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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 28, 1996 No. 0-17540
MONTGOMERY WARD HOLDING CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3571585
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Montgomery Ward Plaza, Chicago, Illinois 60671-0042
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (312) 467-2000
Securities registered pursuant to Section 12(b) of the Act
Title of each class Name of each exchange
on which registered
Not Applicable None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, Series 1, $.01 Par Value
(Title of class)
Class A Common Stock, Series 2, $.01 Par Value
(Title of class)
Voting Trust Certificates representing Shares of Class A Common
Stock, Series 1, $.01 Par Value
(Title of class)
Voting Trust Certificates representing Shares of Class A Common
Stock, Series 2, $.01 Par Value
(Title of class)
Class B Common Stock, $.01 Par Value
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
At March 20, 1997, there were 18,330,641 shares of Class A Common Stock and
25,000,000 shares of Class B Common Stock of the Registrant outstanding.
Part III incorporates information by reference from the proxy statement for
the annual meeting of shareholders to be held on May 16, 1997.
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PART I
Item 1. Business
Forward-Looking Statements
Information included in this Report on Form 10-K may constitute forward-
looking statements that involve a number of risks and uncertainties. From
time to time, information provided by the Company or statements made by its
employees may contain other forward-looking statements. Factors that could
cause actual results to differ materially from the forward-looking statements
include but are not limited to: general economic conditions including
inflation, consumer debt levels, trade restrictions and interest rate
fluctuations; competitive factors including pricing pressures, technological
developments and products offered by competitors; inventory risks due to
changes in market demand or the Company's business strategies; and changes in
effective tax rates. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date made. The
Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
General
Montgomery Ward Holding Corp., a Delaware corporation (the Company or MW
Holding), and its wholly-owned subsidiary, Montgomery Ward & Co.,
Incorporated (Montgomery Ward), are engaged in retail merchandising and
direct response marketing (including insurance) in the United States. See
Note 21 to the Consolidated Financial Statements for financial information
regarding these segments.
Founded in 1872 and incorporated in Illinois in 1968, Montgomery Ward is
one of the nation's largest retail merchandising organizations. As of
December 28, 1996, Montgomery Ward and its wholly-owned subsidiary, Lechmere,
Inc., a Massachusetts corporation (Lechmere), operated 408 retail stores in
43 states with approximately 29 million square feet of selling space. In
addition, Montgomery Ward operated 4 liquidation centers which sell overstock
merchandise, 24 distribution facilities and 87 product service centers.
Montgomery Ward offers life and health insurance, revolving credit
insurance, club products and other consumer services through Signature
Financial/Marketing, Inc., a Delaware corporation (Signature), and through
Signature's subsidiaries (collectively, with Signature, The Signature Group).
The Signature Group is one of the largest direct marketing companies in the
United States.
Merchandising
Montgomery Ward is one of the largest privately held retailers in the
United States with over $6.6 billion in annual revenues. The Company is among
the largest retailers in the country in electronics, appliances,
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Item 1. Business
Merchandising (continued)
furniture and fine jewelry. It is also one of the largest retailers of
many prominent name brands, including Sony, Maytag, General Electric, La-Z-
Boy, Sealy, Lee, Playtex and Bugle Boy.
The major product offerings by the Company are the following:
Product Category
----------------
Appliances and Electronics, including service
Furniture and Home Furnishings
Apparel
Jewelry
Automotive, including service
The Company offers combined consumer electronics and appliance product
categories, including video, audio, home office, telephones, electronic games
and kitchen, laundry and other major appliances. The product offering
includes significant national brands plus some private label brands. The
Company is the second largest retailer of appliances in the United States.
Furniture and home furnishings include broad selections emphasizing name
brands in furniture and small ticket lines for the bath, bedroom and kitchen.
Furniture includes accessorized room groupings to provide customers the
convenience of coordinated furniture pieces including major brands. The
Company is the fourth largest retailer of furniture in the United States.
The Apparel offering includes branded, value oriented merchandise in
women's, men's, children's and intimate apparel as well as footwear and
accessories. The apparel brand and price point offering is targeted at the
large middle market between department stores and discounters. An offering
of prominent name brands has been built, including Lee, Playtex, Bugle Boy,
Bestform, Converse, Gloria Vanderbilt and Hanes. In addition, the Company
has developed licensed and proprietary brands for certain product categories,
such as Ship 'N Shore and Connie Selleca in women's apparel and BIKE in
activewear.
Jewelry offers all major merchandise categories: diamonds, gemstones, gold
and watches. Montgomery Ward has become one of the largest fine jewelry
retailers in the country, and its major vendor relationships enable it to
offer highly featured products at outstanding prices.
Automotive focuses on the sale and installation of tires, batteries, brakes
and shocks. Montgomery Ward is one of the leading retailers of branded
tires, including Goodyear, Firestone, Michelin, Bridgestone and B.F.
Goodrich. Other major brands include Exide, Monroe and NAPA.
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Item 1. Business
Merchandising (continued)
Montgomery Ward currently operates 341 full line stores and 67 stores
featuring a variety of other formats, including 27 Lechmere stores, 11
Electric Ave. & More stores, 6 HomeImage stores and 23 stores in various
other formats, including outlet, automotive and limited line stores. Full
line Montgomery Ward stores average approximately 76,000 square feet of
selling space.
Montgomery Ward's retail business is seasonal, with over 32% of 1996 sales
occurring in the fourth quarter. The results of Montgomery Ward's operations
are also subject to changes in consumer demand associated with general
economic conditions, which is especially true with respect to demand for
durable goods and other "big ticket" merchandise.
Montgomery Ward's retail operations are supported by its corporate buying
division which has its principal office in Chicago, and includes foreign
purchasing offices in Hong Kong, Taiwan, Japan, Singapore and Korea. In
addition to its buying staff, the corporate buying division employs technical
teams to ensure quality control of Montgomery Ward's merchandise.
The Company considers logistics to be important to its operations and has
continually invested in this area. The distribution facilities opened in
Phoenix, Tampa, Baltimore and southern California in 1991 through 1994 added
approximately 1.7 million square feet of space.
Corporate Expansion
Acquisition of the Amoco Motor Club by The Signature Group
The Signature Group acquired from Amoco Corporation the Amoco Motor Club on
December 31, 1995, which, combined with Signature's existing Auto Club,
created the largest national auto club in the U.S. The Signature Group is a
strong performer and this acquisition was an excellent fit to grow the
business both internally and through acquisitions. The Signature Group's auto
clubs, including the Montgomery Ward Auto Club, offer strong customer
service, and with the addition of the Amoco Motor Club, the Company offers an
even stronger base of services to more than five million auto club members.
The Amoco Motor Club was founded in 1964, and has since developed a
reputation as a reliable, customer-focused organization. The Amoco Motor
Club offers year-round, 24 hour emergency road and towing services to more
than two million club members.
Acquisition of Lechmere
In March 1994, Montgomery Ward acquired Lechmere Inc. a chain of Northeast-
based superstores. Lechmere offers a comprehensive selection of nationally
recognized brands of hardline merchandise (primarily consumer electronics and
appliances) and currently operates 27 Lechmere stores averaging approximately
50,000 square feet of selling space. In 1996, Lechmere opened
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Item 1. Business
Corporate Expansion (continued)
Acquisition of Lechmere (continued)
5 HomeImage stores under the Lechmere name and converted a Lechmere store
to a HomeImage store. HomeImage stores carry a similar assortment to
Lechmere but with an expanded furniture and home furnishings offering.
The Company has opened 79 new stores (including 5 Lechmere stores) in the
last 6 years.
Other Corporate Expansion
On August 8, 1995, Montgomery Ward purchased a 4.4% equity interest in
ValueVision International, Inc. (ValueVison). In July 1996, Montgomery Ward
restructured this agreement, including its investment in Montgomery Ward
Direct (MW Direct), as discussed below. See Note 20 to the Consolidated
Financial Statements for discussion of ValueVision as a related party.
The Company was a partner in a joint venture, (MW Direct), formed through a
partnership in 1991 between subsidiaries of Montgomery Ward and subsidiaries
of Fingerhut Companies, Inc. (Fingerhut), a Minneapolis, Minnesota specialty-
based catalog merchandiser. In June 1996, the subsidiaries of Fingerhut
withdrew from the partnership. Also in July 1996, Montgomery Ward and
ValueVision entered into an agreement whereby ValueVision acquired the assets
and assumed certain liabilities of MW Direct in exchange for ValueVision
warrants. This transaction was effected concurrently with the restructuring
of the marketing agreement between Montgomery Ward and ValueVision. Certain
of the warrants obtained in this transaction were contributed to Merchant
Partners, Limited Partnership (see below) and others were pledged to secure
performance of cable system advertising obligations. Montgomery Ward now
owns warrants to purchase up to 14.95% of ValueVision.
In the July 1996 restructuring, ValueVision's sales promotion rights were
expanded beyond the television home shopping arena to include the full use of
the Montgomery Ward and Lechmere service marks, and the right to market to
the 10 million-plus active credit card file for direct mail catalogs and
ancillary promotions.
In July, 1994, Montgomery Ward became a limited partner in Merchant
Partners, Limited Partnership (Merchant Partners). The purpose of this
partnership was to invest in new and emerging growth businesses and leveraged
buy-outs. Montgomery Ward made capital contributions of $17 million,
including ValueVision warrants, to Merchant Partners in 1996, $4 million in
1995 and $1 million in 1994. On December 31, 1996, Montgomery Ward entered
into an agreement under which Montgomery Ward assigned, transferred and set
over unto Merchant Advisors, Limited Partnership (the general partner of
Merchant Partners), Montgomery Ward's entire right,
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Item 1. Business
Corporate Expansion (continued)
Other Corporate Expansion (continued)
title and interest in and to its limited partnership interest, including
the entire balance in its capital and contributions accounts, in Merchant
Partners. The agreement eliminated Montgomery Ward's future obligations with
respect to its interest in Merchant Partners. See Note 20 to the Consolidated
Financial Statements regarding the 1995 distribution by Merchant Partners and
the financial impact of the assignment of Montgomery Ward's interest in
Merchant Partners to Merchant Advisors, Limited Partnership.
Performance Initiatives
Slow sales in fourth quarter 1995 and the shipment of foreign sourced
goods, the quantity of which could not be reduced, resulted in Montgomery
Ward entering 1996 with higher than desired inventory, particularly in
apparel. A broadening of merchandise assortments had also occurred,
primarily in the electronics and home office categories, which increased
the need for clearance markdowns. In addition, sales in 1996 were
impacted by fewer new proprietary credit accounts in the first part of
the year as a result of a decline in credit marketing in Fall 1995 and
early 1996.
In response to these conditions, the Company has decided to narrow its
merchandise assortments to focus on items which have higher margins. The
Company's new strategy is to concentrate on offerings at price points and
quality levels intended to appeal to consumers desiring higher quality
goods than those generally available from discounters, at prices generally
lower than those charged by department stores.
In 1996 and continuing in 1997, the Company undertook a program to
identify underperforming inventory including discontinued stock keeping
units (SKU's) that did not meet its strategic criteria and to liquidate
that inventory. Sales have been negatively impacted by competitive
conditions and the Company's decision to reduce and redeploy this
inventory in concert with its new strategic direction. 1996 was
negatively impacted by significant liquidation sales that resulted in
lower retail prices and the reduction of new merchandise receipts during
the transition period as the Company attempted to accelerate cash flow.
This heavily promoted, discounted inventory also impacted regular priced
inventory offerings. To make way for the new strategies in Hardlines
and Apparel, the Company is reducing certain lines of merchandise such
as exiting suit separates in Apparel and narrowing the number of types
of computers to be carried in Hardlines at Montgomery Ward. These
factors and intense competition, most specifically in electronics and
home office, resulted in the Company incurring a net loss for the year
of $237 million.
The Company believes the new merchandise assortment will have more
universal appeal among consumers, increase inventory turnover and raise
margin rates and that the emphasized merchandise categories will
competitively position the Company in the niche between discounters and
department stores. Narrower inventory assortments should also facilitate
inventory management, improve in-stock positions, increase marketing
productivity, lower distribution costs and increase cash flow.
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Item 1. Business
Performance Initiatives (continued)
In addition to actions initiated to reduce inventories in response to
slow industry-wide sales and identify opportunities to enhance inventory
turnover and sales and gross margin productivity, inventory programs to
lessen the time between ordering, receipt and sale of inventory have been
undertaken. For example, the use of foreign sourcing is being decreased
to shorten commitments and increase the speed at which the Company can
respond to volatile sales trends.
Direct Marketing
The Signature Group, headquartered in Schaumburg, Illinois, sells through
direct response marketing a wide array of insurance and continuity club
membership programs that provide consumer services. Specifically, the
Company provides consumers with credit insurance, supplemental life and
health insurance, Dining a la Card, credit card registration, auto clubs, and
dental and legal services plans. For two consecutive years, The Signature
Group has been ranked the number one service agency by Telemarketing
Magazine.
The Signature Group believes it has one of the broadest product offerings
among direct marketing companies. The Company is the second largest outbound
telemarketer in the country. Its legal and dental services programs are the
largest providers of such voluntary services in the United States. With The
Signature Group's recent acquisition of the Amoco Motor Club, the Company
operates the largest national automobile club in the United States. In
addition, with its acquisition of Credit Card Sentinel in 1995, The Signature
Group is the second largest provider of credit card registration in the
United States.
The Signature Group is a recognized leader in direct mail and telemarketing
techniques, including the development and use of sophisticated segmentation
scoring models, which the Company believes will help to optimize profits
from marketing investments. The Company mails more than 475 million
solicitations and makes more than 68 million calls annually. The Signature
Group's 32 telemarketing facilities (24 outbound, 2 inbound, and 6 retention
centers) are equipped with the latest technology, including proprietary
software to maximize calling efficiency.
The Signature Group has also developed a special expertise in managing
networks of independent contractors. The Company's auto, dental and legal
services plans and the dining customer rebate program all utilize such
networks to provide services to The Signature Group customers. These
networks, which have been developed over many years, would be very difficult
to replicate. Also, these networks are integral components of the products,
which ensure the delivery of quality service and improve the likelihood of
membership renewals. All core service elements are owned by The Signature
Group to ensure superiority in service delivery and implementation.
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Item 1. Business
Direct Marketing (continued)
The Signature Group has marketing rights to nearly 12.2 million active
Montgomery Ward and Lechmere credit card customers. The Signature Group also
markets on behalf of approximately 200 other clients, including some of the
nation's largest financial institutions, retailers, airlines, oil companies,
associations, unions and employer groups. The Signature Group's major
clients include: Citibank, Chemical Bank, American Express, The Limited,
Nordstrom, United Airlines, TWA, Mobil, Texaco, Amoco, AARP, Ameritech,
Nations Bank, Federated and Discover.
Over the last two years, The Signature Group has aggressively sought to
diversify its customer account base through new third party relationships and
business acquisitions. As of December 30, 1995, The Signature Group had a
total of 11.4 million members, 7.0 million (61%) of which were from
Montgomery Ward accounts. As of December 28, 1996, Signature had 15.6
million members, 7.2 million (46%) of which were from Montgomery Ward and
Lechmere accounts. The acquisition of the Amoco Motor Club in January 1996
added 2.1 million accounts. For 1996, Montgomery Ward and Lechmere accounts
comprised 48.4% of Signature's revenue.
See Note 21 to the Consolidated Financial Statements for restrictions on
dividends which may be paid by insurance subsidiaries of Signature.
Competition and Regulation
The sale of merchandise by Montgomery Ward and Lechmere is conducted under
highly competitive conditions. Buying and selling are each done in open
competitive markets. Montgomery Ward's stores are in competition with
specialty stores, department stores and other types of retail outlets in the
areas in which they operate. The Company believes that merchandise
assortments, brand names, competitive pricing and availability of services
such as credit, delivery, installation and repair, are the principal factors
which differentiate it from competitors. Competition in sales of Electronics
and Home Office products was particularly intense in 1996. The Company
believes that the 10% decline in net sales in 1996 reflected a decline in
market share compared to competitors.
Certain of Signature's operations are highly regulated and conducted under
highly competitive conditions. To date, Signature has been able to compete
effectively with other companies which offer programs similar to those
provided by Signature. Signature also competes with traditional methods of
marketing by unaffiliated dentists and lawyers. Insurance companies operate
pursuant to specific state statutes as well as rules and regulations and are
required to file reports with such agencies at least quarterly.
Telemarketing and direct mail solicitations are regulated at state and
federal levels, and management believes that these activities will
increasingly be subject to such regulation. Such regulation may limit
Signature's ability to solicit new members or to offer more products and
services to existing members and may materially adversely affect
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Item 1. Business
Competition and Regulation (continued)
Signature's business and revenues.
The requirements of environmental protection laws and regulations have not
had a material effect upon Montgomery Ward's operations. Compliance may, in
certain cases, lengthen the lead time of expansion plans and could increase
construction and operating costs.
Account Purchase Agreements
Credit is extended to Montgomery Ward customers under an open-ended
revolving credit plan and is an important element of generating sales,
especially in the big ticket businesses. Montgomery Ward's private label
credit card sales were 50.4% and 54.2% of total sales for 1996 and 1995,
respectively.
Bankcard sales were an additional 19.9% and 16.4% of total sales for 1996
and 1995, respectively.
Montgomery Ward entered into a Bank Credit Card Program Agreement (Card
Agreement) effective April 1, 1996 with Monogram Credit Card Bank of Georgia
(Monogram), and an Account-Related Agreement (Account Related Agreement)
effective April 1, 1996 with Montgomery Ward Credit Corporation (Montgomery
Ward Credit) (collectively referred to as the Agreements) pursuant to
which Monogram and Montgomery Ward Credit (collectively referred to as the
Montgomery Ward Credit Companies or MWCC), both of which are affiliates of
General Electric Capital Corporation (GE Capital), make payments to
Montgomery Ward as to their receivables generated by sales to customers of
Montgomery Ward, its affiliates and licensees who utilize the Montgomery Ward
private label credit card, and pursuant to which Agreements the Montgomery
Ward Credit Companies provide services to Montgomery Ward. Under the
Agreements, Monogram has the exclusive right to operate the Montgomery Ward
private label credit card system and the obligation to pay to Montgomery Ward
the face amount of Monogram's receivables generated by the Montgomery Ward
private label credit card system, up to $7 billion outstanding at any time.
If Montgomery Ward desires to receive payment for receivables generated by
the Montgomery Ward private label credit card system at any time when
Montgomery Ward Credit Companies own $7 billion or more of such receivables
and do not desire to finance additional receivables, alternative
arrangements, such as the sale of receivables to banks or other financial
institutions, would be required unless Monogram agrees to fund the
excess. As of December 28, 1996, there were $5.2 billion of Montgomery Ward
private label credit card receivables owned by Montgomery Ward Credit
Companies, and the average outstanding amount of such receivables owned by
Montgomery Ward Credit Companies during 1996 was $4.8 billion.
Pursuant to the Agreements, Monogram bears certain promotion expenses,
while Montgomery Ward retains certain specified in-store service
responsibilities with respect to credit operations. Decisions regarding
certain credit program matters are subject to the approval of a marketing
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Item 1. Business
Account Purchase Agreements (continued)
committee with representatives from each party. Under the Card Agreement,
Montgomery Ward is required to pay Monogram the excess interest costs on a
monthly basis if a blended interest rate applicable to funding costs with
respect to the receivables exceeds 10% per annum. This blended interest rate
has been less than 10% since 1988.
Effective April 1, 1996, Montgomery Ward generally bears the risk of credit
losses due to non-payment by cardholders to the extent of (i) the amount of
credit losses that are between 3.9% and 5.0% of average outstanding
receivables, plus (ii) 50% of credit losses that are between 5.0% and 8.0% of
average outstanding receivables, subject to offsets described below relating
to Montgomery Ward's share of certain incremental increases in finance
charges and late fees payable by cardholders. Montgomery Ward is also
responsible for losses on certain higher risk starter card accounts to the
extent the loss percentage as to those accounts exceeds the loss percentage
experience on the rest of the portfolio. Montgomery Ward's net unpaid
liability for credit losses for 1991 through 1997 will be payable to
Montgomery Ward Credit pursuant to a note (Continuation Note) due in early
2003, provided (i) the outstanding balance of such note cannot exceed $300
million, (ii) monthly principal payments are required as follows: 1997-$1.0
million, 1998-$1.417 million, 1999-$2.75 million, 2000-$1.25 million, 2001-
$417 thousand, and 2002-$417 thousand, and (iii) starter card losses are
payable currently. Interest on Montgomery Ward's unpaid liability for credit
losses is payable at a rate equal to rates on comparable borrowings of
Montgomery Ward. The Company does not expect its unpaid share of credit
losses for the period through 1997 net of its share of incremental finance
charges and late fee assessments to exceed the $300 million limitation.
In exchange for Montgomery Ward's agreement to allow Montgomery Ward Credit
to increase finance charge rates and late fees in selected states prior to
1996, Montgomery Ward receives a share of incremental finance charges and
late fees resulting from such increases. Such amount is available for offset
against Montgomery Ward's unpaid liability for its share of credit losses,
and to the extent not currently paid or offset earns interest at the same
rate as amounts owed by Montgomery Ward to Montgomery Ward Credit. Effective
April of 1996 Monogram implemented additional finance charge and late fee
increases in various states. The amount of these additional incremental
finance charges and late fees are calculated each year (Gross Designated
Incremental Revenue). Pursuant to the Account Related Agreement the Gross
Designated Incremental Revenue amount is made available to pay (i) certain
costs which may be incurred by Montgomery Ward and Montgomery Ward Credit
Companies relating to the implementation and continuation of the new finance
charges and late fees, including conversion costs, ongoing costs, loss by
Montgomery Ward of certain sales tax recoveries, and certain potential costs
that may arise in connection with legal proceedings, (ii) Montgomery Ward
Credit's and Montgomery Ward's respective allocated shares of credit losses
in excess of 3.9% of average
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Item 1. Business
Account Purchase Agreements (continued)
outstanding receivables, and (iii) Montgomery Ward's Continuation Note,
with 20% of any remaining portion of the Gross Designated Incremental Revenue
payable to Montgomery Ward. In the event that, due to the increase in
finance charge rates and late fees, refunds are required to be made;
Montgomery Ward and Montgomery Ward Credit have agreed to in certain cases
share the financial risk. Legislation has from time to time been introduced
in certain jurisdictions, which if enacted, may require rescinding all or a
portion of such increases, in which case Montgomery Ward's share of such
increases may be substantially reduced.
Credit losses have increased in 1996, primarily as a result of increased
personal bankruptcies and lack of payments by customers. As the
increased finance charge rate and late fees are added to the credit card
balances, this will cause the level of losses to increase. The higher
finance charges and late fees also decrease the credit available by the
credit card customer. The Company and Montgomery Ward Credit are jointly
working on programs to reduce this risk.
In connection with the foregoing arrangements, Montgomery Ward has executed
notes for its unpaid share of credit losses which totaled $333 million with
respect to credit losses through 1996. The incremental finance charges and
late fee assessments due to Montgomery Ward at the end of 1996 were $81
million for a net obligation of $252 million.
Monogram has the right of first refusal to implement certain new financing
programs proposed by Montgomery Ward.
The Agreements are scheduled to expire on December 31, 2011, provided the
terms shall continue thereafter from year to year unless either party gives
ten years prior notice of its election to terminate. Except upon the
occurrence of certain events of default, the Agreements may generally not be
terminated by either party prior to December 31, 2011. GE Capital has
guaranteed Montgomery Ward Credit Companies' obligations under the
Agreements.
Monogram makes payments in respect of Signature customer accounts receivable
pursuant to the Card Agreement. In 1996, Signature paid approximately
$6 million to Montgomery Ward Credit for administration services provided
by Montgomery Ward Credit in connection with Signature products.
In addition to the Agreements, Montgomery Ward's subsidiary, Lechmere
entered into an Interim Consumer Credit Card Program Agreement (Lechmere
Agreement) effective March 13, 1996 with Monogram pursuant to which Monogram
makes payments to Lechmere in the face amount of Monogram's receivables
generated by sales to customers of Lechmere who utilize the Lechmere private
label credit card system that is provided by Monogram pursuant to the
Lechmere Agreement. (The Lechmere Agreement provides that
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Item 1. Business
Account Purchase Agreements (continued)
it will terminate upon the earlier of March 31, 1997 or the execution of a
long-term agreement between the parties.) A term sheet was executed on March
7, 1997, outlining the major provisions that the parties intend to
incorporate in the long-term agreement. The term sheet contemplates a long-
term agreement for a fifteen year term which would continue thereafter from
year to year unless either party gives ten years prior notice of its election
to terminate. The term sheet further provides that Montgomery Ward will (i)
be responsible for 50% of credit losses that are between 4.25% and 8.0% of
average outstanding receivables, (ii) receive a one time payment of $3
million in consideration of entering into the agreement, (iii) be responsible
for a payment to Monogram of approximately $2.5 million representing 50% of
the reserve established when Monogram purchased the Lechmere portfolio from
the previous provider of the Lechmere private label credit card, and (iv)
receive 50% of the net income generated from the portfolio in excess of a
17.5% return.
Associates
At December 28, 1996, Montgomery Ward and its subsidiaries employed the
equivalent of 58,100 full-time associates. During certain seasons,
temporary associates are added and peak employment is approximately 80,200
associates during the Christmas season. Approximately 2,150 Montgomery Ward
and Lechmere associates are covered by various collective bargaining
agreements. The majority of the agreements expire in 1997. Montgomery Ward
has experienced no major labor-related interruption or curtailment of
operations during the last 15 years.
Change of Control
Effective January 6, 1997, Roger Goddu was appointed Chairman and Chief
Executive Officer of Montgomery Ward and Chief Executive Officer of the
Company. Coincident with the change, the Board of Directors of both
companies was reconfigured from 5 designees by Bernard F. Brennan, the former
CEO, and 5 designees by GE Capital, to 5 designees by GE Capital, 2 by Mr.
Goddu and 3 by Mr. Brennan. Board operating control changed from a simple
majority, with a two thirds super majority required for certain extraordinary
actions, to a requirement that 7 out of 10 members agree.
Mr. Goddu is in the process of assembling a new management team. Since
January 6, 1997, additions have included: (i) Mr. Burnett Donoho, Vice
Chairman and Chief Operating Officer, (ii) Mr. Thomas Grimes, President-
Hardlines and (iii) Mr. Karl Taylor, Senior Vice President-Strategic and
Merchandise Planning. Additional searches are underway for selected other
key managers to be part of the new team.
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Item 1. Business
Business Plan
Coincident with the change of control, Mr. Goddu and his management team
have begun a process to develop a new business strategy for Montgomery
Ward in response to its large losses and decreasing revenue. This plan
will form the basis for securing a new financing structure to support the
strategic actions intended to improve the retail results. It is
anticipated a plan will be presented to the Company's financial
institutions in the second quarter of 1997 and it is expected that
elements of the financing plan will be in place during the third quarter
of 1997. While the plan is not finalized, several critical elements have
been discussed with lenders to the Company. Key attributes of the plan
that are in process include (i) a new merchandising/marketing strategy,
(ii) a review of potential sales of non-core assets, (iii) rationalization
of poorer performing stores, (iv) expense reduction opportunities in
overhead and operations, (v) the determination of the value of selected
assets to raise cash through sale or collaterization and (vi) the
financial support (and its characterization) available from GE Capital.
Item 2. Properties
At December 28, 1996, the Company owned or leased 498 retail, distribution
and other operating facilities. The Company's properties are located
throughout the continental United States and cover approximately 60 million
square feet.
These properties are summarized as follows:
Number Approximate
of Total
Use Locations Square Feet
--- --------- -----------
Montgomery Ward Retail Stores:
Full Line............................... 341 44,130,000
Limited Line............................ 34 2,051,000
Lechmere Retail Stores..................... 27 2,344,000
HomeImage Stores........................... 6 445,000
Corporate Office Complex................... 1 2,975,000
Miscellaneous Operating Locations.......... 89 7,855,000
--------- -----------
Total Locations......................... 498 59,800,000
--------- -----------
--------- -----------
Owned and leased retail stores include approximately 29 million square feet
of selling space and 19 million square feet devoted to storage, office and
related uses. Miscellaneous operating locations include warehouses, office
buildings and distribution centers, but exclude vacant land parcels and
properties held for disposition. See Note 13 to the Consolidated Financial
Statements for information with respect to leased properties.
12
<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, which includes HomeImage, as of December 28,
1996 is indicated in the following table:
State Total
----- -----
Alabama 4
Arizona 11
Arkansas 5
California 56
Colorado 13
Connecticut 4
Florida 23
Georgia 3
Idaho 1
Illinois 32
Indiana 9
Iowa 6
Kansas 6
Kentucky 2
Louisiana 6
Maine 1
Maryland 16
Massachusetts 14
Michigan 17
Minnesota 10
Missouri 10
Montana 2
Nebraska 2
Nevada 3
New Hampshire 6
New Mexico 4
New York 19
North Carolina 4
North Dakota 1
Ohio 5
Oklahoma 5
Oregon 8
Pennsylvania 15
Rhode Island 1
South Carolina 5
Tennessee 2
Texas 45
Vermont 1
Virginia 17
Washington 3
West Virginia 5
Wisconsin 5
Wyoming 1
---
Total 408
---
---
13
<PAGE>
Item 3. Legal Proceedings
The Company and its subsidiaries are engaged in various litigation,
including purported class actions, and have a number of unresolved claims.
While the amounts claimed are substantial and the ultimate liability with
respect to such litigation and claims cannot be determined at this time,
management is of the opinion that such liability, to the extent not provided
for through insurance or otherwise, is not likely to have a material impact
on the financial condition or the results of operations of the Company.
In 1979, a suit entitled "United States v. Midwest Solvent Recovery, Inc.,
et.al." (Civil Action Number H-79-556) was initiated by the United States
Department of Justice on behalf of the Environmental Protection Agency in the
U.S. District Court for the Northern District of Indiana, and an Amended
Complaint was filed in January 1984. This suit is against Standard T
Chemical Company, Inc., a Delaware corporation and wholly-owned subsidiary of
Montgomery Ward (Standard T), which ceased operations in 1994 and is
currently an inactive entity, and others involving two waste disposal sites
and seeks reimbursement for the cost of surface clean-up, investigation
studies concerning possible contamination of the soil and ground water and
remedial action. In January 1990, the United States filed a second Amended
Complaint seeking inter alia, treble damages and monetary sanctions.
Standard T signed a consent decree, whereby it was obligated to provide a
financial assurance up to $3 million for remediation of the site. The Company
currently anticipates that its obligation will not exceed that amount.
In 1985, the New York Environmental Protection Agency brought an action for
remediation of a site in Staten Island, New York against the owner of the
property. The owner asserted that Standard T, among others, generated wastes
that were disposed of by a prior owner of the site. Standard T is in the
process of completing the cleanup of this site and has purchased the site
from the owner for $1.45 million.
In February 1986, Standard T, along with approximately 330 other companies,
was notified by the United States Environmental Protection Agency that the
agency was mandating a remediation of the contamination of the American
Chemical Services, Inc. (A.C.S.) site located in Griffith, Indiana, under
authority vested in it by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980. Standard T and a Montgomery Ward
paint factory were each identified as a Potentially Responsible Party (PRP),
under the terms of the Act, because of their alleged status as generators of
hazardous waste ultimately disposed of at the A.C.S. site. The Company will
pay its proportionate share of the costs of the studies, and may ultimately
pay a share of the costs of abating the contamination of the A.C.S. site.
One estimate by the EPA of future costs of abating contamination at the
A.C.S. site is $69 million with the Company alleged to be responsible for
2 to 2 1/2% of total costs. However, these costs cannot be estimated with
any degree of accuracy at this time. Thus, the Company is currently not
in a position to estimate the range or amount of potential exposure in
this matter with a high degree of certainty.
14
<PAGE>
Item 3. Legal Proceedings (continued)
Standard T and Montgomery Ward are also involved at various stages with
several other sites where Standard T and Montgomery Ward have been notified
or sued as a PRP. The potential liability related to these sites cannot be
estimated at this time.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names and ages of the executive officers of the Company as
of March 28, 1997, and the positions each has held during the past five years:
Roger V. Goddu, 46, has been Chairman & Chief Executive Officer and a
director of the Company and Chief Executive Officer of Montgomery Ward
since January 6, 1997. Prior thereto, he was with Toys "R" Us where from
1996 until 1997, he was President-U.S. Merchandising, and 1989 to 1995, he
was Executive Vice President/General Merchandise Manager. Prior thereto,
Mr. Goddu was with Target Stores, a division of Dayton Hudson, from 1980
through 1989 where he held various positions of increasing responsibility,
including Senior Vice President and General Merchandise Manager of
Hardlines, Men's and Boy's.
Burnett W. Donoho, 57, has been Vice Chairman & Chief Operating Officer and
a director of the Company and Chief Operating Officer of Montgomery Ward
since February 3, 1997. Prior thereto, he managed his own retail consulting
firm during 1996. Mr. Donoho was Chief Operating Officer of The Broadway
Stores from July 1995 through January 1996. Prior thereto, he was Vice
Chairman, Chief Operating Officer for Macy's East from July 1992 through
December 1994. Mr. Donoho held several consulting assignments during 1990,
including six months with the Chicago Public School system. Prior to his
consulting assignments, Mr. Donoho was President and Chief Operating Officer
at Marshall Field's from March 1984 through June 1990. Mr. Donoho is a member
of the Board of Directors of Office Max, Inc. and GTech Corporation.
Spencer H. Heine, 54, has been an Executive Vice President, Secretary and
General Counsel of the Company since September 30, 1991 and a director from
May 15, 1992 through January 6, 1997. He is currently serving as interim
Chief Executive Officer of Signature. Mr. Heine was Senior Vice President,
Secretary and General Counsel of the Company from June 17, 1988 through
September 29, 1991. Mr. Heine has been Executive Vice President, Secretary
and General Counsel of Montgomery Ward and President - Montgomery Ward
Properties since April 12, 1994. Prior thereto, Mr. Heine served as
Executive Vice President, Legal and Financial Services of Montgomery Ward
from September 30, 1991 through April 11, 1994. He served as Senior Vice
President - Legal and Real Estate from March 28, 1990 through September 29,
1991. Mr. Heine was Chairman and Chief Executive Officer of Signature from
15
<PAGE>
Executive Officers of the Registrant (continued)
March 8, 1993 through April 11, 1994. Prior thereto, he also served as
President of Signature since September 30, 1991. Mr. Heine is a member of
the Board of Directors of First Union Real Estate Investment, a real estate
investment trust located in Cleveland, Ohio.
Michael M. Searles, 47, has been President - Softlines of Montgomery Ward
since February 23, 1997. Prior thereto, he was President - Merchandising
from November 1996 through February 1997. Mr. Searles was Executive Vice
President Apparel & Gold 'N Gems from May 1996 through November 1996. Prior
thereto, he was President and CEO of Women's Specialty Retail Group (Casual
Corner, Petite Sophisticate and August Max) from April 1993 through July
1995. Prior to joining Women's Specialty Retail Group, Mr. Searles was
President of Kids "R" Us from May 1984 through April 1993.
Thomas G. Grimes, 59, has been President - Hardlines of Montgomery Ward and
Chief Executive Officer - Lechmere and a director of the Company since
February 23, 1997. Prior thereto, he was Managing Director of Trimingham
Bros. Ltd. from January 1996 through February 1997. Prior to joining
Trimingham Bros. Ltd., Mr. Grimes was Chairman and Chief Executive Officer of
the John Breuner Company, a division of Batus Inc., since 1986. Prior
thereto, he was Chairman and Chief Executive Officer of Gimbels Midwest from
July 1978 through September 1986 and Senior Vice President and General
Merchandise manager of Gimbels New York from January 1976 through April 1978.
Mr. Grimes began his 34 years in retailing at Federated Department Stores
where he held positions of increasing responsibility up to Vice President
General Merchandise Manager until January 1976.
Alan E. DiGangi, 49, has been Executive Vice President, Electric Ave. and
Auto Express of Montgomery Ward since November 1996. Prior thereto, he was
Executive Vice President Marketing of Montgomery Ward from March 1996 through
November 1996. Mr. DiGangi has been Executive Vice President, Electric Ave.,
Rooms & More/Soft Home of Montgomery Ward since January 5, 1996. Prior
thereto, he was Executive Vice President, Electric Ave. & More from April,
1995 to January, 1996. Mr. DiGangi joined Montgomery Ward in April, 1970 and
has held various positions within Store Management, Field Operations,
Marketing and Sales Promotion.
John L. Workman, 45, has been Executive Vice President, Chief Financial
Officer and Assistant Secretary of the Company since January 28, 1994 and a
director from May 12, 1995 through January 6, 1997. Prior thereto, he served
as Senior Vice President, Chief Financial Officer and Assistant Secretary
from August 31, 1992 through January 27, 1994 and Vice President and
Assistant Secretary from May 15, 1992 through August 30, 1992. Mr. Workman
has been Executive Vice President and Chief Financial Officer of Montgomery
Ward since January 28, 1994 and served as Senior Vice President and Chief
Financial Officer from August 31, 1992 to January 27, 1994. Prior thereto,
he served as Vice President and Corporate Controller from January 16, 1991
through August 30, 1992 and Corporate Controller from August 2, 1988 through
January 15, 1991. Mr. Workman is a member of the
16
<PAGE>
Executive Officers of the Registrant (continued)
Board of Directors of ValueVision International, Inc., Minneapolis,
Minnesota. Mr. Workman has announced his intention to resign from the
Company. While his departure date has not been determined, it is likely not
to be before the third quarter of 1997.
Robert A. Kasenter, 50, has been an Executive Vice President of the Company
since February 21, 1992. Prior thereto, he was a Senior Vice President of
the Company from June 17, 1988 through February 20, 1992. Mr. Kasenter has
served as Executive Vice President, Human Resources and Corporate
Communications of Montgomery Ward since January 27, 1992 and was Senior Vice
President - Human Resources and Customer Satisfaction from June 23, 1988 to
January 26, 1992.
Carol J. Harms, 43, has been Vice President and Treasurer of the Company
since January 1, 1989 and Senior Vice President of Finance for Montgomery
Ward since February 5, 1996. Prior thereto, she was Vice President and
Treasurer of Montgomery Ward from May 1, 1988 to February 4, 1996.
17
<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
(Stockholders' Agreement), or the Terms and Conditions (Terms and Conditions)
imposed under the Montgomery Ward & Co., Incorporated Stock Ownership Plan
(Stock Ownership Plan). It is not expected that a market will develop in the
near term.
Transfers of shares of Class A Common Stock are restricted for a period of
three years from certain applicable dates under the Stockholders' Agreement
and the Terms and Conditions. Transfers of Class A shares purchased other
than pursuant to the Stock Ownership Plan are restricted for a period of
three years from the holder's first acquisition of any such shares, while
transfers of shares received under the Stock Ownership Plan are restricted
for a period of three years after the award of such shares, exercise of
purchase rights for such shares or grant of options with respect to such
shares, as applicable. After the applicable three-year periods, limited
transfers of such shares which have become vested in accordance with the
Stockholders' Agreement or the Terms and Conditions, as applicable, are
permitted, subject to certain rights of first refusal. All of the Class B
shares and virtually all of the outstanding Class A shares are eligible for
transfer.
Montgomery Ward declared $12 million and paid $9 million in preferred stock
dividends to the Company in 1996, which declared $12 million and paid $9
million preferred stock dividends in 1996. Montgomery Ward declared and paid
preferred stock dividends of $4 million to the Company in 1995, which
declared and paid preferred stock dividends of $4 million in 1995. For
information concerning limitations on the amount of dividends which
Montgomery Ward may pay, see Note 12 to the Consolidated Financial
Statements. Future payments of dividends, if any, are dependent upon future
levels of earnings and capitalization.
