimum tax (AMT) credits of $26, $24
and $31 as of December 30, 1995, December 31, 1994 and January 1,
1994, respectively, available to offset future Federal income tax
liabilities. The Company has targeted jobs tax credit
carryforwards of $16 and net operating loss (NOL) carryforwards of
$68 available as of December 30, 1995, which expire beginning in
2007.
The approximate tax effects of temporary differences and
carryforwards that give rise to the deferred tax liability are as
follows:
December 30, December 31,
1995 1994
Accrued liabilities. . . . . . . . . $(130) $(169)
Postretirement benefits. . . . . . . (56) (56)
Insurance reserves . . . . . . . . . . (65) (61)
Other deferred tax assets. . . . . . . (29) (23)
Total deferred tax assets . . . . . .(280) (309)
Prepaid pension contribution . . . . . 132 128
Direct response and insurance
acquisition costs . . . . . . . . . 150 127
Property, plants and equipment . . . 145 133
Other deferred tax liabilities . . . . 50 47
Total deferred tax liabilities. . . 477 435
AMT and other credit
carryforwards . . . . . . . . . . . .(110) (36)
Valuation allowance. . . . . . . . . . 32 32
Net deferred tax liability. . . . . $ 119 $ 122
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
8. Income Taxes (continued)
Income tax expense consists of:
52-Week
Period Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Federal
Currently payable . . . $ 7 $25 $28
Deferred (benefit)
payable. . . . . . . . .(7) 29 25
State, local
and foreign (benefit)
payable. . . . . . . . (1) 8 6
Total income
tax (benefit)
expense . . . . . . . . $(1) $62 $59
A reconciliation of the statutory to effective federal income tax
rate is as follows:
52-Week
Period Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Federal income
tax rate. . . . . . . . 35% 35% 35%
State taxes, net
of reduction of
Federal tax and
NOL benefit . . . . . . (16) 3 2
Targeted Jobs
Tax Credit. . . . . . . (60) (3) (1)
Impact of increase
in statutory rate . . . - - 1
Deferred rate
differential, net
of adjustments. . . . . .(5) (3) -
Permanent differences. . 34 2 -
Effective income
tax rate. . . . . . . .(12)% 34% 37%
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
9. Deferred Service Contract Revenue
The Company sells product service contracts on its own behalf,
and beginning in 1994, on behalf of Virginia Surety Company, Inc.
(VSC). The Company recognizes the revenue related to sales of
Montgomery Ward service contracts in proportion to the costs
expected to be incurred in performing services under the contracts.
Deferred service contract revenue of $169 and $231 at December 30,
1995 and December 31, 1994, respectively, is included in Accrued
liabilities and other obligations. The Company recognizes the
revenue, net of the fixed payment due to VSC on sales of VSC
contracts at the time of sale. VSC insured contracts comprised 70%
and 17% of sales of service contracts to Montgomery Ward customers
in 1995 and 1994, respectively. Montgomery Ward has contracted
with VSC to provide repair services to VSC.
10. Reinsurance
The Company's insurance subsidiaries are involved in both the
cession and assumption of reinsurance with other companies. Risks
are reinsured with other companies to permit the recovery of a
portion of the direct losses. Policy related liabilities and
accruals, including incurred but not reported claims, are included
in the financial statements as Insurance policy claim reserves, and
reinsurance ceded is reflected as a component of Other assets. The
Company remains liable to the extent the reinsuring companies
cannot meet their obligations under these reinsurance treaties.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
10. Reinsurance (continued)
Premium revenues, which are included in Direct response marketing
revenues, are as follows:
Percentage
Ceded To Assumed of Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount To Net
52-Week Period
Ended Decem-
ber 30, 1995:
Life
insurance
in force . . $5,886 $(84) $ - $5,802 0.0 %
Premiums
Life
insurance . $ 53 $ (1) $ 2 $ 54 3.7%
Accident and
health
insurance . . 91 (5) 15 101 14.9%
Property and
liability
insurance . 73 (12) - 61 0.0%
Total. . . $ 217 $(18) $17 $ 216 7.9%
52-Week Period
Ended Decem-
ber 31, 1994:
Life insurance
in force . . $5,729 $(93) $ - $5,636 0.0%
Premiums
Life
insurance . $ 50 $ (1) $ 3 $ 52 5.8%
Accident and
health
insurance . . 76 - 11 87 12.6%
Property and
liability
insurance . 62 (9) - 53 0.0%
Total. . . $ 188 $ (10) $ 14 $ 192 7.3%
52-Week Period
Ended Janu-
ary 1, 1994:
Life insurance
in force . . $5,438 $(102) $ - $5,336 0.0%
Premiums
Life
insurance . $ 45 $ (1) $ 3 $ 47 6.4%
Accident and
health
insurance . . 67 - 13 80 16.3%
Property and
liability
insurance . 51 (8) - 43 0.0%
Total. . . $ 163 $ (9) $16 $ 170 9.4%
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
11. Short-Term and Long-Term Debt
The long-term debt of Montgomery Ward and its subsidiaries is as
follows:
December 30, December 31,
1995 1994
Montgomery Ward
Note Purchase Agreements; Senior Notes
Series A to Series J due in 1998
to 2005 at 6.52% to 8.18% interest
rates. . . . . . . . . . . . . . . . . . $280 $100
Bank Term Loan, due in 1999 at
6.07% interest rate. . . . . . . . . . . . 25 -
Commercial Development Revenue Bonds,
due in 2013 at 4.5% interest rate,
adjusted at three-year intervals . . . . 5 5
Other . . . . . . . . . . . . . . . . . . 2 2
Montgomery Ward Real Estate Subsidiaries
4 3/4% Secured Notes, due serially
to January 15, 1995. . . . . . . . . . . - 1
11 1/2% Secured Note, due serially
to September 1, 2001 . . . . . . . . . . . 14 15
7 1/2% Secured Note, due serially
to November 30, 2002 . . . . . . . . . . . 6 6
9.45% Secured Notes, due serially
to November 30, 2003 . . . . . . . . . . . 16 18
7 3/4% Secured Notes, due serially
to August 31, 2004 . . . . . . . . . . . . 19 20
7 7/8% Secured Notes, due serially
to December 15, 2005 . . . . . . . . . . 8 9
9% Secured Notes, due serially to
January 1, 2006. . . . . . . . . . . . . . 12 13
Other . . . . . . . . . . . . . . . . . . . 8 10
Lechmere
9.65% Secured Mortgage Notes, due
October 31, 1996 . . . . . . . . . . . . . 24 24
Other . . . . . . . . . . . . . . . . . . . 4 5
Total long-term debt. . . . . . . . . .$423 $228
The amounts of long-term debt that become due during the
fiscal years 1996 through 1999 are as follows: 1996--$34,
1997--$9, 1998--$19, 1999--$10, and 2000--$91.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
11. Short-Term and Long-Term Debt (continued)
Montgomery Ward has entered into a Long Term Credit Agreement
(Long Term Agreement) dated as of September 15, 1994 with various
lenders. The Long Term Agreement, which was extended during 1995
and currently expires September 6, 2000, provides for a revolving
facility in the principal amount of $603. As of December 30, 1995,
no borrowings were outstanding under the Long Term Agreement.
Concurrently, Montgomery Ward also entered into a Short Term Credit
Agreement (Short Term Agreement) dated as of September 15, 1994
with various lenders. The Short Term Agreement, which was extended
during 1995 and currently expires September 6, 1996, provides for
a revolving facility in the principal amount of $297. As of
December 30, 1995, $160 was outstanding under the Short Term
Agreement.
Under the Agreements, Montgomery Ward may select among several
interest rate options, including a rate negotiated with one or more
of the various lenders. The interest rates for the aforementioned
bank borrowings are based on market rates and significant increases
in market interest rates will increase interest payments required.
A commitment fee is payable based upon the unused amount of each
facility, although under certain circumstances, an additional fee
may be payable to lenders not participating in a negotiated rate
loan. The weighted average interest rate paid under the Agreements
was 6.25% for 1995.
During the fourth quarter of 1994, Montgomery Ward entered into
interest rate exchange and cap agreements with various banks to
offset the market risk associated with an increase in interest
rates under both the Long Term Agreement and Short Term Agreement.
The aggregate notional principal amounts under the interest rate
exchange agreements is $175 in 1995 through 1997 and $75 in 1998
through 1999. Under the terms of the interest rate exchange
agreements, Montgomery Ward pays the banks a weighted average fixed
rate of 7.4% from 1995 through 1997 and 7.6% from 1998 through 1999
and will receive the one-month daily average London Interbank
Offered (LIBO) rate in each case multiplied by the notional
principal amount. The average aggregate notional principal amounts
under the various cap agreements is $154 in 1995, $158 in 1996 and
$113 in 1997. Under the terms of the cap agreements, Montgomery
Ward receives payments from the banks when the one-month daily
average LIBO rate exceeds the 5.5% cap strike rate in 1995, 6% cap
strike rate in 1996 and 7.0% cap strike rate in 1997. Such
payments will equal the amount determined by multiplying the
notional principal amount by the percentage, if any, by which the
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
11. Short-Term and Long-Term Debt (continued)
one-month daily average LIBO rate exceeds the cap strike rate.
The exchange and cap agreements resulted in interest expense of
$3 and increased the effective interest rate under the Agreements
by .48% in 1995. Montgomery Ward is exposed to credit risk in
the event of nonperformance by the other parties to the interest
rate exchange and cap agreements; however, Montgomery Ward
anticipates full performance by the counterparties. The fair
market value of the exchange and cap agreements was $(9) and $0,
respectively, at December 30, 1995. Fair value is estimated
based upon the amount that Montgomery Ward would receive or pay
to terminate the agreements as of the reporting date, utilizing
quoted prices for comparable contracts.
On July 11, 1995, Montgomery Ward entered into a Note Purchase
Agreement (1995 Note Purchase Agreement) with various lenders
involving the private placement of $180 of Senior Notes which have
maturities of from five to ten years at fixed interest rates
varying from 6.52% to 6.98%. Proceeds from the debt issue were
used to repay short-term borrowings incurred to fund the Company's
acquisition of Lechmere.
On September 29, 1995, Montgomery Ward borrowed $25 under a Term
Loan Agreement (Term Loan Agreement) with a bank. The borrowings
mature on September 30, 1999. Under the Term Loan Agreement,
Montgomery Ward may select several interest rate options which are
based on market rates.
The Agreements, the Term Loan Agreement, the 1993 Note Purchase
Agreements and the 1995 Note Purchase Agreement impose various
restrictions on Montgomery Ward, including the satisfaction of
certain financial tests which include restrictions on payments of
dividends. Under the terms of the Agreements and the Term Loan
Agreement, which are currently the most restrictive of the
financing agreements as to dividends, distributions and
redemptions, Montgomery Ward may not pay dividends or make any
other distributions to the Company or redeem any Common Stock in
excess of (1) $63 on a cumulative basis, plus (2) 50% of
Consolidated Net Income of Montgomery Ward (as defined in the
Agreements) after January 1, 1994, plus (3) any repayment by the
Company of any loan or advance made by Montgomery Ward to the
Company which was received after January 1, 1994, plus (4) capital
contributions received by Montgomery Ward after January 1, 1994,
plus (5) net proceeds received by Montgomery Ward from (a) the
issuance of capital stock including treasury stock but excluding
Debt-Like Preferred Stock (as defined in the Agreements) or (b) any
indebtedness which is converted into shares of capital stock other
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
11. Short-Term and Long-Term Debt (continued)
than Debt-Like Preferred Stock of Montgomery Ward or the Company,
after January 1, 1994, plus (6) an adjustment of $45 for 1995
through 1996, $30 in 1997 and $15 in 1998. The MW Senior
Preferred Stock discussed in Note 13 constitutes Debt-Like
Preferred Stock for purposes of the dividend restrictions under
the Agreements. At December 30, 1995, Montgomery Ward could pay
dividends and make other distributions to the Company of $108
pursuant to the terms of the Agreements. To date, Montgomery
Ward has been in compliance with all such financial tests.
Montgomery Ward has outstanding Commercial Development Revenue
Bonds, which are adjusted to the market rate of interest at
three-year intervals. The rate was adjusted to 4.5% in 1995.
The Secured Notes of the real estate subsidiaries and the secured
Mortgage Notes of Lechmere are secured by mortgage liens and/or
assignments of rental agreements whereby the real estate
subsidiaries have assigned to trustees certain monies payable under
leases with Montgomery Ward. At December 30, 1995, assets with a
net book value of approximately $188 represented collateral for
certain of these secured notes.
The market value of the Company's long-term debt of $417 is
estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
12. Leases
The Company leases real and personal property principally through
noncancelable capital and operating leases, which generally provide
for the payment of minimum rentals and, in certain instances,
executory costs and additional rentals based upon a percentage of
sales. The terms of the real estate leases typically contain
renewal options for additional periods.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
12. Leases
At December 30, 1995, the minimum lease payments under all
noncancelable operating leases with an initial term of more than
one year, not including $37 of future sublease rentals, and under
capital leases are as follows:
Capital Operating
Leases Leases
1996 . . . . . . . . . . . . . . . . . . . . $13 $ 119
1997 . . . . . . . . . . . . . . . . . . . . 12 110
1998 . . . . . . . . . . . . . . . . . . . . 11 99
1999 . . . . . . . . . . . . . . . . . . . . 11 90
2000 . . . . . . . . . . . . . . . . . . . . 11 84
Later Years. . . . . . . . . . . . . . . . . 40 799
Total Minimum Lease Payments. . . . . . . . $98 $1,301
Less Executory Costs, principally real
estate taxes to be paid by the lessor . . . (4)
Less Imputed Interest. . . . . . . . . . . . (28)
Present Value of Net Minimum Capital
Lease Payments Including Portion due
within one year of $7 . . . . . . . . . . . $66
Net rent expense charged to earnings was $140 for 1995, $130 for
1994 and $104 for 1993 after deducting rentals from subleases of $9
in 1995, 1994 and 1993. Rent expense includes contingent lease
rentals for capital and operating leases of $12 for 1995, $13 for
1994 and $11 for 1993. These contingent lease rentals are
generally based on sales revenues.
Some rental agreements contain escalation provisions that may
require higher future rent payments. Rent expense incurred under
rental agreements which contain escalation clauses is recognized on
a straight-line basis over the life of the lease.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
13. Redeemable Preferred Stock
On April 27, 1994, the Company's Certificate of Incorporation was
amended to authorize the issuance of a new series of senior
preferred stock (Senior Preferred Stock). On that date, the
Company issued all of the 750 shares of Senior Preferred Stock
authorized by the Certificate of Incorporation to General Electric
Capital Corporation in exchange for $75 in cash. The Company used
the proceeds to acquire 750 shares of a new issue of senior
preferred stock of Montgomery Ward (Montgomery Ward Preferred) for
$75 and Montgomery Ward used the proceeds to reduce short-term
borrowings. On December 29, 1995, Montgomery Ward redeemed the
Montgomery Ward Preferred held by the Company for $75. The Company
used the proceeds to redeem the Senior Preferred Stock held by GE
Capital for $75. The source of the funds for these transactions
was borrowing under the Agreements. Dividends on the Senior
Preferred Stock and Montgomery Ward Preferred had been paid
quarterly at an annual rate of $4,850 per share.
On December 29, 1995, Montgomery Ward issued 1,750 shares of a
new series of senior preferred stock (MW Senior Preferred Stock),
par value of $1.00 per share, to GE Capital in exchange for $175 in
cash. Subsequent to year end, Montgomery Ward used a portion of
the proceeds to finance the purchase of the Amoco Motor Club by its
wholly-owned subsidiary, Signature. The subscription agreement for
the MW Senior Preferred Stock contains an exchange option which
gives GE Capital the option to exchange the MW Senior Preferred
Stock for senior preferred stock of the Company with identical
terms. On January 31, 1996, GE Capital exercised the exchange
option.
Dividends on the MW Senior Preferred Stock are payable quarterly
at an annual rate of $7,010 per share. Montgomery Ward is required
to redeem the MW Senior Preferred on June 30, 2002, with the option
of redeeming all or any portion prior to June 30, 2002.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
14. Common Stock
The Company has the following authorized classes of common stock:
Class A Common Stock, Series 1; $.01 par value; 25,000,000
shares authorized; 19,018,394 shares issued and outstanding,
net of 5,996,819 shares held in treasury.
Class A Common Stock, Series 2; $.01 par value; 5,412,000
shares authorized; 191,399 shares issued and outstanding, net
of 1,674,319 shares held in treasury.
Class A Common Stock, Series 3; $.01 par value; 2,400,000
shares authorized; no shares issued or outstanding.
Class B Common Stock; $.01 par value; 25,000,000 shares
authorized, issued and outstanding; all owned by GE Capital.
The Company has repurchased 5,632,147 shares held by certain
former officers of the Company, Montgomery Ward and Signature and
their permitted transferees by making cash payments and issuing
installment notes in the aggregate of approximately $47. As of
December 30, 1995, the outstanding balance of these notes was $14.
These installment notes bear interest at varying rates, are payable
over multi-year periods (generally three to five years) and are
secured by shares of Common Stock, the fair market value of which
is equal to the outstanding principal amount under each note. The
notes are classified as Accrued liabilities and other obligations.
Under all of the Agreements, Montgomery Ward expects to be able to
advance the Company sufficient funds to allow the Company to make
the required installment payments in 1996.
Each share of Class B Common Stock entitles the holder thereof
to one vote. All shares of Class A Common Stock entitle the
holders to a total of 25,000,000 votes, or one vote per share if
the total number of Class A shares issued and outstanding is less
than 25,000,000.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
14. Common Stock (continued)
Net income per common share is computed as follows:
52-Week Period Ended
December 30, 1995
Class A Class B
Earnings available for Common Share-
holders. . . . . . . . . . . . . . . $ 3 $ 4
Weighted average number of common
and common equivalent shares
(stock options) outstanding. . . . . 20,824,514 25,000,000
Earnings per share . . . . . . . . . . $.16 $.14
52-Week Period Ended
December 31, 1994
Class A Class B
Earnings available for Common Share-
holders, after deducting preferred
stock dividend requirements. . . . . $57 $58
Weighted average number of common
and common equivalent shares
(stock options) outstanding. . . . . 21,407,379 25,000,000
Earnings per share . . . . . . . . . . $2.68 $2.30
52-Week Period Ended
January 1, 1994
Class A Class B
Earnings available for Common
Shareholders . . . . . . . . . . . . $50 $51
Weighted average number of common
and common equivalent shares
(stock options) outstanding. . . . . 21,805,203 25,000,000
Earnings per share . . . . . . . . . . $2.29 $2.04
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
15. Stock Ownership Plan
The Montgomery Ward & Co., Incorporated Stock Ownership Plan was
adopted effective July 19, 1988. A total of 1,000,000 Class A
Common Stock, Series 1, 5,412,000 shares of Class A Common Stock,
Series 2, and 2,000,000 shares of Class A Common Stock, Series 3,
have been reserved for issuance under the plan. Key associates of
Montgomery Ward and its subsidiaries are eligible to participate
and may receive awards, purchase rights and options. Awards are
grants of shares for no consideration. Options for 2,792,088 and
2,926,286 of Class A Common Stock, Series 2 and Series 3 shares
were exercisable at December 30, 1995 and December 31, 1994,
respectively.