As of March 20, 1997, there were three holders of record of Class A Common
Stock, Series 1, one such holder of Class A, Common Stock, Series 2, and one
such holder of Class B Common Stock. No shares of Class A Common Stock,
Series 3, were outstanding as of that date. As of March 20, 1997, there were
91 holders of record of Voting Trust Certificates representing beneficial
ownership in shares of Class A Common Stock, Series 1, of which 438,655
shares are pledged as collateral for notes issued to effect the repurchase of
shares. The Company does not have the capacity under its borrowing
agreements to satisfy the payments for these notes. If this situation is not
cured within one year after a note payment is missed the noteholder can
foreclose on the pledge of shares repurchased. See Note 15 to the
Consolidated Financial Statements. There were 194 holders of record of
Voting Trust Certificates representing beneficial ownership in shares of
Class A Common Stock, Series 2.
18
<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 28, 1996 has been derived from the
Consolidated Financial Statements of MW Holding. Such information for each
fiscal year should be read in conjunction with the Consolidated Financial
Statements and notes thereto and the report of independent public accountants
beginning on page 29.
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts)
----------------------------------------------------------------------
As Of And For the...
----------------------------------------------------------------------
53-Week 52-Week
Period Period
Ended Ended
Jan. 2 Jan. 1, Dec. 31, Dec. 30, Dec. 28,
1993 1994 1994 1995 1996
------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Revenues $5,803 $6,023 $7,029 $7,085 $6,620
Net Income (Loss) (a) 100 101 109 (9) (237)
Net Income (Loss)
Applicable to
Common Share-
holders (a) 92 101 107 (13) (249)
Net Income (Loss)
per Class A
Common Share (a) 2.01 2.29 2.48 (.31) (6.18)
Total Assets 3,485 3,835 4,537 4,884 4,879
Long-Term Debt 125 213 228 423 87
Obligations Under
Capital Leases 95 89 81 66 60
Total Share-
holders' Equity (a) 553 607 679 700 433
Redeemable
Preferred Stock - - 75 175 175
Cash Dividends
per Common
Share .25 .50 .50 - -
</TABLE>
a) 1994 amounts are presented before the cumulative effect of a change in
accounting principle, see Note 6 in the Notes to the Consolidated
Financial Statements.
19
<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 1996 to 1995, as well as 1995 to 1994. Montgomery Ward is
on a 52- or 53- week fiscal year basis, with 1996, 1995 and 1994 each being
52-week years. All dollar amounts are in millions, and all income and
expense items and gains and losses are shown before income taxes, unless
specifically stated otherwise.
The Company's retail business is seasonal, with more than 32% of the 1996
sales occurring in the fourth quarter.
Results of Operations: 1996 Compared with 1995
Management's identification of slow-moving inventory resulted in inventory
liquidation efforts which negatively impacted 1996 results. From
September through December, the Company accelerated efforts to reduce and
redeploy inventory to allow for a shift in focus to items the Company
believes will provide higher inventory turnover and improved merchandise
assortments in the future. As of the beginning of fourth quarter 1996,
over $300 in inventory was identified in items which would not be
re-ordered and which was competitively disadvantaging the Company.
Aggressive markdowns and promotional advertising to liquidate this
inventory were initiated in the fourth quarter of 1996 and will continue
in the future.
While these actions have an adverse earnings impact, they are generating
positive cash flows. At December 28, 1996, the remaining amount of this
inventory was $130 before any additional markdowns. In December, the
Company provided $54 for the loss on liquidation of this remaining inventory
and also identified $55 of other inventory that would be sold at a
loss and provided $19 for the loss on liquidation for this inventory
as well. The Company believes that the liquidation of this inventory
should position it with balanced inventory assortments to execute its
strategic plan in future periods. However, the Company anticipates that
the trends resulting from competitive pressures underlying declining
revenues and margin rates will continue in fiscal 1997.
The Company's performance reflected the impact of the change in inventory
assortment and difficult competitive conditions discussed above with the
consolidated net loss increasing $228 from the prior year's net loss of
$9. The consolidated net loss applicable to common shareholders for 1996
was $249 versus $13 last year.
Consolidated total revenues (net sales and direct response marketing
revenues, including insurance) were $6,620 compared with $7,085 in 1995,
decreasing by $465 or 6%. The $465 total revenue decrease consisted of a
$652 decrease in net sales and a $187 increase in direct
marketing revenues. The change in total net sales represented a 10%
decline. Specifically, Apparel sales declined 10%, Jewelry sales declined
11%, Home and Furniture sales declined 9%, Electronics declined 10%,
Appliances declined 8% and Automotive sales declined 6%. Sales on a
comparable store basis, which reflect only the
20
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations: 1996 Compared with 1995 (continued)
stores in operation for both 1996 and 1995, decreased 11%. The Company
believes that the decline in net sales in 1996 reflected a decline in
market share compared to competitors. The increase in direct response
marketing revenues was primarily due to increased clubs' membership driven
by the acquisition of the Amoco Motor Club business and increased
insurance policy holder levels.
Gross margin (net sales less cost of goods sold) dollars were $1,010, a
decrease of $310, or 23%, from 1995. This decrease was due to the gross
margin impact of the decreased sales of $163, a decrease in the margin rate
on sales of $142, and increased occupancy costs of $7 related to increased
depreciation on capital investments in new and existing stores, partially
offset by decreased buying and other expenses of $3. The liquidation of slow
moving and discontinued inventory and the continued competitive pressures
also had a significant impact on margin rates.
Operating, selling, general and administrative expenses increased $209, or
12%, from the prior year. The increase includes the impact of new store
openings of $16, increased provision for bad debt expense under the
Account Purchase Agreements of $21, increased advertising and other
promotional costs of $74, increased amortization of direct response and
insurance acquisition cost of $61 and increased operating and
administrative expenses of $11, and decreased income generated from the
sale of product service contracts of $10 (See Note 10 to the Consolidated
Financial Statements). 1995 included a provision for severance costs and
relocation of certain administrative functions of both Montgomery Ward and
Lechmere of $25.
Net interest expense increased $20, or 22%, from the prior year. The
increase is due to increased borrowings resulting from a combination of
higher average working capital levels and reduced cash flow resulting from
slower than anticipated sales, partially offset by reduced capital
expenditures for new and existing stores.
Income tax benefit was $138 for 1996 as compared to an income tax benefit
of $14 for 1995. See Note 9 to the Consolidated Financial Statements.
Results of Operations: 1995 Compared with 1994
Increasingly difficult industry conditions further challenged retailers'
ability to provide profitable, value-driven products, appropriate assortment
and maintain disciplined inventories. The Company's performance reflected
this with a consolidated net loss of $(9) compared to the prior year's net
income of $109. Consolidated net income applicable to common shareholders
for 1995 was $(13). Net income for 1995 includes the first quarter loss from
operations of Lechmere. Lechmere was acquired on March 30, 1994, therefore,
1994 results exclude Lechmere's first quarter 1994 results. Given the
seasonality of Lechmere's business, it has historically experienced losses in
the first quarter of the year.
21
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations: 1995 Compared with 1994 (continued)
Consolidated total revenues (net sales and direct response marketing
revenues, including insurance) were $7,085 compared with $7,029 in 1994,
increasing by $56 or 1%. The $56 total revenue increase consisted of a
$33 decrease in net sales and an $89 increase in direct marketing
revenues. The change in total net sales represented a 1% decline,
however, excluding Lechmere's first quarter 1995 impact of $192, as
described above, net sales decreased $225, or 3%. Apparel and domestics
sales declined 6% and included the negative impact of exiting the sale of
paint supplies. Hardlines sales decreased by 2%. Sales on a comparable
store basis, which reflect only the stores in operation for both 1995 and
1994, decreased 5%. The increase in direct response marketing revenues
was primarily due to increased clubs' membership and insurance
policyholder levels.
Gross margin (net sales less cost of goods sold) dollars, including
Lechmere, were $1,320, a decrease of $137, or 9%, from 1994. This decrease
was due to the gross margin impact of the decreased sales of $10, a decrease
in the margin rate on sales of $99, and increased occupancy costs of $29
related to increased depreciation on capital investments in new and existing
stores, partially offset by decreased buying and other expenses of $20. The
1995 gross margin rate reflects the gross margin results for Lechmere for
twelve months while the 1994 rate reflects Lechmere's results for only nine
months. While Lechmere added to gross margin dollars, its emphasis in
appliances and electronics, which tend to have lower gross margin rates,
contributed to the decrease in the 1995 gross margin rate. Continued
competitive pressures also had an impact on margin rates, and Montgomery
Ward's margin trends were consistent with overall industry results.
Operating, selling, general and administrative expenses increased $107, or
6%, from the prior year. Excluding Lechmere's 1995 first quarter impact,
operating, selling, general and administrative expenses increased by $73, or
4%. The increase includes the impact of new store openings of $39, a
provision for severance costs and relocation of certain administrative
functions of both Montgomery Ward and Lechmere of $25, increased provision
for bad debt expense under the Account Purchase Agreement of $21, increased
advertising and other promotional costs of $17 and increased operating and
administrative expenses of $8, partially offset by increased income generated
from the sale of product service contracts of $37 (See Note 10 to the
Consolidated Financial Statements).
Net interest expense increased $33, or 57% from the prior year. The
increase is due to increased borrowings resulting from a combination of costs
associated with the acquisition of, and added investment in, Lechmere, higher
average working capital levels from slower than anticipated sales and capital
expenditures for new and existing stores, as well as increased interest rates
in 1995.
22
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations: 1995 Compared with 1994 (continued)
Income tax benefit was $14 for 1995 as compared to income tax expense of $56
for 1994. See Note 9 to the Consolidated Financial Statements.
Discussion of Financial Condition
Montgomery Ward is the only subsidiary of MW Holding and, therefore,
Montgomery Ward and its subsidiaries are MW Holding's sole source of funds.
Net cash used in the Company's operating activities totaled $356 for 1996
compared to $182 for 1995. Historically, net cash provided by operating
activities was the Company's primary source of liquidity and capital. The
sharply worsened results of operations over the last two fiscal years have
significantly weakened the Company's financial condition and reduced its
liquidity.
The Company has obtained waivers under the Long Term Credit Agreement
(Long Term Agreement) and the Short Term Credit Agreement (Short Term
Agreement) with respect to compliance for the fiscal quarter ending March
29, 1997 with covenants requiring maintenance of minimum consolidated
shareholders' equity, a minimum ratio of debt to capitalization and
minimum earnings before interest, taxes, depreciation, amortization and
rent (EBITDAR). These waivers and amendments also reduce the maximum
amount of debt permitted to be incurred by Signature and the maturity of
the Long Term Agreement was changed from February 28, 1998 to August 29,
1997. Similar amendments to corresponding covenants in the Company's two
Purchase and Master Lease Agreements were made.
The Long Term Credit Agreement and the Short Term Credit Agreement were
amended on December 23, 1996, to substitute for the three quarters ended June
28, 1997, the EBITDAR test for an earnings to fixed charges test, to add a
limitation on capital expenditures and require prepayments if proceeds of
certain asset dispositions are received, and to amend the minimum debt to
equity ratio required to permit payment of preferred stock dividends. In
connection with these amendments the Company paid fees totaling $3, the rates
of interest under both agreements were increased in three stages, at the date
of the agreement and effective at the end of the first and second quarters of
1997, the commitment fee was increased by .375% of the unused commitment and
the maturity of the Long Term Agreement was changed to February 15, 1998 from
September 6, 2000. These amendments also limited the amount of debt which
can be incurred by Signature. Similar amendments to the corresponding
covenants in the Company's two Purchase and Master Lease Agreements were made
(including shortening the lease expiration dates to August 29, 1997) and the
rents thereunder were increased.
The minimum debt to capitalization ratio in the Long Term Credit Agreement
and Short Term Credit Agreement was also amended September 6, 1996, when a
23
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Discussion of Financial Condition (continued)
minimum ratio of earnings to fixed charges was added. A similar amendment
was made to the two Purchase and Master Lease Agreements.
The Company entered into an amendment and waiver agreement with holders of
the notes issued under the 1993 and 1995 Note Purchase Agreements, which
includes a waiver through June 27, 1997 of compliance with the minimum
shareholders' equity test, added restrictions on the disposition of assets
and the incurrence of debt and funded debt, requires a mandatory pro rata
prepayment in the event of any prepayment of any loans or termination of
bank commitments under the Long Term and Short Term Agreements and
shortened the maturity dates of all Notes to August 29, 1997. In
connection therewith the noteholders received fees totaling $1 and
interest rates on the Notes were increased in two stages.
Montgomery Ward also entered into a Credit Agreement (Seasonal Credit
Agreement) dated as of October 4, 1996 with various lenders, including GE
Capital. The Seasonal Credit Agreement expires August 29, 1997 and
provides a revolving loan facility in the principal amount of $165. A
waiver corresponding to those most recently obtained as to the Long Term
and Short Term Agreements has been obtained by the Company. The purpose
of this facility is to provide back-up liquidity as the Company reduces
its inventory levels. Unless the lenders otherwise agree, loans may be
made under this facility only after the commitments under the Short Term
Agreement and the Long Term Agreement are fully used. Under the Seasonal
Credit Agreement, Montgomery Ward may select among several interest rate
options which are based on market rates. A commitment fee is payable
based upon the unused commitment. At December 28, 1996, no amount was
outstanding.
It will likely be necessary for the Company to obtain amendments or waivers
with respect to the remaining quarters of fiscal 1997 and thereafter under
the loan and financing agreements discussed above.
The Company intends to improve its financial condition and reduce its
dependence on borrowing by slowing expansion, controlling expenses, closing
certain unprofitable stores and continuing to implement its inventory
reduction program. Management is in the process of reevaluating the
Company's merchandising, marketing, store operations and real estate
strategies. The Company is also considering the sale of certain operating
units as a means of generating cash. Future cash is also expected to
continue to be provided by ongoing operations, receipt of payment for credit
sales under the Agreements with Montgomery Ward Credit Companies, borrowings
under revolving loan facilities and vendor financing programs.
The Company is currently in discussions with financing sources with a view
toward a longer term solution to its liquidity problems and obtaining
refinancing for all or a substantial portion of its outstanding indebtedness,
including a total of $1,008, which will mature on
24
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Discussion of Financial Condition (continued)
or about August 29, 1997. This would include repayment of the current
bank borrowings and amounts outstanding under the Note Purchase
Agreements. The Company's management is highly confident that the
indebtedness can be refinanced. Its largest shareholder, GE Capital, also
expects the Company to be able to refinance such indebtedness. However,
there can be no assurance that such refinancing can be obtained or that
amendments or waivers required to maintain compliance with the previous
agreements can be obtained.
The loan agreements discussed above all limit dividends which Montgomery
Ward may pay with respect to its stock and advances which it may make to
the Company. Under these limitations Montgomery Ward currently may only
make dividends, distributions or advances to Montgomery Ward Holding to
fund the payment of business and corporate expenses up to $2 per year.
Because Montgomery Ward Holding's sole source of funds is Montgomery
Ward, it does not currently expect to have sufficient funds to make
payments otherwise due on the outstanding notes issued to repurchase
shares of its common stock. Holders of those notes are not permitted to
accelerate the indebtedness thereunder or bring suit to collect it for one
year from the date of a missed payment. The Company does not anticipate that
it will be able to repurchase any shares of its common stock, under the
Stockholders' Agreement or otherwise, during the foreseeable future.
As a result of the inventory reduction program and better management of
receipts of inventory, inventory decreased by $225 from 1995. This was
offset by a decrease in trade accounts payable of $222 and an increase in
Direct response and insurance acquisition costs of $294. As a result of
reduced cash flows and inventory, the Company had a working capital
deficit at the end of fiscal 1996.
Net cash used in the Company's investing activities totaled $148 in 1996,
compared to $109 for 1995. Uses in 1996 included $100 for the acquisition of
Amoco Enterprises.
Net cash provided by financing activities totaled $499 for 1996, compared to
$295 for 1995.
The Long Term Agreement provides a revolving facility in the principal
amount of $603. As of December 28, 1996, $170 was outstanding under the Long
Term Agreement.
On September 6, 1996, the Short Term Agreement, which was extended to
August 29, 1997 from March 29, 1997, was further amended to increase the
principal amount of this revolving loan facility from $297 to $436. On
October 24, 1996, this facility was further increased from $436 to $456.
As Of December 28, 1996, $456 was outstanding under the Short Term
Agreement.
25
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Discussion of Financial Condition (continued)
In 1996, Montgomery Ward has facilities under vendor financing programs
(which are reflected in Trade Accounts Payable) which totaled $450. At
December 28, 1996, these facilities were principally all drawn. There was
an increase in the facility of $150 in the first quarter of 1997.
On December 28, 1996, Montgomery Ward had outstanding $20 under the short
term uncommitted lines of credit.
Montgomery Ward has entered into interest rate exchange and cap agreements
with various banks to offset the market risk associated with an increase in
interest rates under both the Long Term and Short Term Agreement. The
aggregate notional principal amounts under the interest rate exchange
agreement is $175 in 1996 and 1997 and $75 in 1998 and 1999. Under the terms
of the interest rate exchange agreements, Montgomery Ward pays the banks a
weighted average fixed rate of 7.4% in 1996 and 1997 and 7.6% in 1998 and
1999, in each case multiplied by the notional principal amount and, in each
case, will receive the one-month daily average London Interbank Offered
(LIBO) rate multiplied by the notional principal amount.
The average aggregate notional principal amount under the various cap
agreements is $158 in 1996 and $113 in 1997. Under the terms of the cap
agreements, Montgomery Ward receives payments from the banks when the one-
month daily average LIBO rate exceeds the 6.0% cap strike rate in 1996 and
7.0% cap strike rate in 1997. Such payments will equal the amount determined
by multiplying the notional principal amount by the excess of the percentage
rate, if any, of the one-month daily average LIBO rate over the cap strike
rate.
The interest rate exchange and cap agreements increased the effective
borrowing rate under the Agreements by .76% for 1996. Montgomery Ward is
exposed to credit risk in the event of nonperformance by the other parties to
the interest rate exchange and cap agreements; however, Montgomery Ward
anticipates full performance by the counterparties.
Signature Financial/Marketing, Inc. (Signature), a wholly owned subsidiary
of Montgomery Ward, borrowed $102 under a Credit Agreement (Signature Credit
Agreement) dated as of September 27, 1996 as amended and restated October 21,
1996 and amended December 23, 1996 between Signature and various lenders.
The proceeds were used to repay the inter-company loan from Montgomery Ward
to Signature arising from Signature's acquisition of the Amoco Motor Club.
The Signature Credit Agreement expires on August 29, 1997.
On October 24, 1996, Montgomery Ward prepaid a $25 term loan which had been
outstanding under the Term Loan Agreement dated September 29, 1995.
26
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Discussion of Financial Condition (continued)
Capital expenditures during 1996 of $75 were primarily related to
expenditures for the opening of two full-line Montgomery Ward stores, 5
HomeImage stores and 1 Lechmere store converted to a HomeImage store and
implementing conversion strategies in conventional retail stores and various
merchandise fixture and presentation programs. Capital expenditures for 1995
were $122. The decrease in capital expenditures from the prior year was due
to a reduction in new stores of $16, major remodels and conversions of $19,
and corporate and store capital programs of $12.
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Total Capital Expenditures............ $ 75 $122 $184
------ ------ ------
------ ------ ------
Capital appropriations authorized
during the year...................... $ 86 $152 $247
------ ------ ------
------ ------ ------
Cancellations of prior year's
appropriations....................... $(34) $(75) $(25)
------ ------ ------
------ ------ ------
Unexpended capital appropriations
at year-end.......................... $113 $136 $181
------ ------ ------
------ ------ ------
</TABLE>
Montgomery Ward and Lechmere are not contractually committed to spend all
of the capital appropriations unexpended at December 28, 1996, but generally
expect to do so. Until the Company's financial condition is improved, it is
anticipated that annual capital expenditures will be at or below the 1996
level.
27
<PAGE>
Item 8. Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.............. 29
Consolidated Balance Sheet at December 28, 1996 and
December 30, 1995................................... 32
For the 52-Week Periods Ended December 28, 1996,
December 30, 1995 and December 31, 1994
Consolidated Statement of Income.................. 30
Consolidated Statement of Shareholders' Equity.... 33
Consolidated Statement of Cash Flows.............. 36
Notes to Consolidated Financial Statements............. 38
</TABLE>
28
<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 28, 1996
and December 30, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for the fiscal years ended December 28,
1996, December 30, 1995 and December 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Montgomery Ward
Holding Corp. and Subsidiary as of December 28, 1996 and December 30, 1995 and
the results of their operations and their cash flows for the fiscal years ended
December 28, 1996, December 30, 1995 and December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 6 to the Consolidated Financial Statements, Montgomery Ward
Holding Corp. and Subsidiary have given retroactive effect to the change in
accounting for merchandise inventories.
Arthur Andersen LLP
Chicago, Illinois
March 27, 1997
29
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF INCOME
(Millions of dollars)
52-Week Period Ended
-----------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Revenues
Net Sales, including leased and licensed
department sales........................... $5,879 $6,531 $6,564
Direct response marketing revenues,
including insurance ....................... 741 554 465
-------- --------- --------
Total Revenues........................... 6,620 7,085 7,029
-------- --------- --------
Costs and Expenses
Cost of goods sold, including net
occupancy and buying expense............... 4,869 5,211 5,107
Operating, selling, general and adminis-
trative expenses, including benefits
and losses of direct response operations
(Note 17).................................. 2,015 1,806 1,699
Interest expense, net (Note 18)............. 111 91 58
-------- --------- --------
Total Costs and Expenses.................. 6,995 7,108 6,864
-------- --------- --------
Income (Loss) Before Income Taxes............ (375) (23) 165
Income Tax (Benefit) Expense (Note 9)........ (138) (14) 56
-------- --------- --------
Net Income (Loss) Before Cumulative Effect
of Change in Accounting Principle .......... (237) (9) 109
Cumulative Effect of Change in Accounting
Principle (Note 6)......................... - - 28
-------- --------- --------
Net Income (Loss)............................ (237) (9) 137
Preferred Stock
Dividend Requirements (Note 14)............. 12 4 2
-------- --------- --------
Net Income (Loss )Applicable to
Common Shareholders......................... $ (249) $ (13) $ 135
-------- --------- --------
-------- --------- --------
</TABLE>
See notes to consolidated financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF INCOME (Continued)
(Millions of dollars, except per share amounts)
52-Week Period Ended
-----------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net Income (Loss) per Class A Common
Share before cumulative effect of
change in accounting principle (Note 6)...... $(6.18) $ (.31) $2.48
-------- --------- --------
Cumulative effect of change in accounting
principle (Note 6)........................... - - .67
-------- --------- --------
Net Income (Loss) per Class A Common
Share (Note 15).............................. $(6.18) $ (.31) $3.15
-------- --------- --------
-------- --------- --------
Net Income (Loss) per Class B Common
Share before cumulative impact of
change in accounting principle (Note 6)...... $(5.25) $ (.28) $2.13
Cumulative effect of change in
accounting principle (Note 6)................ - - .57
-------- --------- --------
Net Income (Loss) per Class B
Common Share (Note 15)....................... $(5.25) $ (.28) $2.70
-------- --------- --------
-------- --------- --------
Cash Dividends declared per Common Share
Class A...................................... $ - $ - $ .50
Class B...................................... $ - $ - $ .50
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED BALANCE SHEET
(Millions of dollars)
ASSETS
Dec. 28, Dec. 30,
1996 1995
-------- --------
Cash and cash equivalents................................. $ 32 $ 37
Short-term investments.................................... 3 1
Investments of insurance operations (Note 4).............. 317 345
------ ------
Total Cash and Investments........................... 352 383
Trade and other accounts receivable....................... 213 166
Accounts and notes receivable from affiliates (Note 5).... 13 22
------ ------
Total Receivables.................................... 226 188
Merchandise inventories (Note 6).......................... 1,545 1,770
Prepaid pension cost ..................................... 351 335
Properties, plants and equipment, net of accumulated
depreciation and amortization (Note 8).................. 1,308 1,366
Direct response and insurance acquisition costs........... 603 395
Other assets.............................................. 494 447
------ ------
Total Assets......................................... $4,879 $4,884
------ ------
------ ------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt (Note 12)................................. $1,028 $ 160
Trade accounts payable.................................... 1,585 1,804
Federal income taxes payable (Note 9)..................... 4 6
Accrued liabilities and other obligations
(Notes 3, 5, 7, 10 and 15).............................. 1,228 1,195
Insurance policy claim reserves (Note 11)................. 227 236
Long-term debt (Note 12).................................. 87 423
Obligations under capital leases (Note 13)................ 60 66
Deferred income taxes (Note 9)............................ 52 119
------ ------
Total Liabilities.................................... 4,271 4,009
Commitments and Contingent Liabilities (Notes 12 and 19)
Redeemable Preferred Stock (Note 14)...................... 175 175
Shareholders' Equity
Common stock (Note 15).................................. 1 1
Capital in excess of par value.......................... 53 45
Retained earnings....................................... 509 758
Unrealized gain on marketable equity securities......... 9 10
Less: Treasury stock, at cost.......................... (139) (114)
------ ------
Total Shareholders' Equity........................... 433 700
------ ------
Total Liabilities and Shareholders' Equity................ $4,879 $4,884
------ ------
------ ------
See notes to consolidated financial statements.
32
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Millions of dollars, except per share amounts)
(No. of Shares
in Thousands)
Class Class
A B Capital
Common Common in
Stock Stock Excess Treasury Total
$.01 $.01 of Unre- Stock, Share-
Par Par Par Retained alized at holders'
Value Value Value Earnings Gains Cost Equity
------- ------ ------ -------- ------ -------- --------
Balance,
Jan. 1, 1994, 19,610 25,000 $19 $658 $16 $(73) $620
Cumulative
effect of
change in
accounting
principle - - - 28 - - 28
------- ------ ------ -------- ------ -------- --------
Balance,
Jan. 1, 1994,
as restated 19,610 25,000 19 686 16 (73) 648
Net income
before
cumulative
effect of
change in
accounting
principle - - - 109 - - 109
Cash dividends
paid - - - (24) - - (24)
Tax benefit of
stock option
exercises - - 1 - - - 1
Change in un-
realized gain
on marketable
securities - - - - (14) - (14)
Shares re-
purchased as
Treasury stock (629) - - - - (16) (16)
Shares issued
upon exercise
of options 297 - 3 - - - 3
Shares issued
upon exercise
of conversion
rights 2 - - - - - -
------- ------ ------ -------- ------ -------- --------
Balance
Dec. 31, 1994
as restated 19,280 25,000 $23 $771 $ 2 $(89) $707
See notes to consolidated financial statements.
33
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued)
(Millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
(No. of Shares
in Thousands)
Class Class
A B Capital
Common Common in
Stock Stock Excess Treasury Total
$.01 $.01 of Unre- Stock, Share-
Par Par Common Par Retained alized at holders'
Value Value Stock Value Earnings Gains Cost Equity
------- ------ ------ ------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
Jan. 1, 1995
as restated 19,280 25,000 $ - $23 $771 $ 2 $(89) $707
Net (loss) - - - - (9) - - (9)
Cash dividends
paid - - - - (4) - - (4)
Compensation
expense on stock
option grants/
repurchases - - - 5 - - - 5
Changes in un-
realized gain
on marketable
securities - - - - - 8 - 8
Shares repur-
chased as
Treasury stock (1,052) - - - - - (25) (25)
Shares issued
upon exercise
of options 980 - 1 17 - - - 18
Shares issued
upon exercise
of conversion
rights 2 - - - - - - -
------- ------ ------ ------- -------- ------ -------- --------
Balance,
Dec. 30, 1995
as restated 19,210 25,000 $ 1 $45 $758 $10 $(114) $700
------- ------ ------ ------- -------- ------ -------- --------
------- ------ ------ ------- -------- ------ -------- --------
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued)
(Millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
(No. of Shares
in Thousands)
Class Class
A B Capital
Common Common in
Stock Stock Excess Treasury Total
$.01 $.01 of Unre- Stock, Share-
Par Par Common Par Retained alized at holders'
Value Value Stock Value Earnings Gains Cost Equity
--------- -------- -------- -------- ----------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
Dec. 31, 1995
as restated 19,210 25,000 $1 $45 $758 $10 $(114) $700
Net (loss) - - - (237) - - (237)
Cash dividends
declared and
paid - - - - (9) - - (9)
Cash dividends
declared - - - - (3) - - (3)
Compensation
expense on stock
option exercises
and other share
exchanges - - - 5 - - - 5
Change in
unrealized gain
on marketable
securities - - - - - (1) - (1)
Shares re-
purchased as
Treasury stock (1,233) - - - - (25) (25)
Shares issued
upon exercise
of options 352 - 3 - - - 3
Shares issued
upon exercise
of conversion
rights 2 - - - - - -
--------- -------- -------- -------- ----------- --------- ------------ ----------
Balance
Dec. 28, 1996 18,331 25,000 $1 $53 $509 $ 9 $(139) $433
--------- -------- -------- -------- ----------- --------- ------------ ----------
--------- -------- -------- -------- ----------- --------- ------------ ----------
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
<TABLE>
<CAPTION>
52-Week Period Ended
--------------------------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) before cumulative effect
of change in accounting principle.......... $(237) $ (9) $ 109
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization............. 122 115 109
Amortization of goodwill.................. 8 4 -
Amortization of direct response
and insurance acquisition cost........... 209 148 121
Deferred income taxes..................... (110) (20) 23
Gain on sale of assets.................... (5) (11) (1)
Gain on stock distribution................ - (16) -
Compensation expense on stock option
grants/repurchases...................... 5 4 1
Changes in operating assets and liabilities,
net of businesses acquired:
(Increase) decrease in:
Trade and other accounts receivable....... (32) (54) (38)
Accounts and notes receivable from
affiliates............................... 9 (16) (2)
Merchandise inventories................... 225 (112) (229)
Prepaid pension cost...................... (16) (11) (15)
Direct response insurance
acquisition costs....................... (291) (220) (149)
Other assets.............................. 34 (5) (22)
Increase (decrease) in:
Trade accounts payable.................... (222) 85 291
Federal income taxes payable, net......... (2) (9) 5
Accrued liabilities and other
obligations.............................. (44) (55) (41)
Insurance policy claim reserves........... (9) - (1)
Deferred income taxes..................... - - (8)
-------- -------- --------
Net cash (used in) provided by
operations.............................. (356) (182) 153
-------- -------- --------
Cash flows from investing activities:
Investment in ValueVision.................... - (8) -
Investment in Merchant Partners.............. (9) (4) (1)
Acquisition of Amoco Enterprises
Net of Cash and Cash Equivalents............ (100) - -
Investment in Scrip Plus (Signature)......... (2) - -
Investment in Emanacom (Signature)........... (1) - -
Acquisition of Lechmere, net of cash
acquired.................................... - - (109)
Acquisition of Smilesaver, net of cash
acquired.................................... - - (11)
Purchase of short-term investments........... (2) (60) (231)
Purchase of investments of insurance
operations.................................. (756) (791) (691)
Sale of short-term investments............... - 62 247
Sale of investments of insurance
operations.................................. 778 775 671
Disposition of properties, plants
and equipment, net.......................... 19 39 8
Capital expenditures......................... (75) (122) (184)
-------- -------- --------
Net cash used in investing
activities.............................. $(148) $(109) $(301)
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
<TABLE>
<CAPTION>
52-Week Period Ended
--------------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1996
--------- ----------- ----------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of short-term
debt, net.................................... $588 $ 16 $144
Proceeds from issuance of long-term
debt......................................... - 205 168
Payments of Montgomery Ward long-term
debt......................................... (56) (10) (179)
Payments of Lechmere long-term debt........... - - (88)
Payments of obligations under capital
leases....................................... (7) (7) (8)
Proceeds from issuance of common stock........ 3 18 3
Proceeds from issuance of preferred stock..... - 175 75
Payments to redeem preferred stock............ - (75) -
Cash dividends paid........................... (9) (4) (24)
Purchase of treasury stock, at cost........... (20) (23) (9)
Tax benefit of stock options exercised
and other share exchanges.................... - - 1
---------- ---------- ----------
Net cash provided by financing
activities................................. 499 295 83
---------- ---------- ----------
Increase (Decrease) in cash and cash
equivalents................................... (5) 4 (65)
Cash and cash equivalents at beginning
of period..................................... 37 33 98
---------- ---------- ----------
Cash and cash equivalents at end of period..... $ 32 $ 37 $33
---------- ---------- ----------
---------- ---------- ----------
See notes to consolidated financial statements.
</TABLE>
37
<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 21 for information regarding
these segments.
Principles of Consolidation; Use of Estimates
The consolidated financial statements include the Company and all
subsidiaries. Investments in 20 percent to 50 percent owned affiliates
where significant influence exists are accounted for on the equity method.
All significant intercompany accounts and transactions are eliminated in
consolidation. Certain prior period amounts have been reclassified to be
comparable with the current period presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fiscal Year
The Company operates on a 52- or 53- week fiscal year basis. The Company's
fiscal year ends on the Saturday closest to December 31. The fiscal years
ended December 28, 1996, December 30, 1995 and December 31, 1994 included
52 weeks.
38
<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:
<TABLE>
<CAPTION>
52-Week
Period Ended
-------------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Cash paid (refunded) for:
Income taxes.............................. $(22) $ 24 $ 33
Interest.................................. $119 $ 82 $ 56
Non-cash financing activities:
Notes issued for purchase of
Treasury stock........................... $ 5 $ 2 $ 7
Non-cash investing activities:
Changes in unrealized gain on
marketable securities................... $ (1) $ 8 $(14)
Like-kind exchange of assets.............. $ - $ - $ 5
Gain on Stock distribution................ $ - $ 16 $ -
</TABLE>
Investments of Insurance Operations
The Company accounts for investments under Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments In
Debt and Equity Securities". Under SFAS No. 115, all debt and equity
securities are classified by management as "available-for-sale" and are
stated at fair market value with all changes in unrealized gains or losses
included in Shareholders' Equity.
39
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
1. Major Accounting Policies (continued)
Merchandise Inventories
The Company has valued inventory at the lower of the cost or market using
the retail inventory method, first-in, first-out (FIFO) method. In 1996,
the Company changed its cost flow assumptions for accounting for
inventories from the retail inventory last-in, first-out (LIFO) method to
the current method. Refer to Note 6 which explains the Company's change in
method for inventory valuation.
Properties, plants and equipment
Depreciation is computed on a straight-line basis over the estimated useful
lives of the properties, with annual rates ranging between 2% and 3% for
buildings and between 12% and 25% for fixtures and equipment. Leasehold
improvements and assets under capital leases are amortized on a
straight-line basis over no longer than the primary term of the lease.
Upon retirement or disposition, the cost and the related depreciation or
amortization are removed from the accounts, with the gains or losses
included in income.
Interest relating to construction in progress is capitalized and amortized
over the useful life of the property. Pre-operating expenditures which are
not capital in nature are charged against income in the year the store is
opened. Normal maintenance and repairs are expensed as incurred. Major
repairs that materially extend the lives of properties are capitalized, and
the assets replaced, if any, are retired.
Accounting for Long-Lived Assets
In fiscal 1996, the Company implemented SFAS No. 121, "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR THE LONG-LIVED ASSETS TO BE
DISPOSED OF." This standard prescribes the method for asset impairment
evaluation for long-lived assets and certain identifiable intangibles that
are either held and used or to be disposed of. The implementation of this
standard did not have an effect on the Company's financial position or
results of operations for the 52-week period ended December 28, 1996.
Direct Response Marketing Revenues
Life and accident and health insurance premiums, which are recognized as
revenue when due from policyholders, are associated with related benefits
and expenses to result in the recognition of profit over the terms of the
policies. Property-liability insurance premiums and club membership dues
are deferred and earned on a pro-rata basis over the terms of the policies
40
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
1. Major Accounting Policies (continued)
Direct Response Marketing Revenues (continued)
and memberships. Unearned premiums and club memberships of $119 and $61
at December 28, 1996 and December 30, 1995, respectively, are included in
accrued liabilities and other obligations.
Interest Rate Exchange and Cap Agreements
Amounts paid or received pursuant to interest rate exchange and cap
agreements are deferred and amortized as interest expense or income over
the remaining life of the applicable agreement.
Direct Response and Insurance Acquisition Costs
Costs of acquiring new club memberships and insurance business (primarily
marketing expenditures) are deferred when considered recoverable. Such
costs are amortized in proportion to the anticipated revenue to be
recognized from club memberships (over a period not to exceed 10 years) and
from insurance policies (over the life of the policy). The time period
over which deferred policy and membership acquisition costs are being
amortized and the recoverability of such costs could differ from estimates
due to changing market conditions. Amortization periods of deferred policy
and membership acquisition costs are continually reviewed for potential
impairment and, as adjustments become necessary, they are reflected in
current operations. Value of business in force represents costs allocated
to the insurance and club memberships acquired and is being amortized in
proportion to the anticipated revenue to be recognized from club
memberships and from insurance policies. The initial amortization periods
range from 5 to 20 years.
Amounts included amortization of these:
<TABLE>
<CAPTION>
52-Week Period Ended
--------------------
Dec. 28, Dec. 30,
1996 1995
--------- ---------
<S> <C> <C>
Deferred Acquisition Costs................... $180 $136
Present Value of Future Profits.............. 29 13
Intangible (Goodwill, Licenses, etc.)........ 5 2
--------- ---------
Total................................... $214 $151
--------- ---------
--------- ---------
</TABLE>
41
<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 benefit and related deferred
federal income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes."
2. Liquidity
The Company had a net loss of $237 in 1996 and its short term debt
increased by $868 at the end of 1996. An amendment to its bank
agreements was required at year end 1996. Due to the Company's
worsening financial condition, waivers were required and obtained for
the first quarter of 1997. It will likely be necessary for the Company
to obtain amendments or waivers with respect to the remaining quarters
of fiscal 1997 and thereafter under its loan and financing agreements.
The Company intends to improve its financial condition and reduce its
dependence on borrowing by slowing expansion, controlling expenses,
closing certain unprofitable stores and continuing to implement its
inventory reduction program. Management is in the process of
reevaluating the Company's merchandising, marketing, store operations
and real estate strategies. The Company is also considering the sale of
certain operating units as means of generating cash. Future cash is also
expected to continue to be provided by ongoing operations, sale of
receivables under the Account Purchase Agreements with Monogram Bank/GE
Capital and Montgomery Ward Credit, borrowings under revolving loan
facilities and vendor financing programs.
The Company is currently in discussions with financing sources with a
view toward a longer term solution to its liquidity problems and
obtaining refinancing for all or a substantial portion of its
outstanding indebtedness, including a total of $1,008, which will mature
on or about August 29, 1997. This would include repayment of the
current bank borrowings and amounts under the Note Purchase Agreements.
The Company's management is highly confident that the indebtedness can
be refinanced. Its largest shareholder, GE Capital, also expects the
Company to be able to refinance such indebtedness. However, there can
be no assurance that such refinancing can be obtained or if obtained
will be on terms favorable to the Company or that amendments or waivers
required to maintain compliance with the previous agreements can be
obtained.
42
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
3. Significant Acquisitions
Acquisition of Amoco Enterprises, Inc.
On December 31, 1995, Montgomery Ward acquired all of the outstanding
capital stock of Amoco Enterprises, Inc. (Enterprises), operator of the
Amoco Motor Club and a wholly-owned subsidiary of Amoco Oil Holding
Company. The purchase price was $100. The acquisition was financed
through the use of the majority of the proceeds generated from the
issuance of the Montgomery Ward Holding Corp. Senior Preferred Stock.
On January 2, 1996, Montgomery Ward's wholly-owned subsidiary,
Signature, purchased Enterprises from Montgomery Ward for $100, net of
cash and cash equivalents.
The allocation of the purchase price is summarized as follows:
Cash and cash equivalents............................$ 63
Present value of future profits...................... 126
Goodwill............................................. 67
Other assets......................................... 22
Trade accounts payable............................... (3)
Accrued liabilities and other obligations............ (67)
Deferred income taxes................................ (45)
-------
$163
-------
-------
Acquisition of Lechmere, Inc.
Montgomery Ward acquired in a merger transaction all the stock of LMR
Acquisition Corporation, which owned 100% of the stock of Lechmere, on
March 30, 1994. The aggregate purchase price was $113. The closing
price included a $10 promissory note (the Note) of Montgomery Ward,
which bears interest at a rate of 4.87% per annum. The Note balance was
$3 at December 28, 1996 and is included in Accrued liabilities and other
obligations. The balance is payable three years after the date of the
Note. The Note is secured by a standby letter of credit. As part of
the closing, Montgomery Ward advanced approximately $88 and assumed $3 in
obligations to enable Lechmere to retire its outstanding bank debt and
subordinated debt. The acquisition was accounted for as a purchase.
The purchase price has been allocated to Lechmere's net assets based upon
results of asset valuations and liability and contingency assessments.
43
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
3. Significant Acquisitions (continued)
Acquisition of Lechmere, Inc. (continued)
The allocation of the purchase price is summarized as follows:
Inventory........................................ $140
Properties, Plants & Equipment................... 54
Goodwill......................................... 124
Other Assets..................................... 50
Due to Montgomery Ward........................... (88)
Accounts Payable and Other Liabilities........... (167)
------
$113
------
------
44
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
4. Investments of Insurance Operations
Following is a summary of investments of insurance operations other
than related party investments. The market values for marketable
debt and equity securities are based on quoted market prices.
December 28, 1996
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Type of Investment Cost Gains Losses Value
------------------ --------- ---------- ---------- ------
Fixed maturities
Bonds:
United States
Government and
government agencies
and authorities............. $ 52 $ - $ - $ 52
Public utilities.............. 60 5 - 65
All other corporate
bonds........................ 9 1 - 10
Mortgage-backed
securities................... 108 2 (1) 109
---- ---- ---- ----
Total fixed
maturities................. 229 8 (1) 236
---- ---- ---- ----
Equity securities:
Common stock.................. 17 4 - 21
---- ---- ---- ----
Policy loans................... 7 - - 7
Limited Partnership............ 2 - - 2
Short-term
investments................... 51 - - 51
---- ---- ---- ----
Total
Investments................ $306 $12 $(1) $317
---- ---- ---- ----
---- ---- ---- ----
45
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
4. Investments of Insurance Operations (continued)
December 30, 1995
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Type of Investment Cost Gains Losses Value
------------------ --------- ---------- ---------- ------
Fixed maturities
Bonds:
United States
Government and
government agencies
and authorities...............$ 54 $ 1 $ - $ 55
Public utilities................ 70 8 - 78
All other corporate
bonds.......................... 19 2 - 21
Mortgage-backed
securities...................... 133 3 (1) 135
---- ---- ---- ----
Total fixed
maturities.................... 276 14 (1) 289
---- ---- ---- ----
Equity securities:
Common stock.................... 13 4 - 17
---- ---- ---- ----
Policy loans..................... 7 - - 7
Short-term
investments..................... 32 - - 32
---- ---- ---- ----
Total
Investments...................$328 $18 $(1) $345
---- ---- ---- ----
---- ---- ---- ----
46
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
4. Investments of Insurance Operations (continued)
Proceeds from sales of investments in debt securities during 1996 and 1995
were $26 and $13, respectively. Gross unrealized gains on equity
securities were $5 and gross unrealized losses were $0.5. During 1996,
proceeds from sales of equity securities were $9. Gross gains of $4 were
realized on those sales. At December 30, 1995, gross unrealized gains were
$4. During 1995, proceeds from sales of equity securities were $9. Gross
gains of $5 were realized on those sales.
The contractual maturities as of December 28, 1996 are as follows:
Amortized Market
Cost Value
--------- -----
Due in 1996.................................. $ 29 $ 29
Due in 1997 through 2001..................... 77 83
Due in 2002 through 2006..................... 12 12
Due in 2007 and beyond....................... 3 3
Mortgage-backed securities................... 108 109
--------- -----
$229 $236
--------- -----
--------- -----
Consolidated realized gains on sales of investments before income tax
and changes in unrealized gains (losses) after income tax on fixed
maturities, mortgage loans and equity securities are as follows:
Fixed
Maturities
and
Mortgage Equity
Loans Securities
---------- ----------
52-Week Period Ended December 28, 1996
Realized...................................... $ - $ 4
Unrealized.................................... $(4) $ -
52-Week Period Ended December 30, 1995
Realized...................................... $ 1 $ 5
Unrealized.................................... $10 $(1)
52-Week Period Ended December 31, 1994
Realized...................................... $ - $ -
Unrealized.................................... $(2) $ -
5. Accounts and Notes Receivable from Affiliates
Montgomery Ward entered into a Bank Credit Card Program Agreement (Card
Agreement) effective April 1, 1996 with Monogram Credit Card Bank of
Georgia (Monogram), and an Account-Related Agreement (Account Related
Agreement) effective April 1, 1996 with Montgomery Ward Credit Corporation
(Montgomery Ward Credit) (collectively referred to as the Agreements)
pursuant to which Monogram and Montgomery Ward Credit (collectively referred
to as the Montgomery Ward Credit Companies or
47
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
5. Accounts and Notes Receivable from Affiliates (continued)
MWCC) both of which are affiliates of General Electric Capital Corporation,
make payments to Montgomery Ward as to their receivables generated by sales
to customers of Montgomery Ward, its affiliates and licensees who utilize
the Montgomery Ward private label credit card, and pursuant to which
Agreements the Montgomery Ward Credit Companies provide services to
Montgomery Ward.
Under the Agreements, Monogram has the exclusive right to operate the
Montgomery Ward private label credit card system and the obligation to pay
to Montgomery Ward the face amount of Monogram's receivables generated by
the Montgomery Ward private label credit card system, up to $7,000
outstanding at any time. Sales of receivables to Montgomery Ward Credit
under the prior arrangements, and payments in respect of receivables under
the current Agreements, were $3,591, $3,938 and $4,092 for 1996, 1995 and
1994, respectively. At December 28, 1996 and December 30, 1995, there were
$5,248 and $5,348, respectively, of Montgomery Ward credit card receivables
owned by Monogram. Amounts receivable from Monogram in connection with such
receivables are included in accounts and notes receivable from affiliates.
Montgomery Ward is exposed to both market risk and credit risk under the
Agreements. Under the Agreements, Montgomery Ward is required to pay
Monogram the excess interest costs on a monthly basis if a blended interest
rate applicable to funding costs with respect to the receivables exceeds 10%
per annum. Since 1988, the blended interest rate has been less than 10%.
Should Montgomery Ward Credit Companies, or their guarantor General
Electric Capital Corporation, fail to perform their obligations under the
Agreements, Montgomery Ward would suffer an accounting loss up to the amount
of Montgomery Ward's share of finance charges and late fees (as described
below), (net of applicable reserves carried by Montgomery Ward Credit).
Montgomery Ward estimates that any accounting loss would be immaterial at
December 28, 1996. Montgomery Ward Credit Company's obligations under the
Agreements are not collateralized.
Effective April 1, 1996, Montgomery Ward generally bears the risk of credit
losses due to non-payment by cardholders to the extent of (i) the amount of
credit losses that are between 3.9% and 5.0% of average outstanding
receivables, plus (ii) 50% of credit losses that are between 5.0% and 8.0%
of average outstanding receivables, subject to offsets relating to
Montgomery Ward's share of certain incremental increases in finance charges
and late fees payable by cardholders. Montgomery Ward is also responsible
for losses on certain higher risk starter card accounts to the extent the
loss percentage as to those accounts exceeds the loss
48
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
5. Accounts and Notes Receivable from Affiliates (continued)
percentage experience on the rest of the portfolio. Montgomery Ward's net
unpaid liability for credit losses for 1991 through 1997 will be payable to
Montgomery Ward Credit pursuant to a note (Continuation
Note) due in early 2003, provided (i) the outstanding balance of such note
cannot exceed $300, (ii) monthly principal payments are required as follows:
1997-$1.0, 1998-$1.417, 1999-$2.75, 2000-$1.25, 2001-$.417, 2002-$.417 and
(iii) starter card losses are payable currently. Interest on Montgomery
Ward's unpaid liability for credit losses is payable at a rate equal to
rates on comparable borrowings of Montgomery Ward.
In exchange for Montgomery Ward's agreement to allow MWCC to increase
finance charge rates and late fees in selected states prior to 1996,
Montgomery Ward receives a share of incremental finance charges and late
fees resulting from such increases. Such amount is available for offset
against Montgomery Ward's unpaid liability for its share of credit losses,
and to the extent not currently paid or offset earns interest at the same
rate as amounts owned by Montgomery Ward to Montgomery Ward Credit.
Effective April of 1996, MWCC implemented additional finance charge and late
fee increases in various states. The amount of these additional incremental
finance charges and late fees are calculated each year (Gross Designated
Incremental Revenue). Pursuant to the Account Related Agreement the Gross
Designated Incremental Revenue amount is made available to pay (i) certain
costs which may be incurred by Montgomery Ward and MWCC relating to the
implementation and continuation of the new finance charges and late fees,
including conversion costs, ongoing costs, loss by Montgomery Ward of
certain sales tax deductions, and certain potential costs that may arise in
connection with legal proceedings, (ii) MWCC and Montgomery Ward's
respective allocated shares of credit losses in excess of 3.9% of average
outstanding receivables, and (iii) Montgomery Ward's Continuation Note, with
20% of any remaining portion of the Gross Designated Incremental Revenue
payable to Montgomery Ward. In the event that, due to the increase in
finance charge rates and late fees, refunds are required to be made,
Montgomery Ward and MWCC have agreed to in certain cases share the financial
risk. Legislation has from time to time been introduced in certain
jurisdictions, which if enacted, may require rescinding all or a portion of
such increases, in which case Montgomery Ward's share of such increases may
be substantially reduced. Credit losses have increased in 1996 primarily as
a result of personal bankruptcies and increased contractual delinquencies.
As the increased finance charge rate and late fees are added to the credit
card balance, this will cause the level of losses to increase. The higher
finance charges and late fees also decreases the credit available to the
credit card customer.
49
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
5. Accounts and Notes Receivable from Affiliates (continued)
Montgomery Ward has executed notes for its unpaid share of credit losses
which totaled $333 with respect to credit losses through 1996. The
incremental finance charges and late fee assessments earned by Montgomery
Ward at the end of 1996 were $81 for a net obligation of $252.
These amounts are included in Accrued liabilities and other
obligations at December 28, 1996. The Company does not expect its unpaid
share of credit losses, net of incremental finance charges and late fee
assessments, for the period through 1997 to exceed the $300 limitation.
The Agreements are scheduled to expire on December 31, 2011, provided the
terms shall continue thereafter from year to year unless either party gives
ten years prior notice of its election to terminate.
In addition to the Agreements, Montgomery Ward's subsidiary, Lechmere, Inc.
(Lechmere), entered into an Interim Consumer Credit Card Program Agreement
(Lechmere Agreement) effective March 13, 1996 with Monogram pursuant to
which Monogram makes payments to Lechmere in the face amount of Monogram's
receivables generated by sales to customers of Lechmere who utilize the
Lechmere private label credit card system that is provided by Monogram
pursuant to the Lechmere Agreement. The Lechmere Agreement provides that it
will terminate upon the earlier of March 31, 1997 or the execution of a
long-term agreement between the parties. A term sheet was executed on March
7, 1997 outlining the major provisions that the parties intend to
incorporate in the long-term agreement. The term sheet contemplates a long-
term agreement for a 15 year term which would continue thereafter from year
to year unless either party gives ten years prior notice of its election to
terminate. The term sheet further provides that Montgomery Ward will (i) be
responsible for 50% of credit losses that are between 4.25% and 8.0% of
average outstanding receivables, (ii) receive a one time payment of $3 in
consideration of entering into the agreement, (iii) be responsible for a
payment to Monogram of approximately $2.5 representing 50% of the loss
reserve established when Monogram purchased the Lechmere portfolio from the
previous provider of the Lechmere private label credit card and (iv) receive
50% of the net income generated from the portfolio in excess of a 17.5%
return.
6. Merchandise Inventories
The Company has historically valued inventory at the lower of the cost or
market using the retail inventory method. As of December 28, 1996, the
Company changed its cost flow assumptions for accounting for inventories
from the last-in, first-out (LIFO) method to the first-in, first-out
(FIFO) method. Under the current environment of low inflation, the
Company believes that the FIFO method better measures the current value
of such inventories and provides for a more appropriate matching of
current costs and current revenues consistent with the Company's
merchandising strategy. The Company has also applied to the
50
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
6. Merchandise Inventories (continued)
Internal Revenue Service to change to the FIFO method of inventory
valuation for income tax reporting purposes. This change has been applied
by retroactively restating the consolidated financial statements. The
cumulative effect of the change, increasing shareholders' equity by $28
million (reported as an adjustment to retained earnings as of January 1,
1994), represents the reversal of the LIFO inventory valuation and
recognition of the FIFO inventory valuation.
Restatement of operating results due to the change increased net income by
$22 in 1996, decreased net income by $20 in 1995 and
decreased net income by $9 in 1994 (exclusive of the cumulative
effect). The aggregate effect of the change was to increase shareholders'
equity by $22, as of December 28, 1996.
7. Retirement Plans
Retirement plans of a contributory nature cover a majority of full-time
associates of Montgomery Ward and its subsidiaries. Retirement benefits are
provided through a defined benefit pension plan as well as through a savings
and profit sharing plan. Montgomery Ward and its subsidiaries contribute to
the defined benefit pension plan to cover any excess of defined minimum
benefits over the benefits available.
The components of the net pension credit were as follows:
52-Week Period Ended
----------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
-------- -------- --------
Service cost-benefits earned
during the period......................... $(12) $ (10) $ (13)
Interest cost on projected
benefit obligation........................ (48) (51) (46)
Actual return on assets.................... 112 185 4
Deferral of unanticipated
investment performance.................... (34) (110) 72
Amortization of unrecognized
prior service cost........................ 1 - -
Amortization of unrecognized net loss...... (6) (3) (2)
-------- -------- --------
Net pension credit......................... $ 13 $ 11 $ 15
-------- -------- --------
-------- -------- --------
Assumptions:
Discount rate............................. 7.7% 8.5% 7.5%
Increase in future compensation........... 6.0% 6.0% 6.0%
Rate of return on plan assets............. 9.5% 9.5% 9.5%
51
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
7. Retirement Plans (continued)
The funded status of the defined benefit pension plan was as follows:
Dec. 28, Dec. 30,
1996 1995
-------- --------
Actuarial present value of accumulated
benefit obligation:
Vested........................................ $(655) $(660)
Nonvested..................................... (2) (3)
-------- --------
Accumulated benefit obligation.................. (657) (663)
Additional amounts related to projected
increases in compensation levels............... (19) (16)
-------- --------
Projected benefit obligation.................... (676) (679)
Plan assets at fair value, primarily in
equity and fixed income securities............. 946 898
-------- --------
Plan assets in excess of projected
benefit obligation............................. $ 270 $ 219
-------- --------
-------- --------
Unrecognized net loss since initial
application of FAS 87......................... $ 72 $ 118
Unrecognized prior service cost since
initial application of FAS 87................. 7 $ (2)
-------- --------
Prepaid pension cost........................... $ 349 $ 335
-------- --------
-------- --------
The projected benefit obligation was determined using an assumed discount
rate of 7.7% at December 28, 1996 and 8.5% at December 30, 1995 and an
assumed rate of increase in future compensation levels of 6% for 1996 and
1995. Excess unrecognized net gains and losses and prior service costs are
amortized over the average future service period.
The savings and profit sharing plan includes a voluntary savings feature
for eligible associates and matching company contributions based on a fixed
percentage of certain associates' contributions. The company matching
expense was $6 for each of 1996, 1995 and 1994.
As of December 28, 1996, the retirement plan and the savings and profit
sharing plan (master trust) has a $4 investment in the common stock
of General Electric Corp.
52
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
7. Retirement Plans (continued)
Substantially all associates who retired on or before December 28, 1996,
and had participated in the retirement plan for ten years and who were
members of the health care plan for the year prior to retirement are
eligible for certain post-retirement health care and life insurance
benefits, the cost of which is shared with the retirees. Associates who
retire as of January 1, 1996 are no longer eligible for post-retirement life
insurance benefits. In 1992, the Company established a limit on its future
annual contributions on behalf of retirees at a maximum of 125% of the
projected 1992 company contributions.
The Company accounts for postretirement benefits under the provisions of
SFAS No. 106, "Employers Accounting for Postretirement Benefits other than
Pensions.
The components of the net periodic postretirement benefit cost were as
follows:
52-Week
Period Ended
-----------------------
1996 1995 1994
------ ------ ------
Service cost............................... $ 1 $ 2 $ 2
Interest cost on accumulated post- 10 11
retirement benefit obligation............. 9
Curtailment gain on life insurance
benefit termination....................... - (3) -
Amortization of prior service cost......... (1) - -
Net periodic post-retirement ------ ------ ------
benefit cost.............................. $ 9 $ 9 $13
------ ------ ------
------ ------ ------
The status of the Company's liability for postretirement benefits at
December 28, 1996 and December 30, 1995, which are included in Accrued
liabilities and other obligations is as follows:
1996 1995
----- -----
Accumulated post-retirement obligation:
Retirees........................................... $ 82 $ 90
Fully eligible active associates................... 16 17
Other active associates............................ 22 22
----- -----
Total accumulated post-retirement
benefit obligation................................ 120 129
Unrecognized prior service cost.................... 15 15
Unrecognized net gain (loss)....................... 5 (4)
----- -----
Accumulated post-retirement benefit
obligation........................................ $ 140 $ 140
----- -----
----- -----
53
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
7. Retirement Plans (continued)
The weighted average discount rate used in measuring the accumulated
postretirement benefit obligation was 7.7% at December 28, 1996 and 7.5% at
December 30, 1995. The assumed health care cost trend rate and the impact
of a 1% increase in the medical trend rate on the accumulated postretirement
benefit obligation, service cost and interest cost are not applicable due to
caps established on current cost levels.
The Company continues to evaluate ways in which it can better manage
retiree benefits and control costs. Any changes in the plan or revisions to
assumptions that affect the amount of expected future benefits may have a
significant effect on the amount of the reported obligation and annual
expense.
8. Properties, Plants and Equipment
The details of the properties, plants and equipment accounts are shown
below at cost:
Dec. 28, Dec. 30,
1996 1995
--------- ---------
Land............................................ $ 193 $ 201
Buildings....................................... 886 867
Leasehold improvements.......................... 353 355
Fixtures and equipment.......................... 585 534
Assets under capital leases..................... 96 101
Less accumulated depreciation and
amortization................................... (805) (692)
--------- ---------
Properties, Plants and Equipment, net........... $1,308 $1,366
--------- ---------
--------- ---------
Gains or (losses) on the sale of properties were $5, $11 and $1 for 1996,
1995 and 1994, respectively. Accumulated amortization on capital lease
assets was $53 and $50 for 1996 and 1995, respectively. Depreciation
expense for property plant and equipment was $122 and $115 for 1996 and
1995, respectively. The amount of assets held for disposition was $17 and
$17 for 1996 and 1995, respectively. The amortization of capital lease
assets is included in accumulated depreciation and amortization above.
54
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
9. Income Taxes
As of December 28, 1996, the Company has alternative minimum tax (AMT)
credits of $1 available to offset future Federal income tax liabilities. The
Company has targeted jobs tax credit (TJTC) carryforwards of $11, which
begin expiring in 2009 and a tax benefit of $315 attributable to NOL
carryforwards available as of December 28, 1996, which expire beginning in
2010.
The approximate tax effects of temporary differences and carryforwards that
give rise to the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
Dec. 28, Dec. 30,
1996 1995
--------- --------
<S> <C> <C>
Accrued liabilities............................... $(112) $(130)
Post-retirement benefits.......................... (71) (56)
Insurance reserves................................ (55) (65)
Other deferred tax assets......................... (4) (29)
--------- --------
Total deferred tax assets........................ (242) (280)
Prepaid pension contribution..................... 141 132
Direct response and insurance
acquisition costs............................... 238 150
Property, plants and equipment................... 159 145
Other deferred tax liabilities................... 51 50
--------- --------
Total deferred tax liabilities.................. 589 477
AMT, TJTC and NOL credit carryforwards........... (327) (110)
Valuation allowance.............................. 32 32
--------- --------
Net deferred tax liability...................... $ 52 $ 119
--------- --------
--------- --------
</TABLE>
55
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
9. Income Taxes (continued)
Income tax expense consists of:
<TABLE>
<CAPTION>
52-Week
Period Ended
----------------------------
Dec. 28, Dec. 30, Dec.31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Federal
Currently payable....................... $ 2 $ 7 $25
Deferred (benefit) payable.............. (134) (20) 23
State, local and foreign
(benefit) payable....................... (6) (1) 8
-------- -------- --------
Total income tax (benefit)
expense................................. $(138) $(14) $56
-------- -------- --------
-------- -------- --------
</TABLE>
A reconciliation of the statutory to effective federal income tax rate is
as follows:
<TABLE>
<CAPTION>
52-Week
Period Ended
----------------------------
Dec. 28, Dec. 30, Dec.31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Federal income tax rate.................. 35% 35% 35%
State taxes, net of reduction of
Federal tax and NOL benefit............. 1 7 3
Tax Credits.............................. 2 31 (3)
Deferred rate differential, net of
adjustments............................. - 2 (3)
Permanent differences.................... (1) (14) 2
-------- -------- --------
Effective income tax rate................ 37% 61% 34%
-------- -------- --------
-------- -------- --------
</TABLE>
56
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
10. Deferred Service Contract Revenue
Montgomery Ward sells product service contracts on its own behalf, and
beginning in 1994, on behalf of Virginia Surety Company, Inc. (VSC) and
National Product Care Co. (NPC). Also, beginning in 1995, the Company sold
service contracts for computers on behalf of General Electric (GE) and in
1996 Lechmere sold service contracts on behalf of Warrantech. VSC, NPC, GE
and Warrantech are referred to as the Product Service Companies. The Company
recognizes the revenue related to sales of Montgomery Ward service contracts
in proportion to the costs expected to be incurred in performing services
under the contracts. Deferred service contract revenue of $106 and $169 at
December 28, 1996 and December 30, 1995, respectively, is included in
Accrued liabilities and other obligations. The Company recognizes the
revenue, net of the fixed payment due to the Product Service Companies on
sales of Product Service Companies' contracts at the time of sale. Insured
contracts comprised 66% and 52% of sales of service contracts to Montgomery
Ward and Lechmere customers in 1996 and 1995, respectively. Montgomery Ward
has contracted with certain of the Product Service Companies to provide
repair services.
11. Reinsurance
The Company's insurance subsidiaries are involved in both the cession and
assumption of reinsurance with other companies. Risks are reinsured with
other companies to permit the recovery of a portion of the direct losses.
Policy related liabilities and accruals, including incurred but not reported
claims, are included in the financial statements as Insurance policy claim
reserves, and reinsurance ceded is reflected as a component of Other
assets. The Company remains liable to the extent the reinsuring
companies cannot meet their obligations under these reinsurance treaties.
57
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
11. Reinsurance (continued)
Premium revenues, which are included in Direct response marketing revenues,
are as follows:
<TABLE>
<CAPTION>
Percentage
Ceded Assumed of Amount
To From Assumed
Gross Other Other Net To Be
Amount Companies Companies Amount Net
------ --------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
52-Week Period Ended
December 28, 1996:
Life insurance in force.............. $5,940 $(104) $ - $5,836 0.0%
------ ----- --- ------ ----
------ ----- --- ------ ----
Premiums
Life insurance...................... $ 59 $ (1) $ 7 $ 65 10.8%
Accident and health
insurance.......................... 94 (5) 11 100 11.0
Property and liability
insurance.......................... 76 (15) - 61 0.0
------ ----- --- ------ ----
Total............................ $ 229 $ (21) $18 $ 226 8.0%
------ ----- --- ------ ----
------ ----- --- ------ ----
52-Week Period Ended
December 30, 1995:
Life insurance in force.............. $5,886 $ (84) $ - $5,802 0.0%
------ ----- --- ------ ----
------ ----- --- ------ ----
Premiums
Life insurance...................... $ 53 $ (1) $ 2 $ 54 3.7%
Accident and health
insurance.......................... 91 (5) 15 101 14.9%
Property and liability
insurance.......................... 73 (12) - 61 0.0%
Total............................ $ 217 $ (18) $17 $ 216 7.9%
------ ----- --- ------ ----
------ ----- --- ------ ----
52-Week Period
Ended December 31, 1994:
Life insurance in force.............. $5,729 $ (93) $ - $5,636 0.0%
------ ----- --- ------ ----
------ ----- --- ------ ----
Premiums
Life insurance...................... $ 50 $ (1) $ 3 $ 52 5.8%
Accident and health
insurance.......................... 76 - 11 87 12.6%
Property and liability
insurance.......................... 62 (9) - 53 0.0%
------ ----- --- ------ ----
Total............................ $ 188 $ (10) $14 $ 192 7.3%
------ ----- --- ------ ----
------ ----- --- ------ ----
</TABLE>
58
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
12. Short-Term and Long-Term Debt
The long-term debt of Montgomery Ward and its subsidiaries is as follows:
Dec. 28, Dec. 30,
1996 1995
-------- --------
Montgomery Ward
Note Purchase Agreements; Senior Notes Series A
to Series J due in 1998 to 2005 at 6.52% to 8.18%
interest rates......................................... $ - (a) $280
Bank Term Loan at adjustable interest rates, based
on market rates........................................ - 25
Commercial Development Revenue Bonds, due in 2013
at 4.5% interest rate, adjusted at three-year
intervals.............................................. 5 5
Other................................................... 2 2
Montgomery Ward Real Estate Subsidiaries
11-1/2% Secured Note, due serially
to September 1, 2001................................... 12 14
7-1/2% Secured Note, due serially
to November 30, 2002................................... 5 6
9.45% Secured Notes, due serially
to November 30, 2003................................... 15 16
7-3/4% Secured Notes, due serially
to August 31, 2004..................................... 17 19
7-7/8% Secured Notes, due serially
to December 15, 2005................................... 7 8
9% Secured Notes, due serially to
January 1, 2006........................................ 12 12
Other................................................... 8 8
Lechmere
9.65% Secured Mortgage Notes, due October 31, 1996...... - 24
Other................................................... 4 4
-------- --------
-------- --------
Total long-term debt................................. $87 $423
-------- --------
-------- --------
a) Subsequent to December 28, 1996, the maturity of this debt of
$280 was shortened to August 29, 1997 in connection with a
waiver obtained in the first quarter of 1997.
The amounts of long-term debt that become due during the fiscal years 1997
through 2001 are as follows: 1997--$10, 1998--$9, 1999--$10, 2000--$12,
and 2001--$10.
59
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
12. Short-Term and Long-Term Debt (continued)
Montgomery Ward is the only direct subsidiary of MW Holding and, therefore,
Montgomery Ward and its subsidiaries are MW Holding's sole source of funds.
The Company has obtained waivers under the Long Term Credit Agreement
(Long Term Agreement) and the Short Term Credit Agreement (Short Term
Agreement) with respect to compliance for the fiscal quarter ending March
29, 1997 with covenants requiring maintenance of minimum consolidated
shareholders' equity, a minimum ratio of debt to capitalization and minimum
earnings before interest, taxes, depreciation, amortization and rent
("EBITDAR"). These waivers and amendments also reduce the maximum amount of
debt permitted to be incurred by Signature and the maturity of the Long
Term Agreement was changed from February 28, 1998 to August 29, 1997.
Similar amendments to corresponding covenants in the Company's two
Purchase and Master Lease Agreements were made.
The Long Term Credit Agreement and the Short Term Credit Agreement were
amended on December 23, 1996, to substitute for the three quarters ended
June 28, 1997, the EBITDAR test for an earnings to fixed charges test, to
add a limitation on capital expenditures and require prepayments if proceeds
of certain asset dispositions are received, and to amend the minimum debt to
equity ratio required to permit payment of preferred stock dividends. In
connection with these amendments the Company paid fees totaling $3, the
rates of interest under both agreements were increased in three stages, at
the date of the agreement and effective at the end of the first and second
quarters of 1997, the commitment fee was increased by .375% of the unused
commitment and the maturity of the Long Term Agreement was changed to
February 15, 1998 from September 6, 2000. These amendments also limited the
amount of debt which can be incurred by Signature. Similar amendments to
the corresponding covenants in the Company's two Purchase and Master Lease
Agreements were made (including shortening the lease expiration dates to
August 29, 1997) and the rents thereunder were increased.
Signature Financial/Marketing, Inc. (Signature), a wholly owned subsidiary
of Montgomery Ward, borrowed $102 under a Credit Agreement
(Signature Credit Agreement) dated as of September 27, 1996 between
Signature and various lenders. The proceeds were used to repay the inter-
company loan
60
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
12. Short-Term and Long-Term Debt (continued)
from Montgomery Ward to Signature arising from Signature's acquisition
of the Amoco Motor Club. The Signature Credit Agreement expires on
August 29, 1997.
The minimum debt to capitalization ratio in the Long Term Credit Agreement
and Short Term Credit Agreement was also amended September 6, 1996, when a
minimum ratio of earnings to fixed charges was added. A similar amendment
was made to the two Purchase and Master Lease Agreements.
The Company entered into an amendment and waiver agreement with holders of
the notes issued under the 1993 and 1995 Note Purchase Agreements, which
includes a waiver through June 27, 1997 of compliance with the minimum
shareholders' equity and funded debt to capitalization tests and added a
restriction of sale of assets. In connection therewith, the noteholders
received fees totaling $1 and interest rates on the notes were increased in
two stages.
Montgomery Ward also entered into a Credit Agreement (Seasonal Credit
Agreement) dated as of October 4, 1996 with various lenders, including GE
Capital. The Seasonal Credit Agreement expires August 29, 1997 and provides
a revolving loan facility in the principal amount of $165. A waiver
corresponding to those most recently obtained as to the Long Term and Short
Term Agreements have been obtained by the Company. The purpose of this
facility is to provide back-up liquidity as the Company reduces its
inventory levels during the fourth quarter. Unless the lenders otherwise
agree, loans may be made under this facility only after the commitments
under the Short Term Agreement and the Long Term Agreement are fully used.
Under the Seasonal Credit Agreement, Montgomery Ward may select among
several interest rate options which are based on market rates. A commitment
fee is payable upon the unused commitment. At December 28, 1996, no amount
was outstanding.
61
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
12. Short-Term and Long-Term Debt (continued)
The loan agreements, previously discussed, all limit dividends which
Montgomery Ward may pay with respect to its stock and advances which it
may make to the Company. Under these limitations, Montgomery Ward
currently may only make dividends, distributions or advances to
Montgomery Ward Holding to fund the payment of business and corporate
expenses up to $2 per year. Because Montgomery Ward Holding's sole
source of funds is Montgomery Ward, it does not currently expect to
have sufficient funds to make payments otherwise due on the outstanding
notes issued to repurchase shares of its common stock. Holders of those
notes are not permitted to accelerate the indebtedness thereunder or
bring suit to collect it for one year. The Company does not anticipate
that it will be able to repurchase any shares of its common stock, under
the Stockholders' Agreement or otherwise, during the foreseeable future.
The Long Term Agreement provides a revolving facility in the principal
amount of $603. As of December 28, 1996, $170 was outstanding under the
Long Term Agreement.
On September 6, 1996, the Short Term Agreement which was extended to August
29, 1997 from March 29, 1997 was further amended to increase the principal
amount of this revolving loan facility from $297 million to $436. On
October 24, 1996, this facility was further increased from $436 to $456. As
of December 28, 1996, $456 was outstanding under the Short Term Agreement.
On December 28, 1996, Montgomery Ward had outstanding $20 under short-term
uncommitted lines of credit.
62
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
12. Short-Term and Long-Term Debt (continued)
At December 28, 1996, total short-term debt is summarized as follows:
Borrowings under Long-Term Credit Agreement............ $ 170
Borrowings under Short-Term Credit Agreement........... 456
Borrowings under the Signature Loan.................... 102
Borrowings under the uncommitted lines................. 20
------
Short-term borrowings.................................. $ 748
Note Purchase Agreements reclassified to Short-term
debt................................................ 280
------
Total Short-Term Debt.................................. $1,028
------
------
Montgomery Ward has entered into interest rate exchange and cap
agreements with various banks to offset the market risk associated with
an increase in interest rates under both the Long Term and Short Term
Agreement. The aggregate notional principal amounts under the interest
rate exchange agreement is $175 in 1996. Under the terms of the interest
rate exchange agreements, Montgomery Ward pays the banks a weighted
average fixed rate of 7.4% multiplied by the notional principal amount in
1996 and will receive the one-month daily average London Interbank
Offered (LIBO) rate multiplied by the notional principal amount.
The average aggregate notional principal amount under the various cap
agreements is $158 in 1996. Under the terms of the cap agreements,
Montgomery Ward receives payments from the banks when the one-month daily
average LIBO rate exceeds the 6.0% cap strike rate in 1996. Such payments
will equal the amount determined by multiplying the notional principal
amount by the excess of the percentage rate, if any, of the one-month daily
average LIBO rate over the cap strike rate. The interest rate exchange and
cap agreements increased the effective borrowing rate under the Agreements
by .76% for 1996. Montgomery Ward is exposed to credit risk in the event of
nonperformance by the other parties to the interest rate exchange and cap
agreements; however, Montgomery Ward anticipates full performance by the
counterparties.
On October 24, 1996, Montgomery Ward prepaid a $25 term loan which had
been outstanding under the Term Loan Agreement dated September 29, 1995.
On January 31, 1996, GE Capital exercised the exchange option contained in
the MW Senior Preferred Stock subscription agreement which allowed an
exchange of the Montgomery Ward Holding Corp. Senior Preferred Stock for
senior preferred stock of the Company with substantially the same terms. On
March 28, 1996, the Company's Certificate of Incorporation was amended to
authorize the issuance of a new series of senior preferred stock (New Senior
Preferred Stock). On March 29, 1996, the Company issued all of the 1,750
shares of New Senior Preferred Stock to GE Capital in exchange for the 1,750
shares of Montgomery Ward Holding Corp. Senior Preferred Stock held by GE
Capital.
63
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
12. Short-Term and Long-Term Debt (continued)
Dividends on the New Senior Preferred Stock are payable quarterly at an
annual rate of $7,010 per share. The Company is required to redeem the New
Senior Preferred Stock on June 30, 2002, with the option of redeeming all or
any portion prior to June 30, 2002.
Montgomery Ward has outstanding Commercial Development Revenue Bonds, which
are adjusted to the market rate of interest at three-year intervals. The
rate was adjusted to 4.5% in 1995.
The Secured Notes of the real estate subsidiaries and the secured Mortgage
Notes of Lechmere are secured by mortgage liens and/or assignments of rental
agreements whereby the real estate subsidiaries have assigned to trustees
certain monies payable under leases with Montgomery Ward.
13. Leases
The Company leases real and personal property principally through
noncancelable capital and operating leases, which generally provide for the
payment of minimum rentals and, in certain instances, executory costs and
additional rentals based upon a percentage of sales. The terms of the real
estate leases typically contain renewal options for additional periods.
At December 28, 1996, the minimum lease payments under all noncancelable
operating leases with an initial term of more than one year, not including
$34 of future sublease rentals, and under capital leases are as follows:
Capital Operating
Leases Leases
------- ---------
1997........................................... $12 $ 126
1998........................................... 12 117
1999........................................... 11 102
2000........................................... 11 94
2001........................................... 9 87
Later Years.................................... 31 789
------- ---------
Total Minimum Lease Payments $86 $1,315
------- ---------
------- ---------
Less Executory Costs, principally real
estate taxes to be paid by the lessor.......... (3)
Less Imputed Interest........................... (23)
-------
Present Value of Net Minimum Capital
Lease Payments Including Portion due
within one year of $7.......................... $60
-------
-------
64
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
13. Leases
Net rent expense charged to earnings was $149 for 1996, $140 for 1995 and
$130 for 1994, after deducting rentals from subleases of $10 in 1996, $9 in
1995 and 1994. Rent expense includes contingent lease rentals for capital
and operating leases of $10 for 1996, $12 for 1995, and $13 for 1994. These
contingent lease rentals are generally based on sales revenues.
Some rental agreements contain escalation provisions that may require
higher future rent payments. Rent expense incurred under rental agreements
which contain escalation clauses is recognized on a straight-line basis over
the life of the lease.
14. Redeemable Preferred Stock
On April 27, 1994, the Company's Certificate of Incorporation was amended
to authorize the issuance of a new series of senior preferred stock
(Senior Preferred Stock). On that date, the Company issued all of the
750 shares of Senior Preferred Stock authorized by the Certificate of
Incorporation to General Electric Capital Corporation in exchange for $75
in cash. The Company used the proceeds to acquire 750 shares of a new
issue of senior preferred stock of Montgomery Ward (Montgomery Ward
Preferred) for $75 and Montgomery Ward used the proceeds to reduce
short-term borrowings. On December 29, 1995, Montgomery Ward redeemed
the Montgomery Ward Preferred held by the Company for $75. The Company
used the proceeds to redeem the Senior Preferred Stock held by GE Capital
for $75. The source of the funds for these transactions was borrowing
under the Agreements. Dividends on the Senior Preferred Stock and
Montgomery Ward Preferred had been paid quarterly at an annual rate of
$4,850 per share.
On December 29, 1995, Montgomery Ward issued 1,750 shares of a new series
of senior preferred stock (MW Senior Preferred Stock), par value of $1.00
per share, to GE Capital in exchange for $175 in cash. Subsequent to year
end, Montgomery Ward used a portion of the proceeds to finance the purchase
of the Amoco Motor Club by its wholly-owned subsidiary, Signature. The
subscription agreement for the MW Senior Preferred Stock contained an
exchange option which gave GE Capital the option to exchange the MW Senior
Preferred Stock for senior preferred stock of the Company with identical
terms. On January 31, 1996, GE Capital exercised the exchange option
contained in the MW Senior Preferred Stock subscription agreement which
allowed an exchange of the MW Senior Preferred Stock for senior preferred
stock of the Company with substantially the same terms. On March 29, 1996,
the Company's Certificate of Incorporation was amended to authorize the
issuance of a new series of senior preferred stock (New Senior Preferred
Stock). On March 29, 1996, the Company issued all of the 1,750 shares of
New Senior Preferred Stock to GE Capital in exchange for the 1,750 shares of
MW Senior Preferred Stock held by GE Capital.
65
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
14. Redeemable Preferred Stock (continued)
Dividends on the New Senior Preferred Stock are payable quarterly at an
annual rate of $7,010 per share. The Company is required to redeem the New
Senior Preferred Stock on June 30, 2002, with the option of redeeming all or
any portion prior to June 30, 2002.