Following is a summary of activity under the plan.
Option Price
Options Range
Outstanding January 2, 1993 . . . . . 3,596,908 $ 0.20-$18.75
Granted, 1993 . . . . . . . . . . . . 1,979,105 $18.75-$22.50
Exercised, 1993 . . . . . . . . . . . (192,864) $ 0.20-$18.75
Cancellations, 1993 . . . . . . . . . (520,083) $ 0.20-$22.50
Outstanding January 1, 1994 . . . . . 4,863,066 $ 0.20-$22.50
Granted, 1994 . . . . . . . . . . . . 2,010,236 $12.50-$26.50
Exercised, 1994 . . . . . . . . . . . (297,415) $ 0.20-$22.50
Cancellations, 1994 . . . . . . . . . (890,285) $ 0.20-$26.50
Outstanding, December 31, 1994. . . . 5,685,602 $ 0.20-$26.50
Granted, 1995 . . . . . . . . . . . . . 613,145 $24.50-$26.50
Exercised, 1995 . . . . . . . . . . . (980,373) $ .20-$24.50
Cancellations, 1995 . . . . . . . . . (571,231) $ .20-$26.50
Outstanding December 30, 1995 . . . . 4,747,143 $ .20-$26.50
During 1991, the Board of Directors approved the Directors Plan.
The Directors Plan was established to, among other things, allow
outside directors to receive all or any portion of the fees for
their services as directors of the Company and Montgomery Ward via
conversion rights in Series 1 or Series 2 shares. In 1995, 1994
and 1993, 2,476, 2,489 and 3,466 Series 1 shares were issued from
treasury as payment for directors fees, respectively.
In October, 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation". This standard
is effective for fiscal years beginning after December 15,
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
15. Stock Ownership Plan (continued)
1995 and therefore will be adopted by Montgomery Ward in 1996.
Montgomery Ward's Stock Option Plan is covered by this statement.
Under SFAS No. 123, entities may adopt the fair value based
method for stock-based compensation plans, or continue to use the
accounting method prescribed by APB Option No. 25, "Accounting for
Stock Issued to Employees" and provide pro-forma disclosures in the
footnotes to the financial statements of net income and earnings
per share as if the fair value based method defined in SFAS No.
123 had been applied. Montgomery Ward intends to adopt the
disclosure method of this statement.
16. Operating, Selling, General and Administrative Expenses
Operating, selling, general and administrative expenses include
benefits and losses related to direct response marketing operations
of $100, $102 and $93 for the periods ended December 30, 1995,
December 31, 1994 and January 1, 1994, respectively.
A provision for severance costs and relocation of certain
administrative functions of both Montgomery Ward and Lechmere of
$25 is included in Operating, selling, general and administrative
expenses at December 30, 1995.
17. Interest Expense, Net of Investment Income
Net interest expense is as follows:
52-Week
Period Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Interest on short-term
borrowings. . . . . . . . $ 47 $19 $ 12
Interest on long-term
debt and obligations
under capital leases. . . 32 30 24
Miscellaneous interest,
net . . . . . . . . . . . 15 11 8
Investment income. . . . . (3) (2) (1)
Total interest expense,
net of investment
income. . . . . . . . . . .$91 $58 $43
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
18. Litigation and Other Proceedings
MW Holding, Montgomery Ward and its subsidiaries are engaged in
various litigation and have a number of unresolved claims. While
the amounts claimed are substantial and the ultimate liability with
respect to such litigation and claims cannot be determined at this
time, management is of the opinion that such liability, to the
extent not provided for through insurance or otherwise, is not
likely to have a material impact on the financial condition and the
results of operations of the Company.
19. Related Party Transactions
Substantially all shares of Class A Series 1 and Series 2
Common Stock, except those held by the Chairman and Chief Executive
Officer of the Company and a trust established for the benefit of
his children, are held by a Voting Trust which was created in 1988.
In 1994, a second voting trust was created to hold shares of Class
A Series 3 Common Stock. A Voting Trustee (currently the Chairman
and Chief Executive Officer of the Company) has sole voting power
and control of all shares held by both Voting Trusts. The 1988
Voting Trust will expire June 21, 1998 or upon the occurrence of
certain specified events in accordance with the Voting Trust
Agreement. The 1994 Voting Trust has no expiration date but may
expire upon the occurrence of certain specified events in
accordance with the Voting Trust Agreement.
The Company engages in various transactions with GE Capital as
described in Notes 4, 13 and 14.
On August 8, 1995, Montgomery Ward purchased 1,280,000
unregistered shares of common stock of ValueVision at $6.25 per
share, which represents approximately 4.4% of the issued and
outstanding shares of common stock of ValueVision International,
Inc. (Value Vision). Montgomery Ward accounts for the investment
using the cost method. Montgomery Ward also received warrants to
purchase an additional 25 million shares of common stock of
ValueVision with exercise prices ranging from $6.50 to $17.00 per
share, with an average exercise price of $9.16 per share. The
warrants were valued at $18 at the time of grant and are included
in Other assets at December 30, 1995. The corresponding deferred
revenue of $18 was recognized as a liability and included in
Accrued liabilities and other obligations. At December 30, 1995,
the balance of the deferred revenue is $17. The deferred revenue
will be recognized by Montgomery Ward as services are provided by
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
19. Related Party Transactions (continued)
ValueVision in the future. These services are for expenses
incurred for advertising by ValueVision, purchasing cable TV time
for Montgomery Ward goods and services, use of the Montgomery
Ward service mark and use of Montgomery Ward Credit. The
warrants vest over time, subject to the vesting termination and
acceleration provisions in the agreement.
In July, 1994, Montgomery Ward became a limited partner in
Merchant Partners, Limited Partnership (Merchant Partners). The
purpose of this partnership is to invest in new and emerging growth
businesses and leveraged buy-outs to achieve a superior rate of
return. Montgomery Ward made capital contributions of $4 and $1 in
1995 and 1994, respectively, and accounts for the investment using
the equity method. Per the terms of the agreement, additional
funding may be required within limitations set forth in the
agreement. The cumulative maximum capital contribution is $40. In
December, 1995, Merchant Partners made a partnership distribution
of $22 to Montgomery Ward. The distribution consisted of $8 of
common stock and $14 of warrants of a publicly traded company.
After recognition of the portion of the distribution that was
recorded as a return of capital of $5 and the partnership's net
loss allocation as of December 30, 1995 of $1, a gain of $16 was
recognized in the Consolidated Statement of Income.
Montgomery Ward paid on behalf of those associates and past
associates of Montgomery Ward and certain of its subsidiaries who
purchased stock in the Company in 1988, the legal fees and related
costs and expenses in connection with certain deficiencies in tax
assessed by the Internal Revenue Service, and certain Tax Court
cases. All assessments were settled in 1994. Montgomery Ward paid
approximately $4 in 1993 for services rendered in connection with
the aforementioned matters.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
19. Related Party Transactions (continued)
The Company offers a line of credit program for certain
associates, including directors who are associates and executive
officers of the Company (Line of Credit Program). Under the Line
of Credit Program, the Company arranged with banks (Program Banks)
for lines of credit of up to $10 in the aggregate for all
participants in the Line of Credit Program. Any associate who
borrows money from the Program Banks under the Line of Credit
Program is required to pledge to such Program Banks as collateral
a number of shares owned by such associate, the fair market value
of which is equal to twice the amount the associate borrows. In
the event any associate should default upon his or her repayment
obligations, the Company anticipates that it will repurchase that
individual's note from the Program Banks, together with the Banks'
security interest in the pledged stock, at the face amount of the
note plus up to one year's interest. At December 30, 1995, the
borrowings outstanding under the Line of Credit Program were $1.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
20. Business Segments
Montgomery Ward and its subsidiaries are engaged in retail
merchandising and direct response marketing, including insurance,
in the United States. Following is information regarding revenues,
earnings and assets of the Company by segment.
52-Week
Period Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Total Revenues
Retail Merchandising. . $6,531 $6,564 $5,623
Direct Response
Marketing. . . . . . . 554 465 400
Total . . . . . . . . 7,085 $7,029 $6,023
Operating Earnings (Losses)
Retail Merchandising. . $ 64 $ 208 $ 171
Direct Response
Marketing. . . . . . . 70 60 54
Corporate and
Other (a). . . . . . . (124) (89) (65)
Total . . . . . . . . $ 10 $ 179 $ 160
Identifiable Assets
Retail Merchandising. . $3,504 $3,314 $2,627
Direct Response
Marketing. . . . . . . 920 789 753
Corporate and Other. . 460 434 455
Total . . . . . . . . $4,884 $4,537 $3,835
Depreciation and
Amortization
Retail Merchandising. . $ 118 $ 105 $ 95
Direct Response
Marketing. . . . . . . 1 4 3
Total . . . . . . . . $ 119 $ 109 $ 98
Capital Expenditures
Retail Merchandising. . $ 109 $ 180 $ 139
Direct Response
Marketing. . . . . . . 13 4 3
Total . . . . . . . . $ 122 $ 184 $ 142
(a) Includes $25 of severance and relocation costs. See Note
16 to the Consolidated Financial Statements.
Under the laws and regulations applicable to insurance companies,
certain subsidiaries of Signature are limited in the amount of
dividends they may pay without the approval of the Illinois
Insurance Department and are prohibited from making any loans and
advances to Montgomery Ward and its affiliates. Under these laws,
the restricted subsidiaries, which had aggregate retained earnings
of $165, and aggregate total shareholders equity of $224, can pay
dividends of $50 during 1996 as determined on a statutory basis,
subject to the ability of certain subsidiaries to generate earned
surplus. Dividends received by Signature from insurance
subsidiaries were $40, $42 and $35 for 1995, 1994 and 1993.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
21. Parent Company Financial Information
Following is the MW Holding balance sheet as of December 30, 1995
and December 31, 1994 and the statements of income and cash flows
for the 52-week periods ended December 30, 1995, December 31, 1994
and January 1, 1994.
MONTGOMERY WARD HOLDING CORP.
BALANCE SHEET
ASSETS
December 30, December 31,
1995 1994
Federal Income Taxes Receivable . . . . . .$ 4 $ 4
Investment in Montgomery Ward . . . . . . . 782 766
Redeemable Preferred Stock of
Montgomery Ward. . . . . . . . . . . . . . - 75
Other assets. . . . . . . . . . . . . . . . 1 -
Total Assets . . . . . . . . . . . . . . .$787 $845
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable to Montgomery Ward . . . .$ 73 $ 57
Accrued Liabilities . . . . . . . . . . . . 14 26
Total Liabilities. . . . . . . . . . . . . 87 83
Redeemable Preferred Stock. . . . . . . . . - 75
Common Stock. . . . . . . . . . . . . . . . 1 -
Capital in excess of par value. . . . . . . 45 23
Retained Earnings . . . . . . . . . . . . . 758 751
Unrealized gain on marketable equity
securities . . . . . . . . . . . . . . . . 10 2
Less: Treasury stock, at cost. . . . . . (114) (89)
Total Shareholders' Equity . . . . . . . 700 687
Total Liabilities and
Shareholders' Equity . . . . . . . . . . .$787 $845
STATEMENT OF INCOME
52-Week
Period Ended
Dec. 30, Dec. 31, Jan. 1,
1995 1994 1994
Miscellaneous Costs . . . .$(1) $(2) $(1)
Total Costs and
Expenses. . . . . . . . . (1) (2) (1)
Tax Benefits. . . . . . . . - - -
Net Loss Before
Earnings of
Montgomery Ward. . . . . . (1) (2) (1)
Equity in Net Income
of Montgomery Ward . . . . 12 119 102
Net Income. . . . . . . . . 11 117 101
Preferred Stock Dividend
Requirements . . . . . . . 4 2 -
Net Income Available
for Common
Shareholders . . . . . . .$ 7 $115 $101
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
21. Parent Company Financial Information (continued)
STATEMENT OF CASH FLOWS
December 30, December 31, January 1,
1995 1994 1994
Net Income. . . . . . . . . .$ 11 $117 $101
Adjustments to reconcile
net income to net cash
provided:
Change in undis-
tributed earnings
of subsidiary . . . . . (8) (96) (79)
Compensation expense
on stock option grants/
repurchases . . . . . . . 4 1 -
Decrease (increase) in:
Other assets. . . . . . . (1) - 1
Increase (decrease) in:
Accounts payable to
Montgomery Ward. . . . 16 22 12
Accrued liabilities . . .(13) (15) (4)
Net cash provided
before financing
activities . . . . . . . . . 9 29 31
Cash flows from financing
activities:
Proceeds from issuance
of common stock . . . . 18 3 1
Proceeds from redemption
of Montgomery Ward
preferred stock . . . . . 75 - -
Proceeds from issuance
of preferred stock. . . . - 75 -
Purchase of Montgomery
Ward preferred
stock. . . . . . . . . . . - (75) -
Cash dividends paid . . . (4) (24) (23)
Payments to redeem
preferred stock . . . . .(75) - -
Purchase of treasury
stock, at cost. . . . . .(23) (9) (11)
Tax benefit of stock
options exercised
and other stock
exchanges . . . . . . . . - 1 2
Net cash used for
financing activities . . . . (9) (29) (31)
Cash at end of period . . . .$ - $ - $ -
Non-cash investing
activities:
Change in unrealized
gain on investments . . . $ 8 $ (1) $ -
Non-cash financing
activities:
Notes issued for
purchase of
treasury stock. . . . . . .$ 2 $ 7 $ 16
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
22. Quarterly Financial Data (unaudited)
The quarterly operations of MW Holding are summarized as follows:
Quarter
First Second Third Fourth Year
52-Week Period Ended
December 30, 1995
Net sales. . . . . . .$1,357 $1,521 $1,561 $2,092 $6,531
Cost of goods sold . . 1,075 1,211 1,240 1,652 5,178
Net (Loss) Income. . . (4) 11 3 1 11
Net (Loss) Income
per Class A
Common Share. . . . . (.12) .25 .05 - .16
Net (Loss) Income
per Class B
Common Share. . . . . (.10) .20 .04 - .14
52-Week Period Ended
December 31, 1994
Net sales. . . . . . .$1,215 $1,519 $1,571 $2,259 $6,564
Cost of goods sold . . 931 1,184 1,235 1,743 5,093
Net Income . . . . . . 10 28 15 64 117
Net Income per Class A
Common Share. . . . .23 .62 .33 1.51 2.68
Net Income per Class B
Common Share. . . . . .20 .53 .29 1.28 2.30
23. Subsequent Event
Subsequent to year end, Signature acquired all of the outstanding
capital stock of Amoco Enterprises, Inc., operator of the Amoco
Motor Club and a wholly-owned subsidiary of Amoco Oil Holding
Company. See Note 13 to the Consolidated Financial Statements
concerning financing of the acquisition.
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company
Information as to executive officers required by this item is
included under the caption "Executive Officers of the Registrant"
beginning on page 16. Information as to directors required by this
item is incorporated herein by reference, pursuant to General
Instruction G(3) to Form 10-K, from the Registrant's definitive
proxy statement, for the annual meeting of shareholders to be held
on May 31, 1996, to be filed within 120 days of the end of the
Registrant's fiscal year.
Item 11. Executive Compensation
Incorporated herein by reference, pursuant to General Instruction
G(3) to Form 10-K, from the Registrant's definitive proxy
statement, for the annual meeting of shareholders to be held on May
31, 1996, to be filed within 120 days of the end of the
Registrant's fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Incorporated herein by reference, pursuant to General Instruction
G(3) to Form 10-K, from the Registrant's definitive proxy
statement, for the annual meeting of shareholders to be held on May
31, 1996, to be filed within 120 days of the end of the
Registrant's fiscal year.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference, pursuant to General Instruction
G(3) to Form 10-K, from the Registrant's definitive proxy
statement, for the annual meeting of shareholders to be held on May
31, 1996, to be filed within 120 days of the end of the
Registrant's fiscal year.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K's.
(a) 1. Financial Statements.
Page
Report of Independent Public Accountants. . . . . . . . .29
Consolidated Balance Sheet at December 30, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . .31
For the 52-Week Periods Ended December 30, 1995,
December 31, 1994 and January 1, 1994
Consolidated Statement of Income. . . . . . . . . . . .30
Consolidated Statement of Shareholders' Equity. . . .32
Consolidated Statement of Cash Flows. . . . . . . . .35
Notes to Consolidated Financial Statements. . . . . . . .37
2. Financial Statement Schedules.
Schedules have been omitted because they are not applicable, not
required, not material, or the required information is given in the
financial statements or notes thereto or combined with the
information presented in other schedules or exhibits.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits
2.(i)(A) Agreement and Plan of Merger dated March 17, 1994
by and among Montgomery Ward & Co., Incorporated,
MW Merger Corp., LMR Acquisition Corporation,
Lechmere, Inc. and stockholders of LMR Acquisition
Corporation executing counterparts of this
agreement, incorporated by reference to Exhibit
2.(i)(A) of the Company's Annual Report on Form 10-
K for the fiscal year ended January 1, 1994.
2.(i)(A)(1) First Amendment to Agreement and Plan of Merger
dated June 15, 1994, by and among Montgomery Ward
& Co., Incorporated, LMR Acquisition Corporation,
and the Stockholders' Committee, incorporated by
reference to Exhibit 2.(i)(A)(1) of the Company's
Quarterly Report on Form 10-Q for the fiscal
quarterly period ended July 2, 1994.
2.(ii) Agreement of Purchase and Sale of Stock
dated February 24, 1994 among Signature Financial/
Marketing, Inc., Greater California Dental Services
Plan, Inc. and National Dental Services, Inc.,
incorporated by reference to Exhibit 2.(i)(A) of
the Company's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994.
3.1 Third Restated Certificate of Incorporation of
Registrant, filed June 28, 1994, incorporated by
reference to Exhibit 3.2(ii) of the Company's
Registration Statement on Form S-1 (Registration
No. 33-33252).
3.1(i) Certificate of Amendment to Certificate of
Incorporation of Montgomery Ward Holding Corp.
dated October 25, 1994, incorporated by reference
to Exhibit 3.2(iv) of the Company's Quarterly
Report on Form 10-Q for the fiscal quarterly period
ended October 1, 1994.
3.3 Amended and Restated By-laws of Registrant, dated
as of December 29, 1994.
9. Voting Trust Agreement dated as of June 21, 1988,
incorporated by reference to Exhibit 3(a) of the
Company's Registration Statement on Form S-1
(Registration No. 33-23403).
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
9.(i) Voting Trust Agreement dated as of October 21,
1994, incorporated by reference to Exhibit
9.(i) of the Company's Quarterly Report on Form
10-Q for the fiscal quarterly period ended
October 1, 1994.
10.(i)(A)(1) Stockholders' Agreement dated as of June 17,
1988, as amended and restated as of December
29, 1994, incorporated by reference to Exhibit
4.(e) to the Company's Registration Statement
on Form S-8 (Registration No. 33-57075).
10.(i)(A)(3) Montgomery Ward & Co., Incorporated Stock
Ownership Plan Terms and Conditions, as amended
and restated, as of December 29, 1994,
incorporated by reference to Exhibit 4.(f) of
the Company's Registration Statement on Form
S-1 (Registration No. 33-57075).
10.(i)(B) Stock Purchase Agreement dated March 6, 1988
between Mobil Corporation, Marcor Inc. and BFB
Acquisition Corp. incorporated by reference to
Exhibit 10.(i)(B) of the Company's Registration
Statement on Form S-1 (Registration No.
33-23403).
10.(i)(C) Subscription Agreement dated as of December 29,
1995 between General Electric Capital
Corporation, Montgomery Ward & Co., Montgomery
Ward Holding Corp., and Bernard F. Brennan.
10.(i)(F) Note Purchase Agreements dated March 1, 1993
between Montgomery Ward & Co., Incorporated and
various lenders, incorporated by reference to
Exhibit 10.(i)(F) of the Company's Annual
Report on Form 10-K for the fiscal year ended
January 2, 1993.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
10.(i)(F)(1) Amendment dated June 30, 1995 to Note Purchase
Agreements dated March 1, 1993 between Montgomery
Ward & Co., Incorporated and various lenders,
incorporated by reference to Exhibit 10.(i)(F)(1)
of the Company's Quarterly Report on Form 10-Q for
the fiscal quarterly period ended July 1, 1995.
10.(i)(H) Long Term Credit Agreement dated as of September
15, 1994 among Montgomery Ward & Co., Incorporated,
various banks, The First National Bank of Chicago,
as Documentary Agent, The Bank of Nova Scotia, as
Administrative Agent, The Bank of New York, as
Negotiated Loan Agent and Bank of America National
Trust and Savings Association, as Advisory Agent,
incorporated by reference to Exhibit 10.(i)(G) of
the Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended October 1, 1994.
10.(i)(H)(1) Amended Schedule 1 to the Long Term Credit
Agreement dated as of September 15, 1994 among
Montgomery Ward & Co., Incorporated, various banks,
The First National Bank of Chicago, as Documentary
Agent, The Bank of Nova Scotia, as Administrative
Agent, The Bank of New York, as Negotiated Loan
Agent and Bank of America National Trust and
Savings Association, as Advisory Agent incorporated
by reference to Exhibit 10.(i)(H)(1) of the
Company's Quarterly Report on Form 10-Q, for the
fiscal quarterly period ended September 30, 1995.
10.(i)(I) Short Term Credit Agreement dated as of September
15, 1994 among Montgomery Ward & Co., Incorporated,
various banks, The First National Bank of Chicago,
as Documentary Agent, The Bank of Nova Scotia, as
Administrative Agent, The Bank of New York, as
Negotiated Loan Agent and Bank of America National
Trust and Savings Association, as Advisory Agent,
incorporated by reference to Exhibit 10.(i)(H) of
the Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended October 1, 1994.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
10.(i)(I)(1) Amended Schedule 1 to the Short Term Credit
Agreement dated as of September 15, 1994 among
Montgomery Ward & Co., Incorporated, various banks,
The First National Bank of Chicago, as Documentary
Agent, The Bank of Nova Scotia, as Administrative
Agent, the Bank of New York, as Negotiated Loan
Agent and Bank of America National Trust and
Savings Association, as Advisory Agent,
incorporated by reference to Exhibit 10.(i)(I)(1)
of the Company's Quarterly Report on Form 10-Q for
the fiscal quarterly period ended September 30,
1995.
10.(i)(J) Note Purchase Agreement dated July 11, 1995 between
Montgomery Ward & Co., Incorporated and various
lenders, incorporated by reference to Exhibit
10.(i)(J) on the Company's Quarterly Report on Form
10-Q for the fiscal quarterly period ended July 1,
1995.
10.(i)(K) Term Loan Agreement dated as of September 29, 1995
between Montgomery Ward & Co., Incorporated and The
Industrial Bank of Japan, Limited, Chicago Branch,
Incorporated by reference to Exhibit 10.(i)(K) of
the Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended September 30, 1995.
10.(ii)(A) Stock Purchase Agreement dated June 22, 1988
between General Electric Capital Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to Exhibit 10.(ii)(A) of the Company's
Registration Statement on Form S-1 (Registration
No. 33-23403).
10.(ii)(B) Account Purchase Agreement dated June 24, 1988 by
and between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to Exhibit 10.(ii)(B) of the Company's
Registration Statement on Form S-1 (Registration
No. 33-23403).
10.(ii)(B)(1) Letter Agreement dated April 21, 1989, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated (amending the
Account Purchase Agreement which is Exhibit
10.(ii)(B) hereto), incorporated by reference to
Exhibit 10.(ii)(B)(1) of the Company's Registration
Statement on Form S-1 (Registration No. 33-33252).
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
10.(ii)(B)(2) Amendment to Account Purchase Agreement dated
December 26, 1989 by and between Montgomery Ward
Credit Corporation and Montgomery Ward & Co.,
Incorporated, incorporated by reference to Exhibit
10.(ii)(B)(2) of the Company's Registration
Statement on Form S-1 (Registration No. 33-33252).
10.(ii)(B)(3) Letter Agreement dated April 24, 1990, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to Exhibit 10.(ii)(B)(3) of the
Company's Registration Statement on Form S-1
(Registration No. 33-33252).
10.(ii)(C) Letter Agreement dated June 24, 1988 among
Signature Financial/Marketing, Inc., Montgomery
Ward Credit Corporation and Montgomery Ward & Co.,
Incorporated, incorporated by reference to Exhibit
10.(ii)(C) of the Company's Registration Statement
on Form S-1 (Registration No. 33-23403).
10.(ii)(D) Letter Agreement dated December 26, 1990, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to 10.(ii)(D) of the Company's Annual
Report on Form 10-K for the fiscal year ended
December 29, 1990.
10.(ii)(E) Fifth Amendment to Account Purchase Agreement dated
May 23, 1992 by and between Montgomery Ward & Co.,
Incorporated and Montgomery Ward Credit
Corporation, incorporated by reference to Exhibit
10.(ii)(E) of the Company's Quarterly Report on
Form 10-Q for the fiscal quarterly period ended
June 27, 1992.
10.(ii)(F) Amendment dated May 23, 1992 to Letter Agreement
dated June 24, 1988 (Signature Credit Agreement) by
and among Signature Financial/Marketing, Inc.,
Montgomery Ward & Co., Incorporated and Montgomery
Ward Credit Corporation, incorporated by reference
to Exhibit 10.(ii)(F) of the Company's Quarterly
Report on Form 10-Q for the fiscal quarterly period
ended June 27, 1992.
10.(ii)(G) Letter Agreement dated December 29, 1992 by and
between Montgomery Ward & Co., Incorporated and
Montgomery Ward Credit Corporation, incorporated by
reference to Exhibit 10.(ii)(G) of the Company's
Annual Report on Form 10-K for the fiscal year
ended January 2, 1993.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
10.(ii)(G)(1) Letter Agreement dated April 29, 1993, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to Exhibit 10.(ii)(H) of the Company's
Quarterly Report on Form 10-Q for the fiscal
quarterly period ended April 3, 1993.
10.(ii)(G)(2) Letter Agreement dated September 15, 1993, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to Exhibit 10.(ii)(G)(2) of the
Company's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994.
10.(ii)(H) Ninth Amendment to Account Purchase Agreement dated
February 16, 1994 by and between Montgomery Ward &
Co., Incorporated and Montgomery Ward Credit
Corporation, incorporated by reference to Exhibit
10.(ii)(H) of the Company's Annual Report on form
10-K for the fiscal year ended January 1, 1994.
10.(ii)(I) Tenth Amendment to Account Purchase Agreement dated
June 16, 1994, by and between Montgomery Ward
Credit Corporation and Montgomery Ward & Co.,
Incorporated, incorporated by reference to Exhibit
10.(ii)(B)(11) of the Company's Registration
Statement on Form S-1 (No. 33-33252).
10.(ii)(J) Second Amendment dated June 16, 1994 to Signature
Credit Agreement by and among Signature
Financial/Marketing, Inc., Montgomery Ward & Co.,
Incorporated and Montgomery Ward Credit
Corporation, incorporated by reference to Exhibit
10.(ii)(C)(2) of the Company's Registration
Statement on Form S-1 (No. 33-33252).
10.(ii)(K) Eleventh Amendment to the Account Purchase
Agreement dated January 1, 1994, by and between
Montgomery Ward Credit Corporation and Montgomery
Ward & Co., Incorporated, incorporated by reference
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
10.(iv)(A) Montgomery Ward & Co., Incorporated Stock Ownership
Plan, amended and restated as of May 20, 1994,
incorporated by reference to Exhibit
10.(iv)(A)(ii)(A) of the Company's Registration
Statement on Form S-1 (No. 33-33252).
10.(iv)(A)(1) Amendment No. 1 to the Amended and Restated
Montgomery Ward & Co. Stock Ownership Plan dated
October 20, 1994, incorporated by reference to
Exhibit 10.(iv)(A)(iii) of the Company's Quarterly
Report on Form 10-Q for the fiscal quarterly period
ended October 1, 1994.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
10.(iv)(B) Montgomery Ward & Co., Incorporated Long Term
Incentive Plan, incorporated by reference to
Exhibit 10.(iv)(B) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
10.(iv)(B)(i) Montgomery Ward & Co., Incorporated Executive Long-
Term Incentive Plan, incorporated by reference to
Exhibit 10.(iv)(B)(1) of the Company's Registration
Statement on Form S-1 (No. 33-33252).
10.(iv)(C) Montgomery Ward & Co., Incorporated Performance
Management Program, incorporated by reference to
Exhibit 10.(iv)(C) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
10.(iv)(C)(i) Montgomery Ward & Co., Incorporated Senior
Executive Performance Management Program,
incorporated by reference to Exhibit 10.(iv)(C)(i)
of the Company's Registration Statement on Form S-1
(No. 33-33252).
10.(iv)(D) Montgomery Ward & Co., Incorporated Retirement
Security Plan (as amended and restated effective as
of January 1, 1994), incorporated by reference to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
10.(iv)(E) Montgomery Ward & Co., Incorporated Supplemental
Retirement Plan, incorporated by reference to
Exhibit 10.(iv)(E) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
10.(iv)(F) Montgomery Ward Holding Corp. Directors Fee and
Stock Ownership Plan, incorporated by reference to
Exhibit 10.(iv)(F) of the Company's Registration
Statement on Form S-1 (Registration No. 33-41161).
10.(iv)(G) Montgomery Ward Holding Corp. Senior Officer
Severance Plan, incorporated by reference to
Exhibit 10.(iv)(G) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 2,
1993.
10.(iv)(H) Montgomery Ward & Co., Incorporated Savings and
Profit Sharing Plan (as amended and restated as of
January 1, 1994), incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
10.(iv)(I) Montgomery Ward & Co., Incorporated Success Plan,
incorporated by reference to Exhibit 10.(iv)(I) of
the Company's Registration Statement on Form S-1
(No. 33-33252).
10.(vi) Employment Agreement effective January 14, 1994
between Montgomery Ward & Co., Incorporated and
Bernard W. Andrews, incorporated by reference to
Exhibit 10.(vi) of the Company's Annual Report on
Form 10-K for the fiscal year ended January 1,
1994.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
10.(vii) Agreement effective October 21, 1991 between
Montgomery Ward & Co., Incorporated and Fingerhut
Companies, Inc., incorporated by reference to
Exhibit 10.(vii) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 28,
1991.
10.(viii) Line of Credit Agreement effective November 19,
1991 between Montgomery Ward & Co., Incorporated
and The Northern Trust Company and The First
National Bank of Chicago, incorporated by reference
to Exhibit 10.(viii) of the Company's Annual Report
on Form 10-K for the fiscal year ended December 28,
1991.
10.(ix) Employment Agreement effective December 31, 1993
between Montgomery Ward & Co., Incorporated and
Robert F. Connolly, incorporated by reference to
Exhibit 10.(ix) of the Company's Annual Report on
Form 10-K for the fiscal year ended January 1,
1994.
10.(xi) Employment Agreement dated March 1, 1994 between
Montgomery Ward & Co., Incorporated and Richard
Bergel, incorporated by reference to Exhibit
10.(xi)(A) of the Company's Registration Statement
on Form S-1 (No. 33-33252).
10.(xii) Employment Agreement effective April 12, 1994
between Montgomery Ward & Co., Incorporated, and G.
Joseph Reddington, incorporated by reference to
Exhibit 10.(xii) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1994.
11. Statement regarding computation of per share
earnings.
12. Not applicable.
13. Not applicable.
16. Not applicable.
18. Not applicable.
19. Not applicable.
21. Subsidiaries of the Registrant, incorporated by
reference to Exhibit 21 of the Company's
Registration Statement on Form S-1 (Registration
No. 33-33252).
22. Not applicable.
23. Consent of independent public accountants.
24. Powers of attorney executed by directors and
officers authorizing execution of Annual Report on
Form 10-K.
27. Financial data schedule.
28. Not applicable.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
(b) Reports on Form 8-K.
On September 13, 1995, the Registrant filed a Form 8-K to
communicate its intention to acquire Levitz Furniture Incorporated.
The press release issued jointly by Montgomery Ward & Co.,
Incorporated and Levitz Furniture Incorporated on September 5, 1995
was included as an exhibit thereto.
On October 18, 1995, the Registrant filed a Form 8-K to
communicate the termination of discussions regarding its proposed
purchase of Levitz Furniture Incorporated. The press release
issued jointly by Montgomery Ward & Co., Incorporated and Levitz
Furniture Incorporated on October 16, 1995 was included as an
exhibit thereto.
On November 13, 1995, the Registrant filed a Form 8-K to
communicate the intent of Signature Financial/Marketing, Inc., a
wholly-owned subsidiary of Montgomery Ward & Co., Incorporated,
which is, in turn, a wholly-owned subsidiary of Montgomery Ward
Holding Corp., to acquire Amoco Enterprises, Inc., operator of the
Amoco Motor Club. Amoco Enterprises, Inc. is a wholly-owned
subsidiary of Amoco Oil Holding Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant, Montgomery Ward
Holding Corp., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REGISTRANT MONTGOMERY WARD HOLDING CORP.
BY JOHN L. WORKMAN
NAME AND TITLE John L. Workman, Executive Vice President,
Chief Financial Officer and Assistant Secretary
DATE March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
BY SPENCER H. HEINE
NAME AND TITLE Bernard F. Brennan*, Director, Chairman of the
Board and Principal Executive Officer
DATE March 29, 1996
BY SPENCER H. HEINE
NAME AND TITLE Spencer H. Heine, Executive Vice President,
Secretary, General Counsel and Director
DATE March 29, 1996
BY SPENCER H. HEINE
NAME AND TITLE G. Joseph Reddington*, Director
DATE March 29, 1996
BY JOHN L. WORKMAN
NAME AND TITLE John L. Workman, Executive Vice President,
Chief Financial Officer and Assistant Secretary
DATE March 29, 1996
BY SPENCER H. HEINE
NAME AND TITLE Myron Lieberman*, Director
DATE March 29, 1996
<PAGE>
SIGNATURES
BY SPENCER H. HEINE
NAME AND TITLE Silas S. Cathcart*, Director
DATE March 29, 1996
BY SPENCER H. HEINE
NAME AND TITLE Denis J. Nayden*, Director
DATE March 29, 1996
BY SPENCER H. HEINE
NAME AND TITLE James A. Parke*, Director
DATE March 29, 1996
BY SPENCER H. HEINE
NAME AND TITLE Daniel W. Porter*, Director
DATE March 29, 1996
* by power of attorney
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------- ----------------------
2.(i)(A) Agreement and Plan Incorporated by
of Merger dated March reference to
17, 1994 by and among Exhibit 2.(i)(A) of the
Montgomery Ward Company's Annual Report
& Co., Incorporated, on Form 10-K for the
MW Merger Corp., LMR fiscal year ended
Acquisition Corporation, January 1, 1994.
Lechmere, Inc. and
stockholders of LMR
Acquisition Corporation
executing counterparts
of this agreement.
2.(i)(A)(1) First Amendment to Incorporated by
Agreement and Plan of reference to
Merger dated June 15, Exhibit 2.(i)(A)(1)
1994, by and among of the Company's
Montgomery Ward & Co., Quarterly Report
Incorporated, LMR on Form 10-Q for
Acquisition Corporation, the fiscal quarterly
and the Stockholders' period ended July 2,
Committee. 1994.
2.(ii) Agreement of Purchase Incorporated by
and Sale of Stock reference to
dated February 24, 1994 Exhibit 2.(i)(A)
by and among Signature of the Company's
Financial/Marketing, Annual Report on
Inc., Greater California Form 10-K for the
Dental Services Plan, fiscal year ended
Inc. and National January 1, 1994.
Dental Services, Inc.
3.1 Third Restated Incorporated by
Certificate of reference to
Incorporation of Exhibit 3.2(ii) of the
Registrant, filed Company's Registration
June 28, 1994. Statement on Form S-1
(Registration No.
33-33252).
3.1(i) Certificate of Incorporated by
Amendment to reference to Exhibit
Certificate of 3.2(iv) of the Company's
Incorporation of Quarterly Report on
Montgomery Ward Holding Form 10-Q for the fiscal
Corp. dated October quarterly period ended
25, 1994. October 1, 1994.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- ----------------------
3.3 Amended and Restated
By-laws of Registrant,
dated as of December
29, 1994.