15. Common Stock
As of December 28, 1996, the Company has the following authorized classes
of common stock:
Class A Common Stock, Series 1; $.01 par value; 25,000,000 shares
authorized; 18,223,618 shares issued and outstanding, net of 6,794,016
shares held in treasury.
Class A Common Stock, Series 2; $.01 par value; 5,412,000 shares
authorized; 107,023 shares issued and outstanding, net of 2,110,608
shares held in treasury.
Class A Common Stock, Series 3; $.01 par value; 2,400,000 shares
authorized; no shares issued or outstanding.
Class B Common Stock; $.01 par value; 25,000,000 shares authorized,
issued and outstanding; all owned by GE Capital.
The Company has repurchased 5,982,897 shares held by certain former
officers of the Company, Montgomery Ward and Signature and their permitted
transferees by making cash payments and issuing installment notes in the
aggregate of approximately $54. As of December 28, 1996, the outstanding
balance of these notes was $7. These installment notes bear interest at
varying rates, are payable over multi-year periods (generally three to five
years) and are secured by shares of Common Stock, the fair market value of
which is equal to the outstanding principal amount under each note. The
notes are classified as Accrued liabilities and other obligations. The
Company does not have the capacity under its borrowing agreements to satisfy
the payments for these notes. If the situation is not cured within one year
after a note payment is missed, the noteholder may foreclose on the pledge
of shares repurchased.
In years where net income is recognized, options under the Nonqualified
Stock Option Plan are included as Common Stock Equivalents in computing
primary Earnings Per Share (EPS). In 1996 and 1995, because net losses were
incurred, these potentially dilutive securities have an antidilutive effect
and are, consequently, omitted from the primary EPS calculation. As a
result, 1996 and 1995 EPS calculations are equal to Basic EPS calculations.
66
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
15. Common Stock (continued)
There were no conversions subsequent to year-end that would have affected
(either dilutively or incrementally) primary EPS had they taken place at the
beginning of the period.
Each share of Class B Common Stock entitles the holder thereof to one vote.
All shares of Class A Common Stock entitle the holders to a total of
25,000,000 votes, or one vote per share if the total number of Class A
shares issued and outstanding is less than 25,000,000.
67
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
15. Common Stock (continued)
Net (loss) income per common share is computed as follows:
52-Week Period Ended
December 28, 1996
----------------------
Class A Class B
--------- ---------
Earnings (loss) available for Common
Shareholders.................................. $(118) $(131)
Weighted average number of common and common
equivalent share (stock options) outstanding.. 19,058,574 25,000,000
Earnings (loss) per share...................... $(6.18) $(5.25)
52-Week Period Ended
December 30, 1995
----------------------
Class A Class B
--------- ---------
Earnings (loss) available for Common
Shareholders................................. $ (6) $ (7)
Weighted average number of common and common
equivalent shares (stock options) outstanding. 20,824,514 25,000,000
Earnings (loss) per share..................... $(.31) $(.28)
52-Week Period Ended
December 31, 1994
----------------------
Class A Class B
--------- --------
Earnings available for Common Shareholders
after deducting preferred stock dividend
requirements and the cumulative effect of $ 67 $ 68
the change in accounting principle (Note 5)...
Weighted average number of common and common
equivalent shares (stock options) outstanding. 21,407,379 25,000,000
Earnings per share............................ $3.15 $2.70
68
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
16. Stock Ownership Plan
The Montgomery Ward & Co., Incorporated Stock Ownership Plan was adopted
effective July 19, 1988. A total of 1,000,000 Class A Common Stock,
Series 1, 5,412,000 shares of Class A Common Stock, Series 2, and
2,000,000 shares of Class A Common Stock, Series 3, have been reserved
for issuance under the plan. Key associates of Montgomery Ward and its
subsidiaries are eligible to participate and may receive awards,
purchase rights and options. Awards are grants of shares for no
consideration. Options for 3,981,000 and 3,980,000 of Class A Common
Stock, Series 2 and Series 3 shares were exercisable at December 28,
1996 and December 30, 1995, respectively.
During 1991, the Board of Directors approved the Directors Plan. The
Directors Plan was established to, among other things, allow outside
directors to receive all or any portion of the fees for their services as
directors of the Company and Montgomery Ward via conversion rights in
Series 1 or Series 2 shares. In 1996, 1995 and 1994, 2,421, 2,476 and
2,489 Series 1 shares were issued from treasury stock as payment for
directors fees, respectively.
Following is a summary of activity under the plans:
<TABLE>
<CAPTION>
December 28, 1996 December 30, 1995 December 31, 1994
------------------------- ------------------------ --------------------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex. Price (000) Ex. Price (000) Ex. Price
------ ------------ ------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beg. of year 5,165 $17.61 6,163 $17.76 4,974 $14.49
Granted 340 23.95 673 24.90 1,967 24.68
Exercised (352) 9.52 (981) 19.29 (298) 9.13
Forfeited (458) 21.14 (71) 19.22 (53) 17.20
Canceled (357) 23.86 (619) 24.15 (427) 20.10
Expired 0 -- 0 -- 0 --
----- ----- -----
Outstanding, end of year 4,338 $17.87 5,165 $17.61 6,163 $17.76
----- ------ ----- ------ ----- ------
----- ------ ----- ------ ----- ------
Exercisable, end of year 3,981 $16.39 3,980 $15.92 3,631 $14.73
----- ------ ----- ------ ----- ------
----- ------ ----- ------ ----- ------
Weighted average fair value
of options granted $11.82 $11.92 n/a
------ ------ ------
------ ------ ------
</TABLE>
2,042 of the 4,338 options outstanding at December 28, 1996 have exercise
prices between $.20 and $18.75, with a weighted average exercise price of
$11.02 and a weighted average remaining contractual life of 3.94 years.
1,959 of these options are exercisable. The remaining 2,296 options have
exercise prices between $22.50 and $26.50, with a weighted average
exercise price of $23.96 and a weighted average remaining
contractual life of 7.30 years. 1,567 of these options are exercisable.
Pro Forma Disclosure
In applying Accounting Principles Board (APB) Opinion No. 25, no expense
was recognized for stock options granted under the Plans. In 1996, the
Company implemented the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", requiring that the fair market
value of all awards of stock based compensation be determined using an
option pricing model and that pro forma net income and net income per
common share be disclosed as follows:
<TABLE>
<CAPTION>
December 28, 1996 December 30, 1995
----------------- ------------------
<S> <C> <C> <C>
Net Income (Loss)
Applicable to
Common Shareholders: As Reported $(249) $(13)
Pro Forma (251) (15)
Net Income (Loss) per
Class A Common
Share: As Reported $(6.18) $(.31)
Pro Forma (6.27) (.43)
</TABLE>
Because SFAS No. 123 provisions have not been applied to options granted
prior to January 1, 1995, the resulting pro forma compensation expense may
not be representative of that to be expected in future years.
The weighted average fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for 1995 and 1996: risk-free
interest rates of 7.18 and 5.67 percent; expected dividend yield of 0
percent; expected life of 10.0 years.
69
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
17. Operating, Selling, General and Administrative Expenses
Operating, selling, general and administrative expenses include insurance
benefits, claims and losses related to direct response marketing operations
of $144, $100 and $102 for the periods ended December 28, 1996, December 30,
1995 and December 31, 1994, respectively. Unamortized software costs
included in other assets were $30, $28 and $17 and the amortization of these
costs were $7, $5 and $3 for the periods ended December 28, 1996, December
30, 1995 and December 31, 1994, respectively.
18. Interest Expense, Net of Investment Income
Net interest expense is as follows:
<TABLE>
<CAPTION>
52-Week Period Ended
----------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest on short-term borrowings..... $ 53 $47 $19
Interest on long-term debt and
obligations under capital leases..... 44 32 30
Miscellaneous interest, net........... 16 15 11
Investment income..................... (2) (3) (2)
-------- -------- --------
Total interest expense,
net of investment income............. $111 $91 $58
-------- -------- --------
-------- -------- --------
</TABLE>
19. Litigation and Other Proceedings
MW Holding, Montgomery Ward and its subsidiaries are engaged in various
litigation and have a number of unresolved claims. While the amounts
claimed are substantial and the ultimate liability with respect to such
litigation and claims cannot be determined at this time, management is of
the opinion that such liability, to the extent not provided for through
insurance or otherwise, is not likely to have a material impact on the
financial condition and the results of operations of the Company.
20. Related Party Transactions
Bernard F. Brennan
Substantially all shares of Class A Series 1 and Series 2 Common Stock,
except those held by Bernard F. Brennan and a trust established for the
benefit of his children, are held by a Voting Trust which was created in
1988. In 1994, a second voting trust was created to hold shares of Class A
Series 3 Common Stock. A Voting Trustee, Bernard F. Brennan, has sole
voting power and control of all shares held by both Voting Trusts. The
70
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
20. Related Party Transactions (continued)
1988 Voting Trust will expire June 21, 1998 or upon the occurrence of
certain specified events in accordance with the Voting Trust Agreement. The
1994 Voting Trust has no expiration date but may expire upon the occurrence
of certain specified events in accordance with the Voting Trust Agreement.
In conjunction with a Relationship Agreement entered into between Mr.
Brennan and the Company, the Company provided a loan to Mr. Brennan of
$12.5. (His stock is pledged as collateral). The loan does not bear
interest. In addition, Mr. Brennan is being paid $1.5 annually (for a
five year period) for consulting services he provides to the Company.
GE Capital Corporation
The Company engages in various transactions with GE Capital Corporation
as described in Notes 2, 5, 14 and 15.
ValueVision International, Inc.
On August 8, 1995, Montgomery Ward purchased 1,280,000 unregistered shares
of common stock of ValueVision International, Inc. (ValueVision) at $6.25
per share, which represented approximately 4.4% of the issued and
outstanding shares of common stock of ValueVision International, Inc.
(ValueVision). Montgomery Ward also received warrants to purchase an
additional 25 million shares of common stock of ValueVision with exercise
prices ranging from $6.50 to $17.00 per share, with an average exercise
price of $9.16 per share. The warrants were valued at $18 at the time of
grant and were included in Other assets at December 30, 1995. The
corresponding deferred revenue of $18 was recognized as a liability and
included in Accrued liabilities and other obligations. At December 30,
1995, the balance of the deferred revenue was $17.
The Company was a partner in a joint venture, Montgomery Ward Direct,
Limited Partnership (MW Direct), formed through a partnership in 1991
between subsidiaries of Montgomery Ward and subsidiaries of Fingerhut
Companies, Inc. a Minneapolis, Minnesota specialty-based catalog
merchandiser. In June of 1996, the subsidiaries of Fingerhut Companies
withdrew from the partnership. Immediately prior to the withdrawal, the
Fingerhut subsidiaries contributed to the capital of MW Direct cash and all
claims that the Fingerhut subsidiaries had against MW Direct. In July of
1996, the Company and ValueVision, a Minneapolis, Minnesota based television
home shopping enterprise, entered into an agreement where ValueVision
acquired the assets and assumed certain liabilities of MW Direct concurrent
with the restructuring of the marketing agreement between Montgomery Ward
and ValueVision as discussed below. Also, in July of 1996, ValueVision and
Montgomery Ward & Co., entered into an agreement for the expansion and
restructuring of their ongoing marketing agreement. ValueVision issued to
Montgomery Ward vested warrants (Class P Warrants) to purchase 2.97 million
shares of ValueVision common stock at an exercise
71
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
20. Related Party Transactions (continued)
ValueVision International, Inc. (continued)
price of $0.01 per share. The new warrants replaced 18.0 million unvested
warrants (Class C-O Warrants) from an earlier grant. Concurrent with this
agreement, ValueVision issued to Merchant Partners Limited Partnership
(Merchant Partners) vested Class P warrants to purchase 199,100 shares of
ValueVision common stock at an exercise price of $0.01 per share. Montgomery
Ward was at the time a limited partner in Merchant Partners. Montgomery Ward
recognized a pretax gain of $8 from the exchange of the Class C-O unvested
warrants and the exchange of Montgomery Ward Direct assets and liabilities.
The gain was included in Operating, selling, general and administrative
expense.
In September of 1996, Montgomery Ward and ValueVision exchanged
warrants to purchase ValueVision common stock. Montgomery Ward exchanged
6.0 million vested warrants (Class A-B Warrants) from the earlier grant of
25.0 million warrants which were exercisable at prices ranging from $6.50 to
$6.75, in return for vested warrants (Class P Warrants) to purchase 2.2
million shares of ValueVision common stock at an exercise price of $0.01 per
share. Montgomery Ward recognized a pretax gain of $7 from this transaction
which is included in Operating, selling, general and administrative expense.
The earlier ValueVision warrants had been subject to certain vesting
conditions and termination rights which do not apply to the replacement
grant. Under the new agreements, Montgomery Ward's potential ownership of
ValueVision, on a fully diluted basis, following the exercise of all
warrants, would be 14.95%. Montgomery Ward accounts for ValueVision on the
cost method. The total investment in ValueVision common stock and warrants
after the above transactions was $34. A portion of the warrants are pledged
as security for the performance of Montgomery Ward's advertising commitment.
Montgomery Ward has an advertising commitment with ValueVision to purchase
not less than $20 of advertising time on cable systems through
ValueVision during the five year period commencing August 1, 1996.
Montgomery Ward in 1996 deferred revenue recognition on the exchange of
warrants discussed above of $16, which is included in Accrued liabilities
and other obligations. This amount represents the net present value of the
advertising commitment Montgomery Ward has with ValueVision. The deferred
revenue will be recognized as services are provided by ValueVision in the
future. These services include expenses incurred for advertising by
ValueVision, purchasing cable TV time for Montgomery Ward goods and
services, use of the Montgomery Ward service mark and use of Montgomery Ward
Credit.
72
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
20. Related Party Transactions (continued)
Merchant Partners
In July 1994, Montgomery Ward became a limited partner in Merchant
Partners, Limited Partnership (Merchant Partners). The purpose of this
partnership is to invest in new and emerging growth businesses and
leveraged buy-outs. Montgomery Ward made capital contributions of $17 to
Merchant Partners, Limited Partnership in 1996, $4 in 1995 and $1 in
1994. In December 1995, Merchant Partners made a partnership
distribution of $22 to Montgomery Ward. The distribution consisted of $8
of common stock and $14 warrants of a publicly traded company. After
recognition of the portion of the distribution that was recorded as a
return of capital of $5 and the partnership's net loss allocation as of
December 30, 1995 of $1, a gain of $16 was recognized in the Consolidated
Statement of Income. On December 31, 1996, Montgomery Ward entered into
an agreement under which Montgomery Ward assigned, transferred and set
over unto Merchant Advisors, Limited Partnership (the general partner of
Merchant Partners), Montgomery Ward's entire right, title and interest in
and to its limited partnership interest, including the entire balance in
its capital and contributions accounts, in Merchant Partners. Merchant
Advisors, Limited Partnership, assumed the performance of all of the
covenants and obligations associated with the interest under the Limited
Partnership Agreement of the Partnership. The agreement eliminated
Montgomery Ward's future obligations with respect to its interest in
Merchant Partners. As a result, Montgomery Ward reduced its investment
in Merchant Partners recognizing a charge to earnings of $10 included in
Operating, selling, general and administrative expense.
73
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
21. Business Segments
Montgomery Ward and its subsidiaries are engaged in retail merchandising
and direct response marketing, including insurance, in the United States.
Following is information regarding revenues, earnings and assets of the
Company by segment.
52-Week Period Ended
--------------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
---------- ---------- ----------
Total Revenues
Retail Merchandising.................. $5,879 $6,531 $6,564
Direct Response Marketing............. 741 554 465
---------- ---------- ----------
Total............................... 6,620 7,085 7,029
---------- ---------- ----------
---------- ---------- ----------
Operating Earnings (Losses)
Retail Merchandising.................. $ (320) $ 31 $ 194
Direct Response Marketing............. 71 70 60
Corporate and Other (a)............... (126) (124) (89)
---------- ---------- ----------
Total............................... $ (375) $ (23) $ 165
---------- ---------- ----------
---------- ---------- ----------
Identifiable Assets
Retail Merchandising.................. $3,207 $3,504 $3,314
Direct Response Marketing............. 1,203 920 789
Corporate and Other................... 469 460 434
---------- ---------- ----------
Total............................... $4,879 $4,884 $4,537
---------- ---------- ----------
---------- ---------- ----------
Depreciation and Amortization
Retail Merchandising.................. $ 119 $ 118 $ 105
Direct Response Marketing............. 220 149 125
---------- ---------- ----------
Total............................... $ 339 $ 267 $ 230
---------- ---------- ----------
---------- ---------- ----------
Capital Expenditures
Retail Merchandising.................. $ 58 $ 109 $ 108
Direct Response Marketing............. 17 13 4
---------- ---------- ----------
Total............................... $ 75 $ 122 $ 112
---------- ---------- ----------
---------- ---------- ----------
(a) 1995 included $25 of severance and relocation costs.
Under the laws and regulations applicable to insurance companies, certain
subsidiaries of Signature are limited in the amount of dividends they may
pay without the approval of the Illinois Insurance Department and are
prohibited from making any loans and advances to Montgomery Ward and its
affiliates. Under these laws, the restricted subsidiaries, which had
aggregate retained earnings of $176, and aggregate total shareholders'
equity of $231, can pay dividends of $39 during 1997 as determined on a
statutory basis, subject to the ability of certain subsidiaries to generate
earned surplus. Dividends received by Signature from insurance subsidiaries
were $44, $42 and $35 for 1996, 1995 and 1994.
74
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
22. Parent Company Financial Information
Following is the MW Holding balance sheet as of December 28, 1996 and
December 30, 1995 and the statements of income and cash flows for the
52-week periods ended December 28, 1996, December 30, 1995 and December 31,
1994.
MONTGOMERY WARD HOLDING CORP.
BALANCE SHEET
ASSETS
Dec. 28, Dec. 30,
1996 1995
---------- ----------
Federal Income Taxes Receivable.................... $ 4 $ 4
Investment in Montgomery Ward...................... 534 782
Redeemable Preferred Stock of Montgomery Ward...... 175 -
Other assets....................................... 1 1
---------- ----------
Total Assets..................................... $ 714 $ 787
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable to Montgomery Ward................ $ 98 $ 73
Accrued Liabilities................................ 8 14
---------- ----------
Total Liabilities................................ 106 87
Redeemable Preferred Stock......................... 175 -
Common Stock....................................... 1 1
Capital in excess of par value..................... 53 45
Retained Earnings.................................. 509 758
Unrealized gain on marketable equity securities.... 9 10
Less: Treasury stock, at cost..................... (139) (114)
---------- ----------
Total Shareholders' Equity........................ 433 700
Total Liabilities and Shareholders' Equity......... $ 714 $ 787
---------- ----------
---------- ----------
STATEMENT OF INCOME
52-Week Period Ended
--------------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
---------- ---------- ----------
Miscellaneous Costs........................ $ (2) $ (1) $ (2)
---------- ---------- ----------
Total Costs and Expenses................ (2) (1) (2)
Tax Benefits............................... - - -
---------- ---------- ----------
Net Loss Before Earnings of
Montgomery Ward........................... (2) (1) (2)
Equity in Net Income of Montgomery Ward.... (235) (8) 139
---------- ---------- ----------
Net Income................................. (237) (9) 137
Preferred Stock Dividend Requirements...... 12 4 2
---------- ---------- ----------
Net Income Available for Common
Shareholders.............................. $ (249) $ (13) $ 135
---------- ---------- ----------
---------- ---------- ----------
75
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
22. Parent Company Financial Information (continued)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net Income................................. $(237) $ (9) $137
Adjustments to reconcile net income to
net cash provided:
Change in undistributed earnings
of subsidiary........................... 235 12 (116)
Compensation expense on stock option
grants/repurchases...................... 5 4 1
Decrease (increase) in:
Other assets............................ - (1) -
Increase (decrease) in:
Accounts payable to Montgomery Ward..... 36 16 22
Accrued liabilities..................... (13) (13) (15)
-------- ------- ------
Net cash provided before financing
activities................................ 26 9 29
-------- ------- ------
Cash flows from financing activities:
Proceeds from issuance of common stock.... 3 18 3
Proceeds from redemption of Montgomery
Ward preferred stock..................... - 75 -
Proceeds from issuance of preferred
stock.................................... 175 - 75
Purchase of Montgomery Ward preferred
stock.................................... (175) - (75)
Cash dividends paid....................... (9) (4) (24)
Payments to redeem preferred stock........ - (75) -
Purchase of treasury stock, at cost....... (20) (23) (9)
Tax benefit of stock options exercised
and other stock exchanges................ - - 1
------- ------- -------
Net cash used for financing activities...... (26) (9) (29)
------- ------- -------
Cash at end of period....................... $ - $ - $ -
------- ------- -------
------- ------- -------
Non-cash investing activities:
Change in unrealized gain on investments... $ (1) $ 8 $ (1)
Non-cash financing activities:
Notes issued for purchase of
treasury stock............................ $ 5 $ 2 $ 7
</TABLE>
76
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
23. Quarterly Financial Data (unaudited)
The quarterly operations of MW Holding are summarized as follows and
reflect the impact of the change in accounting principle, as discussed in
Note 6:
<TABLE>
<CAPTION>
Quarter
-----------------------------------------
First Second Third Fourth Year
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
52-Week Period Ended
December 28, 1996
Net sales.......................... $1,254 $1,354 $1,376 $1,895 $5,879
Cost of goods sold................. 1,038 1,099 1,096 1,629 4,862
Net Income (Loss).................. (48) 11 (35) (165) (237)
Net Income (Loss) per Class A
Common Share...................... (1.27) .20 (.95) (4.16) (6.18)
Net Income (Loss) per Class B
Common Share...................... (1.07) .18 (.82) (3.54) (5.25)
52-Week Period Ended
December 30, 1995
Net sales.......................... $1,357 $1,521 $1,561 $2,092 $6,531
Cost of goods sold................. 1,075 1,211 1,240 1,685 5,211
Net Income (Loss).................. (4) 11 3 (20) (9)
Net Income (Loss) per Class A
Common Share...................... (.12) .25 .05 (.49) (.31)
Net Income (Loss) per Class B
Common Share...................... (.10) .20 .04 (.42) (.28)
</TABLE>
77
<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
15. Information as to directors required by this item is incorporated
herein by reference, pursuant to General Instruction G(3) to Form 10-K, from
the Registrant's definitive proxy statement, for the annual meeting of
shareholders to be held on May 16, 1997, to be filed within 120 days of the
end of the Registrant's fiscal year.
Item 11. Executive Compensation
Incorporated herein by reference, pursuant to General Instruction G(3) to
Form 10-K, from the Registrant's definitive proxy statement, for the annual
meeting of shareholders to be held on May 16, 1997, to be filed within 120
days of the end of the Registrant's fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference, pursuant to General Instruction G(3) to
Form 10-K, from the Registrant's definitive proxy statement, for the annual
meeting of shareholders to be held on May 16, 1997, to be filed within 120
days of the end of the Registrant's fiscal year.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference, pursuant to General Instruction G(3) to
Form 10-K, from the Registrant's definitive proxy statement, for the annual
meeting of shareholders to be held on May 16, 1997, to be filed within 120
days of the end of the Registrant's fiscal year.
78
<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 28, 1996
and December 30, 1995.................................... 32
For the 52-Week Periods Ended December 28, 1996
December 30, 1995 and December 31, 1994
Consolidated Statement of Income....................... 30
Consolidated Statement of Shareholders' Equity......... 33
Consolidated Statement of Cash Flows................... 36
Notes to Consolidated Financial Statements................. 38
2. Financial Statement Schedules
Schedules have been omitted because they are not applicable, not
required, not material, or the required information is given in the
financial statements or notes thereto or combined with the information
presented in other schedules or exhibits.
79
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
3. Exhibits
3.1 Third Restated Certificate of Incorporation of the Company,
filed June 28, 1994, incorporated by reference to
Exhibit 3.2(ii) of the Company's Registration Statement
on Form S-1 (Registration No. 33-33252).
3.1 (i) Certificate of Amendment to Certificate of Incorporation of
Montgomery Ward Holding Corp. dated October 25, 1994,
incorporated by reference to Exhibit 3.2(iv) of the
Company's Quarterly Report on Form 10-Q for the fiscal
quarterly period ended October 1, 1994.
3.1(ii) Certificate of Amendment to Certificate of Incorporation of
Montgomery Ward Holding Corp. dated March 29, 1996.
3.3 Amended and Restated By-laws of the Company, dated as of
December 29, 1994, incorporated by reference to Exhibit 3.3
of the Company's Annual Report on Form 10-K for the fiscal
year ended December 30, 1995.
3.3(i) Amendment to By-laws of Montgomery Ward Holding Corp.,
dated as of December 10, 1996.
9. Voting Trust Agreement dated as of June 21, 1988,
incorporated by reference to Exhibit 3(a) of the
Company's Registration Statement on Form S-1
(Registration No. 33-23403).
9.(i) Voting Trust Agreement dated as of October 21, 1994,
incorporated by reference to Exhibit 9.(i) of the
Company's Quarterly Report on Form 10-Q for the fiscal
quarterly period ended October 1, 1994.
10.(i)(A)(1) Stockholders' Agreement dated as of June 17, 1988, as
amended and restated as of December 29, 1994,
incorporated by reference to Exhibit 4.(e) to the
Company's Registration Statement on Form S-8 (Registration
No. 33-57075).
10.(i)(A)(2) Amendment Agreement dated as of December 10, 1996,
incorporated by reference from Exhibit 1 to the Company's
Current Report on Form 8-K for an event occurring
January 6, 1997.
80
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
3. Exhibits (continued)
10.(i)(A)(3) Montgomery Ward & Co., Incorporated Stock Ownership Plan
Terms and Conditions, as amended and restated, as of
December 29, 1994, incorporated by reference to
Exhibit 4.(f) of the Company's Registration Statement
on Form S-1 (Registration No. 33-57075).
10.(i)(B) Stock Purchase Agreement dated March 6, 1988 between
Mobil Corporation, Marcor Inc. and BFB Acquisition
Corp. incorporated by reference to Exhibit 10.(i)(B)
of the Company's Registration Statement on Form S-1
(Registration No. 33-23403).
10.(i)(C) Subscription Agreement dated as of December 29, 1995
between General Electric Capital Corporation, Montgomery
Ward & Co., Montgomery Ward Holding Corp., and
Bernard F. Brennan, incorporated by reference to Exhibit
10.(i)(C) of the Company's Annual Report on Form 10-K
for the fiscal year ended December 30, 1995.
10.(i)(F) Note Purchase Agreements dated March 1, 1993 between
Montgomery Ward & Co., Incorporated and various lenders,
incorporated by reference to Exhibit 10.(i)(F) of the
Company's Annual Report on Form 10-K for the fiscal year
ended January 2, 1993.
10.(i)(F)(1) Amendment dated June 30, 1995 to Note Purchase Agreements
dated March 1, 1993 between Montgomery Ward & Co.,
Incorporated and various lenders, incorporated by
reference to Exhibit 10.(i)(F)(1) of the Company's
Quarterly Report on Form 10-Q for the fiscal quarterly
period ended July 1, 1995.
10.(i)(H) Long Term Credit Agreement dated as of September 15, 1994
among Montgomery Ward & Co., Incorporated, various banks,
The First National Bank of Chicago, as Documentary Agent,
The Bank of Nova Scotia, as Administrative Agent, The Bank
of New York, as Negotiated Loan Agent and Bank of America
National Trust and Savings Association, as Advisory Agent,
incorporated by reference to Exhibit 10.(i)(G) of the
Company's Quarterly Report on Form 10-Q for the fiscal
quarterly period ended October 1, 1994.
81
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
3. Exhibits (continued)
10.(i)(H)(1) Amended Schedule 1 to the Long Term Credit Agreement dated
as of September 15, 1994 among Montgomery Ward & Co.,
Incorporated, various banks, The First National Bank of
Chicago, as Documentary Agent, The Bank of Nova Scotia,
as Administrative Agent, The Bank of New York, as
Negotiated Loan Agent and Bank of America National Trust
and Savings Association, as Advisory Agent incorporated
by reference to Exhibit 10.(i)(H)(1) of the Company's
Quarterly Report on Form 10-Q, for the fiscal quarterly
period ended September 30, 1995.
10.(i)(H)(2) Amendment dated March 19, 1996 to the Long Term Credit
Agreement dated as of September 15, 1994 among Montgomery
Ward & Co., Incorporated, various banks, The First
National Bank of Chicago, as Documentary Agent, The
Bank of Nova Scotia, as Administrative Agent, The Bank of
New York, as Negotiated Loan Agent and Bank of America
National Trust and Savings Association, as Advisory
Agent, incorporated by reference to Exhibit 10.(i)(H)(2)
of the Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended March 30, 1996.
10.(i)(H)(3) Amendment to Long Term Credit Agreement dated as of
September 15, 1994 among Montgomery Ward & Co.,
Incorporated, various banks, The First National
Bank of Chicago, as Documentary Agent, The Bank
of Nova Scotia, as Administrative Agent, The Bank
of New York, as Negotiated Loan Agent and Bank of
America National Trust and Savings Association, as
Advisory Agent, which became effective September 6,
1996, incorporated by reference to Exhibit 10.(i)(H)(3)
of the Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended September 28, 1996.
10.(i)(H)(4) Amendment to Long Term Credit Agreement dated as of
December 23, 1996 among Montgomery Ward & Co.,
Incorporated, various banks, The First National Bank
of Chicago, as Documentary Agent, The Bank of Nova
Scotia, as Administrative Agent, The Bank of New York,
as Negotiated Loan Agent and Bank of America National
Trust and Savings Association, as Advisory Agent.
82
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
3. Exhibits (continued)
10.(i)(I) Short Term Credit Agreement dated as of September 15, 1994
among Montgomery Ward & Co., Incorporated, various banks,
The First National Bank of Chicago, as Documentary Agent,
The Bank of Nova Scotia, as Administrative Agent, The Bank
of New York, as Negotiated Loan Agent and Bank of America
National Trust and Savings Association, as Advisory Agent,
incorporated by reference to Exhibit 10.(i)(H) of the
Company's Quarterly Report on Form 10-Q for the fiscal
quarterly period ended October 1, 1994.
10.(i)(I)(1) Amended Schedule 1 to the Short Term Credit Agreement dated
as of September 15, 1994 among Montgomery Ward & Co.,
Incorporated, various banks, The First National Bank of
Chicago, as Documentary Agent, The Bank of Nova Scotia,
as Administrative Agent, the Bank of New York, as
Negotiated Loan Agent and Bank of America National Trust
and Savings Association, as Advisory Agent, incorporated
by reference to Exhibit 10.(i)(I)(1) of the Company's
Quarterly Report on Form 10-Q for the fiscal quarterly
period ended September 30, 1995.
10.(i)(I)(2) Amendment dated March 19, 1996 to the Short Term Credit
Agreement dated as of September 15, 1994 among Montgomery
Ward & Co., Incorporated, various banks, The First National
Bank of Chicago, as Documentary Agent, The Bank of Nova
Scotia, as Administrative Agent, The Bank of New York,
as Negotiated Loan Agent and Bank of America National Trust
and Savings Association, as Advisory Agent, incorporated by
reference to Exhibit 10.(i)(I)(2) of the Company's
Quarterly Report on Form 10-Q for the fiscal quarterly
period ended March 30, 1996.
83
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
3. Exhibits (continued)
10.(i)(I)(3) Amendment dated September 6, 1996 to the Short Term Credit
Agreement dated as of September 15, 1994 among Montgomery
Ward & Co., Incorporated, various banks, The First
National Bank of Chicago, as Documentary Agent, The Bank
of Nova Scotia, as Administrative Agent, The Bank of New
York, as Negotiated Loan Agent and Bank of America
National Trust and Savings Association, as Advisory
Agent, incorporated by reference to Exhibit 10.(i)(I)(3)
of the Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended September 28, 1996.
10.(i)(I)(4) Confirmation of New Bank executed by The Industrial
Bank of Japan, Limited, Chicago Branch and The Bank of
Nova Scotia, as Administrative Agent, pursuant to
Section 2.6(c) of the Short Term Credit Agreement
dated as of September 15, 1994 among Montgomery
Ward & Co., Incorporated, various banks, The First
National Bank of Chicago, as Documentary Agent, The
Bank of Nova Scotia, as Administrative Agent, The Bank
of New York, as Negotiated Loan Agent and Bank of
America National Trust and Savings Association, as
Advisory Agent, as amended and extended, and (b) a letter
dated October 24, 1996 from The Bank of Nova Scotia, as
Administrative Agent, to the Banks and other Agents who
are parties to said Short Term Credit Agreement
transmitting an attached revised Schedule 1 to such
Agreement, incorporated by reference to Exhibit
10.(i)(I)(4) of the Company's Quarterly Report on
Form 10-Q for the fiscal quarterly period ended
September 28, 1996.
10.(i)(I)(5) Amendment dated December 23, 1996 to the Short Term Credit
Agreement dated as of September 15, 1994 among Montgomery
Ward & Co., Incorporated, various banks, The First
National Bank of Chicago, as Documentary Agent, The Bank
of Nova Scotia, as Administrative Agent, The Bank of New
York, as Negotiated Loan Agent and Bank of America National
Trust and Savings Association, as Advisory Agent.
84
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
3. Exhibits (continued)
10.(i)(J) Note Purchase Agreement dated July 11, 1995 between
Montgomery Ward & Co., Incorporated and various lenders,
incorporated by reference to Exhibit 10.(i)(J) on the
Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended July 1, 1995.
10.(i)(L) Credit Agreement dated as of September 27, 1996 as amended
and restated as of October 21, 1996, among Signature
Financial/Marketing, Inc., various lenders, The Bank of
New York, as Documentation Agent and The Bank of Nova
Scotia, as Administrative Agent.
10.(i)(L)(1) Amendment to Credit Agreement dated as of December 23, 1996
among Signature Financial/Marketing, Inc., various lenders,
The Bank of New York, as Documentation Agent and The Bank
of Nova Scotia, as Administrative Agent.
10.(i)(M) Credit Agreement dated October 4, 1996 among Montgomery Ward
& Co., Incorporated, various lenders, The Bank of Nova
Scotia, as Administrative Agent, and The Bank of New York,
as Documentation Agent, incorporated by reference to
Exhibit 10.(i)(M) of the Company's Quarterly Report on
Form 10-Q for the fiscal quarterly period ended
September 28, 1996.
10.(i)(M)(1) Amendment to Credit Agreement dated as of December 23, 1996
among Montgomery Ward & Co., Incorporated, various lenders,
The Bank of Nova Scotia, as Administrative Agent, and The
Bank of New York, as Documentation Agent.
10.(i)(M)(2) Second Amendment to Credit Agreement dated as of
December 23, 1996 among Montgomery Ward & Co.,
Incorporated, various lenders, The Bank of Nova
Scotia, as Administrative Agent, and The Bank of New
York, as Documentation Agent.
10.(ii)(A)* Interim Consumer Credit Card Program dated as of April 1,
1996, as amended, restated and renamed the Bank Credit
Card Program Agreement dated as of April 1, 1996 by and
between Monogram Credit Card Bank of Georgia and
Montgomery Ward & Co., Incorporated.
* Confidential treatment has been requested from the Secretary of the
Commission, with respect to portions of this document.
85
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
3. Exhibits (continued)
10.(ii)(B)* Account Purchase Agreement dated as of June 24, 1988,
as amended, restated and renamed the Account-Related
Agreement and dated as of April 1, 1996 by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated.
10.(ii)(C)(1) Letter Agreement dated as of April 1, 1996 between
Signature Financial/Marketing, Inc., Monogram Credit
Card Bank of Georgia, Montgomery Ward Credit
Corporation, and Montgomery Ward & Co.,
Incorporated.
10.(ii)(C)(2) Letter Agreement dated as of April 1, 1996 between
Signature Financial/Marketing, Inc. and Montgomery
Ward Credit Corporation.
10.(ii)(C)(3) Letter Agreement dated September 17, 1996 between
Montgomery Ward & Co., Incorporated, Monogram Credit
Card Bank of Georgia and Montgomery Ward Credit
Corporation.
10.(ii)(C)(4)*Letter Agreement dated as of August 2, 1995 between
Monogram Retailer Credit Services, Inc. and Montgomery
Ward & Co., Incorporated.
10.(ii)(D)* Interim Consumer Credit Card Program Agreement dated
as of March 13, 1996 between Monogram Credit Card Bank
of Georgia and Lechmere, Inc.
10.(ii)(D)(1)*Letter Agreement dated January 23, 1996 between
Montgomery Ward & Co., Incorporated, Montgomery Ward
Credit and General Electric Capital Corporation.
10.(ii)(D)(2) Letter Agreement dated March 13, 1996 between
Montgomery Ward & Co., Incorporated, Lechmere,
Inc., General Electric Capital Corporation and
Montgomery Ward Credit Corporation.
10.(ii)(E)* MWCC Program Agreement dated as of April 3, 1996
between Montgomery Ward Credit Corporation,
Montgomery Ward & Co., Incorporated and Lechmere,
Inc.
10.(iii)(A) Program Agreement dated October 12, 1989 between
Montgomery Ward & Co., Incorporated and General
Electric Capital Corporation.
10.(iii)(B) Amendment to Program Agreement dated March 4, 1997
between General Electric Corporation, Montgomery
Ward & Co., Incorporated and Lechmere, Inc.
* Confidential treatment has been requested from the Secretary of the
Commission, with respect to portions of this document.
86
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
3. Exhibits (continued)
10.(iv)(A) Montgomery Ward & Co., Incorporated Stock Ownership
Plan, amended and restated as of May 20, 1994,
incorporated by reference to Exhibit 10.(iv)(A)(ii) (A)
of the Company's Registration Statement on Form S-1
(No. 33-33252).
10.(iv)(A)(1) Amendment No. 1 to the Amended and Restated Montgomery
Ward & Co. Stock Ownership Plan dated October 20, 1994,
incorporated by reference to Exhibit 10.(iv)(A)(iii) of
the Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended October 1, 1994.
10.(iv)(B) Montgomery Ward & Co., Incorporated Long Term Incentive
Plan, incorporated by reference to Exhibit 10.(iv)(B) of
the Company's Registration Statement on Form S-1
(Registration No. 33-23403).
10.(iv)(B)(i) Montgomery Ward & Co., Incorporated Executive Long-Term
Incentive Plan, incorporated by reference to Exhibit
10.(iv)(B)(1) of the Company's Registration Statement
on Form S-1 (No. 33-33252).
10.(iv)(C) Montgomery Ward & Co., Incorporated Performance
Management Program, incorporated by reference to
Exhibit 10.(iv)(C) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
10.(iv)(C)(i) Montgomery Ward & Co., Incorporated Senior Executive
Performance Management Program, incorporated by
reference to Exhibit 10.(iv)(C)(i) of the
Company's Registration Statement on Form S-1
(No. 33-33252).
10.(iv)(D) Montgomery Ward & Co., Incorporated Retirement
Security Plan (as amended and restated effective
as of January 1, 1994), incorporated by reference
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
10.(iv)(D)(1) First Amendment to the Montgomery Ward & Co.,
Incorporated Retirement Security Plan dated
October 9, 1995.
10.(iv)(D)(2) Second Amendment to the Montgomery Ward & Co.,
Incorporated Retirement Security Plan dated
October 31, 1996.
87
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
3. Exhibits (continued)
10.(iv)(E) Montgomery Ward & Co., Incorporated Supplemental
Retirement Plan, incorporated by reference to
Exhibit 10.(iv)(E) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
10.(iv)(F) Montgomery Ward Holding Corp. Directors Fee and Stock
Ownership Plan, incorporated by reference to Exhibit
10. (iv)(F) of the Company's Registration Statement on
Form S-1 (Registration No. 33-41161).