9. Voting Trust Incorporated by
Agreement dated as reference to
of June 21, 1988. Exhibit 3(a) of the
Company's Registration
Statement on Form S-1
(Registration No.
33-23403).
9.(i) Voting Trust Agreement Incorporated by
dated as of October 21, reference to Exhibit
1994. 9.(i) of the Company's
Quarterly Report on
Form 10-Q for the fiscal
quarterly period ended
October 1, 1994.
10.(i)(A)(1) Stockholders' Agreement Incorporated by
dated June 17, 1988, reference to Exhibit
as amended and 4.(e) to the Company's
restated as of Registration
December 29, 1994. Statement on Form S-8
(Registration No.
33-57075).
10.(i)(A)(3) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Stock Ownership 4.(f) of the Company's
Plan Terms and Registration
Conditions, as Statement on Form S-8
amended and (Registration No.
restated, as of 33-57075).
December 29, 1994.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- ----------------------
10.(i)(B) Stock Purchase Incorporated by
Agreement dated reference to Exhibit
March 6, 1988 10.(i)(B) of the
between Mobil Company's Registration
Corporation, Statement on Form S-1
Marcor Inc. and (Registration No.
BFB Acquisition 33-23403).
Corp.
10.(i)(C) Subscription
Agreement dated
as of December 29,
1995 between
General Electric
Capital Corporation,
Montgomery Ward &
Co., Incorporated,
Montgomery Ward
Holding Corp., and
Bernard F. Brennan.
10.(i)(F) Note Purchase Incorporated by
Agreements dated reference to Exhibit
March 1, 1993 10.(i)(F) of the
between Montgomery Company's Annual
Ward & Co., Incor- Report on Form 10-K
porated and various for the fiscal year
lenders. ended January 2, 1993.
10.(i)(F)(1) Amendment dated Incorporated by
June 30, 1995 to reference to Exhibit
Note Purchase 10.(i)(F)(1) of the
Agreements dated Company's Quarterly
March 1, 1993 Report on Form 10-Q
between Montgomery for the fiscal quar-
Ward & Co., Incor- terly period ended
porated and various July 1, 1995.
lenders.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- ----------------------
10.(i)(H) Long Term Credit Incorporated by
Agreement dated as of reference to Exhibit
September 15, 1994 10.(i)(G) of the
among Montgomery Ward Company's Quarterly
& Co., Incorporated, Report on Form 10-Q
various banks, The for the fiscal quarterly
First National Bank period ended October 1,
of Chicago, as Docu- 1994.
mentary Agent, The
Bank of Nova Scotia,
as Administrative
Agent, The Bank of
New York, as Negotiated
Loan Agent and Bank of
America National Trust
and Savings Association,
as Advisory Agent.
10.(i)(H)(1) Amended Schedule 1 to Incorporated by
the Long Term Credit reference to Exhibit
Agreement dated as of 10.(i)(H)(1) of the
September 15, 1994 Company's Quarterly
among Montgomery Ward Report on Form 10-Q,
& Co., Incorporated, for the fiscal quar-
various banks, The terly period ended
First National Bank September 30, 1995.
of Chicago, as Docu
mentary Agent, The
Bank of Nova Scotia,
as Administrative
Agent, The Bank of
New York, as Negotiated
Loan Agent and Bank of
America National Trust
and Savings Association,
as Advisory Agent.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- ----------------------
10.(i)(I) Short Term Credit Incorporated by
Agreement dated as of reference to Exhibit
September 15, 1994 10.(i)(H) of the
among Montgomery Ward Company's Quarterly
& Co., Incorporated, Report on Form 10-Q
various banks, The for the fiscal quarterly
First National Bank period ended October 1,
of Chicago, as Docu- 1994.
mentary Agent, The Bank
of Nova Scotia, as
Administrative Agent,
The Bank of New York,
as Negotiated Loan
Agent and Bank of
America National Trust
and Savings Association,
as Advisory Agent.
10.(i)(I)(1) Amended Schedule 1 to Incorporated by
the Short Term Credit reference to Exhibit
Agreement dated as of 10.(i)(I)(1) of the
September 15, 1994 Company's Quarterly
among Montgomery Ward Report on Form 10-Q
& Co., Incorporated, for the fiscal
various banks, The quarterly period
First National Bank ended September 30,
of Chicago, as Docu- 1995.
mentary Agent, The
Bank of Nova Scotia,
as Administrative
Agent, the Bank of
New York, as Negotiated
Loan Agent and Bank of
America National Trust
and Savings Association,
as Advisory Agent.
10.(i)(J) Note Purchase Agree- Incorporated by
ment dated July 11, reference to Exhibit
1995 between Montgomery 10.(i)(J) on the
Ward & Co., Incorporated Company's Quarterly
and various lenders. Report on Form 10-Q
for the fiscal
quarterly period
ended July 1, 1995.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- ----------------------
10.(i)(K) Term Loan Agreement Incorporated by
dated as of September reference to Exhibit
29, 1995 between 10.(i)(K) of the
Montgomery Ward & Co., Company's Quarterly
Incorporated and The Report on Form 10-Q
Industrial Bank of for the fiscal quar-
Japan, Limited, terly period ended
Chicago Branch. September 30, 1995.
10.(ii)(A) Stock Purchase Incorporated by
Agreement dated reference to Exhibit
June 22, 1988 10.(ii)(A) of the
between General Company's Registration
Electric Capital Statement on Form S-1
Corporation and (Registration No.
Montgomery Ward 33-23403).
& Co., Incorporated.
10.(ii)(B) Account Purchase Incorporated by
Agreement dated reference to Exhibit
June 24, 1988 10.(ii)(B) of the
by and between Company's Registration
Montgomery Ward Statement on Form S-1
Credit Corporation (Registration No.
and Montgomery 33-23403).
Ward & Co.,
Incorporated.
10.(ii)(B)(1) Letter Agreement Incorporated by
dated April 21, reference to Exhibit
1989 by and between 10.(ii)(B)(1) of the
Montgomery Ward Company's Registration
Credit Corporation Statement on Form S-1
and Montgomery (Registration No.
Ward & Co., Incor- 33-33252).
porated (amending
the Account Purchase
Agreement which is
Exhibit 10.(ii)(B)
hereto).
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- ----------------------
10.(ii)(B)(2) Amendment to Incorporated by
Account Purchase reference to Exhibit
Agreement dated 10.(ii)(B)(2) of the
December 26, 1989 by Company's Registration
and between Statement on Form S-1
Montgomery Ward (Registration No.
Credit Corporation 33-33252).
and Montgomery Ward &
Co., Incorporated.
10.(ii)(B)(3) Letter Agreement Incorporated by
dated April 24, reference to Exhibit
1990, by and between 10.(ii)(B)(3) of the
Montgomery Ward Company's Registration
Credit Corporation Statement on Form S-1
and Montgomery Ward (Registration No.
& Co., Incorporated. 33-33252).
10.(ii)(C) Letter Agreement Incorporated by
dated June 24, reference to Exhibit
1988 among Signa- 10.(ii)(C) of the
ture Financial/ Company's Registration
Marketing, Inc., Statement on Form S-1
Montgomery Ward (Registration No.
Credit Corpora- 33-23403).
tion and Montgomery
Ward & Co., Incor-
porated.
10.(ii)(D) Letter Agreement Incorporated by
dated December 26, reference to Exhibit
1990, by and between 10.(ii)(D) of the
Montgomery Ward Company's Annual
Credit Corporation Report on Form 10-K
and Montgomery for the fiscal year
Ward & Co., Incor- ended December 29,
porated. 1990.
10.(ii)(E) Fifth Amendment to Incorporated by
Account Purchase reference to Exhibit
Agreement dated 10.(ii)(E) of the
May 23, 1992 by and Company's Quarterly
between Montgomery Report on Form 10-Q
Ward & Co., Incor- for the fiscal
porated and Mont- quarterly period ended
gomery Ward Credit June 27, 1992.
Corporation.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- ----------------------
10.(ii)(F) Amendment dated Incorporated by
May 23, 1992 to reference to Exhibit
Letter Amendment 10.(ii)(F) of the
dated June 24, Company's Quarterly
1988 (Signature Report on Form 10-Q
Credit Agreement) for the fiscal
by and among quarterly period ended
Signature Financial/ June 27, 1992.
Marketing, Inc.,
Montgomery Ward
& Co., Incorporated
and Montgomery Ward
Credit Corporation.
10.(ii)(G) Letter Agreement Incorporated by
dated December 29, reference to Exhibit
1992 by and between 10.(ii)(G) of the
Montgomery Ward Company's Annual
& Co., Incorporated Report on Form 10-K
and Montgomery for the fiscal year
Ward Credit Corpora- ended January 2,
tion. 1993.
10.(ii)(G)(1) Letter Agreement Incorporated by
dated April 29, reference to
1993, by and Exhibit 10.(ii)(H)
between Montgomery of the Company's
Ward Credit Corpora- quarterly report on
tion and Montgomery Form 10-Q for the
Ward & Co., Incor- fiscal quarterly
porated. period ended April 3,
1993.
10.(ii)(G)(2) Letter Agreement Incorporated by
dated September 15, reference to
1993, by and Exhibit 10.(ii)(G)(2)
between Montgomery of the Company's
Ward Credit Corpora- Annual Report on
tion and Montgomery Form 10-K for the
Ward & Co., Incor- fiscal year ended
porated. January 1, 1994.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------ ----------------------
10.(ii)(H) Ninth Amendment to Incorporated by
Account Purchase reference to
Agreement dated Exhibit 10.(ii)(H)
February 16, 1994 of the Company's
by and between Annual Report on
Montgomery Ward & Form 10-K for the
Co., Incorporated fiscal year ended
and Montgomery January 1, 1994.
Ward Credit
Corporation.
10.(ii)(I) Tenth Amendment to Incorporated by
Account Purchase reference to Exhibit
Agreement dated June 10.(ii)(B)(11) of the
16, 1994, by and Company's Registration
between Montgomery Statement on Form S-1
Ward Credit Corporation (No. 33-33252).
and Montgomery Ward &
Co., Incorporated.
10.(ii)(J) Second Amendment Incorporated by
dated June 16, 1994 reference to Exhibit
to Signature Credit 10.(ii)(C)(2) of the
Agreement by and Company's Registration
among Signature Statement on Form S-1
Financial/Marketing, (No. 33-33252).
Inc., Montgomery Ward
& Co., Incorporated
and Montgomery Ward
Credit Corporation.
10.(ii)(K) Eleventh Amendment to Incorporated by
the Account Purchase reference to
Agreement dated the Company's
January 1, 1994, by Annual Report on
and between Montgomery Form 10-K for the
Ward Credit Corporation fiscal year ended
and Montgomery Ward & December 31, 1994.
Co., Incorporated.
10.(iv)(A) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Stock Ownership 10.(iv)(A)(ii)(A) of
Plan, amended and the Company's
restated as of Registration Statement
May 20, 1994. on Form S-1 (No. 33-33252).
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- ----------------------
10.(iv)(A)(1) Amendment No. 1 to Incorporated by
the Amended and reference to Exhibit
Restated Montgomery 10.(iv)(A)(iii) of the
Ward & Co. Stock Company's Quarterly
Ownership Plan dated Report on Form 10-Q
October 20, 1994. for the fiscal quarterly
period ended October 1,
1994.
10.(iv)(B) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Long Term Incentive 10.(iv)(B) of the
Plan. Company's Registration
Statement on Form S-1
(Registration No.
33-23403).
10.(iv)(B)(i) Montgomery Ward & Co., Incorporated by
Incorporated Executive reference to Exhibit
Long-Term Incentive 10.(iv)(B)(1) of the
Plan. Company's Registration
Statement on Form S-1
(Registration No.
33-33252).
10.(iv)(C) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Performance 10.(iv)(C) of the
Management Program. Company's Registration
Statement on Form S-1
(Registration
No. 33-23403).
10.(iv)(C)(i) Montgomery Ward & Co., Incorporated by
Incorporated Senior reference to Exhibit
Executive Performance 10.(iv)(C)(i) of the
Management Program. Company's Registration
Statement on Form S-1
(Registration No.
33-33252).
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- ----------------------
10.(iv)(D) Montgomery Ward Incorporated by
& Co., Incorporated reference to the
Retirement Security Company's Annual Report
Plan (as amended on Form 10-K for the
and restated fiscal year ended
effective as of December 31, 1994.
January 1, 1994).
10.(iv)(E) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Supplemental 10.(iv)(E) of the
Retirement Plan. Company's Registration
Statement on Form S-1
(Registration No.
33-23403).
10.(iv)(F) Montgomery Ward Incorporated by
Holding Corp. reference to Exhibit
Directors Fee 10.(iv)(F) of the
and Stock Owner- Company's Registration
ship Plan. Statement on Form S-1
(Registration No.
33-41161).
10.(iv)(G) Montgomery Ward Incorporated by
Holding Corp. reference to Exhibit
Senior Officer 10.(iv)(G) of the
Severance Plan. Company's Annual
Report on Form 10-K
for the fiscal year
ended January 2, 1993.
10.(iv)(H) Montgomery Ward & Co., Incorporated by
Incorporated Savings reference to the
and Profit Sharing Company's Annual Report
Plan (as amended and on Form 10-K for the
restated as of January fiscal year ended
1, 1994). December 31, 1994.
10.(iv)(I) Montgomery Ward & Co., Incorporated by reference
Incorporated Success to Exhibit 10.(iv)(I) of
Plan. the Company's Registration
Statement on Form S-1
(No. 33-33252).
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- ----------------------
10.(vi) Employment Agreement Incorporated by
effective January reference to Exhibit
14, 1994 between 10.(vi) of the Company's
Montgomery Ward Annual Report on Form
& Co., Incorporated 10-K for the fiscal
and Bernard W. year ended January 1,
Andrews. 1994.
10.(vii) Agreement effective Incorporated by
October 21, 1991 reference to Exhibit
between Montgomery 10.(vii) of the
Ward & Co., Incor- Company's Annual
porated and Finger- Report on Form 10-K
hut Companies, Inc. for the fiscal year
ended December 28,
1991.
10.(viii) Line of Credit Incorporated by
Agreement effective reference to Exhibit
November 19, 1991 10.(viii) of the
by and among Mont- Company's Annual
gomery Ward & Co., Report on Form 10-K
Incorporated, The for the fiscal year
Northern Trust ended December 28,
Company and The 1991.
First National
Bank of Chicago.
10.(ix) Employment Agreement Incorporated by
effective December reference to Exhibit
31, 1993 between 10.(ix) of the Company's
Montgomery Ward & Annual Report on Form
Co., Incorporated 10-K for the fiscal year
and Robert F. Connolly. ended January 1, 1994.
10.(xi) Employment Agreement Incorporated by
effective March reference to Exhibit
1, 1994 between 10.(xi)(A) of the
Montgomery Ward & Company's Registration
Co., Incorporated Statement on Form S-1
and Richard Bergel. (No. 33-33252).
10.(xii) Employment Agreement Incororated by
effective April 12, 1994 reference to the Company's
between Montgomery Ward Annual Report on Form 10-K
& Co., Incorporated, and for the fiscal year ended
G. Joseph Reddington. December 31, 1994.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- ----------------------
11. Statement regarding
computation of per
share earnings.
12. Not applicable.
13. Not applicable.
16. Not applicable.
18. Not applicable.
19. Not applicable.
21. Subsidiaries of Incorporated by
the Registrant. reference to Exhibit
21 of the Company's
Registration Statement
on Form S-1
(Registration No.
33-33252).
22. Not applicable.
23. Consent of
independent
public accountants.
24. Powers of attorney
executed by direc-
tors and officers
of Registrant
authorizing execu-
tion of Annual
Report on Form 10-K.
27. Financial Data Schedule.
28. Not applicable.
BY-LAWS
OF
MONTGOMERY WARD HOLDING CORP.
(formerly BFB ACQUISITION CORP.)
(as amended and restated as of December 29, 1994)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I Offices . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office. . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . 1
ARTICLE II Meetings of Stockholders . . . . . . . . . . . . . . 1
Section 1. Place of Meetings. . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meeting . . . . . . . . . . . . . . . . . . . 1
Section 3. Notice of Annual Meeting . . . . . . . . . . . . . . 1
Section 4. List of Stockholders . . . . . . . . . . . . . . . . 1
Section 5. Special Meetings of Stockholders . . . . . . . . . . 2
Section 6. Procedure at Stockholders' Meetings. . . . . . . . . 2
Section 7. Quorum . . . . . . . . . . . . . . . . . . . . . . . 2
Section 8. Majority Vote. . . . . . . . . . . . . . . . . . . . 2
Section 9. Proxies and Voting of Shares . . . . . . . . . . . . 2
Section 10. Consents to Corporate Action . . . . . . . . . . . . 3
ARTICLE III Directors. . . . . . . . . . . . . . . . . . . . . . 3
Section 1. Number, Tenure, Qualifications and Vacancies . . . . 3
Section 2. Resignations . . . . . . . . . . . . . . . . . . . . 5
Section 3. Removal of Directors . . . . . . . . . . . . . . . . 5
Section 4. General Powers . . . . . . . . . . . . . . . . . . . 5
Section 5. Place of Meetings. . . . . . . . . . . . . . . . . . 5
Section 6. First Meeting of New Board . . . . . . . . . . . . . 5
Section 7. Regular Meetings . . . . . . . . . . . . . . . . . . 5
Section 8. Special Meetings . . . . . . . . . . . . . . . . . . 5
Section 9. Quorum . . . . . . . . . . . . . . . . . . . . . . . 5
Section 10. Certain Supermajority Requirements . . . . . . . . . 6
Section 11. Informal Action by Directors . . . . . . . . . . . . 9
Section 12. Telephone Meetings . . . . . . . . . . . . . . . . . 9
Section 13. Designation of Committees of Directors . . . . . . . 10
Section 14. Absence of a Committee Member. . . . . . . . . . . . 10
Section 15. Powers of Committees . . . . . . . . . . . . . . . . 10
Section 16. Record of Proceedings. . . . . . . . . . . . . . . . 10
Section 17. In General . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV Notices to Stockholders and Directors. . . . . . . . 10
Section 1. Notice . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2. Waiver of Notice . . . . . . . . . . . . . . . . . . 11
ARTICLE V Officers. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1. Number and Title . . . . . . . . . . . . . . . . . . 11
Section 2. Election and Qualification . . . . . . . . . . . . . 11
Section 3. Appointment of Additional Officers . . . . . . . . . 11
Section 4. Compensation . . . . . . . . . . . . . . . . . . . . 11
Section 5. Term of Office, Removal and Vacancies. . . . . . . . 11
Section 6. Resignations . . . . . . . . . . . . . . . . . . . . 11
Section 7. The Chairman of the Board. . . . . . . . . . . . . . 12
Section 8. The Vice Chairman of the Board . . . . . . . . . . . 12
Section 9. President. . . . . . . . . . . . . . . . . . . . . . 12
Section 10. The Vice Presidents. . . . . . . . . . . . . . . . . 12
Section 11. The Secretary. . . . . . . . . . . . . . . . . . . . 12
Section 12. Assistant Secretaries. . . . . . . . . . . . . . . . 13
Section 13. The Treasurer. . . . . . . . . . . . . . . . . . . . 13
Section 14. Bond . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 15. Assistant Treasurers . . . . . . . . . . . . . . . . 13
ARTICLE VI Stock and Stockholders . . . . . . . . . . . . . . . 13
Section 1. Certificate of Stock . . . . . . . . . . . . . . . . 13
Section 2. Classes and Series . . . . . . . . . . . . . . . . . 13
Section 3. Signatures . . . . . . . . . . . . . . . . . . . . . 14
Section 4. Lost Certificates. . . . . . . . . . . . . . . . . . 14
Section 5. Transfers of Stock . . . . . . . . . . . . . . . . . 14
Section 6. Fixing Record Date . . . . . . . . . . . . . . . . . 14
Section 7. Registered Stockholders. . . . . . . . . . . . . . . 15
ARTICLE VII Indemnification . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII General Provisions. . . . . . . . . . . . . . . . . . . . 15
Section 1. Dividends. . . . . . . . . . . . . . . . . . . . . . 15
Section 2. Checks . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3. Fiscal Year. . . . . . . . . . . . . . . . . . . . . 15
Section 4. Seal . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5. Certain Definitions. . . . . . . . . . . . . . . . . 15
ARTICLE IX Amendments . . . . . . . . . . . . . . . . . . . . . 21
<PAGE>
ARTICLE I
Offices
Section 1. Registered Office. The registered office shall be in the
City of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at
such other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings. All meetings of the stockholders for
the election of directors shall be held at such place as may be fixed from time
to time by the board of directors; at least ten (10) days' notice shall be given
to the stockholders of the place so fixed or, in the event of the failure of the
board of directors to fix such place, at the principal executive office of the
corporation. Meetings of stockholders for any purpose may be held at such time
and place, within or without the State of Delaware, as may be fixed from time to
time by the board of directors or as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. The annual meeting of stockholders shall
be held on the third Thursday in May if not a legal holiday, and if a legal
holiday, then on the next secular day following, at 2:00 P.M., or at such other
date and time as shall be designated from time to time by the board of directors
and stated in the notice of the meeting or in a duly executed waiver of notice
thereof, at which the stockholders shall elect by a plurality vote, subject to
the provisions of Section 1 of Article III, persons to the board of directors,
and transact such other business as may properly be brought before the meeting.
The meeting may be adjourned from time to time and place to place until its
business is completed. If the election of directors shall not be held on the day
designated herein for any annual meeting, or at any adjournment thereof, the
board of directors shall cause the election to be held at a special meeting of
the stockholders as soon thereafter as may be convenient.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of meeting.
Section 4. List of Stockholders. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the Chicago metropolitan area, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 5. Special Meetings of Stockholders. Except as otherwise
provided in the certificate of incorporation with respect to holders of
Preferred Stock (as defined in Article VIII) and except as otherwise provided in
Section 1 of Article III of these by-laws, special meetings of stockholders of
the corporation for any purpose or purposes, may be called only by the chairman
of the board, the vice chairman of the board, the president, the board of
directors pursuant to a resolution approved by a majority of the board of
directors, or at the written request of the holders of not less than a majority
of the stock entitled to vote thereat.
Section 6. Procedure at Stockholders' Meetings. The order of
business and all other matters of procedure at every meeting of the stockholders
may be determined by the presiding officer. The board of directors may appoint
two or more inspectors of election to serve at every meeting of the stockholders
at which directors are to be elected. In the absence of such appointment by the
board of directors, the presiding officer may appoint one or more inspectors of
election to serve at any such meeting.
Section 7. Quorum. The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by these by-laws,by statute
or by the certificate of incorporation. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
any meeting held for the purpose of electing directors at which the holders of
a class of stock shall have the right, voting as a class, to elect one or more
directors, the presence, in person or by proxy, of the holders of a majority of
such class of stock then outstanding shall be required to constitute a quorum of
such stock for such election. At any such meeting or adjournment thereof, the
absence of the quorum of such class of stock shall not prevent the election of
directors other than the director or directors which the holders of such stock
are entitled to elect,and the absence of a quorum for the election of such other
directors shall not prevent the election of the directors which the holders of
such class of stock are entitled to elect, and in the absence of either or both
such quorums, a majority of the holders present in person or by proxy of the
stock which lacks a quorum shall have the power to adjourn the meeting for the
election of directors which they are entitled to elect from time to time without
notice other than announcement to the meeting until a quorum shall be present.
At any adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than (30) days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 8. Majority Vote. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock having voting power, present
in person or represented by proxy, shall decide any question brought before such
meeting, unless the question is one upon which by express provision of statute,
these by-laws or of the certificate of incorporation, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Proxies and Voting of Shares. At any meeting of the
stockholders every stockholder having the right to vote shall be entitled to
vote in person, or by proxy appointed by an instrument in writing subscribed by
such stockholder and bearing a date not more than three (3) years prior to said
meeting, unless said instrument provides for a longer period. Unless a date
shall have been fixed as a record date for the determination of its stockholders
entitled to vote, no share of stock shall be voted on at any election for
directors which shall have been transferred on the books of the corporation
within twenty (20) days next preceding such election of directors.
Section 10. Consents to Corporate Action. Any action which is
required to be or may be taken at any annual or special meeting of stockholders
of the corporation may be taken without a meeting, without prior notice and
without a vote, if consents in writing, setting forth the action so taken, shall
have been signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or to take such
action at a meeting at which all shares entitled to vote thereon were present
and voted; provided, however, that prompt notice of the taking of the corporate
action without a meeting and by less than unanimous written consent shall be
given to those stockholders who have not consented in writing.
ARTICLE III
Directors
Section 1. Number, Tenure, Qualifications and Vacancies. Subject
to the provisions of the certificate of incorporation, the number of directors
which shall constitute the total number of directors shall be as specified in
this Section 1 and shall change in accordance with the procedures specified in
this Section 1. Whenever in these by-laws the vote, consent or waiver of two-
thirds (2/3) of the members of the board of directors is required, the number of
directors required shall be determined without regard to any vacancies on the
board of directors.
(a) Number of Directors. Except as otherwise provided in the
other paragraphs of this Section 1, the total number of directors which
shall be elected by the stockholders shall be eleven (11), of which six
(6) shall be designated by the Designator (as defined in Article VIII) and
five (5) shall be designated by GE Capital (as defined in Article VIII).
(b) Change in Control Upon 50% GE Capital Common Stock Ownership
Change. At such time, if any, as GE Capital and GE Capital Affiliates (as
defined in Article VIII) shall cease to own, in the aggregate, more than
fifty percent (50%) of the Shares (as defined in Article VIII) which GE
Capital and GE Capital Affiliates have purchased on or about the date as
of which the Stockholders' Agreement (as defined in Article VIII) was
executed and delivered, the number of directors which the Designator shall
have the right to designate shall be increased by one (1) and the number
of directors which GE Capital shall have the right to designate shall be
reduced by one (1). The Designator shall designate the director to be
elected, and GE shall designate the director to be removed and shall
effect such removal.
(c) Election of Directors After Substantial Reduction of GE
Capital Class B Common Stock Ownership. Upon the happening of the events
provided for in Section B.2(b) of ARTICLE FOURTH of the certificate of
incorporation, the total number of directors shall be automatically
changed to nine (9) (not including the Preferred Stock Director (as
defined in paragraph (e) of this Section 1), if any, referred to in
paragraph (e) of this Section 1) and the holders of the Class A Common
Stock (as defined in Article VIII) then outstanding, voting as a class,
shall be entitled to elect seven (7) of such directors, and the holders of
the Class B Common Stock (as defined in Article VIII) then outstanding,
voting as a class, shall be entitled to elect two (2) of such directors;
provided, however, that so long as the conditions specified in such
Section B.2(b) with respect to the Account Purchase Agreement (as defined
in Section 10(t) of Article III) and the ownership of Class B Common Stock
by GE Capital or any GE Capital Affiliate remain in effect, GE Capital
shall have the right to elect one (1) of the two (2) directors which the
holders of the Class B Common Stock shall be entitled to elect and all
holders of Class B Common Stock then outstanding in the aggregate shall be
entitled to elect the other one (1) of the two (2) directors which the
holders of Class B Common Stock shall be entitled to elect.
(d) Meetings of Stockholders. Upon the happening of any of the
events described in paragraphs (b) or (c) of this Section 1, in the event
the board of directors shall fail to fill any vacancies resulting from the
application of said paragraphs, or in the event a party shall fail to
remove a director who that party was obligated to remove under the
provisions of the applicable paragraph, the corporation shall call a
special meeting of the stockholders at the expense of the corporation, for
the propose of electing a new slate of directors, in accordance with the
appropriate designations and class voting rights, as the case may be, and
the term of office of the existing directors shall terminate upon the
election of their successors. If the corporation fails to so call such a
special meeting, any party who is then entitled to designate directors
shall have the right to call such a meeting at the expense of the
corporation.
(e) Preferred Stock Director. Anything elsewhere in these by-laws
to the contrary notwithstanding, upon the happening, and during the
continuation of the events described in Section A.6(b) of Article FOURTH
of the certificate of incorporation, the holders of the Senior Preferred
Stock (as defined in Article VIII), voting as a class, shall have the
right to elect one (1) director (the "Preferred Stock Director") whereupon
the total number of directors shall be automatically increased in order to
provide one (1) vacancy to be filled by electing the Preferred Stock
Director at a special meeting of stockholders called for that purpose.
Upon the happening of the events described in such Section A.6(b) which
cause the termination of the term of office of any then Preferred Stock
Director, as provided in such Section A.6(b), the total number of
directors shall be automatically decreased by one (1) so as to eliminate
the vacancy created by the termination of the term of the Preferred Stock
Director, whereupon the total number of directors shall be and remain as
provided by the other provisions of this Section 1 without regard to this
paragraph (e), subject to the revesting of voting rights in the shares of
Senior Preferred Stock in the event of the recurrence of the events
described in such Section A.6(b).
(f) Designation of Replacements. At any time in which a party has
the right to designate a director pursuant to this Article III, if a
director who has been so designated shall cease to serve as such (other
than by reason of his removal as provided in this Article III), the party
who designated that director shall have the right to designate his
replacement. At any time in which no party has the right to designate
directors pursuant to this Article III, vacancies shall be filled in the
manner provided in the Delaware GCL (as defined in Article VIII).
Section 2. Resignations. Any director may resign at any time by
giving written notice to the board of directors, the chairman of the board, the
vice chairman of the board, the president or the secretary of the corporation.
Such resignation shall take effect at the time specified therein; and, unless
tendered to take effect upon acceptance thereof, the acceptance of such
resignation shall not be necessary to make it effective.
Section 3. Removal of Directors. At all times when any party or the
holders of any class of stock have the right to designate any director(s) or to
elect, as a class,any director(s), only such party or class, as the case may be,
who had the right to designate director(s) or to elect director(s) shall have
the right to remove such director(s), which removals may be effected with or
without cause at any special or annual meeting of stockholders or by written
consent in lieu of a meeting. At all other times, the right of the stockholders
to remove any director shall be as provided in the applicable provisions of the
Delaware GCL.
Section 4. General Powers. The business and affairs of the
corporation shall be managed by or under the direction of the board of directors
which may exercise all such powers of the corporation and do all such lawful
acts as are not by statute or by the certificate of incorporation or by these
by-laws directed or required to be exercised or done by the stockholders.
Meetings of the Board of Directors
Section 5. Place of Meetings. The board of directors of the
corporation may hold meetings, both regular and special, either within or with-
out the State to Delaware.
Section 6. First Meeting of New Board. The first meeting of the
board of directors after each election of new directors thereto shall be held at
such time and place as shall be specified in a notice given as provided in these
by-laws for special meetings of the board of directors, or as shall be specified
in a written waiver of notice signed by all of the directors.
Section 7. Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and at such place as shall
from time to time be determined by the board.
Section 8. Special Meetings. Special meetings of the board of
directors may be called by the president. Upon the request in writing of two (2)
or more directors, the president or any other officer of the corporation shall
call a special meeting of the board of directors, notice of which shall be given
to each director at his usual place of business, or at such other address as
shall have been furnished by him for such purpose. Such notice shall be given
at least forty-eight (48) hours before the meeting by telephone or by being
personally delivered, mailed or telegraphed, provided, that, if mailed, notice
shall be deemed effective upon receipt. Such notice need not include a statement
of the business to be transacted at, or the purpose of, any such meeting.
Section 9. Quorum. At all meetings of the board of directors, a
majority of the board of directors shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 10. Certain Supermajority Requirements. The affirmative vote
of not less than two-thirds (2/3) of the members of the board of directors of
the corporation (but, in the case of paragraph (t) of this Section 10, instead
of the aforesaid two-thirds (2/3) requirement, the affirmative vote of a
majority of the directors designated by the Designator or, at any time in which
class voting is in effect as provided in the certificate of incorporation, by a
majority of the directors elected by the holders of Shares of Class A Common
Stock) shall be required in order for the corporation to take, or permit any
member of the Ward Group (as defined in Article VIII) to take, any of the
following actions:
(a) a merger, consolidation or other business combination (other than
among members of the Ward Group and other than as part of an acquisition of
assets permitted pursuant to paragraph (m) of this Section (10));
(b) any of the following sales (other than intercompany sales within the
Ward Group, sales solely of inventory in the ordinary course of business, and
sale and leaseback transactions in the ordinary course of business or, to the
extent out of the ordinary course of business,consistent with the past practices
of the Ward Group):
(i) any sale of assets of the Ward Group (including assets
consisting of shares of stock of a subsidiary of the corporation) where
the gross proceeds of sale (exclusive of assumption of liabilities) are in
an amount equal to the greater of (A) fifty million dollars ($50,000,000)
or (B) twenty percent (20%) of the consolidated common stockholders'
equity of the corporation as of the time of the sale; or
(ii) any sale of assets of the Ward Group (including assets
consisting of shares of stock of a subsidiary of the corporation) to the
extent the gross proceeds of sale (exclusive of assumption of
liabilities), when added to the gross proceeds of all other sales of
assets of the Ward Group (exclusive of assumption of liabilities)
occurring during that fiscal year, exceed an amount equal to the greater
of (A) one hundred million dollars ($100,000,000) or (B) thirty percent
(30%) of the consolidated common stockholders' equity of the corporation
as of the time of the sale; provided, however, that notwithstanding the
foregoing limitation, any single sale of assets for gross proceeds not
exceeding one million dollars ($1,000,000) (exclusive of assumption of
liabilities) shall be excluded from the foregoing computation;
(c) amendments to the certificate of incorporation or by-laws of the
corporation (other than amendments to the by-laws permitted pursuant to Section
8.2 of the Stockholders' Agreement);
(d) payment of dividends on Shares (other than intercompany dividends
among members of the Ward Group);
(e) redemptions of Shares, other than pursuant to the provisions of the
Stockholders' Agreement or the Employee Stock Option Plan (as defined in Article
VIII);
(f) public or private offerings of debt or equity securities of any
member of the Ward Group, other than (i) to other members of the Ward Group,(ii)
pursuant to the Employee Stock Option Plan, or (iii) pursuant to Section 3.14 of
the Stockholders' Agreement, Section 6.1 of the Stockholders' Agreement with
respect to the offering of Shares in Demand Registrations (as defined in the
Stockholders' Agreement) on behalf of those Persons (as defined in Article VIII)
exercising their demand registration rights thereunder or Section 6.2 of the
Stockholders' Agreement with respect to the offering of Shares in Piggyback
Registrations (as defined in the Stockholders' Agreement) on behalf of those
Persons exercising their piggyback registration rights thereunder;
(g) guarantees of any indebtedness in excess of five million dollars
($5,000,000) for borrowed money of any Person other than a member of the Ward
Group;
(h) setting of annual financial goals and targets;
(i) the making of, or the entry into a binding commitment to make, any
capital expenditures which would cause the amount expended (or committed to be
expended) by the Ward Group for capital expenditures during a fiscal year to
exceed the capital expenditure budget to be contained in the annual financial
goals and targets of the Ward Group for such year by more than ten percent (10%)
of the budgeted amount;
(j) borrowings by any member of the Ward Group which would cause the
aggregate consolidated indebtedness of the corporation for money borrowed to
exceed an amount equal to twenty-five million dollars ($25,000,000), plus five
percent (5%) of the amount of the consolidated common stockholders' equity of
the corporation measured at the time of such borrowings, but in determining both
the amount of such borrowings and the necessity for approval of two-thirds (2/3)
of the members of the board of directors, the following borrowings shall be
excluded:
(i) borrowings made in connection with the acquisition, pursuant
to the Purchase Agreement (as defined in Article VIII) of Ward, and under
the term loan, revolving credit, tax standby letter of credit, "Tax Loan"
and commercial letter of credit facilities established in connection with
such acquisition, borrowings pursuant to the Subordinated Loan Agreement
dated June 23, 1988, between Ward and GE Capital, borrowings of any member
of the Ward Group existing at the time of such acquisition, and borrowings
made under any whole or partial refunding or replacement thereof without
increasing the principal amount thereof, other than increases for closing
costs (including, without limitation, prepayment penalties) incurred in
connection with such refunding or replacement;
(ii) purchase money financing incurred in accordance with the
annual financial goals and targets of the Ward Group, and purchase money
financing in connection with the issuance of notes pursuant to Sections
3.8 and 3.9 of the Stockholders' Agreement or Sections 3.6 and 3.7 of the
Terms and Conditions (as defined in Article VIII); it being understood
that purchase money financing shall include financing, refinancing or
funding of the acquisition price of real property (or any interest
therein) or other fixed assets acquired hereafter by a member of the Ward
Group, regardless of whether said financing, refinancing or funding is
done at the time of, or subsequent to, the acquisition of any such real
property (or interest therein) or other fixed assets;
(iii) intentionally omitted;
(iv) borrowings made for the purpose of redeeming any of the
Preferred Stock; or
(v) borrowings made pursuant to Section 4.4 of the Stockholders'
Agreement;
(k) increases in compensation and/or fringe, welfare or pension benefits
for any member of the executive committee of the Ward Group, other than in
accordance with the practices and guidelines of the Ward Group in effect from
time to time (it being understood that any material change from the current
practices and guidelines shall require the affirmative vote of two-thirds (2/3)
of the members of the board of directors), but in no event beyond the increases
being given for comparable executives in comparable retail businesses,determined
from published survey data and guidelines;
(l) adoption of a plan of liquidation of the corporation;
(m) acquisition of assets (other than purchases of inventory and capital
expenditures) which would cause the amount expended (or committed to be ex-
pended) by the Ward Group for the acquisition of such assets during a fiscal
year to exceed the budget for acquisitions of such assets to be contained in the
annual financial goals and targets of the Ward Group for such year by more than
ten percent (10%) of the budgeted amount;
(n) entry into any transaction (exclusive of compensation and fringe,
welfare and pension benefit arrangements with affiliates who are officers,
directors or employees of the Ward Group for services rendered by them to the
Ward Group) with an affiliate, as that term is defined in the Securities Act of
1933, as amended from time to time, other than affiliates constituting members
of the Ward Group;
(o) seeking of a consent or waiver from a lender to a member of the Ward
Group whose loan to the member of the Ward Group has a then outstanding princi-
pal balance in excess of thirty million dollars ($30,000,000), in any case in
which consent or waiver is required for the entry into a transaction by the Ward
Group and which, in the absence of such consent or waiver, would constitute a
default or an event of default under the documents evidencing or pertaining to
the loan made by the lender, other than any consent or waiver required in
connection with:
(i) the making of any borrowing permitted pursuant to paragraph
(j)(ii), (iii), (iv) or (v);
(ii) any mandatory prepayment obligation arising from the sale or
financing of any real property (or interests therein) or other fixed
assets;
(iii) any prepayment occurring by reason of a Change of Control (as
defined in one or more of the loan documents evidencing the loans referred
to in paragraph (j)(i) made in connection with the acquisition of Ward by
the corporation); or
(iv) the incurring of any liens (other than for money borrowed);
provided, however, that approval of two-thirds (2/3) of the members of the board
of directors for the seeking of such consent or waiver shall not be required if
the transaction for which such consent or waiver is being sought (x) is
specifically permitted pursuant to any of the other paragraphs of this Section
10 without the approval of two-thirds (2/3) of the members of the board of
directors, or (y) has been authorized by two-thirds (2/3) of the members of the
board of directors pursuant to any of said other paragraphs;
(p) authorizing a Transfer (as defined in Article VIII) of Shares
pursuant to Section 2.2(a) of the Stockholders' Agreement in a case where the
transferee is not a Management Shareholder (as defined in Article VIII), a
Permitted Transferee (as defined in Article VIII), or a present or prospective
employee of the Ward Group;
(q) a waiver of the prohibitions on Transfers of Shares contained in
Sections 2.3(a) and (c) of the Stockholders' Agreement, as applied to Brennan
(as defined in Article VIII); provided, however, that by action of a simple
majority of the members of the board of directors, the references in those para-
graphs of the third anniversary may be amended to constitute references to the
second anniversary;
(r) a waiver of the prohibitions on Transfers of Shares contained in
Section 2.3(e) of the Stockholders' Agreement;
(s) any determination, pursuant to Section 4.3 of the Stockholders'
Agreement, of a Cash Payments Limitation (as therein defined) other than that
expressly set forth in that section;
(t) without limiting the generality of any other provision of this
Section 10, any of the following actions with respect to that certain Account
Purchase Agreement (the "Account Purchase Agreement") referred to in the
Stockholders' Agreement:
(i) termination thereof by agreement of the parties thereto;
(ii) the exercise of a unilateral right of termination and the
exercise of all other rights, options and elections granted thereunder to
Ward;
(iii) the giving of waivers and consents with respect thereto;
and/or
(iv) any amendment thereto; or
(u) the termination for Cause (as defined in the Stockholders' Agreement)
of Brennan's employment with any member of the Ward Group.