10.(iv)(G) Montgomery Ward Holding Corp. Senior Officer Severance
Plan, incorporated by reference to Exhibit 10.(iv)(G)
of the Company's Annual Report on Form 10-K for the
fiscal year ended January 2, 1993.
10.(iv)(H) Montgomery Ward & Co., Incorporated Savings and Profit
Sharing Plan (as amended and restated as of January 1,
1994), incorporated by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994.
10.(iv)(H)(1) First Amendment to the Montgomery Ward & Co.,
Incorporated Savings and Profit Sharing Plan dated as
of October 31, 1996.
10.(iv)(I) Montgomery Ward & Co., Incorporated Success Plan,
incorporated by reference to Exhibit 10.(iv)(I) of the
Company's Registration Statement on Form S-1 (No.
33-33252).
10.(iv)(J) Form of Montgomery Ward Special Retention Plan document
entered into with the following persons: Alan E.
DiGangi, Spencer H. Heine, Carol J. Harms, Robert A.
Kasenter, Frederick E. Meiser, Edwin G. Pohlmann,
Robert J. Stevenish and John Workman, incorporated by
reference to Exhibit 10.(iv)(J) of the Company's
Quarterly Report on Form 10-Q for the fiscal
quarterly period ended March 30, 1996.
88
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
3. Exhibits (continued)
10.(iv)(L) Form of Montgomery Ward Change of Control Security Plan
document entered into with the following persons:
Alan E. DiGangi, Spencer H. Heine, Carol J. Harms,
Robert A. Kasenter, Frederick E. Meiser, Edwin G.
Pohlmann, Robert J. Stevenish and John Workman,
incorporated by reference to Exhibit 10.(iv)(L)
of the Company's Quarterly Report on Form 10-Q for
the fiscal quarterly period ended March 30, 1996.
10.(v) Relationship Agreement effective December 10, 1996
between Bernard F. Brennan, Montgomery Ward Holding
Corp., Montgomery Ward & Co., Incorporated and
General Electric Capital Corporation.
10.(vi) Employment Agreement effective December 20, 1996
between Montgomery Ward & Co., Incorporated,
Montgomery Ward Holding Corp., and Roger V. Goddu.
10.(vii) Employment Agreement effective January 31, 1997 between
Montgomery Ward & Co., Incorporated, Montgomery Ward
Holding Corp., and Burnett Donoho.
10.(viii) Line of Credit Agreement effective December 19, 1996
between Montgomery Ward & Co., Incorporated and The
Northern Trust Company.
10.(ix) Employment Agreement effective August 31, 1995 between
Montgomery Ward & Co., Incorporated and Robert J.
Stevenish.
10.(x) Employment Agreement effective January 28, 1997 between
Montgomery Ward & Co., Incorporated and Thomas Grimes.
10.(xi) Employment Agreement effective April 22, 1996 between
Montgomery Ward & Co., Incorporated and Michael
Searles.
10.(xii) Employment Agreement effective April 12, 1994 between
Montgomery Ward & Co., Incorporated, and G. Joseph
Reddington, incorporated by reference to
Exhibit 10.(xii) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1994.
89
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
3. Exhibits (continued)
10.(xiii) Employment Agreement effective October 24, 1995 between
Montgomery Ward & Co., Incorporated and Frederick E.
Meiser.
11. Statement regarding computation of per share earnings.
12. Not applicable.
13. Not applicable.
16. Not applicable.
18. Letter from Arthur Andersen LLP regarding change in
accounting principle.
19. Not applicable.
21. Subsidiaries of the Registrant, incorporated by
reference to Exhibit 21 of the Company's
Registration Statement on Form S-1 (Registration
No. 33-33252).
22. Not applicable.
23. Consent of independent public accountants.
24. Not applicable.
27. Financial data schedule.
28. Not applicable.
(b) Reports on Form 8-K.
None during the fiscal quarter ended December 28, 1996.
90
<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 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
BY ROGER V. GODDU
NAME AND TITLE Roger V. Goddu, Director and Principal Executive
Officer
DATE March 28, 1997
BY BURNETT W. DONOHO
NAME AND TITLE Burnett W. Donoho, Director
DATE March 28, 1997
BY BERNARD F. BRENNAN
NAME AND TITLE Bernard F. Brennan, Director
DATE March 28, 1997
BY EDWIN G. POHLMANN
NAME AND TITLE Edwin G. Pohlmann, Director
DATE March 28, 1997
BY MYRON LIEBERMAN
NAME AND TITLE Myron Lieberman, Director
DATE March 28, 1997
91
<PAGE>
SIGNATURES
BY SILAS S. CATHCART
NAME AND TITLE Silas S. Cathcart, Director
DATE March 28, 1997
BY _________________________
NAME AND TITLE Denis J. Nayden, Director
DATE March __, 1997
BY _________________________
NAME AND TITLE Gary C. Wendt, Director
DATE March __, 1997
BY DANIEL W. PORTER
NAME AND TITLE Daniel W. Porter, Director
DATE March __, 1997
BY EDWARD D. STEWART
NAME AND TITLE Edward D. Stewart, Director
DATE March __, 1997
BY JOHN L. WORKMAN
NAME AND TITLE John L. Workman, Executive Vice President,
Chief Financial Officer and Assistant Secretary
(Principal Financial and Accounting Officer)
DATE March __, 1997
92
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
MONTGOMERY WARD HOLDING CORP.
MONTGOMERY WARD HOLDING CORP., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Corporation"), does hereby certify as follows:
1. The original Certificate of Incorporation of the Corporation was filed
in the Office of the Secretary of State of Delaware on February 8, 1988 and
recorded in the Office of the Recorder of Kent County, Delaware. The name
under which the Corporation was originally incorporated is BFB Acquisition
Corp.
2. The Certificate of Correction of Certificate of Incorporation of the
Corporation was filed in the Office of the Secretary of State of Delaware on
February 9, 1988.
3. The original Restated Certificate of Incorporation was filed in the
office of the Secretary of State of Delaware on June 17, 1988 and amendments
thereto were filed on each of June 20, 1988; June 24, 1988; January 30, 1990;
and March 20, 1992.
4. The Second Restated Certificate of Incorporation of the Corporation
was filed in the office of the Secretary of State of Delaware on June 25,
1992 and an amendment thereto was filed on April 27, 1994.
5. The Third Restated Certificate of Incorporation was filed in the
office of the Secretary of State of Delaware on June 28, 1994, and an
amendment thereto was filed on October 25, 1994.
6. The Board of Directors of the Corporation, by unanimous written
consent, authorized, adopted and approved resolutions proposing and declaring
advisable this amendment to the Third Restated Certificate of Incorporation
of the Corporation, setting forth amendments to Article FOURTH as follows:
The introduction to Article FOURTH and Part A thereof are amended in
their entirety to read as follows:
"FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is fifty-seven million eight
hundred thirteen thousand seven hundred fifty (57,813,750) consisting of
the following amounts in the following designations:
1. COMMON STOCK. Fifty-seven million eight hundred twelve
thousand (57,812,000) shares of Common Stock, par value one cent
($0.01) per share (hereinafter referred to as "Common Stock"),
which shall consist of the following classes:
(a) thirty-two million eight hundred twelve thousand
(32,812,000) shares of Class A Common Stock (hereinafter referred
to as "Class A Common Stock"), which shall consist of the
following series:
(i) twenty-five million (25,000,000) shares of Class
A Common Stock, Series 1 (hereinafter referred to as "Class A
Common Stock, Series 1"), and
<PAGE>
(ii) five million four hundred twelve thousand
(5,412,000) shares of Class A Common Stock, Series 2
(hereinafter referred to as "Class A Common Stock, Series
2"), and
(iii) two million four hundred thousand (2,400,000)
shares of Class A Common Stock, Series 3 (hereinafter
referred to a "Class A Common Stock, Series 3"), and
(b) twenty-five million (25,000,000) shares of Class B
Common Stock (hereinafter referred to as the "Class B Common
Stock").
2. PREFERRED STOCK. One thousand seven hundred fifty
(1,750) shares of Preferred Stock, par value one dollar ($1.00)
per share (hereinafter referred to as "Senior Preferred Stock")
Such shares of Common Stock and Preferred Stock may be issued
for such consideration, not less than the par value thereof, as shall be
fixed from time to time by the Board of Directors, and shares issued for
not less than the consideration so fixed shall be fully paid and
non-assessable.
A statement of the powers, preferences, rights, qualifications,
limitations, restrictions and the relative, participating, optional and
other special rights in respect of the shares of each class or series of
stock is as follows:
PART A. SENIOR PREFERRED STOCK
Except as otherwise provided herein, each share of Senior Preferred Stock
shall be identical in all respects to all other shares of Senior Preferred
Stock and shall entitle the holder thereof to the same rights and privileges
as to which the holders of the other shares of Senior Preferred Stock are
entitled.
1. RANK. The Senior Preferred Stock shall, with respect to dividend
rights and rights on liquidation, winding up and dissolution, rank prior to
the Common Stock.
2. DIVIDENDS.
(a) In each year, the holders of the shares of Senior
Preferred Stock shall be entitled to receive, before any dividends
shall be declared and paid upon or set aside for the Common Stock or
any other Stock Junior to the Senior Preferred Stock (defined in
Section A.2(a)(i)(A), when and as declared by the Board of Directors,
except as may be prohibited by Section A.5, out of funds legally
available for that purpose, cumulative cash dividends payable quarterly
in arrears on the last business day of March, June, September and
December (each of such dates being a "Dividend Payment Date") at a rate
per annum equal to 7.01% based on the $100,000 per share Liquidation
Payment (defined in Section A.3(a)) computed without regard to Accrued
Dividends (defined in Section A.4(c)(i))(the "Dividend Rate"), subject
to adjustment as provided in Section A.2(c); provided, however, that
the dividend payable on the Dividend Payment Date in March, 1996 with
respect to any share of Senior Preferred Stock shall be based upon the
number of days from and including the date of first issuance (the
"Issuance Date") of the Senior Preferred Stock up to and including the
Dividend Payment Date in March, 1996 and
A-2
<PAGE>
a 365-day year. The period from the Issuance Date to the initial
Dividend Payment Date and each quarterly period between consecutive
Dividend Payment Dates, shall hereinafter be referred to as a "Dividend
Period." Such dividends shall be paid to the holders of record at the
close of business on the date specified by the Board of Directors of
the Corporation at the time such dividend is declared; provided,
however, that such date shall not be more than sixty (60) days nor less
than ten (10) days prior to the respective Dividend Payment Date.
Dividends on the Senior Preferred Stock shall be cumulative from the
Issuance Date (whether or not there shall be net profits or net assets
of the Corporation legally available for the payment of such
dividends), so that:
(i) except as provided in Section A.2(a)(ii), the
Corporation shall not take any of the following actions:
(A) declare, order or pay any dividend on any class
of stock ranking as to dividends or on liquidation junior to
the Senior Preferred Stock (such junior stock being herein
sometimes referred to as the "Stock Junior to the Senior
Preferred Stock"), or
(B) redeem any Stock Junior to the Senior Preferred
Stock,
(each of such actions described in clauses A.2(a)(i)(A) or (B)
above being herein sometimes referred to as "Junior Distribution"
and the proposed date of each such action being herein sometimes
referred to as a "Proposed Junior Distribution Date") if the
Corporation shall not, on or before the Proposed Junior
Distribution Date, have completed both of the following:
(1) declared on the outstanding shares of Senior
Preferred Stock, and paid or set apart for payment, all
"Accrued Dividends" (defined in Section A.4(c)(i)) to
the Proposed Junior Distribution Date; and
(2) paid or deposited as required in this Part
A all amounts payable to holders of Senior Preferred
Stock in respect of all mandatory redemptions required
to have been paid or deposited for their benefit on or
before the Proposed Junior Distribution Date; and
(ii) the Corporation may redeem or purchase any shares of
Common Stock in accordance with either (x) the terms, conditions
and provisions of the "Stockholders Agreement" (defined in
Section B.1) or (y) the Terms and Conditions (as defined in the
Stockholders Agreement), if on or before the date of each such
proposed Common Stock redemption or purchase (each such time,
with respect to redemptions or purchases under either the
Stockholders Agreement or the Terms and Conditions, being herein
sometimes referred to as a "Proposed Common Stock Repurchase
Date"), the Corporation shall have:
(A) declared on the outstanding shares of Senior
Preferred Stock, and paid or set apart for payment, all
Accrued Dividends (defined in Section
A-3
<PAGE>
A.4(c)(i)) through all Dividend Payment Dates occurring on
or prior to such Proposed Common Stock Repurchase Date, and
(B) paid or deposited as required in this Part A all
amounts payable to holders of Senior Preferred Stock in
respect of the mandatory redemption required to have been
paid or deposited for their benefit on the "Mandatory
Redemption Date" (defined in Section A.4(a)(i)), if such
Mandatory Redemption Date occurs on or prior to such
Proposed Common Stock Repurchase Date.
All dividends declared upon Senior Preferred Stock and any other class
of stock ranking on a parity as to dividends with the Senior Preferred
Stock shall be declared pro rata per share. Accrued but unpaid
dividends shall not bear interest.
(b) Each fractional share of the Senior Preferred Stock
outstanding shall be entitled to a ratably proportionate amount of all
dividends to which each outstanding full share of the Senior Preferred
Stock is entitled pursuant to Section A.2(a) hereof, and all of such
dividends with respect to such outstanding fractional shares shall be
fully cumulative and shall accrue (whether or not declared) and shall
be payable in the same manner and at such times as provided for in
Section A.2(a) with respect to dividends on each outstanding full
share of the Senior Preferred Stock.
(c) The Dividend Rate for the shares of Senior Preferred Stock
shall be (i) increased to 9.01% per annum if, and so long as, Accrued
Dividends (defined in Section A.4(c)(i) are not paid in full on any
Dividend Payment Date, and (ii) increased to 8.01% per annum if, and
so long as, the consolidated shareholder equity of the Corporation and
its subsidiaries (excluding preferred stock) (as determined in
accordance with generally accepted accounting principles as in effect
as of the Issuance Date) is less than the Equity Threshold (as defined
below). The "Equity Threshold" means $520,000,000, reduced, dollar
for dollar, by the amount of any dividends paid with respect to Common
Stock at any time at which shares of Senior Preferred Stock are
outstanding, which dividends are approved by a majority of those
directors of the Corporation who have been designated as directors by
General Electric Capital Corporation ("GE Capital") pursuant to the
terms of the Stockholders Agreement (as defined herein).
3. RIGHTS ON LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, the holders of shares of Senior Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, whether
from capital, surplus or earnings, except as may be prohibited by
Section A.5, but before any payment shall be made to the holders of
any stock ranking on liquidation junior to the Senior Preferred Stock,
an amount equal to one hundred thousand dollars ($100,000) per share,
plus an amount equal to Accrued Dividends (as defined in Section
A.4(c)(i)) to the date of payment (the "Liquidation Payment"). If
upon any liquidation, dissolution or winding up of the Corporation the
assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of
Senior Preferred Stock the full amounts to which they respectively
shall be entitled, the holders of shares of Senior Preferred Stock,
and any class of
A-4
<PAGE>
stock ranking on liquidation on a parity with the Senior Preferred
Stock, shall share ratably in any distribution of assets according to
the respective amounts which would be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with
respect to said shares were paid in full. In the event of any
liquidation, dissolution or winding up of the Corporation after
payment shall have been made to the holders of shares of Senior
Preferred Stock and any class of stock ranking on liquidation on a
parity with the Senior Preferred Stock of the full amount to which
they shall be entitled as aforesaid, the holders of any class or
classes of stock ranking on liquidation junior to the Senior Preferred
Stock shall be entitled, to the exclusion of the holders of shares of
Senior Preferred Stock, to share, according to their respective rights
and preferences, in all remaining assets of the Corporation available
for distribution to its stockholders.
(b) The Liquidation Payment with respect to each fractional
share of the Senior Preferred Stock outstanding shall be equal to a
ratably proportionate amount of the Liquidation Payment with respect
to each outstanding share of Senior Preferred Stock.
(c) For the purposes of this Section A.3, neither the
consolidation or merger of the Corporation into or with any other
corporation or corporations, nor the sale or transfer by the
Corporation of all or any part of its assets shall be deemed to be a
liquidation, dissolution or winding up of the Corporation, unless such
transaction shall be in connection with the liquidation, dissolution
or winding up of the Corporation.
4. REDEMPTION.
(a) MANDATORY REDEMPTION.
(i) Except as may be prohibited by Section A.5, on June 30,
2002, the Corporation shall redeem all of the outstanding shares of
Senior Preferred Stock at a redemption price of (A) one hundred
thousand dollars ($100,000) per share (payable in cash or other
consideration as the Corporation and holders of a majority of the
Senior Preferred Stock may agree), plus (B) an amount equal to Accrued
Dividends (defined in Section A.4(c)(i)) to the date of payment (the
"Redemption Price") (each such date being herein sometimes referred to
as a "Mandatory Redemption Date")
(ii) On and after the Mandatory Redemption Date (unless default
shall be made by the Corporation in depositing moneys for the payment
of the Redemption Price as hereinafter provided), all rights of the
holders of shares of Senior Preferred Stock as stockholders of the
Corporation with respect to those shares of Senior Preferred Stock to
be redeemed, except the right to receive the Redemption Price as
hereinafter provided, shall cease and terminate.
(iii) The Corporation shall provide moneys for the payment of the
Redemption Price by depositing on the Mandatory Redemption Date the
amount thereof for the account of the holders of record of the Senior
Preferred Stock entitled thereto with Bank of America Illinois, or
such other bank or trust company doing business in the City of
Chicago, as may be designated by (A) the holders of not less than a
majority of the outstanding shares of Senior Preferred Stock, and,
failing said designation, (B) the Corporation, as paying agent for the
benefit of such holders. The
A-5
<PAGE>
holders of the shares of Senior Preferred Stock redeemed shall
surrender to the Corporation the certificates for the shares of Senior
Preferred Stock so redeemed. Upon notification by such designated
bank or trust company to the holders of the Senior Preferred Stock
that such moneys representing the Redemption Price have been deposited
by the Corporation, the shares designated for redemption shall no
longer be outstanding, whether or not the certificates for the shares
so redeemed have been received by the Corporation on the date of such
notification and all rights relating thereto shall cease and
terminate.
(b) OPTIONAL REDEMPTION.
(i) So long as any shares of Senior Preferred Stock are
outstanding, except as may be prohibited by Section A.5, the
Corporation may, at the option of the Board of Directors, at any time
or from time to time after the Issuance Date, redeem the whole or any
part of such Senior Preferred Stock. Any redemption pursuant to this
Section A.4(b)(i) shall be at the Redemption Price. If less than all
the shares of Senior Preferred Stock at any time outstanding shall be
called for redemption, the redemption shall be made pro rata with
respect to such shares and in such manner as may be prescribed by
resolution of the Board of Directors. The date of each such
redemption is herein sometimes referred to as an "Optional Redemption
Date".
(ii) Notice of every redemption pursuant to this Section A.4(b)
shall be sent by first-class mail, postage prepaid, to the holders of
record of the shares of Senior Preferred Stock so to be redeemed at
their respective addresses as the same shall appear on the books of
the Corporation. Such notice shall be mailed not less than ten (10)
business days in advance of the Optional Redemption Date to the
holders of record of the shares of Senior Preferred Stock so to be
redeemed. On and after the Optional Redemption Date, unless default
shall be made by the Corporation in providing moneys to the bank or
trust company for the account of the holders of record of the Senior
Preferred Stock as provided in Section A.4(a)(iii) for the payment of
the Redemption Price, all rights of the holders of Senior Preferred
Stock as stockholders of the Corporation with respect to those shares
of Senior Preferred Stock to be redeemed, except the right to receive
the Redemption Price, shall cease and terminate whether or not the
certificates for the shares so redeemed have been received by the
Corporation as provided in Section A.4(a)(iii). In this Section
A.4(b)(ii), a business day refers to any day, except a Saturday,
Sunday or any day on which banks in the City of Chicago are authorized
or required by law to close.
(c) DEFINITIONS.
(i) The term "Accrued Dividends" with respect to the Senior
Preferred Stock shall mean, as of any given time, the then "Full
Cumulative Dividends" (defined in Section A.4(c)(ii)) less the amount
of all dividends theretofore paid upon the relevant shares of Senior
Preferred Stock.
(ii) The term "Full Cumulative Dividends" with respect to the
Senior Preferred Stock shall mean (whether or not in any Dividend
Period, or any part thereof, in respect of which such term is used
there shall have been net profits or net assets of
A-6
<PAGE>
the Corporation legally available for the payment of such
dividends) that amount which shall be equal to dividends upon
the relevant shares at the full rate fixed for Senior Preferred
Stock as provided herein for the period of time elapsed from the
date of issuance thereof to the date as of which Full Cumulative
Dividends are computed.
(d) Shares of Senior Preferred Stock which have been issued and
reacquired in any manner, including shares purchased or redeemed or
exchanged, shall not be reissued.
(e) Each fractional share of the Senior Preferred Stock
outstanding shall be entitled to a ratably proportionate fraction of
the Redemption Price payable in respect of each outstanding full share
of the Senior Preferred Stock pursuant to this Section A.4, and such
fraction of the price shall be payable in the same manner and at such
times as provided for in this Section A.4 with respect to redemptions
of each outstanding full share of the Senior Preferred Stock.
(f) The foregoing provisions of this Section A.4 to the contrary
notwithstanding but without limitation of the Corporation's
obligations to make mandatory redemptions as required by Section
A.4(a), unless the Accrued Dividends on all outstanding shares of
Senior Preferred Stock shall have been paid or contemporaneously are
declared and paid through the date of a proposed optional redemption,
none of the shares of Senior Preferred Stock shall be redeemed unless
all outstanding shares of Senior Preferred Stock are simultaneously
redeemed and the Corporation shall not purchase by optional redemption
or otherwise acquire any shares of Senior Preferred Stock; provided,
however, that the foregoing shall not prevent the purchase or
acquisition of shares of Senior Preferred Stock pursuant to a purchase
or exchange offer made on the same terms to holders of all outstanding
shares of Senior Preferred Stock.
(g) If fewer than all the outstanding shares of Senior Preferred
Stock are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors in accordance with the provisions
of this Part A, and the shares to be redeemed shall be determined by
lot or pro rata as may be determined by the Board of Directors.
5. RESTRICTION ON PAYMENTS. Anything contained in this Article to the
contrary notwithstanding, no cash dividends or dividends paid by transfer of any
other property on shares of the Senior Preferred Stock shall be declared by the
Board of Directors or paid or set apart for payment by the Corporation, no
distribution in respect of the Senior Preferred Stock shall be paid or set apart
for payment by the Corporation, and no payment shall be made by the Corporation
with respect to any redemption of the Senior Preferred Stock (such payments,
distributions and settings aside being herein sometimes referred to collectively
as "Distributions") at any time when the terms and provisions of any agreement
to which the Corporation or any other member of the "Ward Group" (defined in
Section B.1) is a party relating to indebtedness for money borrowed specifically
prohibits or limits such Distribution (and such Distribution exceeds said
limits), or such Distribution would constitute a breach, default or event of
default thereunder.
6. VOTING RIGHTS.
(a) Except as expressly provided in Section A.6(b) or elsewhere in
this certificate of incorporation or as required by law (in relation to
which the holders of shares of Senior Preferred Stock shall be treated as a
class), the holders of shares of Senior Preferred Stock shall not have
voting rights and at every meeting of the stockholders of the Corporation,
or by written consent in lieu of any such
A-7
<PAGE>
meeting, all voting power in the election of directors and/or for all other
purposes shall be vested exclusively in the holders of shares of Common
Stock. Without limitation of the next preceding sentence and without
implication that the contrary would otherwise be true, no consent of the
holders of Senior Preferred Stock shall be required for (a) the creation of
any indebtedness of any kind of the Corporation, (b) the creation of any
class of stock of the Corporation junior in right as to dividends and upon
liquidation to the Senior Preferred Stock, or (c) any increase or decrease
in the amount of authorized Common Stock or any increase, decrease or
change in the par value thereof.
(b) Anything elsewhere in this certificate of incorporation to the
contrary notwithstanding, if (i) Accrued Dividends on the Senior Preferred
Stock are not paid in full on any of four (4) consecutive Dividend Payment
Dates, or (ii) the Corporation shall have failed to effect the redemption
of shares of Senior Preferred Stock on a Mandatory Redemption Date as
required in Section A.4(a), the holders of shares of Senior Preferred Stock
shall have voting rights as specified in this Section A.6(b). In the event
of the occurrence of either of the foregoing events, such occurrence shall
mark the beginning of a period (the "Default Period") which shall continue
until such time as (i) Accrued Dividends on the Senior Preferred Stock have
been paid in full through the date of payment, or (ii) the failure to
redeem shares of Senior Preferred Stock as required by Section A.4(a) has
been cured by the Corporation. Any provision of the by-laws of the
Corporation to the contrary notwithstanding, during any Default Period, the
holders of shares of the Senior Preferred Stock then outstanding shall have
the exclusive and special right (but not the obligation), voting separately
as a class (each share of Senior Preferred Stock being entitled to one (1)
vote), to elect one (1) director to the Board of Directors of the
Corporation (the "Preferred Stock Director") and the number of directors
constituting the Board of Directors of the Corporation shall be
automatically increased in order to provide one (1) vacancy for the
Preferred Stock Director. Upon written request, made at any time after the
beginning of the Default Period, by the holders of not less than a majority
of the shares of the Senior Preferred Stock then outstanding, the
Corporation shall call a special meeting of all of the stockholders of the
Corporation, at which meeting the holders of shares of Senior Preferred
Stock, voting separately as a class, shall elect the Preferred Stock
Director as set forth above; provided, however, that if such meeting shall
not have been called by the Corporation within ten (10) days after the
beginning of a Default Period, such meeting may be called, upon like
notice, at the expense of the Corporation, by the holders of not less than
a majority of the outstanding shares of Senior Preferred Stock. After the
first such election during any Default Period, the holders of the shares of
Senior Preferred Stock, voting separately as a class, may continue to
exercise their voting rights, as set forth above, at each annual meeting of
the stockholders of the Corporation occurring during such Default Period.
During any Default Period, no Preferred Stock Director may be removed from
office without the vote or consent of the holders of a majority of the
numbers of shares of the Senior Preferred Stock at the time outstanding. If
at any time during a Default Period the directorship of the Preferred Stock
Director is vacant, the secretary of the Corporation shall, upon the
written request of the holders of shares representing at least a majority
of the Senior Preferred Stock then outstanding, call a special meeting of
all of the stockholders at the expense of the Corporation, upon the notice
required for special meetings of stockholders. At any meeting held for the
purpose of electing directors at which the holders of the Senior Preferred
Stock shall have the right, voting separately as a class, to elect the
Preferred Stock Director, the presence, in person or by proxy, of the
holders of a majority of the Senior Preferred Stock then outstanding shall
be required to constitute a quorum of the Senior Preferred Stock on such
election. At any such meeting or adjournment thereof, the absence of the
quorum of the Senior Preferred Stock shall not prevent the election of
directors other than the Preferred Stock Director, and the absence of a
quorum for the election of such other directors shall not prevent the
election of the Preferred Stock Director, and in the absence of either or
both such quorums, a majority of the holders present in person or by proxy
of the stock which lacks a quorum shall have the power to adjourn the
A-8
<PAGE>
meeting for the election of directors which they are entitled to elect from
time to time without notice other than announcement at the meeting until a
quorum shall be present. A vacancy in the directorship of the Preferred
Stock Director may be filled only by the vote or written consent of holders
of a majority of the shares of the outstanding Senior Preferred Stock.
Upon termination of a Default Period, the term of office of the then
Preferred Stock Director shall automatically terminate, the shares of
Senior Preferred Stock shall cease to have the voting rights specified in
this Section A.6(b), the number of directors constituting the Board of
Directors of the Corporation shall be automatically reduced to eliminate
the vacancy caused by the termination of the office of the Preferred Stock
Director and all voting rights shall be vested exclusively in the holders
of shares of Common Stock, subject to the revesting of voting rights in the
shares of Senior Preferred Stock in the event of the beginning of another
Default Period.
7. AMENDMENT. This certificate of incorporation of the Corporation shall
not be amended in any manner which would alter or change the powers, preferences
or special rights of the Senior Preferred Stock so as to affect them adversely
(including, without limitation, providing for the creation of any new class of
capital stock senior to, or on a parity with, the Senior Preferred Stock as to
dividends, redemption rights or on liquidation) without the affirmative vote of
the holders of at least a majority of the outstanding shares of Senior Preferred
Stock, voting together as a single class. The Board of Directors reserves the
right to act by resolution from time to time to decrease the number of shares
which constitute Senior Preferred Stock (but not below the number of shares
thereof outstanding).
A-9
<PAGE>
7. The Stockholders of the Corporation, by unanimous written consent,
adopted resolutions authorizing, adopting and approving the aforesaid amendment
to Article FOURTH of the Third Restated Certificate of Incorporation of the
Corporation.
8. Except to the extent specifically provided to the contrary in this
Certificate of Amendment, the terms, provisions and conditions of the Third
Restated Certificate of Incorporation of the Corporation shall remain unamended
and in full force and effect.
9. This Certificate of Amendment has been duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, MONTGOMERY WARD HOLDING CORP. has caused this
certificate to be signed by Bernard F. Brennan, its Chairman of the Board, and
attested by Spencer H. Heine, its Secretary, this day of March, 1996.
MONTGOMERY WARD HOLDING CORP.
By:____________________________________
Bernard F. Brennan
Chairman of the Board
(CORPORATE SEAL)
ATTEST:
By:___________________________
Spencer H. Heine
Secretary
A-10
<PAGE>
Amendments to By-laws
Amendments to the By-laws of Montgomery Ward Holding Corp. adopted by the
Board of Directors by unanimous written consent:
1. Paragraph (a) of Section 1 of Article III of the By-laws of Montgomery
Ward Holding Corp. (as amended and restated as of December 29, 1994) is hereby
amended and restated to read in its entirety as follows:
"(a) Except as otherwise provided in the other paragraphs of
this Section 1, the total number of directors which shall be elected
by the stockholders shall be ten (10), five to be designated by
Brennan and five to be designated by GE Capital; PROVIDED, HOWEVER, at
such time as Brennan ceases to be the Chairman of the Board and Chief
Executive Officer of Ward, Brennan shall cause two of his designees
then serving as members of the board of directors to resign effective
upon the appointment of a successor Chairman of the Board and Chief
Executive Officer of Ward, which such successor shall be entitled to
designate two members (including himself) and Brennan thereafter shall
be entitled to designate three members of the board of directors."
2. Section 1 of Article III of the By-laws is hereby amended to add new
subparagraphs (d) and (e) to read in their entirety as follows:
"(d) (x) at such time, if any, as Brennan and his Permitted
Transferees collectively shall cease to own, in the aggregate, more
than 50% of the Shares which they held on December 1, 1996 and Brennan
is no longer Chairman of the Board and Chief Executive Officer of
Ward, the number of members of the board of directors which GE Capital
shall have the right to designate shall be increased by two and the
number of members of the board of directors which Brennan shall have
the right to designate shall be reduced by two, and (y) at such time,
if any, as Brennan and his Permitted Transferees collectively shall
cease to own, in the aggregate, more than 20% of the Shares which they
held on December 1, 1996 and Brennan is no longer Chairman of the
Board and Chief Executive Officer of Ward, Brennan shall no longer
have the right to designate any member of the board of directors and
the members that Brennan would have been entitled to designate (after
taking into account the number of directors that GE Capital is
entitled to designate as a result of the decrease in ownership below
the 50% level describe in (x) above) shall be designated by the
Chairman of the Board and Chief Executive Officer of Ward.
7
<PAGE>
(e) in the event of Brennan's death or legal incompetence, his
rights, if any, to designate directors hereunder shall be exercisable
by his Permitted Transferees based on a vote of a majority of the
Shares held by such Permitted Transferees."
Paragraphs (d) through (f) of Section 1 of Article III of the By-laws prior to
such amendment shall be renumbered such that such paragraph (d) shall be
numbered paragraph (f) and so forth.
3. The lead-in paragraph of Section 10 of Article III of the By-laws is
hereby amended and restated in its entirety to read as follows:
"SECTION 10. CERTAIN SUPERMAJORITY REQUIREMENTS. Any matter
requiring action of the board of directors of the corporation shall
require the affirmative vote of not less than two-thirds (2/3) of the
entire board of directors (i.e., at least two-thirds (2/3) of the
number of directorships, regardless of how many directors are then in
office). The actions which shall require action by such board of
directors shall include, without limitation, the following:"
8
<PAGE>
4. The By-laws are hereby amended to add a new Article X which reads in
its entirety as follows:
"ARTICLE X
SHARE TRANSFERS SUBJECT TO VOTING AGREEMENTS
Any Transfer of Shares to any Person shall not be effective until
such Person executes a written agreement pursuant to which such Person
acknowledges and agrees that the Shares Transferred to it remain
subject to all restrictions on Transfer contained in the Stockholders'
Agreement and that it is subject to the voting provisions applicable
to Brennan immediately prior to the consummation of the Transfer
including, without limitation, the provisions contained therein
relating to voting for members of the Board of Directors designated by
Brennan, GE Capital and the Chairman of the Board and Chief Executive
Officer of Ward."
9
<PAGE>
THIRD AMENDMENT
TO
LONG TERM CREDIT AGREEMENT
THIS AMENDMENT (the "Amendment") dated as of December 23, 1996 (the
"Third Amendment Effective Date"), is made and entered into among MONTGOMERY
WARD & CO., INCORPORATED (the "Company") and the banks listed on the signature
pages hereof (herein, together with their respective successors and assigns,
collectively called the "Banks" and individually called a "Bank").
WHEREAS the Banks are parties to that certain Long Term Credit
Agreement dated as of September 15, 1994, as amended as of March 19, 1996 and
September 6, 1996 (the "Long Term Credit Agreement"), among Montgomery Ward &
Co., Incorporated, various banks named therein, The First National Bank of
Chicago, as Documentary Agent, The Bank of Nova Scotia, as Administrative Agent,
The Bank of New York, as Negotiated Loan Agent, and Bank of America National
Trust and Savings Association, as Advisory Agent; and
WHEREAS the Company and the Banks desire to amend the Long Term Credit
Agreement in certain respects;
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
AMENDMENTS
1.1 SECTION 1.1 of the Long Term Credit Agreement is hereby amended by
adding the following definitions thereto (or in the case of the definition of
Termination Date, amending such definition to read in its entirety, as set forth
below):
"APPLICABLE MARGIN" means as to any Type of Loan, for any period set
forth below, a rate per annum, as follows:
EURODOLLAR BASE RATE LOAN
PERIOD LOAN SWING LOAN
------ ---------- ---------------
December 23, 1996
through March 31, 1997 1.50% 0.25%
April 1, 1997
through June 30, 1997 2.00% 0.75%
<PAGE>
EURODOLLAR BASE RATE LOAN
PERIOD LOAN SWING LOAN
------ ---------- ---------------
After June 30, 1997 2.50% 1.25%
"EBITDAR" means, for any fiscal period, on a consolidated basis for
the Company and its Subsidiaries, net income, PLUS interest expense, PLUS
provision for taxes on income, PLUS depreciation and amortization expense,
PLUS rent expense, MINUS interest income, in each case, for such fiscal
period.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any fiscal period, the
consolidated capital expenditures of the Company and its Subsidiaries for
such period, as the same are (or would in accordance with GAAP be) set
forth in the consolidated statement of changes in cash flow of the Company
and its Subsidiaries for such period.
"CREDIT AGREEMENT PERCENTAGE" means a percentage corresponding to the
fraction, the numerator of which is equal to the aggregate principal of
Loans then outstanding under this Agreement, and the denominator of which
is equal to the aggregate principal amount of loans then outstanding under
this Agreement and under the Short Term Credit Agreement.
"DISPOSITION" means the sale, assignment, transfer, contribution,
conveyance, issuance or other disposition of, or granting of options,
warrants or other similar rights with respect to, any asset of the Company
or any Subsidiary, EXCLUDING, HOWEVER,(i) the sale or transfer of inventory
in the ordinary course of business,(ii) the sale or transfer of obsolete
fixtures and equipment in the ordinary course of business,(iii) the sale or
transfer of receivables pursuant to the Retail Credit Program Agreement and
other receivables agreements similar to the receivables agreements
currently in effect,(iv) the liquidation of cash equivalents in the
ordinary course of business,(v) the sale or transfer by Signature of
investment portfolio assets in the ordinary course of business,(vi) any
sale or transfer by the Company or any Subsidiary to the Company or any
other Subsidiary, (vii) the sale or transfer by Signature of fixtures,
equipment and certain hardware and software acquired after January 1, 1996
for telemarketing/customer service centers, provided that the aggregate
sale price thereof does not exceed $10,000,000, and (viii) any sale or
transfer or related series of sales or transfers in which the aggregate Net
Proceeds shall be less than $50,000.
"NET PROCEEDS" means the aggregate amount of cash and readily
marketable cash equivalents, and all other proceeds (excluding rental
income) received by the Company or any
<PAGE>
Subsidiary in connection with any Disposition (including, when received by
the Company or any Subsidiary, any principal installments with respect to
installment sales contracts or purchase money indebtedness of purchasers or
other similar deferred consideration), LESS the amount (as estimated by the
Company in good faith) of:
(i) all reasonable costs of the Company or such Subsidiary
(excluding any rental expense) associated with such Disposition,
(ii) all amounts paid by the Company or such Subsidiary in
retiring or satisfying any Lien on such asset which is required to be
retired or satisfied in connection with such Disposition,
(iii) in the case of a Disposition of assets of Signature, all
indebtedness of Signature which is required to be repaid in connection
with such Disposition,
(iv) any and all taxes (including Federal and state income or
gross receipts taxes) arising from or related to such Disposition,
(v) solely with respect to Dispositions of real property (and the
related fixtures and equipment) on which retail stores or distribution
centers are located, any amounts which the Company expends (or
reasonably estimates it will expend in a written notice promptly
delivered to the Administrative Agent and each Bank) for the purchase
and/or construction and fixturing of a replacement or substitute
facility in the geographic area in which such real property is
situated, PROVIDED that the agreement or letter of intent pursuant to
which such replacement or substitute facility is to be acquired is
entered into prior to or within 3 Business Days after the Disposition
of such real property and that such agreement or such letter of intent
is not subsequently cancelled prior to the acquisition or substantial
completion of such replacement or substitute facility, and
(vi) proceeds (other than cash or cash equivalent proceeds) with
respect to properties (and the related fixtures and equipment) listed
on SCHEDULE IX.
"SIGNATURE" means collectively Signature Financial/Marketing, Inc.
and/or its Subsidiaries.
"SIGNATURE CREDIT AGREEMENT" means the Credit Agreement dated as of
September 27, 1996, as amended and restated as of October 21, 1996, among
Signature Financial/Marketing, Inc.,
<PAGE>
various Banks, The Bank of New York as Documentation Agent, and The Bank of
Nova Scotia, as Administrative Agent, as the same may be further amended or
modified from time to time.
"TERMINATION DATE" means, with respect to each Bank, the earlier to
occur of (i) February 15, 1998, or (ii) such other date on which the
Aggregate Commitments shall terminate pursuant to SECTION 5 or 13.2 or be
reduced to zero pursuant to SECTION 2.6 and, if in any case such day is not
a Business Day, the next succeeding Business Day. Notwithstanding any
provision herein to the contrary, after the Third Amendment Effective Date,
the Company shall not be entitled to request an extension of the
Termination Date pursuant to SECTION 2.7.