Section 11. Informal Action by Directors. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the board of directors or of
any committee thereof may be taken without a meeting if all members of the board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
Section 12. Telephone Meetings. Unless otherwise restricted by the
certificate of incorporation or these by-laws,members of the board of directors,
or any committee designated by the board of directors, may participate in a
meeting of the board of directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Committees of Directors
Section 13. Designation of Committees of Directors. The board of
directors may, by resolution passed by a majority of the board of directors,
designate one or more committees,each committee to consist of two or more of the
directors of the corporation. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee.
Section 14. Absence of a Committee Member. In the absence or
disqualification of any member of a committee or committees or in the event that
any such member is unable or refuses to act, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such member.
Section 15. Powers of Committees. Any such committee, to the
extent provided in the resolution of the board of directors, shall have and may
exercise all the powers and authority of the board of directors in the manage-
ment of the business and affairs of the corporation and may authorize the seal
of the corporation to be affixed to all papers which may require it; provided,
however, that no such committee shall (i) take any of the actions specified in
Section 10 of this Article III which require the affirmative vote of not less
than two-thirds (2/3) of the total number of directors of the board of directors
of the corporation, or (ii) take any action or do anything in the exercise of
any power or authority in excess of that permitted to be taken by a committee of
directors under any applicable provisions of the Delaware GCL. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the board of directors.
Section 16. Record of Proceedings. Each committee shall keep
regular minutes of its proceedings and report the same to the board of directors
when required.
Compensation of Directors
Section 17. In General. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE IV
Notices to Stockholders and Directors
Section 1. Notice. Whenever, under the provisions of the statutes
or of the certificate of incorporation or of these by-laws, notice is required
to be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, telegraph or
confirmed facsimile, addressed to such director or stockholder, at such address
as appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail, telegraphed or received through a telecopy
or telex machine, as the case may be. Notice to directors may also be given as
provided in Section 8 of Article III.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes or of the certificate of incorpora-
tion or of these by-laws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE V
Officers
Section 1. Number and Title. The officers of the corporation shall
be chosen by the board of directors and shall be a chairman of the board, a vice
chairman of the board, a president, a vice president, a secretary and a
treasurer. The board of directors may also choose additional vice presidents and
one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, except that where the offices of
president and secretary are held by the same person, such person shall not hold
any other office.
Section 2. Election and Qualification. The board of directors at
its first meeting after each annual meeting of stockholders shall choose a
chairman of the board, a president, one or more vice presidents, a secretary and
a treasurer. No officer need be a member of the board of directors. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as may be convenient. Vacancies may be filled or new offices
created and filled at any meeting of the board of directors.
Section 3. Appointment of Additional Officers. The board of
directors may appoint such other officers and agents as it shall deem necessary
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the board of
directors.
Section 4. Compensation. The salaries and other compensation of all
officers and agents of the corporation shall be fixed by the board of directors.
Section 5. Term of Office, Removal and Vacancies. The officers of
the corporation shall hold office until their successors are chosen and qualify
or until their deaths, resignations or removal. Any officer elected or appointed
by the board of directors may be removed at any time by the affirmative vote of
a majority of the members of the board of directors. Any vacancy occurring in
any office of the corporation may be filled by the board of directors.
Section 6. Resignations. Any officer may resign at any time by
giving written notice to the board of directors, the chairman of the board, the
vice chairman of the board, the president, or the secretary of the corporation.
Such resignation shall take effect at the time specified in the written notice;
and, unless the resignation is tendered only to take effect upon acceptance
thereof, the acceptance of such resignation shall not be necessary to make the
resignation effective.
Section 7. The Chairman of the Board. The chairman of the board
shall be the chief executive officer of the corporation and shall have the
general direction of the affairs of the corporation, except as otherwise
prescribed by the board of directors; shall preside at all meetings of the
shareholders, of the board of directors and of the executive committee, if any,
and shall designate the acting secretary for such meetings to take the minutes
thereof for delivery to the secretary; may sign, with the secretary, assistant
secretary, treasurer or assistant treasurer, certificates for shares of the
corporation; may execute contracts in the name of the corporation; appoint and
discharge agents and employees of the corporation, and shall be ex-officio a
member of all committees.
Section 8. The Vice Chairman of the Board. The vice chairman of the
board shall assume such duties as the board of directors or the chairman of the
board may assign from time to time. The vice chairman of the board shall report
to the chairman of the board. In the event that the chairman of the board is one
of the following: absent or has allowed the office of chairman to be vacated, or
is unable or refuses to act, the vice chairman of the board shall perform all
duties and functions of the chairman of the board. He may sign, with the
secretary or any other proper officer thereunto duly authorized, certificates
for shares of the corporation; may execute contracts in the name of the corpora-
tion; appoint and discharge agents and employees of the corporation; and shall
be ex-officio a member of all committees.
Section 9. President. The president shall be the chief operating
officer of the corporation, and as such shall direct the operations of the
corporation, subject to the control and direction of the board of directors and
the chairman of the board. The president shall assume such other duties as the
chairman of the board, the vice chairman of the board or the board of directors
may assign from time to time. The president shall report to the chairman of the
board or the vice chairman of the board. In the event that each of the chairman
of the board and the vice chairman of the board is one of the following: absent
or has allowed his office to be vacated, or is unable or refuses to act, the
president shall perform all duties and functions of the chairman of the board
and the vice chairman of the board. He may sign, with the secretary or any
other proper officer thereunto duly authorized, certificates for shares of the
corporation; may execute contracts in the name of the corporation; appoint and
discharge agents and employees of the corporation; and in general shall perform
all duties incident to the office of president.
Section 10. The Vice Presidents. The vice presidents in the order
of their seniority, unless otherwise determined by the board of directors, shall
in the event that the president is absent,or has allowed the office of president
to be vacated, or is unable or refuses to act, perform the duties of the
president. The vice presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
Section 11. The Secretary. The secretary shall attend all meetings
of the board of directors and all meetings of the stockholders and record all
the proceedings of the meetings of the corporation and of the board of directors
in a book to be kept for that purpose and shall perform like duties for the
standing committees when required; shall give, or cause to be given, notice of
all meetings of the stockholders and special meetings of the board of directors;
shall perform such other duties as may be prescribed by the board of directors,
the chairman of the board or the president,under whose supervision the secretary
shall be; and shall keep in safe custody the corporate seal of the corporation
and when authorized by the board of directors, shall affix the same to any
instrument requiring it and when so affixed, it shall be attested by the
signature of the secretary or by the signature of any assistant secretary.
Section 12. Assistant Secretaries. The assistant secretaries in the
order of their seniority shall,in the event that the secretary is absent, or has
allowed the office of secretary to be vacated, or is unable or unwilling to act,
perform the duties and exercise the powers of the secretary. They shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
Section 13. The Treasurer. The treasurer shall have the
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the
board of directors. The treasurer shall disburse the funds of the corporation
as may be ordered by the board of directors, taking proper vouchers for such
disbursements.
Section 14. Bond. If required by the board of directors, the
treasurer shall give the corporation a bond (which shall be renewed as required
from time to time) in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of the office and for the restoration to the corporation, in case of the
death, resignation, retirement or removal from office of the treasurer, of all
books, papers, vouchers, money and other property of whatever kind in the
possession or under the control of the treasurer belonging to the corporation.
Section 15. Assistant Treasurers. The assistant treasurers, in the
order of their seniority, unless otherwise determined by the board of directors
shall in the event the treasurer is absent, or has allowed the office of
treasurer to be vacated, or is unable or refuses to act, perform the duties and
exercise the powers of the treasurer. They shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
ARTICLE VI
Stock and Stockholders
Section 1. Certificate of Stock. Every record holder of stock in
the corporation shall be entitled to have a certificate signed by, or in the
name of, the corporation by the chairman of the board, or the vice chairman of
the board,or the president or a vice president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation, and
registered in such stockholder's name, certifying the number of shares owned by
such holder in the corporation.
Section 2. Classes and Series. If the corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the powers, assignations, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the corporation shall issue to represent such class or
series of stock, provided that, in lieu of the foregoing requirements, there may
be set forth on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, a statement that the corpora-
tion will furnish, without charge to each stockholder who so requests, the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 3. Signatures. Where a certificate is countersigned (i) by
a transfer agent other than the corporation or its employee, or (ii) by a
registrar other than the corporation or its employee, any of or all the
signatures on the certificate of the officers of the corporation may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be an officer, transfer agent or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
Section 4. Lost Certificates. The board of directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of the fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity (or otherwise require the indemnification)
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 5. Transfers of Stock. Upon surrender to the corporation
or the transfer agent of the corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignation or
authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto,cancel the old certificate and record
the transaction upon its books.
Section 6. Fixing Record Date. Except as otherwise provided in the
Delaware GCL or the certificate of incorporation, the board of directors may fix
in advance a date, not exceeding sixty (60) days preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or other
distribution or the date for the allotment of rights,or the date when any change
or conversion or exchange of capital stock shall go into effect, or a date in
connection with obtaining the consent of stockholders for any purpose, as a
record date for the determination of the stockholders entitled to notice of, and
to vote at, any such meeting, and any adjournment thereof,or entitled to receive
payment of any such dividend, or other distribution or to any such allotment of
rights, or to exercise the rights in respect of any such change, conversion or
exchange of capital stock, or to give such consent, and in such case such stock-
holders and only such stockholders as shall be stockholders of record on the
date so fixed shall be entitled to such notice of, and to vote at, such meeting
and any adjournment thereof, or to receive payment of such dividend, or other
distribution, or to receive such allotment of rights or to exercise such rights,
or to give such consent, as the case may be, notwithstanding any transfer of any
stock on the books of the corporation after any such record date fixed as
aforesaid.
Section 7. Registered Stockholders. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments, a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE VII
Indemnification
The directors, officers, employees and agents of the corporation and
certain of their respective heirs, successors and personal representatives shall
be indemnified as provided in the certificate of incorporation.
ARTICLE VIII
General Provisions
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation and
to Section 10 of Article III, if any, may be declared by the board of directors
at any regular or special meeting, pursuant to law. Dividends may be paid in
cash, in property, or in shares of the capital stock, subject to the provisions
of the certificate of incorporation.
Section 2. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the corporation shall
end on the Saturday closest to December 31st in each year.
Section 4. Seal. The corporate seal shall have inscribed thereon
the name of the corporation and the words "Corporate Seal, Delaware." The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 5. Certain Definitions. As used in these by-laws, the
following terms shall have the following meanings:
(a) "Brennan" means Bernard F. Brennan.
(b) "Common Stock," "Class A Common Stock," and "Class B Common Stock"
shall all have the meanings specified in the certificate of incorporation.
(c) "Delaware GCL" means the General Corporation Law of the State of
Delaware, as the same shall be amended and in effect from time to time.
(d) "Designated Management Optionees" means those Management
Shareholders, or any member or members of their respective Families (as
herein defined), who are designated in writing by the Designator (as
herein defined), with concurrent notice to the corporation, as having the
right to exercise a specifically designated option to purchase a
specifically designated number of Shares pursuant to Article II or III of
the Stockholders' Agreement. The options so designated may not, in the
aggregate, exceed the number of Shares which, at the time of the
designation, are subject to purchase pursuant to Article II or Article III
of the Stockholders' Agreement, but in making such designation, the
Designator may designate alternate Designated Management Optionees who
shall have options to purchase Shares if the Persons designated as primary
Designated Management Optionees do not exercise the designated options.
The Designator may designate a member of the Committee (as herein
defined), or a member of the Family of a member of the Committee, as a
Designated Management Optionee only as provided elsewhere in the
Stockholders' Agreement. Each designation of a Designated Management
Optionee shall be made in writing and delivered by the Designator to the
Designated Management Optionee and the corporation. By written notice
delivered to a Designated Management Optionee, with concurrent notice to
the Company, the Designator may change or revoke the designation of any
Management Shareholder (or member of his Family, as the case may be) as a
Designated Management Optionee and/or the designation of the number of
Shares to be purchased, at any time prior to exercise of the designated
option for any reason or for no reason. In the event one or more
Designated Management Optionees are granted an option to purchase Shares
pursuant to Article III of the Stockholders' Agreement, and the Shares as
to which such option is exercisable are not Vested Shares (as defined in
the Stockholders' Agreement) in the hands of the Management Shareholder
(or his Permitted Transferees) whose Shares are subject to purchase or
sale under Article III of the Stockholders' Agreement, the Designator may,
as part of the designation of the identity of the Designated Management
Optionee(s), designate that all or any portion of such Shares shall be
Vested Shares in the hands of the Designated Management Optionee(s)
(e) "Designator" means the person or the committee of three Management
Shareholders, as set forth below and as the case may be, which has, among
other powers, the power to designate the Designated Management Optionees.
Prior to the occurrence of an Event (as defined below) for all purposes
other than designating (and in connection with the designation of)
Designated Management Optionees, the Designator shall be Brennan. At all
times for purposes of designating (and in connection with the designation
of) Designated Management Optionees, and from and after the occurrence of
an Event for all purposes (including, without limitation, designating (and
in connection with the designation of) Designated Management Optionees),
the Designator shall be such committee of three Management Shareholders
(the "Committee").
The Committee shall, except as provided below, be comprised of
Brennan, Edwin G. Pohlmann ("Pohlmann") and Myron Lieberman ("Lieberman").
Prior to the occurrence of an Event, if any member of the Committee shall
resign from the Committee or cease to be a Qualified Management
Shareholder (as defined below), then such person shall cease to be a
member of the Committee and the remaining members of the Committee shall
as soon as practicable appoint a Qualified Management Shareholder as a
member of the Committee and thereby fill the vacancy on the Committee so
created. From and after the occurrence of an Event, the Committee shall
be comprised of Pohlmann, Spencer H. Heine ("Heine") and Lieberman (each
of Pohlmann, Heine and Lieberman being a "Continuing Member" and
collectively being the "Continuing Members") so long as each is a
Qualified Management Shareholder; provided, however, that at any time from
and after the occurrence of an Event (i) if one, but only one, Continuing
Member has resigned from the Committee or ceased to be a Qualified
Management Shareholder, then the Committee shall be comprised of the two
remaining Continuing Members who have not resigned from the Committee and
are Qualified Management Shareholders and the Largest Management
Shareholder (as defined below) (but the Second Largest Management
Shareholder (as defined below) if the Largest Management Shareholder is
one of such remaining Continuing Members, but the Third Largest Management
Shareholder (as defined below) if both the Largest Management Shareholder
and the Second Largest Management Shareholder are such remaining
Continuing Members), (ii) if each of two, but only two, of the Continuing
Members has either resigned from the Committee or ceased to be a Qualified
Management Shareholder, then the Committee shall be comprised of the
remaining Continuing Member who has not resigned from the Committee and is
a Qualified Management Shareholder, the Largest Management Shareholder and
the Second Largest Management Shareholder (but the Second Largest
Management Shareholder and the Third Largest Management Shareholder if the
Largest Management Shareholder is such Continuing Member, but the Largest
Management Shareholder and the Third Largest Management Shareholder if the
Second Largest Management Shareholder is such Continuing Member), and
(iii) if each of the Continuing Members has either resigned from the
Committee or ceased to be a Qualified Management Shareholder, then the
Committee shall be comprised of the Largest Management Shareholder, the
Second Largest Management Shareholder and the Third Largest Management
Shareholder.
In all cases, the Committee shall act by the vote of a majority of
its members; provided, however, that neither a member of the Committee nor
a member of his Family may be designated as a Designated Management
Optionee except upon the affirmative vote of all other members of the
Committee.
A "Qualified Management Shareholder" is each of Brennan and
Lieberman and any other person who is a Management Shareholder and
employed by a member of the Ward Group. A person (including each of
Brennan and Lieberman) shall cease to be a Qualified Management
Shareholder if (i) he ceases to be a Management Shareholder, (ii) he dies,
(iii) he is adjudicated incompetent, (iv) in the case of Lieberman, he
ceases to be a director of the corporation or (v) in the case of any
Management Shareholder other than Brennan and Lieberman, no member of the
Ward Group employs such Management Shareholder.
An "Event" means that Brennan has resigned from the Committee or
ceased to be a Qualified Management Shareholder.
The "Largest Management Shareholder" shall be the Management
Shareholder (other than Brennan and any Management Shareholder who is not
willing or able to serve on the Committee) who, from time to time, is
employed by a member of the Ward Group and is the owner of the largest
number of Shares (including Plan Shares (as herein defined) subject to the
Terms and Conditions (as herein defined)) as compared to each other
Management Shareholder (other than Brennan and any Management Shareholder
who is not willing or able to serve on the Committee) and who is willing
and able to serve as a member of the Committee.
The "Second Largest Management Shareholder" shall be the Management
Shareholder (other than Brennan, the Largest Management Shareholder and
any Management Shareholder who is not willing or able to serve on the
Committee) who, from time to time, is employed by a member of the Ward
Group and is the owner of the largest number of Shares (including Plan
Shares subject to the Terms and Conditions) as compared to each other
Management Shareholder (other than Brennan, the Largest Management
Shareholder and any Management Shareholder who is not willing or able to
serve on the Committee) and who is willing and able to serve on the
Committee.
The "Third Largest Management Shareholder" shall be the Management
Shareholder (other than Brennan, the Largest Management Shareholder, the
Second Largest Management Shareholder and any Management Shareholder who
is not willing or able to serve on the Committee) who, from time to time,
is employed by a member of the Ward Group and is the owner of the largest
number of Shares (including Plan Shares subject to the Terms and
Conditions) as compared to each other Management Shareholder (other than
Brennan, the Largest Management Shareholder, the Second Largest Management
Shareholder and any Management Shareholder who is not willing or able to
serve on the Committee) and who is willing and able to serve on the
Committee.
For the purposes of the foregoing provisions of this paragraph (e),
a Management Shareholder shall be deemed to own all Shares (including Plan
Shares subject to the Terms and Conditions) owned by his Permitted
Transferees. In the event that two or more persons own the same number of
Shares so that each, in the absence of the other (or others, as the case
may be) would be the Largest Management Shareholder, the Second Largest
Management Shareholder or the Third Largest Management Shareholder (as the
case may be), then the remaining member (or members, as the case may be)
of the Committee from time to time shall determine which of such person or
persons shall be deemed to be the Largest Management Shareholder, the
Second Largest Management Shareholder or the Third Largest Management
Shareholder, as the case may be, and, in the event that there are no
members of the Committee remaining to make such determination or the
remaining members of the Committee are unable to make such determination
in accordance with the Committee's majority voting requirements as set
forth above, then such determination shall be made on the basis of
seniority of service with the Ward Group.
(f) "Employee Stock Option Plan" means a stock option plan for the
benefit of the employees, advisors and consultants of the Ward Group and
directors of the corporation adopted by the board of directors of the
corporation pursuant to which such employees, advisors, consultants and
directors may be granted options to purchase Shares of Class A Common
Stock.
(g) "Family" means a spouse or descendent or ancestor of a Management
Shareholder, or a spouse of a descendent or ancestor of a Management
Shareholder, or a trustee of a trust or a custodian of a custodianship
primarily for the benefit of one or more of the foregoing and/or a
Management Shareholder.
(h) "GE Capital" means General Electric Capital Corporation, a New York
Corporation.
(i) "GE Capital Affiliate" means any entity which, at the time of the
applicable determination, GE Capital controls, which controls GE Capital,
or which is under common control with GE Capital, but does not include the
Ward Group or any member thereof. For the purposes of the preceding
sentence, "control" means the power, direct or indirect, to direct or
cause the direction of the management and policies of a Person through
voting securities, contract or otherwise. Without limiting the generality
of the foregoing, as of the date on which the Stockholders' Agreement was
executed and delivered, Kidder, Peabody Group, Inc. was a GE Capital
Affiliate.
(j) "Management Shareholders" or "Management Shareholder" means a Type
1 Management Shareholder (as herein defined) or a Type 2 Management
Shareholder (as herein defined), without distinction.
(k) "Permitted Transferee" shall mean:
(i) a Person, other than a Management Shareholder, to whom
Shares are Transferred pursuant to and in compliance with the
provisions of Section 2.2(b) of the Stockholders' Agreement; and
(ii) a member of the Family of a Management Shareholder who
has either (x) acquired Shares by virtue of having been designated
a Designated Management Optionee by the Designator or (y) acquired
Shares on or about the date of the Stockholders' Agreement and
joined in the Stockholders' Agreement as a Permitted Transferee of
said Management Shareholder.
Each reference herein to a Permitted Transferee of a particular Management
Shareholder shall mean (x) a Permitted Transferee owning Shares which that
Management Shareholder was the last Management Shareholder to own, and (y)
a member of the Family of that Management Shareholder who has acquired
Shares in a manner set forth in (ii) above;
(l) "Person" means any individual, sole proprietorship, partnership,
joint venture, unincorporated organization, association, corporation,
trust, institution, public benefit corporation, entity or government.
(m) "Plan Shares" means (i) Shares received by the holder thereof
pursuant to the Employee Stock Option Plan; and (ii) Shares held by a
Permitted Transferee of a Management Shareholder, if such Shares would be
Plan Shares pursuant to clause (i) above if held by such Management
Shareholder;
(n) "Preferred Stock" and "Senior Preferred Stock" shall have the
meanings specified in the certificate of incorporation.
(o) "Purchase Agreement" means that certain Stock Purchase Agreement
dated as of March 6, 1988, as amended, among the corporation, Mobil
Corporation and Marcor Inc.
(p) "Shares," except as otherwise specifically provided herein, means
the shares of Common Stock of the corporation without distinction as to
class or series, and shall include certificates of beneficial interest
issued by the Voting Trustee (as herein defined), pursuant to a Voting
Trust Agreement (as herein defined); provided, however, that (and without
implication that a contrary result was intended, but by way of
clarification):
(i) for the purpose of determining the number of Shares eligible
to vote or receive distributions, there shall be no duplication as between
Shares held by the Voting Trustee, on the one hand, and certificates of
beneficial interest issued by the Voting Trustee, on the other hand; and
(ii) where the right to vote Shares or execute consents is granted
or required pursuant to the provisions of the Stockholders' Agreement,
except as expressly provided in Section 8.17 of the Stockholders'
Agreement, the term "Shares" shall not include certificates of beneficial
interest issued by the Voting Trustee under a Voting Trust Agreement;
and these by-laws shall be interpreted in accordance with the foregoing
proviso to the extent the context so requires.
(q) "Stockholders' Agreement" means that certain Stockholders' Agreement
dated as of June 17, 1988 among the corporation, Brennan, GE Capital and
the other Persons who are parties thereto, as amended and restated from
time to time.
(r) "Terms and Conditions" mean those certain Montgomery Ward & Co.,
Incorporated Stock Ownership Plan Terms and Conditions agreed to by and
between the corporation and participants in the Employee Stock Option
Plan, as amended and restated from time to time.
(s) "Transfer" means any transfer, sale, assignment, pledge, encumbrance
or other disposition of Shares, or, in the case of the corporation, any
issuance or sale of Shares, irrespective of whether any of the foregoing
are effected voluntarily or involuntarily, by operation of law or
otherwise, or whether inter vivos or upon death.
(t) "Type 1 Management Shareholder" means Brennan, Silas S. Cathcart
("Cathcart"), Lieberman and any other Person who is designated by the
Designator as a Type 1 Management Shareholder and who concurrently with
the execution and delivery of the Stockholders' Agreement or at any time
thereafter, in contemplation of that Person's acquisition of Shares,
executes a counterpart of or joins in and agrees to be bound by, the
Stockholders' Agreement as a Type 1 Management Shareholder. Other than
Brennan, Cathcart and Lieberman, as long as GE Capital and GE Capital
Affiliates own, in the aggregate, at least twenty percent (20%) of the
Shares which they acquired in June, 1988, no Person shall be designated as
a Type 1 Management Shareholder without the prior consent of GE Capital,
which consent shall not unreasonably be withheld.
(u) "Type 2 Management Shareholder" means any person who concurrently
with the execution and delivery of the Stockholders' Agreement or at any
time thereafter, in contemplation of that Person's acquisition of Shares,
executes a counterpart of, or joins in and agrees to be bound by, the
Stockholders' Agreement as a Type 2 Management Shareholder. Unless that
Person has been designated by the Designator as, or is already, a Type 1
Management Shareholder, Type 2 Management Shareholders shall include all
Persons who acquire Options (as defined in the Stockholders' Agreement) or
Purchase Rights (as defined in the Stockholders' Agreement) or Shares of
Class A Common Stock pursuant to Awards (as defined in the Stockholders'
Agreement) or the exercise of Options or Purchase Rights and who join in
the Stockholders' Agreement or are required to hold such Shares of Class
A Common Stock subject to the terms of the Stockholders' Agreement.
(v) "Voting Trust Agreement" means each of that certain Voting Trust
Agreement, dated as of June 21, 1988, among Brennan and the other
individuals who are parties thereto (the "1988 Voting Trust Agreement"),
that certain Voting Trust Agreement, dated as of October 21, 1994, among
Brennan, the corporation and the individuals who are parties thereto (the
"1994 Voting Trust Agreement") as well as all agreements adopted hereafter
which have substantially similar provisions (without giving effect to time
periods) as the 1988 Voting Trust Agreement and as the 1994 Voting Trust
Agreement and to which any shares of common stock of the corporation are
subject.
(w) "Voting Trustee" means the Person serving as voting trustee under
the applicable Voting Trust Agreement.
(x) "Ward" means Montgomery Ward & Co., Incorporated, an Illinois
corporation.
(y) "Ward Group" means the corporation and its direct and indirect
subsidiaries.
ARTICLE IX
Amendments
The board of directors may, by vote of not less than two-thirds (2/3) of
the members of the board of directors of the corporation, alter, amend or repeal
these by-laws, or enact such other by-laws as in their judgment may be advisable
for the regulation of the conduct of the affairs of the corporation; provided,
however, that from and after the date on which the number of members of the
board of directors which GE Capital has the right to designate pursuant to
Section 1 of Article III of these by-laws has been reduced pursuant to the
terms and conditions of said Section 1 of Article III, then Section 10 of
Article III of these by-laws may be amended or terminated in whole or in part
from time to time upon the affirmative vote or consent of both (x) a majority of
the members of the board of directors, and (y) the holders of a majority of the
then outstanding shares of Class A Common Stock.
WET04074.DOC
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT ("Agreement") is made as of
the 29th day of December, 1995, by and between GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation ("Investor"),
MONTGOMERY WARD & CO., INCORPORATED, an Illinois corporation (the
"Company"), MONTGOMERY WARD HOLDING CORP., a Delaware corporation
("Holdings"), and BERNARD F. BRENNAN ("Brennan").
NOW, THEREFORE, in consideration of the mutual promises
set forth in this Agreement, the parties agree as follows:
1. Subscription for Shares.
The Company agrees to sell to Investor, and Investor
agrees to purchase from the Company, one-thousand seven hundred and
fifty (1,750) shares of Series B Senior Preferred Stock of the
Company (the "Shares"), issued pursuant to an Article of Amendment
to the Articles of Incorporation (the "Articles of Amendment") of
the Company as set forth in Exhibit A, (i) one-thousand (1,000)
shares of Series B Senior preferred Stock of the Company for an
aggregate purchase price of $98,250,000 and (ii) seven hundred and
fifty (750) shares of Series B Senior Preferred Stock of the
Company for an aggregate purchase price of $75,000,000.
2. Delivery and Payment.
Delivery of and payment for the Shares (the
"Closing") shall occur simultaneously with the execution and
delivery hereof. At the Closing:
(a) the Company shall execute and deliver to
Investor a certificate evidencing the Shares registered
in the name of Investor; and
(b) Investor shall pay to the Company, by wire
transfer to an account designated by the Company, an
amount equal to $173,250,000 for the Shares; and
(c) the Company shall deliver to Investor the
opinion of its counsel in the form of Exhibit B hereto.
<PAGE>
3. Representations and Warranties of Investor.
Investor represents and warrants to the Company
(which representations and warranties shall survive the purchase
and sale of the Shares) that:
(a) Investor is a corporation duly organized,
validly existing and in good standing under the laws of
the State of New York and has all requisite corporate
power and authority to enter into and perform this
Agreement and to acquire the Shares.
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions
provided for herein have been duly authorized by all
necessary corporate action on the part of Investor. This
Agreement has been duly and validly executed and
delivered by Investor and constitutes the legal, valid
and binding obligation of Investor, enforceable against
Investor in accordance with its terms.
(c) This execution, delivery and compliance with
and performance of the terms and provisions of this
Agreement will not conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a
default (or an event which, with notice,, lapse of time,
or both, would constitute a default) under, or result in
any violation of, (i) the certificate of incorporation or
by-laws of Investor, (ii) any provision of any contract,
agreement, indenture, note, bond, loan agreement,
instrument, lien, conditional sales contract, mortgage,
license, franchise, insurance policy, commitment or other
binding understanding or arrangement ("Contract") to
which Investor is a party or by which it is bound, or
(iii) any order, judgment, decree, license, permit,
statute, law, rule or regulation of any governmental body
to which Investor is subject.
(d) Investor is acquiring the Shares solely for
investment for its own account and not for the benefit or
account of any other person or entity and not with a view
to the distribution of the Shares.
<PAGE>
(e) Investor has had an opportunity to ask
questions and receive answers from the Company and its
representatives concerning the terms and conditions of
this Agreement and to obtain any additional information
which Investor has requested in order to adequately
evaluate the merits and risks of its investment therein.
(f) Investor understands that the Shares have not
been registered under the Securities Act of 1933 (the
"Act") or the securities laws of any other jurisdiction,
and that Investor must bear the economic risk of its
investment therein for an indefinite period of time
because the Shares cannot be offered for sale or sold
without compliance with the provisions of the Act and
applicable state blue sky or securities laws.
(g) Investor agrees that it will not sell, assign,
transfer or otherwise dispose of all or any part of the
Shares without complying with the provisions of the Act
and all applicable state blue sky or securities laws, or
any exemptions therefrom.
(h) Investor understands that no federal or state
agency has recommended or endorsed the purchase of the
Shares or made any determination or finding as to the
fairness of the provisions of this Agreement.
(i) Investor acknowledges that neither the Company
nor any person acting on its behalf has offered to sell
the Shares to it by means of any form of general
advertising.
(j) Investor is an "Accredited Investor, " as that
term is defined in Regulation D under the Act.
4. Representations and Warranties of the Company and
Holdings.
The Company and Holdings represent and warrant to
Investor (which representations and warranties shall survive the
purchase and sale of the Shares) that:
(a) The Company and Holdings are corporations duly
organized, validly existing and in good standing under
the laws of the States of Illinois and Delaware,
respectively, and have all requisite corporate power and
authority (i) to carry on their respective businesses as
now being conducted, (ii) to own or lease all of the
properties owned or leased by them and (iii) to enter
into and perform this Agreement.
<PAGE>
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions
provided for herein, including the authorization of the
Articles of Amendment, have been duly authorized by all
necessary corporate action on the part of the Company and
Holdings, including the consent of the Company's
stockholder. This Agreement has been duly and validly
executed and delivered by the Company and Holdings and
constitutes the legal, valid and binding obligation of
the Company and Holdings, enforceable against the company
and Holdings in accordance with its terms. The Articles
of Amendment has been duly filed with the Secretary of
State of the State of Illinois.
(c) Upon the issuance of the Shares to Investor in
accordance with the terms hereof, Investor will acquire
good and marketable title to the Shares, free and clear
of any lien, claim or encumbrance, and the Shares will be
validly issued, fully paid and non-assessable.
(d) The execution, delivery and compliance with and
performance of the terms and provisions of this Agreement
will not conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a
default (or an event which, with notice, lapse of time,
or both, would constitute a default) under, or result in
any violation of (i) the articles of incorporation of the
Company or the certificate of incorporation of Holdings
or the by-laws of either the Company or Holdings, (ii)
any provision of any Contract to which the Company or
Holdings is a party or is bound or (iii) any order,
judgment, decree, license, permit, statute, law, rule or
regulation of any governmental body (including applicable
federal and state securities laws) to which the Company
or Holdings is subject.
(e) Except as set forth on Schedule 1 hereto,
neither the Company nor any of its subsidiaries is a
party to any agreement or note relating to indebtedness
for money borrowed which specifically prohibits or limits
Distributions (as defined in Section 5 of the terms of
the Shares) on the Shares or which prohibits or limits
dividends or other distributions with respect to its
capital stock by an subsidiary of the Company to the
Company or to such subsidiary's parent company
(collectively, "Restricted Payments").