"THIRD AMENDMENT EFFECTIVE DATE" means December 23, 1996.
1.2 SECTION 2 of the Long Term Credit Agreement is hereby amended by
adding the following SECTION 2.8 thereto:
2.8. MANDATORY PREPAYMENTS. After the Third Amendment Effective
Date, following receipt by the Company or any Subsidiary of any Net
Proceeds from any Disposition, the Company shall make a mandatory
prepayment of the Loans, such prepayment to be equal to the Credit
Agreement Percentage of 80% of such Net Proceeds (the "Net Proceeds Share")
or the aggregate unpaid principal amount of all Loans then outstanding,
whichever is less; PROVIDED, HOWEVER, that up to $20,000,000 of Net
Proceeds received after the Third Amendment Effective Date by the Company
or its Subsidiaries from all Dispositions shall not be subject to this
SECTION 2.8. Each prepayment pursuant to this SECTION 2.8 shall be made
within 3 Business Days of the date upon which the amount of the Net
Proceeds which have not theretofore been applied by the Company to
prepayments under this Agreement or the Short Term Credit Agreement shall
equal or exceed $1,000,000. Concurrently with any prepayment required
under this SECTION 2.8 the Aggregate Commitment shall automatically be
reduced by the amount of such Net Proceeds Share (such reduction to be
prorata among the Banks according to their respective Commitments).
1.3 SECTION 4 of the Long Term Credit Agreement is hereby amended by
adding the following SECTION 4.6 thereto:
4.6. SUSPENSION PERIOD FOR NEGOTIATED LOANS. Notwithstanding any
provision of this Agreement to the contrary, commencing on and after the
Third Amendment Effective Date until the Termination Date, the Company
shall not request and no Bank shall make Negotiated Loans.
<PAGE>
1.4 SECTION 6.1 of the Long Term Credit Agreement is hereby amended so
that SECTION 6.1 through SECTION 6.1(b) shall read in its entirety as follows:
6.1 INTEREST RATES. The Company hereby promises to pay interest on
the unpaid principal amount of each Loan for the period commencing on the
Funding Date of such Loan until such Loan is paid in full, as follows:
(a) if such Loan is a Base Rate Loan or a Swing Loan, at a rate
per annum equal to the Base Rate from time to time in effect, plus on
and after the Third Amendment Effective Date, the Applicable Margin;
(b) if such Loan is a Eurodollar Loan, at a rate per annum during
each Interest Period equal to the Eurodollar Rate applicable to such
Interest Period, plus (i) prior to the Third Amendment Effective Date,
0.375% plus any Eurodollar Margin Increment, and (ii) on and after the
Third Amendment Effective Date, the Applicable Margin;
1.5 SECTION 6.2 of the Long Term Credit Agreement is deleted as of the
Third Amendment Effective Date (it being understood, however, that the
provisions of such section shall survive as to any additional interest accruing
prior to the Third Amendment Effective Date).
1.6 SECTION 6.3 of the Long Term Credit Agreement is amended to read
in its entirety as follows:
6.3 INTEREST PAYMENT DATES. Accrued interest on each Loan shall be
payable on the last day of the Interest Period therefor and on each
Conversion date related to such Loan; PROVIDED, HOWEVER, that accrued
interest on each Eurodollar Loan which has an Interest Period of 6 months
shall be payable on the 90th day of such Interest Period or, if such day is
not a Business Day, on the next succeeding Business Day. After maturity of
any Loan, accrued interest on such Loan shall be payable on demand.
1.7 SUPPLEMENTAL COMMITMENT FEE. SECTION 6 of the Long Term Credit
Agreement is amended by adding the following SECTION 6.10 thereto:
6.10 SUPPLEMENTAL COMMITMENT FEE. The Company agrees to pay to the
Administrative Agent for the account of each Bank (PRO RATA in accordance
with the average daily amount of the Unused Commitment of such Bank),
within fifteen days of the last day of December 1996, and thereafter within
fifteen days of the last day of each calendar quarter of each year until
the Termination Date for such Bank, and on the Termination
<PAGE>
Date for such Bank, a commitment fee which, when added to the fees payable
under SECTIONS 6.5 and 6.6 in respect of the corresponding period for which
the commitment fee under this SECTION 6.10 is computed, shall equal a
commitment fee computed at the rate of 0.375% per annum on the average
daily amount of the Aggregate Commitment minus the aggregate principal
amount of all Loans then outstanding during the quarterly or other period
preceding the date of such payment. Such commitment fee shall commence
accruing on the Third Amendment Effective Date and shall be payable in
arrears. Commitment fees shall be payable regardless of the occurrence of
an Event of Default or an Unmatured Event of Default.
1.8 SECTION 11.1(b) of the Long Term Credit Agreement is amended to
read in its entirety as follows:
(b) INTERIM REPORTS.
(i) Within 10 days after each fiscal month, a flash report containing
(x) the total retail sales of the Company and its Subsidiaries (other than
Signature) for the fiscal month then ended and for the corresponding fiscal
month of the previous Fiscal Year, (y) the aggregate reinvestment by the
Company of borrowings under its loan agreements and uncommitted lines in
cash equivalents as of the end of such month, and (z) the aggregate
principal amount of loans as of the end of such month which are then
outstanding under the Company's revolving loan agreements (including this
Agreement), any uncommitted lines of the Company, and any loan agreement of
Signature, together with a breakdown thereof,
(ii) Within 30 days after each fiscal month (or in the case of the
last fiscal month in a Fiscal Year, within 60 days after such fiscal
month), (A) a copy of the unaudited internally prepared (x) consolidated
financial statements of the Company and its Subsidiaries (but accounting
for Signature on the equity method) consisting of at least a balance sheet
as at the close of such fiscal month, statements of earnings for such
fiscal month and for the period from the beginning of such Fiscal Year to
the close of such fiscal month, and a statement of cash flows for the
period from the beginning of such Fiscal Year to the close of such fiscal
month, and (y) consolidated financial statements of Signature, consisting
of at least a balance sheet of Signature as at the close of such fiscal
month and statements of earnings of Signature for such fiscal month and for
the period from the beginning of such Fiscal Year to the close of such
fiscal month, and (B) a report setting forth the cumulative amount of all
Net Proceeds received after the Third Amendment Effective Date, together
with the aggregate amount of prepayments and Commitment reductions related
thereto, and
<PAGE>
(iii) within 60 days after each Fiscal Quarter (except the last Fiscal
Quarter in a Fiscal Year), a copy of the unaudited consolidated financial
statements of the Company and its Subsidiaries prepared in accordance with
GAAP (subject to normal year end audit adjustments) consisting of at least
a balance sheet as at the close of such Fiscal Quarter, statements of
earnings for such Fiscal Quarter and for the period from the beginning of
such Fiscal Year to the close of such Fiscal Quarter, and a statement of
cash flows from the beginning of such Fiscal Year to the close of such
Fiscal Quarter.
1.9 SECTION 11.3 of the Long Term Credit Agreement is hereby amended
by adding thereto a second paragraph as follows:
Notwithstanding the foregoing, the provisions of the first paragraph
of this SECTION 11.3 shall not apply to the end of the Fiscal Year ending
December 28, 1996 or the Fiscal Quarters ending March 29, 1997 or June 28,
1997; it being understood (and the Company hereby agrees) that (i) as of
the end of the Fiscal Year ending December 28, 1996, and of its Fiscal
Quarters ending March 29, 1997 and June 28, 1997, it will not permit the
Consolidated Shareholder's Equity to be less than $450,000,000; and (ii)
after June 28, 1997 the provisions of the first paragraph of this
SECTION 11.3 shall reapply to the end of each Fiscal Year or Fiscal
Quarter, as the case may be, which ends thereafter (i.e., the required
Consolidated Shareholder's Equity for the Fiscal Quarter ending
September 27, 1997 shall be based on the Ratio of Earnings to Fixed Charges
for the Fiscal Quarter ending June 28, 1997).
1.10 SECTION 11.4 of the Long Term Credit Agreement is hereby amended
to read in its entirety as follows:
11.4 RATIO OF DEBT TO TOTAL CAPITALIZATION. Not permit the Debt of
the Company and its Restricted Subsidiaries at the end of any Fiscal
Quarter to exceed the percentage of Total Capitalization applicable to such
Fiscal Quarter as follows:
Percentage of Total
Fiscal Quarter End Capitalization
------------------ -------------------
December 28, 1996 70%
March 29, 1997 75%
June 28, 1997 75%
September 27, 1997 60%
January 3, 1998 50%
1.11 SECTION 11.18 of the Long Term Credit Agreement is hereby amended
by adding the following proviso at the end of the section:
<PAGE>
; provided, however, in the case of the Fiscal Quarters ending
March 29, 1997 and June 28, 1997, "75%" shall replace "60%" in clause (a)
above; and in the case of the Fiscal Quarter ending December 28, 1996,
"70%" shall replace "50%" in clause (b) above.
1.12 SECTION 11.20 of the Long Term Credit Agreement is hereby amended
to read in its entirety as follows:
11.20 EBITDAR; FIXED CHARGE RATIO. (a) EBITDAR. As of the end of any
Fiscal Quarter set forth below, not permit EBITDAR of the Company and its
Subsidiaries for the 4 consecutive Fiscal Quarters then ending to be less
than the amount applicable to the end of such Fiscal Quarter as follows:
4-Fiscal Quarters Ended EBITDAR
----------------------- --------
December 28, 1996 $190,000,000
March 29, 1997 $220,000,000
June 28, 1997 $190,000,000
(b) RATIO OF EARNINGS TO FIXED CHARGES. Not permit, for the Fiscal
Quarters ending September 27, 1997 and January 3, 1998, the Ratio of
Earnings to Fixed Charges determined as of the last day of each Fiscal
Quarter to be less than 1.10:1.
1.13 SECTION 11 of the Long Term Credit Agreement is hereby amended by
adding the following SECTION 11.21 thereto:
11.21. CAPITAL EXPENDITURES. Not permit Consolidated Capital
Expenditures in any Fiscal Quarter ending on or after December 23, 1996, to
exceed $30,000,000.
1.14 SECTION 11 of the Long Term Credit Agreement is amended by
adding the following SECTION 11.22 thereto:
11.22. LECHMERE GUARANTY. Cause the Liabilities to be guaranteed by
Lechmere, Inc. ("Guarantor") pursuant to a guaranty substantially in the
form of EXHIBIT N ("Guaranty").
1.15 SECTION 11 of the Long Term Credit Agreement is amended by
adding the following SECTION 11.23 thereto:
11.23 LIMITATION ON SIGNATURE DEBT. Not permit Signature to incur
or permit to exist any Indebtedness for Borrowed Money, except (i)
Indebtedness for Borrowed Money which in the aggregate (including
Indebtedness for Borrowed Money under the Signature Credit Agreement) does
not exceed $200,000,000, and (ii) Indebtedness for Borrowed Money of
Signature to the Company or its other Subsidiaries.
<PAGE>
1.16 EVENTS OF DEFAULT. SECTION 13.1(e) of the Long Term Credit
Agreement is amended to read in its entirety as follows:
(e) SPECIFIED NON-COMPLIANCE WITH THIS AGREEMENT. Failure by the
Company to comply with or to perform its obligations under SECTIONS 11.3,
11.4, 11.5, 11.6, 11.17, 11.18, 11.20, or 11.21 of this Agreement.
1.17 SECTION 13.1 of the Long Term Credit Agreement is further
amended by adding thereto SECTION 13.1(l) as follows:
(l) GUARANTOR DEFAULTS. Guarantor fails in any material respect to
perform or observe any term, covenant or agreement in its Guaranty; or the
Guaranty of Guarantor is for any reason partially (including with respect
to future advances) or wholly revoked or invalidated, or otherwise ceases
to be in full force and effect, or Guarantor or any other Person contests
in any manner the validity or enforceability thereof or denies that it has
any further liability or obligation thereunder.
1.18 SCHEDULE VIII to the Long Term Credit Agreement is hereby amended
as set forth in SCHEDULE VIII hereto.
1.19 EXHIBIT I to the Long Term Credit Agreement shall be revised in
form and substance acceptable to the Administrative Agent and the Documentary
Agent so as to reflect the foregoing amendments.
1.20 The Long Term Credit Agreement is further amended by adding
SCHEDULE IX and EXHIBIT N in the form attached hereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Agents and the Banks
as of the Third Amendment Effective Date:
2.1 NO DEFAULT. No Event of Default or Unmatured Event of Default
has occurred and is continuing which will not be cured by this Amendment
becoming effective. No Event of Default or Unmatured Event of Default will
exist after giving effect to this Amendment.
2.2 DUE EXECUTION. The execution, delivery and performance of this
Amendment, (i) are within the Company's corporate powers, (ii) have been duly
authorized by all necessary corporate action, (iii) do not require any
governmental approval which has not been previously obtained (and each such
governmental
<PAGE>
approval that has been previously obtained remains effective), (iv) do not and
will not contravene or conflict with any provision of law, or of any judgment,
decree or order, or of the Company's charter or by-laws, and (v) do not and will
not contravene or conflict with, or cause any Lien to arise under, any provision
of any agreement binding upon the Company, any Subsidiary or any of their
respective properties.
2.3 VALIDITY. The Long Term Credit Agreement as amended by this
Amendment constitutes the legal, valid and binding obligations of the Company,
enforceable against it in accordance with its respective terms, without defense,
counterclaim or offset.
2.4 LONG TERM CREDIT AGREEMENT. All representations and warranties
of the Company contained in SECTIONS 10.1, 10.2, 10.3, 10.4(a), 10.7, 10.10,
10.11, 10.12, 10.15 and 10.18 of the Long Term Credit Agreement are true and
correct as of the date hereof with the same effect as though made on the date
hereof.
2.5 NEGOTIATED LOANS; RATABILITY OF LOANS, ETC. As of the date of
this Amendment, all Loans of all Banks are ratable (by principal and by Group)
according to the amount of each Bank's Commitment; and no Negotiated Loans are
outstanding.
ARTICLE III
GENERAL
-------------
3.1 EXPENSES. The Company agrees to pay all fees and expenses of
McDermott, Will & Emery as counsel to the Documentary Agent, the Administrative
Agent and the Negotiated Loan Agent in connection with the preparation,
execution and delivery of this Amendment.
3.2 EFFECTIVENESS. Article I of this Amendment shall become
effective as of the Third Amendment Effective Date, subject to receipt by the
Documentary Agent of the following, each duly executed and dated the Third
Amendment Effective Date or such other date satisfactory to the Documentary
Agent, in form and substance reasonably satisfactory to the Documentary Agent:
(a) AMENDMENT. Counterparts of this Amendment whether on the same or
different counterparts, executed by the Company and the Required Banks (or
in the case of any Bank as to which an executed counterpart shall not have
been so received, telegraphic, telefax, telex or other written confirmation
of execution of a counterpart hereof by such Bank);
(b) AMENDMENT FEE. Evidence of payment from the Company to the
Administrative Agent of a fee payable to the Administrative Agent for the
account of each Bank for which
<PAGE>
the Documentary Agent receives by 12:00 noon (New York City time) on
December 23, 1996 an executed counterpart hereof (including by fax), such
fee to be equal to 0.25% of the amount of such Bank's Commitment and to be
distributed by the Administrative Agent to each such Bank upon the
effectiveness of this Amendment;
(c) GUARANTY. The Guaranty executed by the Guarantor;
(d) RESOLUTIONS. Copies of the resolutions of the board of
directors of each of the Company and the Guarantor authorizing the
transactions contemplated by this Amendment and the Guaranty, certified as
of the Third Amendment Effective Date by the Secretary or an Assistant
Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk)
of the Company and the Guarantor;
(e) INCUMBENCY. A certificate of the Secretary or Assistant
Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk)
of each of the Company and the Guarantor certifying the names and true
signatures of the officers of the Company or the Guarantor authorized to
execute, deliver and perform, as applicable, this Amendment and the
Guaranty;
(f) OPINION OF COUNSEL FOR THE COMPANY AND THE GUARANTOR. A letter
from Altheimer & Gray, counsel for the Company and the Guarantor, addressed
to the Agents and the Banks substantially in the form attached hereto; and
(g) EXTENSION OF SIGNATURE CREDIT AGREEMENT. Evidence of the
extension to August 29, 1997 of the maturity date of loans under the
Signature Credit Agreement.
(h) AMENDMENT OF OTHER CREDIT AGREEMENT. Evidence of (i) the
extension to August 29, 1997 of the termination date under the Credit
Agreement dated as of October 4, 1996 among the Company, various lenders,
The Bank of New York, as Administrative Agent, and The Bank of Nova Scotia,
as Documentation Agent, and (ii) the amendment of the covenants therein to
conform to the Long Term Credit Agreement as amended hereby.
3.3 DEFINITIONS. Except as otherwise herein specifically defined, all
the capitalized terms contained herein shall have the meaning ascribed to such
terms in the Long Term Credit Agreement.
3.4 REAFFIRMATION. Except as hereinabove expressly provided, all the
terms and provisions of the Long Term Credit Agreement shall remain in full
force and effect and all references therein and in any related documents to the
Long Term Credit Agreement shall henceforth refer to the Long Term Credit
Agreement
<PAGE>
as amended by this Amendment. This Amendment shall be deemed incorporated into,
and a part of, the Long Term Credit Agreement.
3.5 SUCCESSORS. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
3.6 GOVERNING LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of Illinois.
3.7 COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts and each such
counterpart shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same agreement.
<PAGE>
Delivered at Chicago, Illinois as of the day, month and year first
above written.
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Douglas V. Gathany
--------------------------------
Name: Douglas V. Gathany
ACCEPTED AND APPROVED:
THE FIRST NATIONAL BANK OF CHICAGO,
in its individual capacity and in its
capacity as Documentary Agent
By: /s/ Tara W. Clark
-----------------------------
Name: Tara W. Clark
THE BANK OF NEW YORK, in its
individual capacity and in its capacity
as Negotiated Loan Agent
By: /s/ Michael Flannery
-----------------------------
Name: Michael Flannery
THE BANK OF NOVA SCOTIA, in its
individual capacity and in its
capacity as Administrative Agent
By: /s/ J.H. Youssef
-----------------------------
Name: J.H. Youssef
Title: Senior Manager Finance & Administration
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, in its
individual capacity and in its
capacity as Advisory Agent
By: /s/ Sandra S. Ober
-----------------------------
Name: Sandra S. Ober
<PAGE>
CIBC INC.
By: /s/ Christopher P. Kleczkowski
-------------------------------
Name: Christopher P. Kleczkowski
Title: Director, CIBC Wood Gundy Securities Corp., AS AGENT
NATIONSBANK, N.A.
By: /s/ Valerie C. Mills
-------------------------------
Name: Valerie C. Mills SVP
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By: /s/ Mark A. Thompson
-------------------------------
Name: Mark A. Thompson
Title: Vice President and Deputy General Manager
CREDIT LYONNAIS CHICAGO BRANCH
By: /s/ Mary Ann Klemm
-------------------------------
Name: Mary Ann Klemm
Title: Vice President and Group Head
BANCA COMMERCIALE ITALIANA,
CHICAGO BRANCH
By: /s/ Julian M. Teodori
-------------------------------
Name: Julian M. Teodori
Title: Senior Vice President and Manager
By: /s/ Matthew V. Trujillo
-------------------------------
Name: Matthew V. Trujillo
Title: Assistant Vice President
<PAGE>
THE DAI-ICHI KANGYO BANK, LTD.,
CHICAGO BRANCH
By: /s/ Seiichiro Ino
-------------------------------
Name: Seiichiro Ino
THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By: /s/ Noburu Kobayashi
-------------------------------
Name: Noboru Kobayashi
Title: Deputy General Manager
THE NORTHERN TRUST COMPANY
By: /s/ Sidney R. Dillard
-------------------------------
Name: Sidney R. Dillard
THE SAKURA BANK, LTD.
By: /s/ Takao Okada
-------------------------------
Name: Takao Okada
Title: Senior Manager
THE SANWA BANK, LIMITED, CHICAGO BRANCH
By: /s/ Tomomi Omura
-------------------------------
Name: Tomomi Omura
Title: Assistant General Manager
SWISS BANK CORPORATION, CHICAGO BRANCH
By: /s/ Thomas R. Salzano
-------------------------------
Name: Thomas R. Salzano
Title: Associate Director Banking Finance Support, N.A.
By: /s/ Peter V. Matton /s/ Carole Reading
-----------------------------------------------
Name: Peter V. Matton Carole Reading
Title: Executive Director Executive Director
Restructuring Credit Risk Management, N.A.
<PAGE>
UNITED STATES NATIONAL BANK OF OREGON
By: /s/ Monica Treacy
-------------------------------
Name: Monica Treacy
Title: Asst. Vice President
UNION BANK
By: /s/ Richard A. Sutter
-------------------------------
Name: Richard A. Sutter
Title: Vice President
ABN AMRO BANK N.V.
By: /s/ David C. Sagers
-------------------------------
Name: David C. Sagers
Title: Vice President
By: /s/ Laurie D. Flom
-------------------------------
Name: Laurie D. Flom
Title: Vice President
FIRST BANK NATIONAL ASSOCIATION
By: /s/ Christopher H. Patton
-------------------------------
Name: Christopher H. Patton
Title:
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Bethann R. Halligan
-------------------------------
Name: Bethann R. Halligan
Title: Division Executive
THE FUJI BANK, LIMITED
By: /s/ Peter L. Chinnici
-------------------------------
Name: Peter L. Chinnici
Title: Joint General Manager
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Karen C. Brogan
-------------------------------
Name: Karen C. Brogan
THE YASUDA TRUST AND BANKING CO., LTD.
By: /s/ Joseph C. Meek
-------------------------------
Name: Joseph C. Meek
Title: Deputy General Manager
THE FIRST NATIONAL BANK OF MARYLAND
By: /s/ Andrew W. Fish
-------------------------------
Name: Andrew W. Fish
Title: Vice President
INSTITUTO BANCARIO SAN PAOLO DI TORINO, S.P.A.
By: /s/ Carlo Persico
-------------------------------
Name: Carlo Perisco
Title: Deputy General Manager
By: /s/ Robert Wurster
-------------------------------
Name: Robert Wurster
Title: First Vice President
KREDIETBANK N.V.
By: /s/ Raymond F. Murray
-------------------------------
Name: Raymond F. Murray
Title: Vice President
By: /s/ Tod R. Angus
-------------------------------
Name: Tod R. Angus
Title: Vice President
<PAGE>
UNION BANK OF SWITZERLAND - NEW YORK BRANCH
By: /s/ Michael J. Ahearn
-------------------------------
Name: Michael J. Ahearn
Title: Managing Director
By: /s/ Daniel R. Strickford
-------------------------------
Name: Daniel R. Strickford
Title: Assistant Vice President
WELLS FARGO BANK, N.A.
By: /s/ Seth D. Moldoff
-------------------------------
Name: Seth D. Moldoff
<PAGE>
BANCA DI ROMA, S.P.A.
By: /s/ Steven Paley
-------------------------------
Name: Steven Paley
Title: Vice President
By: /s/ Claudio Perna
-------------------------------
Name: Claudio Perna
Title: Vice President and Deputy Manager
COMERICA BANK
By: /s/ Harve C. Light
-------------------------------
Name: Harve C. Light
BANK OF AMERICA ILLINOIS
By: /s/ Sandra S. Ober
-------------------------------
Name: Sandra S. Ober
<PAGE>
SCHEDULE VIII
FINDER'S LIST
Schedule VIII to the Long Term Credit Agreement is hereby amended to
add the following thereto:
"APPLICABLE MARGIN" - used in SECTION 6.1.
"CONSOLIDATED CAPITAL EXPENDITURES" - used in SECTION 11.21.
"CREDIT AGREEMENT PERCENTAGE" - used in SECTION 2.8.
"DISPOSITION" - used in the definition of Net Proceeds and SECTION
2.8.
"EBITDAR" - used in SECTION 11.20.
"GUARANTOR" - used in SECTIONS 11.22 and 13.1(l).
"GUARANTY" - used in SECTIONS 11.22 and 13.1(l).
"NET PROCEEDS" - used in SECTION 2.8.
"SIGNATURE" - used in the definition of Net Proceeds and
SECTIONS 11.1(b) and 11.23.
"SIGNATURE CREDIT AGREEMENT" - used in SECTION 11.23.
"THIRD AMENDMENT EFFECTIVE DATE" - used in SECTIONS 2.8, 4.6, 6.1,
6.9, and 6.10.
<PAGE>
SCHEDULE IX
(List of Locations referred to in clause (vi) of
definition of "Net Proceeds")
1. Former catalog house and warehouse situated at Monroe and Washington
streets Baltimore, MD.
2. Former administration center situated at Shadeland and Widget Lane, Walnut
Creek, CA.
3. Former Jefferson Ward retail store at 815-25 Hendrix Street, Philadelphia,
PA.
4. Distribution Center situated at Schnelling and Wynne, St. Paul, MN.
5. Retail store situated at Lafayette Square in Indianapolis, IN.
6. Retail store situated at Washington Square in Indianapolis, IN.
7. Retail store situated at Castleton Square in Indianapolis, IN.
8. Retail store situated at Greenwood Mall, Greenwood, IN.
If any one or more of the above listed properties is owned by a Subsidiary of
the Company and comprises substantially all the assets of such Subsidiary, the
disposition of the stock of such Subsidiary shall be treated as the Disposition
of the properties owned by such Subsidiary for the purpose of applying clause
(vi) of the definition of "Net Proceeds" contained in Section 1.1 of this
Agreement.
<PAGE>
THIRD AMENDMENT
TO
SHORT TERM CREDIT AGREEMENT
THIS AMENDMENT (the "Amendment") dated as of December 23, 1996 (the
"Third Amendment Effective Date"), is made and entered into among MONTGOMERY
WARD & CO., INCORPORATED (the "Company") and the banks listed on the signature
pages hereof (herein, together with their respective successors and assigns,
collectively called the "Banks" and individually called a "Bank").
WHEREAS the Banks are parties to that certain Short Term Credit
Agreement dated as of September 15, 1994, as amended as of March 19, 1996 and
September 6, 1996 (the "Short Term Credit Agreement"), among Montgomery Ward &
Co., Incorporated, various banks named therein, The First National Bank of
Chicago, as Documentary Agent, The Bank of Nova Scotia, as Administrative Agent,
The Bank of New York, as Negotiated Loan Agent, and Bank of America National
Trust and Savings Association, as Advisory Agent; and
WHEREAS the Company and the Banks desire to amend the Short Term
Credit Agreement in certain respects;
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
AMENDMENTS
1.1 SECTION 1.1 of the Short Term Credit Agreement is hereby amended
by adding the following definitions thereto (or in the case of the definitions
of Maturity Date and Termination Date, amending such definitions to read in
their entirety, as set forth below):
"APPLICABLE MARGIN" means as to any Type of Loan, for any period set
forth below, a rate per annum, as follows:
EURODOLLAR BASE RATE LOAN
PERIOD LOAN SWING LOAN
------ ---------- --------------
December 23, 1996 1.50% 0.25%
through March 31, 1997
April 1, 1997 2.00% 0.75%
through June 30, 1997
<PAGE>
EURODOLLAR BASE RATE LOAN
PERIOD LOAN SWING LOAN
------ ---------- --------------
After June 30, 1997 2.50% 1.25%
"EBITDAR" means, for any fiscal period, on a consolidated basis for
the Company and its Subsidiaries, net income, PLUS interest expense, PLUS
provision for taxes on income, PLUS depreciation and amortization expense,
PLUS rent expense, MINUS interest income, in each case, for such fiscal
period.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any fiscal period, the
consolidated capital expenditures of the Company and its Subsidiaries for
such period, as the same are (or would in accordance with GAAP be) set
forth in the consolidated statement of changes in cash flow of the Company
and its Subsidiaries for such period.
"CREDIT AGREEMENT PERCENTAGE" means a percentage corresponding to the
fraction, the numerator of which is equal to the aggregate principal of
Loans then outstanding under this Agreement, and the denominator of which
is equal to the aggregate principal amount of loans then outstanding under
this Agreement and under the Long Term Credit Agreement.
"DISPOSITION" means the sale, assignment, transfer, contribution,
conveyance, issuance or other disposition of, or granting of options,
warrants or other similar rights with respect to, any asset of the Company
or any Subsidiary, EXCLUDING, HOWEVER, (i) the sale or transfer of inventory
in the ordinary course of business, (ii) the sale or transfer of obsolete
fixtures and equipment in the ordinary course of business, (iii) the sale or
transfer of receivables pursuant to the Retail Credit Program Agreement and
other receivables agreements similar to the receivables agreements
currently in effect, (iv) the liquidation of cash equivalents in the
ordinary course of business, (v) the sale or transfer by Signature of
investment portfolio assets in the ordinary course of business, (vi) any
sale or transfer by the Company or any Subsidiary to the Company or any
other Subsidiary, (vii) the sale or transfer by Signature of fixtures,
equipment and certain hardware and software acquired after January 1, 1996
for telemarketing/customer service centers, provided that the aggregate
sale price thereof does not exceed $10,000,000, and (viii) any sale or
transfer or related series of sales or transfers in which the aggregate Net
Proceeds shall be less than $50,000.
"MATURITY DATE" means the Termination Date.
<PAGE>
"NET PROCEEDS" means the aggregate amount of cash and readily
marketable cash equivalents, and all other proceeds (excluding rental
income) received by the Company or any Subsidiary in connection with any
Disposition (including, when received by the Company or any Subsidiary, any
principal installments with respect to installment sales contracts or
purchase money indebtedness of purchasers or other similar deferred
consideration), LESS the amount (as estimated by the Company in good faith)
of:
(i) all reasonable costs of the Company or such Subsidiary
(excluding any rental expense) associated with such Disposition,
(ii) all amounts paid by the Company or such Subsidiary in
retiring or satisfying any Lien on such asset which is required to be
retired or satisfied in connection with such Disposition,
(iii) in the case of a Disposition of assets of Signature, all
indebtedness of Signature which is required to be repaid in connection
with such Disposition,
(iv) any and all taxes (including Federal and state income or
gross receipts taxes) arising from or related to such Disposition,
(v) solely with respect to Dispositions of real property (and the
related fixtures and equipment) on which retail stores or distribution
centers are located, any amounts which the Company expends (or
reasonably estimates it will expend in a written notice promptly
delivered to the Administrative Agent and each Bank) for the purchase
and/or construction and fixturing of a replacement or substitute
facility in the geographic area in which such real property is
situated, PROVIDED that the agreement or letter of intent pursuant to
which such replacement or substitute facility is to be acquired is
entered into prior to or within 3 Business Days after the Disposition
of such real property and that such agreement or such letter of intent
is not subsequently cancelled prior to the acquisition or substantial
completion of such replacement or substitute facility, and
(vi) proceeds (other than cash or cash equivalent proceeds) with
respect to properties (and the related fixtures and equipment) listed
on SCHEDULE IX.
"SIGNATURE" means collectively Signature Financial/Marketing, Inc.
and/or its Subsidiaries.
<PAGE>
"SIGNATURE CREDIT AGREEMENT" means the Credit Agreement dated as of
September 27, 1996, as amended and restated as of October 21, 1996, among
Signature Financial/Marketing, Inc., various Banks, The Bank of New York as
Documentation Agent, and The Bank of Nova Scotia, as Administrative Agent,
as the same may be further amended or modified from time to time.
"TERMINATION DATE" means, with respect to each Bank, the earlier to
occur of (i) August 29, 1997, or (ii) such other date on which the
Aggregate Commitments shall terminate pursuant to SECTION 5 or 13.2 or be
reduced to zero pursuant to SECTION 2.6 and, if in any case such day is not
a Business Day, the next succeeding Business Day. Notwithstanding any
provision herein to the contrary, after the Third Amendment Effective Date,
the Company shall not be entitled to request an extension of the
Termination Date pursuant to SECTION 2.7.
"THIRD AMENDMENT EFFECTIVE DATE" means December 23, 1996.
1.2 SECTION 2 of the Short Term Credit Agreement is hereby amended by
adding the following SECTION 2.8 thereto:
2.8. MANDATORY PREPAYMENTS. After the Third Amendment Effective
Date, following receipt by the Company or any Subsidiary of any Net
Proceeds from any Disposition, the Company shall make a mandatory
prepayment of the Loans, such prepayment to be equal to the Credit
Agreement Percentage of 80% of such Net Proceeds (the "Net Proceeds Share")
or the aggregate unpaid principal amount of all Loans then outstanding,
whichever is less; PROVIDED, HOWEVER, that up to $20,000,000 of Net
Proceeds received after the Third Amendment Effective Date by the Company
or its Subsidiaries from all Dispositions shall not be subject to this
SECTION 2.8. Each prepayment pursuant to this SECTION 2.8 shall be made
within 3 Business Days of the date upon which the amount of the Net
Proceeds which have not theretofore been applied by the Company to
prepayments under this Agreement or the Long Term Credit Agreement shall
equal or exceed $1,000,000. Concurrently with any prepayment required
under this SECTION 2.8 the Aggregate Commitment shall automatically be
reduced by the amount of such Net Proceeds Share (such reduction to be
prorata among the Banks according to their respective Commitments).
1.3 SECTION 4 of the Short Term Credit Agreement is hereby amended by
adding the following SECTION 4.6 thereto:
4.6. SUSPENSION PERIOD FOR NEGOTIATED LOANS. Notwithstanding any
provision of this Agreement to the contrary, commencing on and after the
Third Amendment Effective Date until the Termination Date, the Company
shall not request and no Bank shall make Negotiated Loans.
<PAGE>
1.4 SECTION 6.1 of the Short Term Credit Agreement is hereby amended
so that SECTION 6.1 through SECTION 6.1(b) shall read in its entirety as
follows:
6.1 INTEREST RATES. The Company hereby promises to pay interest on
the unpaid principal amount of each Loan for the period commencing on the
Funding Date of such Loan until such Loan is paid in full, as follows:
(a) if such Loan is a Base Rate Loan or a Swing Loan, at a
rate per annum equal to the Base Rate from time to time in
effect, plus on and after the Third Amendment Effective Date, the
Applicable Margin;
(b) if such Loan is a Eurodollar Loan, at a rate per annum during
each Interest Period equal to the Eurodollar Rate applicable to such
Interest Period, plus (i) prior to the Third Amendment Effective Date,
0.375% plus any Eurodollar Margin Increment, and (ii) on and after the
Third Amendment Effective Date, the Applicable Margin;
1.5 SECTION 6.2 of the Short Term Credit Agreement is deleted as of
the Third Amendment Effective Date (it being understood, however, that the
provisions of such section shall survive as to any additional interest accruing
prior to the Third Amendment Effective Date).
1.6 SECTION 6.3 of the Short Term Credit Agreement is amended to read
in its entirety as follows:
6.3 INTEREST PAYMENT DATES. Accrued interest on each Loan shall be
payable on the last day of the Interest Period therefor and on each
Conversion date related to such Loan; PROVIDED, HOWEVER, that accrued
interest on each Eurodollar Loan which has an Interest Period of 6 months
shall be payable on the 90th day of such Interest Period or, if such day is
not a Business Day, on the next succeeding Business Day. After maturity of
any Loan, accrued interest on such Loan shall be payable on demand.
1.7 SUPPLEMENTAL COMMITMENT FEE. SECTION 6.10 of the Short Term
Credit Agreement is amended to read in its entirety as follows:
6.10 SUPPLEMENTAL COMMITMENT FEE. The Company agrees to pay to the
Administrative Agent for the account of each Bank (PRO RATA in accordance
with the average daily amount of the Unused Commitment of such Bank),
within fifteen days of the last day of December 1996, and thereafter within
fifteen days of the last day of each calendar quarter of each year until
<PAGE>
the Termination Date for such Bank, and on the Termination Date for such
Bank, a commitment fee which, when added to the fees payable under SECTIONS
6.5 and 6.6 in respect of the corresponding period for which the commitment
fee under this SECTION 6.10 is computed, shall equal a commitment fee
computed at the rate of 0.375% per annum on the average daily amount of the
Aggregate Commitment minus the aggregate principal amount of all Loans then
outstanding during the quarterly or other period preceding the date of such
payment. Such commitment fee shall commence accruing on the Third
Amendment Effective Date and shall be payable in arrears. Commitment fees
shall be payable regardless of the occurrence of an Event of Default or an
Unmatured Event of Default. Fees for any period prior to the Third
Amendment Effective Date shall be computed according to the provisions of
the Short Term Credit Agreement as in effect prior to the Third Amendment
Effective Date.
1.8 SECTION 11.1(b) of the Short Term Credit Agreement is amended to
read in its entirety as follows:
(b) INTERIM REPORTS.
(i) Within 10 days after each fiscal month, a flash report containing
(x) the total retail sales of the Company and its Subsidiaries (other than
Signature) for the fiscal month then ended and for the corresponding fiscal
month of the previous Fiscal Year, (y) the aggregate reinvestment by the
Company of borrowings under its loan agreements and uncommitted lines in
cash equivalents as of the end of such month, and (z) the aggregate
principal amount of loans as of the end of such month which are then
outstanding under the Company's revolving loan agreements (including this
Agreement), any uncommitted lines of the Company, and any loan agreement of
Signature, together with a breakdown thereof,
(ii) Within 30 days after each fiscal month (or in the case of the
last fiscal month in a Fiscal Year, within 60 days after such fiscal
month), (A) a copy of the unaudited internally prepared (x) consolidated
financial statements of the Company and its Subsidiaries (but accounting
for Signature on the equity method) consisting of at least a balance sheet
as at the close of such fiscal month, statements of earnings for such
fiscal month and for the period from the beginning of such Fiscal Year to
the close of such fiscal month, and a statement of cash flows for the
period from the beginning of such Fiscal Year to the close of such fiscal
month, and (y) consolidated financial statements of Signature, consisting
of at least a balance sheet of Signature as at the close of such fiscal
month and statements of earnings of Signature for such fiscal month and for
the period from the beginning of such Fiscal Year to the close of such
fiscal month, (B) a report
<PAGE>
setting forth the cumulative amount of all Net Proceeds received after the
Third Amendment Effective Date, together with the aggregate amount of
prepayments and Commitment reductions related thereto, and
(iii) within 60 days after each Fiscal Quarter (except the last Fiscal
Quarter in a Fiscal Year), a copy of the unaudited consolidated financial
statements of the Company and its Subsidiaries prepared in accordance with
GAAP (subject to normal year end audit adjustments) consisting of at least
a balance sheet as at the close of such Fiscal Quarter, statements of
earnings for such Fiscal Quarter and for the period from the beginning of
such Fiscal Year to the close of such Fiscal Quarter, and a statement of
cash flows from the beginning of such Fiscal Year to the close of such
Fiscal Quarter.
1.9 SECTION 11.3 of the Short Term Credit Agreement is hereby amended
by deleting the text contained in SECTION 11.3 and substituting the following
therefor:
11.3 MINIMUM CONSOLIDATED SHAREHOLDER'S EQUITY. As of the end of any
Fiscal Quarter ending on or after December 28, 1996, not permit the
Consolidated Shareholder's Equity of the Company to be less than
$450,000,000.