<PAGE>
5. Covenants of Company
(a) The Company agrees that so long as the Shares
are outstanding, without the prior written consent of
Investor, it shall not, nor shall it permit any of its
subsidiaries to, amend, incur assume or enter into any
agreement or note relating to indebtedness for money
borrowed which would specifically prohibit or limit
Distributions on the Shares or Restricted Payments in a
manner more restrictive than the most restrictive
provision (other than a change of the date from which
consolidated net income is calculated and the related
"FAS 106 Adjustment Factor" or "FAS 106 Restricted
Payment Factor" set forth in the Restricted Payments
provisions of the agreements listed in Schedule 1)
contained in the agreements listed on Schedule 1 hereto.
With respect to any subsidiary of the Company, a
prohibition on Restricted payments by such subsidiary
that does not include the $50,000,000 "basket" contained
in the Restricted Payments provisions of the agreements
listed in Schedule 1 hereto shall not be deemed to
violate the covenant contained in this Section 5(a). The
provisions of this Section 5(a) shall not apply to any
limitation on Restricted Payments by a subsidiary that is
not a U.S. subsidiary or a subsidiary whose principal
business is dealing with, or the operation of, real
estate.
(b) Financial and Business Information
(i) Quarterly Information. The Company agrees
that so long as the Shares are outstanding, it will
deliver to Investor, as soon as practicable after the end
of each of the first three quarters of each fiscal year
of the Company and of Holdings, and in any event within
60 days thereafter, one copy of an unaudited consolidated
balance sheet of the Company as at the close of such
quarter, and the related unaudited consolidated
statements of income of the Company and of Holdings for
such quarter and, in the case of the second and third
quarters, for the portion of the fiscal year ending with
such quarter and the related unaudited consolidated
statements of cash flows of the Company and of Holdings
for the portion of the fiscal year ending with such
quarter, setting forth in each case in comparative form
the figures for the corresponding periods in the previous
fiscal year. Such financial statements shall be prepared
by the Company and Holdings in accordance with GAAP
(subject to normal year-end adjustments) and accompanied
by the certification of the Company's and Holdings' chief
<PAGE>
executive officer, or chief financial officer or
treasurer, that such financial statements present fairly
in all material respects the consolidated financial
position, results of operations and cash flows of the
Company and Holdings as at the end of such quarter and
for such year-to-date period, as the case may be.
(ii) Annual Information. The Company agrees
that so long as the Shares are outstanding, it will
delivery to Investor as soon as practicable after the end
of each fiscal year of the Company and Holdings, and in
any event within 105 days thereafter, one copy of:
1. an audited consolidated balance sheet
of the Company and of Holdings as at the end of such
year; and
2. audited consolidated statements of
income, shareholders' equity and cash flows of the
Company and of Holdings for such year;
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all prepared in
accordance with GAAP, and which audited financial statements shall
be accompanied by an opinion thereon of the independent certified
public accountants regularly retained by the Company and Holdings,
or of any other firm of independent certified public accountants of
recognized national standing selected by the Company.
6. Covenants of Investor, Holdings and Brennan relating
to Board Representation. Investor, Holdings and Brennan agree to
use their best efforts to take such action as is necessary to
provide that, if Investor has the right, pursuant to Section 6(b)
of the terms of the Shares, to elect a director to the Board of
Directors of the Company, Investor shall also have the right to
elect, in accordance with the terms of such Section 6(b), one
additional member to the board of directors of Holdings and the
number of directors constituting the board of directors of Holdings
shall be increased in order to provide one vacancy for such
additional member, including, without limitation, amendments to
that certain Stockholders Agreement dated as of June 17, 1988 among
Holdings and certain of its stockholders, as amended and restated
to date, and the by-laws of Holdings, to permit the foregoing.
<PAGE>
7. Status of Dividends and Tax Indemnity
(a) Reporting. The parties hereto intend that (i) the
dividends paid for deemed paid (including any indemnification
payments hereunder that may be so treated) with respect to the
Shares ("Dividends") shall be treated as dividends for federal
income tax purposes and (ii) Investor shall be entitled to the
dividends received deduction under Section 243 (a) (1) of the Code
and any dividends received deduction provided under any state or
local income tax law in effect as of December 1, 1995 (the
"Dividends Received Deduction") with respect to the Dividends. In
accordance with such intent, Holdings and the Company agree that
neither they nor any affiliate, directly or indirectly, will take
any action or file any returns or other documents inconsistent with
such intent and that they and each affiliate will file such
returns, take such action, and execute such documents consistent
with such intention as in Investor's view may be reasonable and
necessary to facilitate the accomplishment of the parties'
expressed intentions.
(b) Indemnification. if at any time, for any reason or
under any circumstances (including a change in law or the absence
of sufficient "earning and profits") other than an act or failure
to act of Investor, Investor loses the right to claim, does not
claim (as the result of a good faith and reasonable determination
based upon a written opinion of Investor's tax counsel, a copy of
which shall be delivered to Holdings and the Company, that such
claim is not properly allowable) or there shall be disallowed, all
or any portion of the Dividends Received Deduction with respect to
the Dividends (such events collectively referred to hereafter as a
"Disallowance"), then Holdings and the Company jointly and
severally agree to pay to Investor,
(i) within 30 days following the Notice Date (as defined
below), an amount which will on an After-Tax Basis (as defined
below), taking into account any penalties, interest or additions to
tax payable by virtue of the Disallowance, preserve (but not do
more than preserve) the Net After-Tax Return (as defined below)
with respect to the Dividends to which the Disallowance applies,
and
(ii) on each Dividend payment date (if any) following the
Notice Date, an amount which will on an After-Tax Basis, taking
into account any penalties, interest or additions to tax payable by
virtue of the Disallowance, preserve (but not do more than
preserve) the Net After-Tax Return with respect to the Dividends
payable on such Dividend payment dates.
<PAGE>
Nothing herein shall be construed to provide indemnity for taxes
(including penalties, interest or additions to tax) to the extent
such taxes (including penalties, interest or additions to tax) do
not result from the Disallowance. Holdings and the Company further
jointly and severally agree to reimburse Investor for all of its
reasonable attorneys fees incurred in enforcing its rights to
indemnification hereunder.
(c) Cooperation and Examination. Holdings and the
Company will cooperate with and support Investor, as Investor shall
reasonably request, in any audit or other proceedings challenging
or contesting Investor's entitlement to the Dividends Received
Deduction with respect to the Dividends. In the event that
Investor is notified formally of any audit, examination or
proceeding by any taxing authority with respect to the availability
of the Dividends Received Deduction with respect to the Dividends
(the "Dividend Issue"), Investor will promptly notify Holdings and
the Company of such audit, examination or proceeding.
Subject to the requirement that Investor shall proceed reasonably
and in good faith and keep Holdings and the Company informed on
matters relating to the Dividend Issue, Investor shall have
exclusive control and responsibility to conduct any audit,
examination, proceeding or litigation with respect to the Dividend
Issue. Investor shall diligently pursue the Dividend Issue;
provided, however, that Investor shall have sole discretion to
compromise, settle or resolve the Dividend Issue.
(d) Additional Definitions. For purposes of this
Section 7:
(i) "Code" shall mean the Internal Revenue Code of 1986,
as amended as of December 1, 1995.
(ii) Amounts paid on an "After-Tax Basis" shall mean
amounts which, when reduced by the increase (but only by the
increase) in federal, state and local income taxes payable by
the recipient with respect thereto, shall equal the amount in
respect of which such amount is paid.
(iii) The "Net After-Tax Return" (A) shall be determined
both with respect to the Dividends and the proceeds from any
disposition of the Shares ("Disposition"), including any sale,
redemption or exchange of the Shares and any distribution that
is deemed to be a sale or exchange under Section 301(c)(3) of
the Code, (B) with respect to Dividends, shall be computed as
if such Dividends were subject to federal, state and local
income taxes at the highest marginal rates to which the
recipient would be subject, such Dividends were treated as
dividends within the meaning of Section 316(a) of the Code,
<PAGE>
and the Dividends Received Deduction was available with
respect to such Dividends and (C) with respect to proceeds
from any Disposition, shall be computed as if such proceeds
were subject to federal, state and local income tax at the
highest marginal rate applicable to such Disposition by the
recipient. For this purpose, the highest marginal rates shall
be determined without regard to the tax rate or tax benefit
make-up or phase-out provisions of applicable law, such as the
last two sentences of Section 11(b) of the Code.
(iv) The "Notice Date" shall mean the date (or dates) on
which Investor gives notice to Holdings and the Company of a
Disallowance, which notice shall state the nature of the
Disallowance and the claim for indemnity and shall provide a
computation of the indemnity payable to Investor, but in no
event more than 30 days prior to the earlier of (A) the
payment of any additional federal, state or local income taxes
(including any interest, penalties or additions to tax) as a
result of such Disallowance, (B) the filing of a return or the
acceptance of an audit report, closing agreement or other
settlement or determination in which such Disallowance is
reflected or (C) in the case that a Disallowance results from
the fact that all or any portion of the Dividends constituted
a distribution under Section 301(c)(2) of the Code, a sale or
redemption of all or part of the Shares the basis of which was
reduced as a result of the Disallowance.
(e) Transferees. The rights of any indemnity provided
in this Section 7 shall inure to the benefit of any transferee of
all or a portion of the Shares that is a corporation entitled to
claim the Dividends Received Deduction with respect to the
Dividends, and shall be applied by substituting the name of such
transferee in lieu of "Investor" wherever it appears in this
Section.
Section 8. Exchange Option
(a) For a period of 180 days after the date hereof,
Investor shall have the option, upon written notice to Holdings and
the Company, to cause Holdings to issue to Investor, preferred
stock of Holdings with terms substantially identical to the Shares
in the same stated amount of the Shares and with a maturity of six
years and six months from the date of this Agreement (the "Exchange
Preferred"), in exchange for the Shares.
(b) If the proposed legislation to reduce the dividends
received deduction referred to in President Clinton's Seven-Year
Balanced Budget Proposal released December 7, 1995 or any similar
legislation (the "Clinton Bill") is enacted into law by December
31, 1996, Holdings shall have the option for a period of 60 days
<PAGE>
after the date the Clinton Bill is so enacted, upon written notice
to Investor, to issue to Investor the Exchange Preferred in
exchange for the Shares.
(c) If either Investor or Holdings elects to exercise
their respective options referred to in Sections 8(a) or (b) above,
Investor, Holdings, the Company and Brennan agree to use their best
efforts to effect such exchange as soon as possible after the date
of exercise. The provisions of this Section 8 shall apply to
Investor and its successor and assigns. For purposes of Sections
5 and 7 of this Agreement, all references to "Shares" shall mean
the shares of Series B Senior Preferred Stock of the Company, or,
if the exchange referred to in this Section 8 occurs, the Exchange
Preferred, and references therein to the Company shall also be
deemed to refer to Holdings.
9. Amoco.
If for any reason the acquisition by the Company or a
subsidiary thereof of the stock of Amoco Enterprises, Inc. has not
been consummated by the opening of business on January 2, 1996, the
Company shall, on January 2, 1996, redeem the 1000 Shares purchased
by Investor pursuant to subsection (i) of Section 1 of this
Agreement for a purchase price equal to $98,250,000 plus accrued
dividends thereon.
10. Miscellaneous.
(a) Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Agreement shall be sufficiently
given or made if in writing and either delivered in person with
receipt acknowledged or sent by registered or certified mail,
return receipt requested, postage prepaid, or by telecopy and
confirmed by telecopy answerback, addressed as follows:
(i) If to the Company, Holdings or Brennan, at:
1 Montgomery Ward Plaza
Chicago, Illinois 60671-0042
Attention: Spencer H. Heine
Telecopy Number: (312) 467-3064
(ii) If to Investor, at:
105 West Madison Street
Suite 1600
Chicago, Illinois 60602
Attention: Account Manager, Montgomery Ward
Telecopy Number: (312) 419-5992
<PAGE>
or at such other address as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may
be waived in writing by the party entitled to receive such notice.
Every notice, demand, request, consent, approval, declaration,
delivery or other communication hereunder shall be deemed to have
been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by
telecopy answerback, or three (3) Business Days after the same
shall have been deposited in the United States mail.
(b) The Company shall reimburse Investor for all of its
out-of-pocket expenses (including reasonable attorneys' fees)
incurred by it in connection with this Agreement and the
transactions contemplated hereby.
(c) This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York,
without regard to the principles thereto relating to conflict of
laws.
(d) The rights and obligations of the Company, Holdings
and Brennan under this agreement may not be assigned without the
written consent of Investor. The rights and obligations of
Investor hereunder may not be assigned without the consent of the
Company, except as provided in Section 7(e), and except that there
shall be no restriction on Investor's right to sell, assign or
otherwise transfer the Shares, subject to compliance with Section
3(g) hereof.
(e) This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their respective successors
and permitted assigns.
(f) This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of
which shall constitute a single instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
GENERAL ELECTRIC CAPITAL CORPORATION
By:
Name: William Brasser
Title: Duly Authorized Signatory
MONTGOMERY WARD & CO., INCORPORATED
By:
Name: John Workman
Title: Executive Vice President
and Chief Financial Officer
MONTGOMERY WARD HOLDING CORP.
By:
Name: John Workman
Title: Executive Vice President
and Chief Financial Officer
Bernard F. Brennan, solely as to
Sections 6 and 8 of this Agreement
and only for so long as he shall be
an "Affiliate" (as defined under the
Act) of the Company and Holdings,
provided that he shall be deemed an
Affiliate as long as he is a
director, and, in all events, he
agrees to vote all voting shares
that he is entitled to vote to
effectuate such sections.
<PAGE>
SCHEDULE 1
1. Long Term Credit Agreement dated as of September 15, 1994
among the Company, various banks, The First National Bank of
Chicago, as Documentary Agent, The Bank of Nova Scotia, as
Administrative Agent, The Bank of New York, as Negotiated Loan
Agent, and Bank of America National Trust and Savings
Association, as Advisory Agent.
2. Short Term Credit Agreement dated as of September 15, 1994
among the Company, various banks, The First National Bank of
Chicago, as Documentary Agent, The Bank of Nova Scotia, as
Administrative Agent, The Bank of New York, as Negotiated Loan
Agent, and Bank of America National Trust and Savings
Association, as Advisory Agent.
3. Term Loan Agreement dated as of September 29, 1995 between the
Company and The Industrial Bank of Japan, Limited, Chicago
Branch.
4. Note Purchase Agreement dated as of July 11, 1995 between the
Company and various institutional investors.
5. Note Purchase Agreement dated as of March 1, 1993 between the
Company and various institutional investors.
6. Purchase and Master Lease Agreement, dated as of March 15,
1995, among Lessors referred to therein, the Company,
Lechmere, Inc., and Sumitomo Bank Leasing and Finance, Inc.,
as agent for Lessors;
7. Purchase and Master Lease Agreement, dated as of January 13,
1995, among the Lessors referred to therein, the Company,
Lechmere, Inc., and Credit Lyonnais, Chicago Branch, as agent
for the Lessors.
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
52-WEEK PERIOD ENDED
DECEMBER 30, 1995
Class A Class B
Earnings available
for Common
Shareholders $3,341,271 $3,486,747
Weighted average
of shares
outstanding:
Shares outstanding 19,209,793 25,000,000
Shares issued
upon assumed
exercise of
stock options 5,164,699 -
Shares assumed
to be repurchased
under Treasury
Stock method
(at fair market
value of $24.50) (3,851,423) -
Total number of
options considered
as common stock
equivalents 1,614,721 -
Total weighted
average number
of shares 20,824,514 25,000,000
Earnings per share $.16 $.14
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
52-WEEK PERIOD ENDED
DECEMBER 31, 1994
Class A Class B
Earnings available
for Common
Shareholders $57,446,133 $57,524,082
Weighted average
of shares
outstanding:
Shares outstanding 19,481,364 25,000,000
Shares issued
upon assumed
exercise of
stock options 5,434,576 -
Shares assumed
to be repurchased
under Treasury
Stock method
(at fair market
value of $26.50) (3,508,561) -
Total number of
options considered
as common stock
equivalents 1,926,015 -
Total weighted
average number
of shares 21,407,379 25,000,000
Earnings per share $2.68 $2.30
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
52-WEEK PERIOD ENDED
JANUARY 1, 1994
Class A Class B
Earnings available
for Common
Shareholders $49,982,912 $51,059,110
Weighted average
of shares
outstanding:
Shares outstanding 20,148,623 25,000,000
Shares issued
upon assumed
exercise of
stock options 4,066,804 -
Shares assumed
to be repurchased
under Treasury
Stock method
(at fair market
value of $22.50) (2,410,224) -
Total number of
options considered
as common stock
equivalents 1,656,580 -
Total weighted
average number
of shares 21,805,203 25,000,000
Earnings per share $2.29 $2.04
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the
Company's previously filed Registration Statement on Form S-8
(File No. 33-57075).
Arthur Andersen LLP
Chicago, Illinois
March 24, 1996
MONTGOMERY WARD HOLDING CORP.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the
undersigned directors and/or officers of Montgomery Ward Holding
Corp., a Delaware corporation, hereby constitutes and appoints
SPENCER H. HEINE, EDWIN G. POHLMANN, JOHN L. WORKMAN and PHILIP D.
DELK, his or her true and lawful attorneys-in-fact and agents to
execute in his or her name and capacity the 1995 annual report on
Form 10-K of this Corporation and any amendments to such annual
report, with all exhibits thereto, and any and all documents in
connection therewith pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, each of them with full power to
act without the others;
AND FURTHER, that each of the undersigned directors and/or
officers of the Corporation hereby grants to said attorneys-in-fact
and agents and each of them, full power and authority to do and
perform any and all acts and things essential and necessary to be
done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person in connection
with the proper exercise of the powers granted hereunder.
<PAGE>
IN WITNESS WHEREOF, the undersigned as directors and/or
officers of said Montgomery Ward Holding Corp. or as individuals,
have hereunto set their hands and seals as of this 29th day of
March, 1996.
NAME AND TITLE /s/ Bernard F. Brennan
Bernard F. Brennan, Director,
Chairman and Chief Executive
Officer
NAME AND TITLE /s/ Spencer H. Heine
Spencer H. Heine, Director and
Executive Vice President
NAME AND TITLE /s/ G. Joseph Reddington
G. Joseph Reddington, Director
NAME AND TITLE /s/ Myron Lieberman
Myron Lieberman, Director
NAME AND TITLE /s/ Silas S. Cathcart
Silas S. Cathcart, Director
NAME AND TITLE /s/ Denis J. Nayden
Denis J. Nayden, Director
NAME AND TITLE /s/ James A. Parke
James A. Parke, Director
NAME AND TITLE /s/ Daniel W. Porter
Daniel W. Porter, Director
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