1.10 SECTION 11.4 of the Short Term Credit Agreement is hereby
amended to read in its entirety as follows:
11.4 RATIO OF DEBT TO TOTAL CAPITALIZATION. Not permit the Debt of
the Company and its Restricted Subsidiaries at the end of any Fiscal
Quarter to exceed the percentage of Total Capitalization applicable to such
Fiscal Quarter as follows:
Percentage of Total
Fiscal Quarter End Capitalization
------------------ -------------------
December 28, 1996 70%
March 29, 1997 75%
June 28, 1997 75%
1.11 SECTION 11.18 of the Short Term Credit Agreement is hereby
amended by adding the following proviso at the end of the section:
; provided, however, in the case of the Fiscal Quarters ending
March 29, 1997 and June 28, 1997, "75%" shall replace "60%" in clause (a)
above; and in the case of the Fiscal Quarter ending December 28, 1996,
"70%" shall replace "50%" in clause (b) above.
<PAGE>
1.12 SECTION 11.20 of the Short Term Credit Agreement is hereby
amended to read in its entirety as follows:
11.20 EBITDAR. As of the end of any Fiscal Quarter set forth below,
not permit EBITDAR of the Company and its Subsidiaries for the 4
consecutive Fiscal Quarters then ending to be less than the amount
applicable to the end of such Fiscal Quarter as follows:
4-Fiscal Quarters Ended EBITDAR
----------------------- -------
December 28, 1996 $190,000,000
March 29, 1997 $220,000,000
June 28, 1997 $190,000,000
1.13 SECTION 11 of the Short Term Credit Agreement is hereby amended
by adding the following SECTION 11.21 thereto:
11.21. CAPITAL EXPENDITURES. Not permit Consolidated Capital
Expenditures in any Fiscal Quarter ending on or after December 23, 1996, to
exceed $30,000,000.
1.14 SECTION 11 of the Short Term Credit Agreement is amended by
adding the following SECTION 11.22 thereto:
11.22. LECHMERE GUARANTY. Cause the Liabilities to be guaranteed by
Lechmere, Inc. ("Guarantor") pursuant to a guaranty substantially in the
form of EXHIBIT N ("Guaranty").
1.15 SECTION 11 of the Short Term Credit Agreement is amended by
adding the following SECTION 11.23 thereto:
11.23 LIMITATION ON SIGNATURE DEBT. Not permit Signature to incur
or permit to exist any Indebtedness for Borrowed Money, except (i)
Indebtedness for Borrowed Money which in the aggregate (including
Indebtedness for Borrowed Money under the Signature Credit Agreement) does
not exceed $200,000,000, and (ii) Indebtedness for Borrowed Money of
Signature to the Company or its other Subsidiaries.
1.16 EVENTS OF DEFAULT. SECTION 13.1(e) of the Short Term Credit
Agreement is amended to read in its entirety as follows:
(e) SPECIFIED NON-COMPLIANCE WITH THIS AGREEMENT. Failure by the
Company to comply with or to perform its obligations under SECTIONS 11.3,
11.4, 11.5, 11.6, 11.17, 11.18, 11.20 or 11.21 of this Agreement.
1.17 SECTION 13.1 of the Short Term Credit Agreement is further
amended by adding thereto SECTION 13.1(l) as follows:
<PAGE>
(l) GUARANTOR DEFAULTS. Guarantor fails in any material respect to
perform or observe any term, covenant or agreement in its Guaranty; or the
Guaranty of Guarantor is for any reason partially (including with respect
to future advances) or wholly revoked or invalidated, or otherwise ceases
to be in full force and effect, or Guarantor or any other Person contests
in any manner the validity or enforceability thereof or denies that it has
any further liability or obligation thereunder.
1.18 SCHEDULE VIII to the Short Term Credit Agreement is hereby
amended as set forth in SCHEDULE VIII hereto.
1.19 EXHIBIT I to the Short Term Credit Agreement shall be revised in
form and substance acceptable to the Administrative Agent and the Documentary
Agent so as to reflect the foregoing amendments.
1.20 The Short Term Credit Agreement is further amended by adding
SCHEDULE IX and EXHIBIT N in the form attached hereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Agents and the Banks
as of the Third Amendment Effective Date:
2.1 NO DEFAULT. No Event of Default or Unmatured Event of Default
has occurred and is continuing which will not be cured by this Amendment
becoming effective. No Event of Default or Unmatured Event of Default will
exist after giving effect to this Amendment.
2.2 DUE EXECUTION. The execution, delivery and performance of this
Amendment, (i) are within the Company's corporate powers, (ii) have been duly
authorized by all necessary corporate action, (iii) do not require any
governmental approval which has not been previously obtained (and each such
governmental approval that has been previously obtained remains effective), (iv)
do not and will not contravene or conflict with any provision of law, or of any
judgment, decree or order, or of the Company's charter or by-laws, and (v) do
not and will not contravene or conflict with, or cause any Lien to arise under,
any provision of any agreement binding upon the Company, any Subsidiary or any
of their respective properties.
2.3 VALIDITY. The Short Term Credit Agreement as amended by this
Amendment constitutes the legal, valid and binding obligations of the Company,
enforceable against it in accordance with its respective terms, without defense,
counterclaim or offset.
<PAGE>
2.4 SHORT TERM CREDIT AGREEMENT. All representations and warranties
of the Company contained in SECTIONS 10.1, 10.2, 10.3, 10.4(a), 10.7, 10.10,
10.11, 10.12, 10.15 and 10.18 of the Short Term Credit Agreement are true and
correct as of the date hereof with the same effect as though made on the date
hereof.
2.5 NEGOTIATED LOANS; RATABILITY OF LOANS, ETC. As of the date of
this Amendment, all Loans of all Banks are ratable (by principal and by Group)
according to the amount of each Bank's Commitment; and no Negotiated Loans are
outstanding.
ARTICLE III
GENERAL
3.1 EXPENSES. The Company agrees to pay all fees and expenses of
McDermott, Will & Emery as counsel to the Documentary Agent, the Administrative
Agent and the Negotiated Loan Agent in connection with the preparation,
execution and delivery of this Amendment.
3.2 EFFECTIVENESS. Article I of this Amendment shall become
effective as of the Third Amendment Effective Date, subject to receipt by the
Documentary Agent of the following, each duly executed and dated the Third
Amendment Effective Date or such other date satisfactory to the Documentary
Agent, in form and substance reasonably satisfactory to the Documentary Agent:
(a) AMENDMENT. Counterparts of this Amendment whether on the same or
different counterparts, executed by the Company and the Required Banks (or
in the case of any Bank as to which an executed counterpart shall not have
been so received, telegraphic, telefax, telex or other written confirmation
of execution of a counterpart hereof by such Bank);
(b) AMENDMENT FEE. Evidence of payment from the Company to the
Administrative Agent of a fee payable to the Administrative Agent for the
account of each Bank for which the Documentary Agent receives by 12:00 noon
(New York City time) on December 23, 1996 an executed counterpart hereof
(including by fax), such fee to be equal to 0.25% of the amount of such
Bank's Commitment and to be distributed by the Administrative Agent to each
such Bank upon the effectiveness of this Amendment;
(c) GUARANTY. The Guaranty executed by the Guarantor;
(d) RESOLUTIONS. Copies of the resolutions of the board of
directors of each of the Company and the Guarantor authorizing the
transactions contemplated by this Amendment and the Guaranty, certified as
of the Third Amendment
<PAGE>
Effective Date by the Secretary or an Assistant Secretary (or in the case
of the Guarantor, the Clerk or Assistant Clerk) of the Company and the
Guarantor;
(e) INCUMBENCY. A certificate of the Secretary or Assistant
Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk)
of each of the Company and the Guarantor certifying the names and true
signatures of the officers of the Company or the Guarantor authorized to
execute, deliver and perform, as applicable, this Amendment and the
Guaranty;
(f) OPINION OF COUNSEL FOR THE COMPANY AND THE GUARANTOR. A letter
from Altheimer & Gray, counsel for the Company and the Guarantor, addressed
to the Agents and the Banks substantially in the form attached hereto; and
(g) EXTENSION OF SIGNATURE CREDIT AGREEMENT. Evidence of the
extension to August 29, 1997 of the maturity date of loans under the
Signature Credit Agreement.
(h) AMENDMENT OF OTHER CREDIT AGREEMENT. Evidence of (i) the
extension to August 29, 1997 of the termination date under the Credit
Agreement dated as of October 4, 1996 among the Company, various lenders,
The Bank of New York, as Administrative Agent, and The Bank of Nova Scotia,
as Documentation Agent, and (ii) the amendment of the covenants therein to
conform to the Short Term Credit Agreement as amended hereby.
3.3 DEFINITIONS. Except as otherwise herein specifically defined, all
the capitalized terms contained herein shall have the meaning ascribed to such
terms in the Short Term Credit Agreement.
3.4 REAFFIRMATION. Except as hereinabove expressly provided, all the
terms and provisions of the Short Term Credit Agreement shall remain in full
force and effect and all references therein and in any related documents to the
Short Term Credit Agreement shall henceforth refer to the Short Term Credit
Agreement as amended by this Amendment. This Amendment shall be deemed
incorporated into, and a part of, the Short Term Credit Agreement.
3.5 SUCCESSORS. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
3.6 GOVERNING LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of Illinois.
3.7 COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts and each such
counterpart shall be deemed to be an
<PAGE>
original, but all such counterparts shall together constitute but one and the
same agreement.
<PAGE>
Delivered at Chicago, Illinois as of the day, month and year first
above written.
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Douglas V. Gathany
-------------------------------------
Name: Douglas V. Gathany
ACCEPTED AND APPROVED:
THE FIRST NATIONAL BANK OF CHICAGO, in its
individual capacity and in its capacity as
Documentary Agent
By: /s/ Tara W. Clark
-------------------------------------
Name: Tara W. Clark
THE BANK OF NEW YORK, in its individual
capacity and in its capacity as Negotiated
Loan Agent
By: /s/ Michael Flannery
-------------------------------------
Name: Michael Flannery
THE BANK OF NOVA SCOTIA, in its individual
capacity and in its capacity as Administrative
Agent
By: /s/ J.H. Youssef
-------------------------------------
Name: J.H. Youssef
Title: Senior Manager Finance &
Administration
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, in its individual capacity and in
its capacity as Advisory Agent
By: /s/ Sandra S. Ober
-------------------------------------
Name: Sandra S. Ober
<PAGE>
CIBC INC.
By: /s/ Christopher P. Kleczkowski
-------------------------------------
Name: Christopher P. Kleczkowski
Title: Director, CIBC Wood Gundy Securities
Corp., AS AGENT
NATIONSBANK, N.A.
By: /s/ Valerie C. Mills
-------------------------------------
Name: Valerie C. Mills SVP
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By: /s/ Mark A. Thompson
-------------------------------------
Name: Mark A. Thompson
Title: Vice President and Deputy General
Manager
CREDIT LYONNAIS CHICAGO BRANCH
By: /s/ Mary Ann Klemm
-------------------------------------
Name: Mary Ann Klemm
Title: Vice President and Group Head
BANCA COMMERCIALE ITALIANA, CHICAGO BRANCH
By: /s/ Julian M. Teodori
-------------------------------------
Name: Julian M. Teodori
Title: Senior Vice President and Manager
By: /s/ Matthew V. Trujillo
-------------------------------------
Name: Matthew V. Trujillo
Title: Assistant Vice President
THE DAI-ICHI KANGYO BANK, LTD., CHICAGO BRANCH
By: /s/ Seiichiro Ino
-------------------------------------
Name: Seiichiro Ino
<PAGE>
THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By: /s/ Noburu Kobayashi
-------------------------------------
Name: Noburu Kobayashi
Title: Deputy General Manager
THE NORTHERN TRUST COMPANY
By: /s/ Sidney R. Dillard
-------------------------------------
Name: Sidney R. Dillard
THE SAKURA BANK, LTD.
By: /s/ Takao Okada
-------------------------------------
Name: Takao Okada
Title: Senior Manager
SWISS BANK CORPORATION, CHICAGO BRANCH
By: /s/ Thomas R. Salzano
-------------------------------------
Name: Thomas R. Salzano
Title: Associate Director Banking Finance
Support, N.A.
By: /s/ Peter V. Matton /s/ Carole Reading
------------------------------------------------------
Name: Peter V. Matton Carole Reading
Title: Executive Director Executive Director
Restructuring Credit Risk Management, N.A.
UNION BANK
By: /s/ Richard A. Sutter
-------------------------------------
Name: Richard A. Sutter
Title: Vice President
<PAGE>
ABN AMRO BANK N.V.
By: /s/ David G. Sagers
-------------------------------------
Name: David G. Sagers
Title: Vice President
By: /s/ Laurie D. Flom
-------------------------------------
Name: Laurie D. Flom
Title: Vice President
FIRST BANK NATIONAL ASSOCIATION
By: /s/ Christopher H. Patton
-------------------------------------
Name: Christopher H. Patton
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Bethann R. Halligan
-------------------------------------
Name: Bethann R. Halligan
Title: Division Executive
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Karen C. Brogan
-------------------------------------
Name: Karen C. Brogan
THE YASUDA TRUST AND BANKING CO., LTD.
By: /s/ Joseph C. Meek
-------------------------------------
Name: Joseph C. Meek
Title: Deputy General Manager
THE FIRST NATIONAL BANK OF MARYLAND
By: /s/ Andrew W. Fish
-------------------------------------
Name: Andrew W. Fish
Title: Vice President
<PAGE>
ISTITUTO BANCARIO SAN PAOLO DI TORINO, S.P.A.
By: /s/ Carlo Persico
-------------------------------------
Name: Carlo Persico
Title: Deputy General Manager
By: /s/ Robert Wurster
-------------------------------------
Name: Robert Wurster
Title: First Vice President
UNION BANK OF SWITZERLAND - NEW YORK BRANCH
By: /s/ Michael J. Ahearn
-------------------------------------
Name: Michael J. Ahearn
Title: Managing Director
By: /s/ Daniel R. Strickford
-------------------------------------
Name: Daniel R. Strickford
Title: Assistant Vice President
WELLS FARGO BANK, N.A.
By: /s/ Seth D. Moldoff
-------------------------------------
Name: Seth D. Moldoff
COMERICA BANK
By: /s/ Harve C. Light
-------------------------------------
Name: Harve C. Light
BANK OF AMERICA ILLINOIS
By: /s/ Sandra S. Ober
-------------------------------------
Name: Sandra S. Ober
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: /s/ Hiroaki Nakamura
-------------------------------------
Name: Hiroaki Nakamura
<PAGE>
SCHEDULE VIII
FINDER'S LIST
Schedule VIII to the Short Term Credit Agreement is hereby amended to
add the following thereto:
"APPLICABLE MARGIN" - used in SECTION 6.1.
"CONSOLIDATED CAPITAL EXPENDITURES" - used in SECTION 11.21.
"CREDIT AGREEMENT PERCENTAGE" - used in SECTION 2.8.
"DISPOSITION" - used in the definition of Net Proceeds and SECTION
2.8.
"EBITDAR" - used in SECTION 11.20.
"GUARANTOR" - used in SECTIONS 11.22 and 13.1(l).
"GUARANTY" - used in SECTIONS 11.22 and 13.1(l).
"NET PROCEEDS" - used in SECTION 2.8.
"SIGNATURE" - used in the definition of Net Proceeds and
SECTIONS 11.1(b) and 11.23.
"SIGNATURE CREDIT AGREEMENT" - used in SECTION 11.23.
"THIRD AMENDMENT EFFECTIVE DATE" - used in SECTIONS 2.8, 4.6, 6.1,
6.9, and 6.10.
<PAGE>
SCHDULE IX
(List of Locations referred to in clause (vi) of
definition of "Net Proceeds")
1. Former catalog house and warehouse situated at Monroe and Washington
streets Baltimore, MD.
2. Former administration center situated at Shadeland and Widget Lane, Walnut
Creek, CA.
3. Former Jefferson Ward retail store at 815-25 Hendrix Street, Philadelphia,
PA.
4. Distribution Center situated at Schnelling and Wynne, St. Paul, MN.
5. Retail store situated at Lafayette Square in Indianapolis, IN.
6. Retail store situated at Washington Square in Indianapolis, IN.
7. Retail store situated at Castleton Square in Indianapolis, IN.
8. Retail store situated at Greenwood Mall, Greenwood, IN.
If any one or more of the above listed properties is owned by a Subsidiary of
the Company and comprises substantially all the assets of such Subsidiary, the
disposition of the stock of such Subsidiary shall be treated as the Disposition
of the properties owned by such Subsidiary for the purpose of applying clause
(vi) of the definition of "Net Proceeds" contained in Section 1.1 of this
Agreement.
<PAGE>
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
CREDIT AGREEMENT
Dated as of September 27, 1996
as Amended and Restated as of
October 21, 1996
among
SIGNATURE FINANCIAL/MARKETING, INC., as Borrower
VARIOUS BANKS,
THE BANK OF NEW YORK, as Documentation Agent
and
THE BANK OF NOVA SCOTIA, as Administrative Agent
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . (1)
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . (1)
1.2 Other Interpretive Provisions . . . . . . . . . . . . . . . . . . . (15)
1.3 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . (16)
ARTICLE II THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . (17)
2.1 Amounts and Terms . . . . . . . . . . . . . . . . . . . . . . . . . (17)
2.2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17)
2.3 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . . . . (17)
2.4 Conversion and Continuation Elections . . . . . . . . . . . . . . . (18)
2.5 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . (19)
2.6 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19)
2.7 Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . (19)
2.8 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . (20)
2.9 Payments by the Borrower . . . . . . . . . . . . . . . . . . . . . (21)
2.10 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . (21)
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . (22)
3.1 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22)
3.2 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23)
3.3 Increased Costs and Reduction of Return . . . . . . . . . . . . . . (24)
3.4 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
3.5 Inability to Determine Rates . . . . . . . . . . . . . . . . . . . (25)
3.6 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26)
ARTICLE IV CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . (26)
4.1 Conditions To Initial Borrowing . . . . . . . . . . . . . . . . . . (26)
(a) Existing Credit Agreement . . . . . . . . . . . . . . . . . . (26)
(b) Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26)
(c) Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . (26)
(d) Resolutions; Incumbency . . . . . . . . . . . . . . . . . . . (26)
(e) Organization Documents; Good Standing . . . . . . . . . . . . (26)
(f) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . (27)
(g) Payment of Existing Signature Note . . . . . . . . . . . . . (27)
(h) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . (27)
(i) Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27)
(j) Other Documents . . . . . . . . . . . . . . . . . . . . . . . (27)
4.2 Further Conditions to Borrowing . . . . . . . . . . . . . . . . . . (27)
(a) Notice of Borrowing or Conversion/Continuation . . . . . . . (27)
(b) Continuation of Representations and Warranties . . . . . . . (27)
(c) No Existing Default . . . . . . . . . . . . . . . . . . . . . (27)
4.3 Condition to this Agreement . . . . . . . . . . . . . . . . . . . . (28)
(a) Amended and Restated Credit Agreement . . . . . . . . . . . . (28)
(b) Resolutions; Incumbency . . . . . . . . . . . . . . . . . . . (28)
(c) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . (28)
(d) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . (28)
(e) Other Documents . . . . . . . . . . . . . . . . . . . . . . . (28)
ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . (29)
(i)
<PAGE>
Section Page
5.1 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . (29)
5.2 Corporate Authorization; No Contravention . . . . . . . . . . . . . (29)
5.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . (30)
5.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . (30)
5.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30)
5.6 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30)
5.7 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . (31)
5.8 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . (32)
5.9 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . (32)
5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32)
5.11 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . (32)
5.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . (33)
5.13 Regulated Entities . . . . . . . . . . . . . . . . . . . . . . . . (33)
5.14 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . (33)
5.15 Copyrights, Patents, Trademarks and Licenses, etc. . . . . . . . . (33)
5.16 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . (34)
5.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34)
5.18 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . (34)
ARTICLE VI AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . (34)
6.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . (34)
6.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . (36)
6.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36)
6.4 Preservation of Corporate Existence, Etc. . . . . . . . . . . . . . (37)
6.5 Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . (38)
6.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38)
6.7 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . (38)
6.8 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . (38)
6.9 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . (39)
6.10 Inspection of Property and Books and Records . . . . . . . . . . . (39)
6.11 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . (39)
6.12 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . (39)
6.13 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39)
ARTICLE VII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . (40)
7.1 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . (40)
7.2 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . (41)
7.3 Consolidations and Mergers . . . . . . . . . . . . . . . . . . . . (42)
7.4 Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . (42)
7.5 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . (44)
7.6 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . (44)
7.7 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . (44)
7.8 Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . (44)
7.9 Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . (45)
7.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45)
7.11 Change in Business . . . . . . . . . . . . . . . . . . . . . . . . (45)
7.12 Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . (45)
ARTICLE VIII EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . (46)
(ii)
<PAGE>
Section Page
8.1 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . (46)
(a) Non-Payment . . . . . . . . . . . . . . . . . . . . . . . . . (46)
(b) Representation or Warranty . . . . . . . . . . . . . . . . . (46)
(c) Specific Defaults . . . . . . . . . . . . . . . . . . . . . . (46)
(d) Special Defaults . . . . . . . . . . . . . . . . . . . . . . (46)
(e) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . (46)
(f) Cross-Default . . . . . . . . . . . . . . . . . . . . . . . . (47)
(g) Insolvency; Voluntary Proceedings . . . . . . . . . . . . . . (47)
(h) Involuntary Proceedings . . . . . . . . . . . . . . . . . . . (47)
(i) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48)
(j) Monetary Judgments . . . . . . . . . . . . . . . . . . . . . (48)
(k) Non-Monetary Judgments . . . . . . . . . . . . . . . . . . . (48)
(l) Change of Control . . . . . . . . . . . . . . . . . . . . . . (48)
(m) Guarantor Defaults . . . . . . . . . . . . . . . . . . . . . (49)
(n) MW Credit Agreement Event of Default . . . . . . . . . . . . (49)
(o) Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . (49)
(p) Impairment . . . . . . . . . . . . . . . . . . . . . . . . . (49)
8.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49)
8.3 Rights Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . (50)
ARTICLE IX THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . (50)
9.1 Appointment and Authorization; "Agents" . . . . . . . . . . . . . . (50)
9.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . (50)
9.3 Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . (50)
9.4 Reliance by Agents . . . . . . . . . . . . . . . . . . . . . . . . (51)
9.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . (51)
9.6 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . (52)
9.7 Indemnification of Agents . . . . . . . . . . . . . . . . . . . . . (52)
9.8 Agents in Individual Capacity . . . . . . . . . . . . . . . . . . . (53)
9.9 Successor Agents . . . . . . . . . . . . . . . . . . . . . . . . . (53)
9.10 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . . . (54)
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . (55)
10.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . (56)
10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56)
10.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . (57)
10.4 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . (57)
10.5 Borrower Indemnification . . . . . . . . . . . . . . . . . . . . . (58)
10.6 Payments Set Aside . . . . . . . . . . . . . . . . . . . . . . . . (58)
10.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . (59)
10.8 Assignments, Participations, etc. . . . . . . . . . . . . . . . . . (59)
10.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . (61)
10.10 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62)
10.11 Automatic Debits of Fees . . . . . . . . . . . . . . . . . . . . . (62)
10.12 Notification of Addresses, Lending Offices, Etc.. . . . . . . . . . (62)
10.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . (62)
10.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . (63)
10.15 No Third Parties Benefited . . . . . . . . . . . . . . . . . . . . (63)
10.16 Governing Law and Jurisdiction . . . . . . . . . . . . . . . . . . (63)
(iii)
<PAGE>
Section Page
10.17 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . (63)
10.18 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . (64)
10.19 Reaffirmation, Restatement and Waivers . . . . . . . . . . . . . . (64)
(iv)
<PAGE>
SCHEDULES
Schedule 1.1 Guarantor Subsidiaries
Schedule 2.1 Commitments and Pro Rata Share
Schedule 5.5 Litigation
Schedule 5.7 ERISA
Schedule 5.11 Permitted Liabilities
Schedule 5.12 Environmental Matters
Schedule 5.16 Subsidiaries and Minority Interests
Schedule 5.17 Insurance Matters
Schedule 7.1 Permitted Liens
Schedule 7.4 Investments
Schedule 7.5 Permitted Indebtedness
Schedule 7.8 Contingent Obligations
Schedule 10.2 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Borrower's Counsel
Exhibit E Form of Promissory Note
Exhibit F-1 Form of MW Guaranty
Exhibit F-2 Form of Non-Insurance Subsidiary Guaranty
Exhibit G Form of Assignment and Acceptance Agreement
Exhibit H Form of Legal Opinion of Borrower's Counsel
(v)
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT dated as of September 27, 1996 as amended and
restated as of October 21, 1996 (the "Restatement Effective Date") among
Signature Financial/Marketing, Inc., a Delaware corporation (the "BORROWER"),
the banks listed on the signature pages hereof (herein, together and with
their respective successors and assigns, collectively called the "Banks" and
individually called a "Bank"), The Bank of New York ("BNY"), as documentation
agent for the Banks (herein, in such capacity, together with its successors
and assigns in such capacity, called the "Documentation Agent") and The Bank
of Nova Scotia ("BNS"), as administrative agent to the Banks (herein, in such
capacity, together with its successors and assigns in such capacity, called
the "Administrative Agent") (the Documentation Agent and the Administrative
Agent are herein collectively called the "Agents" and individually called an
"Agent").
WHEREAS, the Borrower, BNY and BNS are parties to a Credit Agreement
dated as of September 27, 1996 (the "Existing Credit Agreement") pursuant to
which BNY and BNS have made loans to the Borrower in the aggregate principal
amount of $101,886,491.
WHEREAS, the Borrower, BNY and BNS now desire to amend and restate the
Existing Credit Agreement to, among other things, provide for (i) assignments
of Loans, (ii) certain provisions to be subject to the rights of the Required
Banks, and (iii) certain Banks to act as Agents.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree that as of the Restatement
Effective Date the Existing Credit Agreement is amended and restated in its
entirety as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINED TERMS. The following terms have the following
meanings:
"ADMINISTRATIVE AGENT" - see Preamble.
"ADMINISTRATIVE AGENT'S PAYMENT OFFICE" means the address for
payments set forth on SCHEDULE 10.2 or such other address as the
Administrative Agent may from time to time specify.
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"AFFILIATE" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
the other Person, whether through the ownership of voting securities, by
contract, or otherwise.
"AGENT" - see Preamble.
"AGENT-RELATED PERSONS" means each Agent and any successor agent
arising under Section 9.9, together with their respective Affiliates,
and the officers, directors, employees, agents and attorneys-in-fact of
such Persons and Affiliates.
"AGREEMENT" means this Amended and Restated Credit Agreement, as the
same may be further amended or modified from time to time.
"ASSIGNEE" has the meaning specified in SECTION 10.8.
"ASSIGNMENT AND ACCEPTANCE" has the meaning specified in SECTION 10.8.
"ATTORNEY COSTS" means and includes all fees and disbursements of any
law firm or other external counsel, the allocated cost of internal legal
services and all disbursements of internal counsel.
"BANKS" has the meaning specified in the introductory clause hereto.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978
(11 U.S.C. Section 101, ET SEQ.) as amended from time to time.
"BASE RATE" means, for any day, the higher of: (a) 0.50% per annum
above the latest Federal Funds Rate; and (b) the rate of interest in effect
for such day as publicly announced from time to time by the Reference
Bank as its "reference rate." (The "reference rate" is a rate set by the
Reference Bank based upon various factors including the Reference Bank's
costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate.)
Any change in the reference rate announced by the Reference Bank shall
take effect at the opening of business
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on the day specified in the public announcement of such change. The
Reference Bank shall notify the Banks and the Borrower of the "reference
rate" and any change therein.
"BASE RATE LOAN" means a Loan that bears interest based on the Base
Rate.
"BORROWING" means the borrowing hereunder consisting of Loans of the
same Type made to the Borrower on the same day by the Banks under
Article II, and, other than in the case of Base Rate Loans, having the
same Interest Period.
"BORROWING DATE" means the date on which the Borrowing occurs under
SECTION 2.3.
"BUSINESS DAY" means any day, other than a Saturday, Sunday or other
day on which commercial banks in New York City or Chicago are authorized
or required by law to close, which is a day on which dealings are
carried on in the London interbank market.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
"CHANGE OF CONTROL" shall be deemed to have occurred at such time
as: (i) General Electric Capital Corporation ceases to own on a
fully-diluted basis the percentage of each class of the capital stock of
MW which is owned by it on the Original Closing Date on a fully-diluted
basis, (ii) MW ceases to own 100% of the capital stock of the Borrower
on a fully-diluted basis or (iii) the Borrower ceases to own, directly
or indirectly, 100% of the capital stock of any Subsidiary of the
Borrower on a fully-diluted basis.
"CODE" means the Internal Revenue Code of 1986 as amended from time to
time, and regulations promulgated thereunder.
"COMMITMENT", as to each Bank, has the meaning specified in
SECTION 2.1.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of EXHIBIT C.
"CONTINGENT OBLIGATION" means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without
recourse, (a) with respect to
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any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase,
repurchase or otherwise acquire such primary obligations or any security
therefor, (ii) to advance or provide funds for the payment or discharge
of any such primary obligation, or to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (iii) to purchase property, securities
or services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment
of such primary obligation, or (iv) otherwise to assure or hold
harmless the holder of any such primary obligation against loss in
respect thereof (each, a "GUARANTY OBLIGATION"); (b) with respect to any
Surety Instrument issued for the account of that Person or as to which
that Person is otherwise liable for reimbursement of drawings or
payments; (c) to purchase any materials, supplies or other property
from, or to obtain the services of, another Person if the relevant
contract or other related document or obligation requires that payment
for such materials, supplies or other property, or for such services,
shall be made regardless of whether delivery of such materials, supplies
or other property is ever made or tendered, or such services are ever
performed or tendered, or (d) in respect of any Swap Contract. The
amount of any Contingent Obligation shall, in the case of Guaranty
Obligations, be deemed equal to the stated or determinable amount of the
primary obligation in respect of which such Guaranty Obligation is made,
or, if not stated or if indeterminable, the maximum reasonably
anticipated liability in respect thereof, and in the case of other
Contingent Obligations, shall be equal to the maximum reasonably
anticipated liability in respect thereof. Notwithstanding the foregoing,
Contingent Obligations shall not include any obligations of a Subsidiary
of the Borrower where the primary obligor is a customer of such
Subsidiary and such obligation is incurred in the ordinary course of
business or any Surety Instrument issued by a Subsidiary of the Borrower
where the principal is a customer of such Subsidiary and such Surety
Instrument is issued in the ordinary course of business.
"CONTRACTUAL OBLIGATION" means, as to any Person, any provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument,
document or agreement to which such Person is a party or by which it or
any of its property is bound.
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<PAGE>
"CONVERSION/CONTINUATION DATE" means any date on which, under
SECTION 2.4, the Borrower (a) converts Loans of one Type to another
Type, or (b) continues as Loans of the same Type, but with a new
Interest Period, Loans having Interest Periods expiring on such date.
"DEFAULT" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured
or otherwise remedied during such time) constitute an Event of Default.
"DESIGNATED LEASES" means that certain Purchase and Master
Lease Agreement, dated as of January 13, 1995 among certain lessors
referred to therein, MW, Lechmere, Inc. and Credit Lyonnais, Chicago
Branch and that certain Purchase and Master Lease Agreement, dated as of
March 15, 1995 among certain lessors referred to therein, MW, Lechmere,
Inc. and Sumitomo Bank Leasing and Finance, Inc., each as amended or
modified.
"DOCUMENTATION AGENT" - see Preamble.
"DOLLARS", "dollars" and "$" each mean lawful money of the
United States.
"ELIGIBLE ASSIGNEE" means (a) a commercial bank organized under
the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $100,000,000; (b) a commercial
bank organized under the laws of any other country which is a member of
the Organization for Economic Cooperation and Development (the "OECD"),
or a political subdivision of any such country, and having a combined
capital and surplus of at least $100,000,000, provided that such bank is
acting through a branch or agency located in the United States; and (c)
a Person that is primarily engaged in the business of commercial banking
and that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of a Person of
which a Bank is a Subsidiary, or (iii) a Person of which a Bank is a
Subsidiary.
"ENVIRONMENTAL CLAIMS" means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability
or responsibility for violation of any Environmental Law, or for release
or injury to the environment.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations
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<PAGE>
and permits of, and agreements with, any Governmental Authorities, in each
case relating to environmental, health, safety and land use matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).
"ERISA EVENT" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations which is treated as such a withdrawal under Section
4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any
ERISA Affiliate from a Multiemployer Plan or notification that a
Multiemployer Plan is in reorganization; (d) the filing of a notice of intent
to terminate, the treatment of a Plan amendment as a termination under
Section 4041 or 4041A of ERISA, or the commencement of proceedings by the
PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or
condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition
of any liability under Title IV of ERISA, other than PBGC premiums due but
not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA
Affiliate.
"EURODOLLAR RESERVE PERCENTAGE" has the meaning specified in the
definition of "LIBO Rate".
"EVENT OF DEFAULT" means any of the events or circumstances specified in
SECTION 8.1.
"EXCHANGE ACT" means the Securities and Exchange Act of 1934, as amended
from time to time, and regulations promulgated thereunder.
"EXISTING CREDIT AGREEMENT" - see Preamble.
"EXISTING SIGNATURE NOTE" means the Promissory Note dated January 2,
1996 of the Borrower payable to the order
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of MW in the principal amount of $101,886,491.23 on or before June 30, 2002.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"FEDERAL FUNDS RATE" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the
caption "Federal Funds (Effective)"; or, if for any relevant day such rate is
not so published on any such preceding Business Day, the rate for such day
will be the arithmetic mean as determined by the Reference Bank of the rates
for the last transaction in overnight Federal funds arranged prior to 9:00
a.m. (New York City time) on that day by each of three leading brokers of
Federal funds transactions in New York City selected by the Administrative
Agent.
"FRB" means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within
the U.S. accounting profession), which are applicable to the circumstances as
of the Original Closing Date.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"GUARANTORS" means MW and each Subsidiary of the Borrower listed on
SCHEDULE 1.1 hereto.
"GUARANTY" means the guaranty executed by the Guarantors in
substantially the form of EXHIBIT F-1 or F-2.
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"GUARANTY OBLIGATION" has the meaning specified in the definition of
"Contingent Obligation."
"INDEBTEDNESS" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (c) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with
the acquisition of property, assets or businesses; (d) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to property
acquired by the Person (even though the rights and remedies of the seller or
bank under such agreement in the event of default are limited to repossession
or sale of such property); (e) all obligations with respect to capital
leases; (f) all net obligations with respect to Swap Contracts; (g) all
indebtedness referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property (including accounts
and contracts rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; and (h) all
Guaranty Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (a) through (f) above.
"INDEMNIFIED LIABILITIES" has the meaning specified in SECTION 10.5.
"INDEMNIFIED PERSON" has the meaning specified in SECTION 10.5.
"INDEPENDENT AUDITOR" has the meaning specified in SUBSECTION 6.1(a)
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding before
any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, rehabilitation,
dissolution, winding-up or relief of debtors, or (b) any general assignment
for the benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of its creditors
generally or any substantial portion of its creditors; undertaken under U.S.
Federal, state or foreign law, including the Bankruptcy Code.
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"INSURANCE SUBSIDIARY" shall mean any Subsidiary of the Borrower that
is authorized or admitted to carry on or transact one or more aspects of the
business of selling, issuing or underwriting insurance or reinsurance.
"INTEREST PAYMENT DATE" means, as to any LIBO Rate Loan, the last day
of each Interest Period applicable to such Loan and, as to any Base Rate
Loan, the last Business Day of each calendar quarter and each date such Loan
is converted into another Type of Loan, PROVIDED, HOWEVER, that if any
Interest Period for a LIBO Rate Loan exceeds three months, the date that
falls three months after the beginning of such Interest Period and after each
Interest Payment Date thereafter is also an Interest Payment Date.
"INTEREST PERIOD" means, as to any LIBO Rate Loan, the period commencing
on the date of such Loan or on the Conversion/Continuation Date on which the
Loan is converted into or continued as a LIBO Rate Loan, and ending on the
date one, two, or three months thereafter (and any other period of less than
three months that is consented to by the Required Banks in the given
instance) as selected by the Borrower;
PROVIDED that:
(a) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day;
(b) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at
the end of such Interest Period; and
(c) no Interest Period for any Loan shall extend beyond the
Maturity Date.
"IRS" means the Internal Revenue Service, and any Governmental Authority
succeeding to any of its principal functions under the Code.
"LENDING OFFICE" means, as to any Bank, the office or offices of such
Bank specified as its "Lending Office" or "Domestic Lending Office" or "LIBO
Lending Office", as the
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case may be, on SCHEDULE 10.2, or such other office or offices as such Bank
may from time to time notify the Borrower and the Administrative Agent.
"LIBO RATE" means, for any Interest Period, with respect to LIBO Rate
Loans comprising part of the same Loan, the rate of interest per annum
(rounded upward to the next 1/16th of 1%) determined by the Reference Bank as
follows:
LIBO Rate = LIBO
-----------------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any day for any
Interest Period the maximum reserve percentage (expressed as a decimal,
rounded upward to the next 1/100th of 1%) in effect on such day
(whether or not applicable to any Bank) under regulations issued from
time to time by the FRB for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding (currently
referred to as "Eurocurrency liabilities"); and
"LIBO" means the rate of interest per annum determined by the
Reference Bank to be the arithmetic mean (rounded upward to the next
1/16th of 1%) of the rates of interest per annum at which deposits in
Dollars in the approximate amount of the amount of the Loan to
continued as, or converted into, a LIBO Rate Loan and having a
maturity comparable to such Interest Period are offered to the
Reference Bank in the London interbank market at approximately 11:00
a.m. (London time) two Business Days prior to the commencement of such
Interest Period.
The LIBO Rate shall be adjusted automatically as to all LIBO
Rate Loans then outstanding as of the effective date of any change in
the Eurodollar Reserve Percentage.
"LIBO RATE LOAN" means a Loan that bears interest based on the
LIBO Rate.
"LIEN" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale
or other title
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retention agreement, the interest of a lessor under a capital lease, any
financing lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the Uniform Commercial
Code or any comparable law) and any contingent or other agreement to
provide any of the foregoing, but not including the interest of a lessor
under an operating lease.
"LOAN" means an extension of credit (whether the initial Borrowing or a
continuation/conversion thereof) by a Bank to the Borrower and may be a
Base Rate Loan or a LIBO Rate Loan (each, a "TYPE" of Loan).
"LOAN DOCUMENTS" means this Agreement, the Guaranties, the Notes, any
fee letter and all other documents delivered to any Agent or any Bank in
connection herewith.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Borrower or the
Borrower and its Subsidiaries taken as a whole or MW and its Subsidiaries
taken as a whole; (b) a material impairment of the ability of the Borrower
or any Guarantor to perform under any Loan Document and to avoid any Event
of Default; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against the Borrower or any Guarantor of
any Loan Document.
"MATURITY DATE" means the earlier to occur of: (a) March 1, 1997; and
(b) the date on which the Obligations are due and payable in accordance
with the provisions of this Agreement.
"MULTIEMPLOYER PLAN" means a "multiemployer plan", within the meaning
of Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA
Affiliate makes, is making, or is obligated to make contributions or,
during the preceding three calendar years, has made, or been obligated to
make, contributions.
"MW" means Montgomery Ward & Co., Incorporated.
"MW CREDIT AGREEMENT" shall mean either or both of the Long Term Credit
Agreement and/or the Short Term Credit Agreement, each dated as of
September 15, 1994, among MW, various banks, and various agents, as amended
to and
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including September 6, 1996, and with the consent of the Banks, as further
amended or modified from time to time; PROVIDED, THAT any increase in the
aggregate commitments thereunder which is provided for therein shall not be
deemed an amendment or modification.
"NOTE" means any promissory note executed by the Borrower in favor of a
Bank pursuant to SECTION 2.2, in substantially the form of EXHIBIT E.
"NOTICE OF CONVERSION/CONTINUATION" means a notice in substantially the
form of EXHIBIT B.
"OBLIGATIONS" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Borrower
or any Guarantor to any Agent, any Bank or any Indemnified Person, whether
direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising.
"ORGANIZATION DOCUMENTS" means, for any corporation, the certificate or
articles of incorporation, the bylaws, any certificate of determination or
instrument relating to the rights of preferred shareholders of such
corporation, any shareholder rights agreement, and all applicable
resolutions of the board of directors (or any committee thereof) of such
corporation.
"ORIGINAL CLOSING DATE" means the date on which all conditions
precedent set forth in SECTION 4.1 were satisfied or waived by the Banks.
"OTHER TAXES" means any present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other
Loan Documents.
"PARTICIPANT" is defined in SUBSECTION 10.8(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under
ERISA.
"PENSION PLAN" means a pension plan (as defined in Section 3(2) of
ERISA but not including any Multiemployer Plan) subject to Title IV of
ERISA which the Borrower sponsors, maintains, or to which it makes, is
making, or is obligated to make contributions, or in the case of a
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multiple employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding five (5) plan
years.
"PERMITTED LIENS" has the meaning specified in SECTION 7.1.
"PERSON" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture or
Governmental Authority.
"PLAN" means an employee benefit plan (as defined in Section 3(3) of
ERISA) for its employees, consultants or former employees which the
Borrower sponsors or maintains or to which the Borrower makes, is making,
or is obligated to make contributions with respect to its employees,
consultants or former employees and includes any Pension Plan.
"PRO RATA SHARE" means, relative to any Bank, the percentage set forth
opposite the name of such Bank on SCHEDULE 2.1 hereto, as such percentage
may be adjusted from time to time pursuant to any subsequent Assignment and
Acceptance executed by such Bank and any Assignee and delivered pursuant to
Section 10.8.
"REFERENCE BANK" means BNY.
"REQUIRED BANKS" means at any time Banks then holding at least 2/3rds
of the then aggregate unpaid principal amount of the Loans.
"REPORTABLE EVENT" means, any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been waived
in regulations issued by the PBGC.
"REQUIREMENT OF LAW" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of
a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property
is subject.
"RESPONSIBLE OFFICER" means the chief executive officer, chief
financial officer or the president of the Borrower or any Guarantor, or any
other officer having substantially the same authority and responsibility;
or the chief executive officer, the chief financial officer, the senior
vice president (finance) or the treasurer of MW, or
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any other officer having substantially the same authority and
responsibility.
"RESTATEMENT EFFECTIVE DATE" - see Preamble.
"SAP" means, as to any Insurance Subsidiary of the Borrower, the
statutory accounting practices prescribed or permitted by the insurance
department of the state in which such Insurance Subsidiary is domiciled.
"SEC" means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
"SUBSIDIARY" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than 50%
of the voting stock or other equity interests (in the case of Persons other
than corporations), is owned or controlled directly or indirectly by the
Person, or one or more of the Subsidiaries of the Person, or a combination
thereof. Unless the context otherwise clearly requires, references herein
to a "Subsidiary" refer to a Subsidiary of the Borrower.
"SURETY INSTRUMENTS" means all letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, shipside bonds, surety
bonds and similar instruments.
"SWAP CONTRACT" means any agreement (including any master agreement and
any agreement, whether or not in writing, relating to any single
transaction) that is an interest rate swap agreement, basis swap, forward
rate agreement, commodity swap, commodity option, equity or equity index
swap or option, bond option, interest rate option, forward foreign exchange
agreement, rate cap, collar or floor agreement, currency swap agreement,
cross-currency rate swap agreement, swaption, currency option or any other,
similar agreement (including any option to enter into any of the
foregoing).
"TAXES" means any and all present future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Bank, such taxes (including income
taxes or franchise taxes) as are imposed on or measured by each Bank's net
income by the jurisdiction (or any political subdivision thereof) under the
laws of which such Bank is organized or maintains a lending office.
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"TYPE" has the meaning specified in the definition of "Loan."
"UNFUNDED PENSION LIABILITY" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of
that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
"UNITED STATES" and "U.S." each means the United States of America.
"WHOLLY-OWNED SUBSIDIARY" means any corporation, association,
partnership, joint venture or other business entity of which (other than
directors' qualifying shares required by law) 100% of the voting stock or
other equity interest of each class having ordinary voting power, and 100%
of the voting stock or other equity interest of every other class, in each
case, at the time as of which any determination is being made, is owned,
beneficially and of record, by the Borrower, or by one or more of the other
Wholly-Owned Subsidiaries, or both.
1.2 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words
refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section, Schedule and Exhibit references are
to this Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding", and
the word "through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications
thereto, but only to the
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extent such amendments and other modifications are not prohibited by the
terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute
or regulation.
(e) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters.
All such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agents and the
Borrower and are the products of all parties. Accordingly, they shall not be
construed against the Banks or the Agents merely because of the Banks' and
Agents' involvement in their preparation.
1.3 ACCOUNTING PRINCIPLES. (a) Unless the context otherwise clearly
requires, all accounting terms not expressly defined herein shall be
construed, and all financial computations required under this Agreement shall
be made, in accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter" refer to such
fiscal periods of the Borrower.
ARTICLE II
THE CREDITS
2.1 AMOUNTS AND TERMS. Each Bank severally agrees, on the terms and
conditions set forth herein, to make a single Loan to the Borrower on the
Original Closing Date in an aggregate amount not to exceed such Banks' Pro
Rata Share of $101,886,491 (as to each such Bank, its "COMMITMENT") (the
Borrower acknowledges that prior to the Restatement Effective Date, the Banks
made such Loan to the Borrower and accordingly each Bank's Commitment has
been permanently reduced to zero). Amounts borrowed which are repaid or
prepaid by the Borrower may not be reborrowed.
2.2 NOTES. The Loan made by each Bank shall be evidenced by a Note. Each
Bank shall endorse on the schedules annexed to its Note the date and amount
of each payment of interest and
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principal made by the Borrower with respect thereto. Each Bank is irrevocably
authorized by the Borrower to endorse its Note and each Bank's record shall
be conclusive absent manifest error; PROVIDED, HOWEVER, that the failure of a
Bank to make, or an error in making, a notation thereon with respect to any
Borrowing or repayment shall not limit or otherwise affect the obligations of
the Borrower hereunder or under any such Note to such Bank.
2.3 PROCEDURE FOR BORROWING. The Borrowing shall be made upon the
Borrower's irrevocable written notice delivered to the Banks in the form of a
Notice of Borrowing (which notice must be received by the Banks prior to
3:00 p.m. (New York City time) on the Original Closing Date, specifying (a)
the amount of the Borrowing, which shall be in an aggregate minimum amount
necessary, together with other amounts provided by the Borrower, to repay in
full all of the obligations of the Borrower under the Existing Signature
Note; and (b) the requested Borrowing Date, which shall be a Business Day. On
the Borrowing Date, each Bank will make the amount of its Pro Rata Share of
the Borrowing available to the Borrower by wire transfer in accordance with
written instructions provided to such Bank by the Borrower. The Borrower
acknowledges that as of and after the Restatement Effective Date, no further
Borrowings shall be made under this Agreement other than a conversion or
continuation pursuant to SECTION 2.4.
2.4 CONVERSION AND CONTINUATION ELECTIONS. (a) The Borrower may, upon
irrevocable written notice to the Administrative Agent in accordance with
SUBSECTION 2.4(b):
(i) elect, as of any Business Day, in the case of its Base Rate
Loans, or as of the last day of the applicable Interest Period, in the
case of its LIBO Rate Loans, to convert any such Loans into Loans of any
other Type; or
(ii) elect, as of the last day of the applicable Interest Period,
to continue any of its Loans having Interest Periods expiring on such
day;
PROVIDED, that if at any time the aggregate amount of LIBO Rate Loans is
reduced, by payment, prepayment, or conversion or part thereof to be less
than $5,000,000, such LIBO Rate Loans shall automatically convert into Base
Rate Loans, and on and after such date the right of the Borrower to continue
such Loans as, and convert such Loans into, LIBO Rate Loans shall terminate.
(b) The Borrower shall deliver a Notice of Conversion/Continuation to be
received by the Administrative Agent not later than 9:00 a.m. (New York City
time) at least (i) three Business Days in advance of the
Conversion/Continuation Date, if the Loans are to be converted into or
continued as LIBO
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Rate Loans; and (iii) one Business Day in advance of the
Conversion/Continuation Date, if the Loans are to be converted into Base Rate
Loans specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or continued;
(C) the Type of Loans resulting from the proposed conversion or
continuation; and
(D) other than in the case of conversions into Base Rate Loans, the
duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to LIBO Rate
Loans, the Borrower has failed to select timely a new Interest Period to be
applicable to such LIBO Rate Loans, or if any Default or Event of Default
then exists, the Borrower shall be deemed to have elected to convert such
LIBO Rate Loans into Base Rate Loans effective as of the expiration date of
such Interest Period.
(d) The Administrative Agent will promptly notify each Bank of its
receipt of a Notice of Conversion/Continuation, or, if no timely notice is
provided by the Borrower, the Administrative Agent will promptly notify each
Bank of the details of any automatic conversion. All conversions and
continuations shall be made ratably according to the respective outstanding
principal amounts of the Loans with respect to which the notice was given
held by each Bank.
(e) Unless the Required Banks otherwise agree, during the existence of a
Default or Event of Default, the Borrower may not elect to have a Loan
converted into or continued as a LIBO Rate Loan.
(f) After giving effect to any conversion or continuation of Loans,
there may not be more than two different Interest Periods in effect.
2.5 OPTIONAL PREPAYMENTS. Subject to SECTION 3.4, the Borrower may without
any other premium or penalty, at any time or from time to time, ratably
prepay Loans in whole or in part, in minimum amounts of $10,000,000 or any
multiple of $1,000,000 in excess thereof (or, if less, the remaining
principal amount thereof). The Borrower shall deliver a notice of prepayment
in accordance with SECTION 10.2 to be received by the Administrative Agent
not later than 9:00 a.m. (New York time) (i) at least three
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Business Days in advance of the prepayment date if the Loans to be prepaid
are LIBO Rate Loans, and (ii) at least one Business Day in advance of the
prepayment date if the Loans to be prepaid are Base Rate Loans. Such notice
of prepayment shall specify the date and amount of such prepayment and
whether such prepayment is of Base Rate Loans, LIBO Rate Loans, or any
combination thereof. Such notice shall not thereafter be revocable by the
Borrower. The Borrower shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date specified
therein, together with accrued interest to each such date on the amount
prepaid and any amounts required pursuant to SECTION 3.4.
2.6 REPAYMENT. The Borrower shall repay to the Administrative Agent, for
the benefit of the Banks, on the Maturity Date the aggregate amount of all
Obligations outstanding on such date.
2.7 INTEREST RATES. (a) With respect to each Loan, the Borrower hereby
promises to pay interest on the unpaid principal amount thereof for the
period commencing on the date of such Loan until such Loan is paid in full,
as follows:
(i) While such Loan is a Base Rate Loan, at a rate per annum equal
to the Base Rate from time to time in effect; and
(ii) While such Loan is a LIBO Rate Loan, for each Interest Period,
at a rate per annum equal to the LIBO Rate applicable to such Interest
Period, plus 1.5% per annum.
(b) Interest on each Loan shall be paid in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any prepayment of
Loans under SECTION 2.5 or 2.6 for the portion of the Loans so prepaid and
upon payment (including prepayment) in full thereof and, during the existence
of any Event of Default, interest shall be paid on demand of the
Administrative Agent at the request or with the consent of the Required Banks.
(c) Notwithstanding subsection (a) of this Section, while any Event of
Default exists or after acceleration, the Borrower shall pay interest (after
as well as before entry of judgment thereon to the extent permitted by law)
on the principal amount of all outstanding Loans, at a rate per annum which
is determined by adding 2% per annum to the rate otherwise in effect
hereunder for such Loans; PROVIDED, HOWEVER, that, on and after the
expiration of any Interest Period applicable to any LIBO Rate Loan
outstanding on the date of occurrence of such Event of Default or
acceleration, the principal amount of such Loan shall,
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during the continuation of such Event of Default or after acceleration, bear
interest at a rate per annum equal to the Base Rate plus 2%.
(d) Anything herein to the contrary notwithstanding, the obligations of
the Borrower to any Agent or any Bank hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by such Agent or such Bank
would be contrary to the provisions of any law applicable to such Agent or
such Bank limiting the highest rate of interest that may be lawfully
contracted for, charged or received by such Agent or such Bank, and in such
event the Borrower shall pay such Agent or such Bank interest at the highest
rate permitted by applicable law.
2.8 COMPUTATION OF INTEREST. (a) All computations of interest for Base
Rate Loans to the extent based on the "reference rate" shall be made on the
basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed. All other computations of fees and interest shall be made on the
basis of a 360-day year and actual days elapsed (which results in more
interest being paid than if computed on the basis of a 365-day year).
Interest and fees shall accrue during each period during which interest or
such fees are computed from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Administrative Agent
or Reference Bank, as the case may be, shall be conclusive and binding on the
Borrower in the absence of manifest error.
2.9 PAYMENTS BY THE BORROWER.
(a) All payments to be made by the Borrower shall be made without
set-off, recoupment or counterclaim. Except as otherwise expressly provided
herein, all payments shall be made by the Borrower directly to the
Administrative Agent at the Administrative Agent's Payment Office. The
Administrative Agent shall thereafter promptly remit in same day or
immediately available funds to each Bank or other holder of a Note as so
directed by any such Bank to the Administrative Agent, its Pro Rate Share of
such payments. Any payment received by an Administrative Agent later than
3:00 p.m. New York time shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall continue to
accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be
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made on the following Business Day, and such extension of time shall in such
case be included in the computation of interest or fees, as the case may be.
2.10 SHARING OF PAYMENTS, ETC. If, other than as expressly provided
elsewhere herein, any Bank shall obtain on account of the Loans made by it
any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) in excess of its ratable share (or other
share contemplated hereunder), such Bank shall immediately (a) notify the
Administrative Agent of such fact, and (b) purchase from the other Banks such
participations in the Loans made by them as shall be necessary to cause such
purchasing Bank to share the excess payment pro rata with each of them;
PROVIDED, HOWEVER, that if all or any portion of such excess payment is
thereafter recovered from the purchasing Bank, such purchase shall to that
extent be rescinded and each other Bank shall repay to the purchasing Bank
the purchase price paid therefor, together with an amount equal to such
paying Bank's ratable share (according to the proportion of (i) the amount of
such paying Bank's required repayment to (ii) the total amount so recovered
from the purchasing Bank) of any interest or other amount paid or payable by
the purchasing Bank in respect of the total amount so recovered. The Borrower
agrees that any Bank so purchasing a participation from another Bank may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to Section 10.10) with respect
to such participation as fully as if such Bank were the direct creditor of
the Borrower in the amount of such participation. The Administrative Agent
will keep records (which shall be conclusive and binding in the absence of
manifest error) of participations purchased under this Section and will in
each case notify the Banks following any such purchases or repayments.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.1 TAXES. (a) Any and all payments by the Borrower to any Bank or any
Agent under this Agreement and any other Loan Document shall be made free and
clear of, and without deduction or withholding for any Taxes. In addition,
the Borrower shall pay all Other Taxes.
(b) The Borrower agrees to indemnify and hold harmless each Agent
and each Bank for the full amount of Taxes or Other Taxes (including any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under
this Section) paid by such Agent or such Bank and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes
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were correctly or legally asserted. Payment under this indemnification shall
be made with 30 days after the date such Agent or such Bank or the
Administrative Agent makes written demand therefor.
(c) If the Borrower shall be required by law to deduct or withhold
any Taxes or Other Taxes from or in respect of any sum payable hereunder to
any Agent or any Bank, then:
(i) the sum payable shall be increased as necessary so that
after making all required deductions and withholdings (including deductions
and withholdings applicable to additional sums payable under this Section)
such Agent or such Bank receives an amount equal to the sum it would have
received had no such deductions or withholdings been made;
(ii) the Borrower shall make such deductions and withholdings;
(iii) the Borrower shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance
with applicable law; and
(iv) the Borrower shall also pay to such Agent or such Bank,
at the time interest is paid, all additional amounts which such Agent or such
Bank specifies as necessary to preserve the after-tax yield the Bank would
have received if such Taxes or Other Taxes had not been imposed.
(d) Within 30 days after the date of any payment by the Borrower of
Taxes or Other Taxes, the Borrower shall furnish the Administrative Agent the
original or a certified copy of a receipt evidencing payment thereof, or
other evidence of payment satisfactory to the Administrative Agent.
(e) If the Borrower is required to pay additional amounts to any
Agent or any Bank pursuant to subsection (c) of this Section, then such Agent
or such Bank shall use reasonable efforts (consistent with legal and
regulatory restrictions) to change the jurisdiction of its lending office so
as to eliminate any such additional payment by the Borrower which may
thereafter accrue, if such change in the judgment of such Agent or such Bank
is not otherwise disadvantageous to such Agent or such Bank.
3.2 ILLEGALITY. (a) If any Bank determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has
asserted that it is unlawful, for any Bank or its applicable lending office
to make
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LIBO Rate Loans, then, on notice thereof by the Bank to the Borrower through
the Administrative Agent, any obligation of that Bank to make LIBO Rate Loans
shall be suspended until the Bank notifies the Administrative Agent and the
Borrower that the circumstances giving rise to such determination no longer
exist.
(b) If a Bank determines that it is unlawful to maintain any LIBO
Rate Loan, the Borrower shall, upon receipt by the Borrower of notice of such
fact and demand from such Bank, (with a copy to the Administrative Agent)
prepay in full such LIBO Rate Loans of that Bank then outstanding, together
with interest accrued thereon and amounts required under SECTION 3.4, either
on the last day of the Interest Period thereof, if the Bank may lawfully
continue to maintain such LIBO Rate Loans to such day, or immediately, if the
Bank may not lawfully continue to maintain such LIBO Rate Loan. If the
Borrower is required to so prepay any LIBO Rate Loan, then concurrently with
such prepayment, the Borrower shall borrow from the affected Bank, in the
amount of such repayment, a Base Rate Loan.
(c) If the obligation of any Bank to make or maintain LIBO Rate
Loans has been so terminated or suspended, the Borrower may elect, by giving
notice to the Bank, through the Administrative Agent, that all Loans which
would otherwise be made by the Bank as LIBO Rate Loans shall be instead Base
Rate Loans.
(d) Before giving any notice to the Administrative Agent or any
Bank under this Section, the affected Bank shall designate a different
lending office with respect to its LIBO Rate Loans if such designation will
avoid the need for giving such notice or making such demand and will not, in
the judgment of such Bank, be illegal or otherwise disadvantageous to such
Bank.
3.3 INCREASED COSTS AND REDUCTION OF RETURN. (a) If any Bank determines
that, due to either (i) the introduction of or any change (other than any
change by way of imposition of or increase in reserve requirements included
in the calculation of the LIBO Rate or in respect of the assessment rate
payable by any Bank to the FDIC for insuring U.S. deposits) in or in the
interpretation of any law or regulation or (ii) the compliance by such Bank
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any
increase in the cost to such Bank of agreeing to make or making, funding or
maintaining any LIBO Rate Loans, then the Borrower shall be liable for, and
shall from time to time, upon demand (with a copy of such demand to be
delivered to the Administrative Agent), pay to the Administrative Agent for
the account of such Bank, additional amounts as are sufficient to compensate
such Bank for such increased costs.
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(b) If any Bank shall have determined that (i) the introduction of
any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by the Bank (or its lending office) or any corporation controlling
the Bank with any Capital Adequacy Regulation, affects or would affect the
amount of capital required or expected to be maintained by the Bank or any
corporation controlling the Bank and (taking into consideration such Bank's
or such corporation's policies with respect to capital adequacy and such
Bank's desired return on capital) determines that the amount of such capital
is increased as a consequence of its Commitment, loans, credits or
obligations under this Agreement, then, upon demand of such Bank to the
Borrower through the Administrative Agent, the Borrower shall pay to such
Bank, from time to time as specified by such Bank, additional amounts
sufficient to compensate such Bank for such increase.
3.4 FUNDING LOSSES. The Borrower shall reimburse each Bank and hold each
Bank harmless from any loss or expense which the Bank may sustain or incur as
a consequence of:
(a) the failure of the Borrower to make on a timely basis any
payment of principal of any LIBO Rate Loan;
(b) the failure of the Borrower to continue or convert a Loan after
the Borrower has given (or is deemed to have given) a Notice of
Conversion/Continuation;
(c) the failure of the Borrower to make any prepayment in
accordance with any notice delivered under SECTION 2.5;
(d) the prepayment (including pursuant to SECTION 2.6) or other
payment (including after acceleration thereof) of a LIBO Rate Loan on a day
that is not the last day of the relevant Interest Period; or
(e) the automatic conversion under SECTION 2.4 of any LIBO Rate
Loan to a Base Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any such loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain its LIBO Rate Loans.
3.5 INABILITY TO DETERMINE RATES. If any Bank determines that for any
reason adequate and reasonable means do not exist for determining the LIBO
Rate for any requested Interest Period
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with respect to a proposed LIBO Rate Loan, or that the LIBO Rate applicable
pursuant to SUBSECTION 2.7(a) for any requested Interest Period with respect
to a proposed LIBO Rate Loan does not adequately and fairly reflect the cost
to such Bank of funding such Loan, the Administrative Agent will promptly so
notify the Borrower and each Bank. Thereafter, the obligation of the Banks to
make or maintain LIBO Rate Loans hereunder shall be suspended until the
Administrative Agent upon instruction of the Required Banks revokes such
notice in writing. Upon receipt of such notice, the Borrower may revoke any
Notice of Conversion/Continuation then submitted by it. If the Borrower does
not revoke such Notice, the Banks shall convert or continue the Loans, as
proposed by the Borrower, in the amount specified in the applicable notice
submitted by the Borrower, but such Loans shall be made, converted or
continued as Base Rate Loans instead of LIBO Rate Loans.
3.6 SURVIVAL. The agreements and obligations of the Borrower in this
ARTICLE III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 CONDITIONS TO INITIAL BORROWING. As a condition to the obligation
of BNY and BNS to fund the Borrowing under the Existing Credit Agreement on
the Original Closing Date, in addition to the conditions set forth in SECTION
4.2, the Borrower delivered the following to BNY and BNS:
(a) EXISTING CREDIT AGREEMENT. The Existing Credit Agreement
executed by each party thereto;
(b) NOTES. The Notes executed by the Borrower;
(c) GUARANTY. The Guaranties executed by MW and the other
Guarantors;
(d) RESOLUTIONS; INCUMBENCY.
(i) Copies of the resolutions of the board of directors of each
of the Borrower and MW authorizing the transactions contemplated by the
Existing Credit Agreement, certified as of the Original Closing Date by the
Secretary or an Assistant Secretary of the Borrower or MW; and
(ii) A certificate of the Secretary or Assistant Secretary of
each of the Borrower and MW certifying the names and true signatures of the
officers of the Borrower or
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MW authorized to execute, deliver and perform, as applicable, the
Existing Credit Agreement, and all other Loan Documents (as such term is
defined in the Existing Credit Agreement) to be delivered by it under
the Existing Credit Agreement;
(e) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the following
documents:
(i) the articles or certificate of incorporation and the
bylaws of the Borrower and MW as in effect on the Original Closing Date,
certified by the Secretary or Assistant Secretary of the Borrower or MW,
as the case may be, as of the Original Closing Date; and
(ii) a good standing certificate for the Borrower from the
Secretary of State (or similar, applicable Governmental Authority) of
its jurisdiction of incorporation, dated as of a recent date;
(f) LEGAL OPINION. An opinion or opinions of counsel to the
Borrower and MW and addressed to BNY and BNS, substantially in the form of
EXHIBIT D;
(g) PAYMENT OF EXISTING SIGNATURE NOTE. Evidence of payment by
the Borrower of all of the indebtedness under the Existing Signature Note;
(h) CERTIFICATE. A certificate signed by a Responsible Officer,
dated as of the Original Closing Date, stating that: (i) the representations
and warranties contained in ARTICLE V are true and correct on and as of such
date, as though made on and as of such date; and (ii) no Default or Event of
Default then exists or would result from the Borrowing;
(i) FEES. Evidence of payment of all fees required by any fee
letter; and
(j) OTHER DOCUMENTS. Such other approvals, opinions, documents or
materials as BNY and BNS requested.
4.2 FURTHER CONDITIONS TO BORROWING. The obligation of each Bank to
make its Loan or to continue or convert any Loan under SECTION 2.4 is subject
to the satisfaction of the following conditions precedent on the Borrowing
Date or the relevant Conversion/Continuation Date:
(a) NOTICE OF BORROWING OR CONVERSION/CONTINUATION. The
Administrative Agent shall have received a Notice of Borrowing or a Notice of
Conversion/Continuation, as applicable;
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(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in ARTICLE V shall be true and correct on and
as of such Borrowing Date or Conversion/Continuation Date with the same
effect as if made on and as of such Borrowing Date or Conversion/Continuation
Date (except to the extent such representations and warranties expressly
refer to an earlier date, in which case they shall be true and correct as of
such earlier date); and
(c) NO EXISTING DEFAULT. No Default or Event of Default shall
exist or shall result from such Borrowing or continuation or conversion.
Each Notice of Borrowing and Notice of Conversion/Continuation submitted by
the Borrower hereunder shall constitute a representation and warranty by the
Borrower hereunder, as of the date of each such notice and as of each
Borrowing Date or Conversion/Continuation Date, as applicable, that the
conditions in this SECTION 4.2 are satisfied.
4.3 CONDITION TO THIS AGREEMENT. This Agreement shall become effective
on the Restatement Effective Date, subject, however, to the conditions
precedent that the Documentation Agent shall have received each of the
following, in form and substance satisfactory to the Documentation Agent, and
in sufficient copies for each Bank then a party hereto:
(a) AMENDED AND RESTATED CREDIT AGREEMENT. This Agreement
executed by each party hereto, together with an acknowledgement thereof
executed by each Guarantor;
(b) RESOLUTIONS; INCUMBENCY.
(i) Copies of the resolutions of the board of directors of
each of the Borrower and MW authorizing the transactions contemplated
hereby, certified as of the Restatement Effective Date by the Secretary
or an Assistant Secretary of the Borrower or MW; and
(ii) A certificate of the Secretary or Assistant Secretary
of each of the Borrower and MW dated as of the Restatement Effective
Date certifying the names and true signatures of the officers of the
Borrower or MW authorized to execute, deliver and perform, as
applicable, this Agreement, and all other Loan Documents to be delivered
by it hereunder;
(c) LEGAL OPINION. An opinion or opinions of counsel to the
Borrower and MW dated as of the Restatement Effective Date and addressed to
the Agents and the Banks, substantially in the form of EXHIBIT H;
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(d) CERTIFICATE. A certificate signed by a Responsible Officer,
dated as of the Restatement Effective Date, stating that: (i) the
representations and warranties contained in ARTICLE V are true and correct on
and as of such date, as though made on and as of such date; (ii) no Default
or Event of Default then exists and (iii) all conditions precedent to the
Restatement Effective Date have been satisfied; and
(e) OTHER DOCUMENTS. Such other approvals, opinions, documents or
materials as the Banks my request (including, without limitation, additional
original copies of the closing documents (other than the Notes) referred to
in SECTION 4.1).
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each Agent and each Bank that:
5.1 CORPORATE EXISTENCE AND POWER. The Borrower and each of its
Subsidiaries:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) has (or, as to the Guaranties by Subsidiaries, will have
within fifteen (15) days after the Original Closing Date) the power and
authority and all governmental licenses, authorizations, consents and
approvals to own it assets, carry on its business and to execute, deliver,
and perform its obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation and is licensed and
in good standing under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires such
qualification or license; and
(d) is in compliance with all Requirements of Law; except, in each
case referred to in clause (c) or clause (d), to the extent that the failure
to do so could not reasonably be expected to have a Material Adverse Effect.
5.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery
and performance by the Borrower and each Guarantor of this Agreement and each
other Loan Document to which the Borrower or such Guarantor is party, have
been (or, as to the Guaranties by Subsidiaries, will be within fifteen (15)
days
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after the Original Closing Date) duly authorized by all necessary corporate
action, and do not and/or will not:
(a) contravene the terms of any of the Borrower's or such
Guarantor's Organization Documents;
(b) conflict with or result in any breach or contravention of, or
the creation of any Lien under, any document evidencing any Contractual
Obligation to which the Borrower or such Guarantor is a party or any order,
injunction, writ or decree of any Governmental Authority to which the
Borrower or such Guarantor or their property is subject; or
(c) violate any Requirement of Law.
5.3 GOVERNMENTAL AUTHORIZATION. Except as contemplated in SECTION 6.13,
no approval, consent, exemption, authorization, or other action by, or notice
to, or filing with, any Governmental Authority is necessary or required in
connection with the execution, delivery or performance by, or enforcement
against, the Borrower or any Guarantor of the Agreement or any other Loan
Document.
5.4 BINDING EFFECT. This Agreement and each other Loan Document to
which the Borrower or any Guarantor is a party constitute (or, as to the
Guaranties by Subsidiaries, will constitute within fifteen (15) days after
the Original Closing Date) the legal, valid and binding obligations of the
Borrower or such Guarantor to the extent it is a party thereto, enforceable
against the Borrower or such Guarantor in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
5.5 LITIGATION. Except as specifically disclosed in SCHEDULE 5.5,
there are no actions, suits, proceedings, claims or disputes pending, or to
the best knowledge of the Borrower, threatened or contemplated, at law, in
equity, in arbitration or before any Governmental Authority, against the
Borrower or its Subsidiaries or any of their respective properties which:
(a) purport to affect or pertain to this Agreement or any other Loan
Document, or any of the transactions contemplated hereby or thereby; or
(b) if determined adversely to the Borrower or its Subsidiaries,
would reasonably be expected to have a Material Adverse Effect.
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No injunction, writ, temporary restraining order or any order of any nature
has been issued by any court or other Governmental Authority purporting to
enjoin or restrain the execution, delivery or performance of this Agreement or
any other Loan Document, or directing that the transactions provided for
herein or therein not be consummated as herein or therein provided.
5.6 NO DEFAULT. No Default or Event of Default exists or would result
from the incurring of any Obligations by the Borrower. As of the Original
Closing Date, neither the Borrower nor any Subsidiary is in default under or
with respect to any Contractual Obligation in any respect which, individually
or together with all such defaults, could reasonably be expected to have a
Material Adverse Effect, or that would, if such default had occurred after the
Original Closing Date, create an Event of Default under SUBSECTION 8.1 (f).
5.7 ERISA COMPLIANCE. Except as specifically disclosed in SCHEDULE 5.7:
(a) Each Plan and to the knowledge of Borrower, each Multiemployer
Plan is in compliance in all material respects with the applicable provisions
of ERISA, the Code and other federal or state law, except to the extent
noncompliance could not reasonably be expected to result in a Material Adverse
Effect. Each Plan and to the knowledge of Borrower, each Multiemployer Plan
which is intended to qualify under Section 401(a) of the Code has received a
favorable determination letter from the IRS and to the best knowledge of the
Borrower, nothing has occurred which would cause the loss of such
qualification. The Borrower and each ERISA Affiliate has made all required
contributions to any Plan and each Multiemployer Plan subject to Section 412
of the Code, and no application for a funding waiver or an extension of any
amortization period pursuant to Section 412 of the Code has been made with
respect to any Plan and to the best of Borrower's knowledge Multiemployer Plan.
(b) There are no pending or, to the best knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan and to the best of Borrower's knowledge
Multiemployer Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction
or violation of the fiduciary responsibility rules with respect to any Plan
and to the knowledge of Borrower, each Multiemployer Plan which has resulted
or could reasonably be expected to result in a Material Adverse Effect.
(c) (i) Except for any event which would not reasonably be expected
to result in a Material Adverse Effect, no ERISA Event has occurred or is
reasonably expected to occur;
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(ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the
Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability under Title IV of ERISA with respect to any Pension Plan or
Multiemployer Plan (other than premiums due and not delinquent under Section
4007 of ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred,
or reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
5.8 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans are to
be used solely for the purposes set forth in and permitted by SECTION 6.12 and
SECTION 7.7. Neither the Borrower nor any Subsidiary is generally engaged in the
business of purchasing or selling Margin Stock or extending credit for the
purpose of purchasing or carrying Margin Stock.
5.9 TITLE TO PROPERTIES. The Borrower and each Subsidiary have good
record and marketable title in fee simple to, or valid leasehold interests in,
all real property necessary or used in the ordinary conduct of their respective
businesses, except for such defects in title as could not, individually or in
the aggregate, have a Material Adverse Effect. As of the Original Closing Date,
the property of the Borrower and its Subsidiaries is subject to no Liens, other
than Permitted Liens.
5.10 TAXES. The Borrower and its Subsidiaries have filed all Federal and
other material tax returns and reports required to be filed, and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against the Borrower
or any Subsidiary that would, if made, have a Material Adverse Effect.
5.11 FINANCIAL CONDITION. (a) The audited consolidated financial statements
of the Borrower and its Subsidiaries dated December 31, 1995, and the related
consolidated statements of income or operations, shareholders' equity and cash
flows for the fiscal year ended on that date:
(i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted
therein;
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(ii) fairly present the financial condition of the Borrower and
its Subsidiaries as of the date thereof and results of operations for the
period covered thereby; and
(iii) except as specifically disclosed in SCHEDULE 5.11 or as
otherwise incurred in the ordinary course of business by the Subsidiaries
of the Borrower that are insurance companies, show all material
indebtedness and other liabilities, direct or contingent, of the Borrower
and its consolidated Subsidiaries as of the Original Closing Date,
including liabilities for taxes, material commitments and Contingent
Obligations.
(b) Since December 31, 1995, there has been no Material Adverse
Effect.
5.12 ENVIRONMENTAL MATTERS. The Borrower conducts in the ordinary course
of business a review of the effect of existing Environmental Laws and existing
Environmental Claims on its business, operations and properties, and as a result
thereof the Borrower has reasonably concluded that, except as specifically
disclosed in SCHEDULE 5.12, such Environmental Laws and Environmental Claims
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
5.13 REGULATED ENTITIES. None of the Borrower, any Person controlling the
Borrower, or any Subsidiary (other than Signature Investment Advisors, Inc.) is
an "Investment Company" within the meaning of the Investment Company Act of
1940. The Borrower is not subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act,
any state public utilities code, or any other Federal or state statute or
regulation (other than applicable insurance regulations) limiting its ability to
incur Indebtedness.
5.14 NO BURDENSOME RESTRICTIONS. Neither the Borrower nor any Subsidiary
is a party to or bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.
5.15 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The Borrower or
its Subsidiaries own or are licensed or otherwise have the right to use all of
the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person. To the best knowledge of the Borrower, no slogan or other
advertising device, product, process, method, substance, part or other material
now employed,
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or now contemplated to be employed, by the Borrower or any Subsidiary infringes
upon any rights held by any other Person. Except as specifically disclosed in
SCHEDULE 5.5, no claim or litigation regarding any of the foregoing is pending
or threatened, and no patent, invention, device, application, principle or any
statute, law, rule, regulation, standard or code is pending or, to the knowledge
of the Borrower, proposed, which, in either case, could reasonably be expected
to have a Material Adverse Effect.
5.16 SUBSIDIARIES. The Borrower has no Subsidiaries other than those
specifically disclosed in part (a) of SCHEDULE 5.16 hereto and has no equity
investments in any other corporation or entity other than those specifically
disclosed in part (b) of SCHEDULE 5.16 except for investments in the ordinary
course of business by any Subsidiary of the Borrower.
5.17 INSURANCE. Except as specifically disclosed in SCHEDULE 5.17, the
properties of the Borrower and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of the Borrower, in such
amounts, with such deductibles and covering such risks as are customarily
carried by companies engaged in similar businesses and owning similar properties
in localities where the Borrower or such Subsidiary operates.
5.18 FULL DISCLOSURE. None of the representations or warranties made by
the Borrower or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Borrower or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of the Borrower to the Banks prior to the Original Closing Date),
contains any untrue statement of a material fact or omits any material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they are made, not misleading as of
the time when made or delivered.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Required Banks
waive compliance in writing:
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6.1 FINANCIAL STATEMENTS. The Borrower shall deliver to the
Administrative Agent and each Bank, in form and detail satisfactory to each
Agent and the Required Banks:
(a) as soon as available, but not later than ninety (90) days after
the end of each fiscal year, a copy of the audited consolidated balance sheet of
the Borrower and its Subsidiaries as at the end of such fiscal year and the
related consolidated statements of income or operations, shareholders' equity
and cash flows for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, and accompanied by the opinion of Arthur
Andersen LLP or another nationally-recognized independent public accounting firm
("INDEPENDENT AUDITOR") which report shall state that such consolidated
financial statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of a restricted
or limited examination by the Independent Auditor of any material portion of the
Borrower's or any Subsidiary's records and shall be delivered to the
Administrative Agent and each Bank pursuant to a reliance agreement between the
Agents, the Banks and such Independent Auditor in form and substance
satisfactory to the Administrative Agent;
(b) as soon as available, but not later than sixty (60) days after
the end of each of the first three fiscal quarters of each fiscal year, a copy
of the unaudited consolidated balance sheet of the Borrower and its Subsidiaries
as of the end of such quarter and the related consolidated statements of income,
shareholders' equity and cash flows for the period commencing on the first day
and ending on the last day of such quarter, and certified by a Responsible
Officer as fairly presenting, in accordance with GAAP (subject to ordinary, good
faith year-end audit adjustments), the financial position and the results of
operations of the Borrower and the Subsidiaries;
(c) As soon as available, but in any event within fifteen (15) days
after the beginning of each fiscal year of the Borrower, a copy of the plan
(including a projected closing consolidated balance sheet, income statement and
funds flow statements) of the Borrower for each month of such fiscal year;
(d) As soon as possible, but in any event within ninety (90) days
after the end of each fiscal year of each Insurance Subsidiary of the Borrower,
a copy of the annual statement of such Insurance Subsidiary for such fiscal year
prepared in accordance with SAP and accompanied by the certification of a
Responsible Officer that such financial statement presents fairly, in accordance
with SAP, the financial
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position of such Insurance Subsidiary for the period then ended; and
(e) As soon as possible, but in any event within sixty (60) days
after the end of each of the first three fiscal quarters of each fiscal year of
each of the Insurance Subsidiaries of the Borrower, a copy of the quarterly
statement of such Insurance Subsidiary for such fiscal quarter, all prepared in
accordance with SAP and accompanied by the certification of a Responsible
Officer that all such financial statements present fairly in accordance with SAP
the financial position of such Insurance Subsidiary for the periods then ended.
6.2 CERTIFICATES; OTHER INFORMATION. The Borrower shall furnish to each
Agent and each Bank:
(a) concurrently with the delivery of the financial statements
referred to in SUBSECTION 6.1(a), a certificate of the Independent Auditor
stating that in making the examination necessary therefor no knowledge was
obtained of any Default or Event of Default as to accounting matters, except as
specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in SUBSECTIONS 6.1(a) and (b), a Compliance Certificate executed by
a Responsible Officer;
(c) promptly, copies of all financial statements and reports that MW
sends to its shareholders, and copies of all financial statements and regular,
periodical or special reports (including Forms 10K, 10Q and 8K) that MW or the
Borrower may make to, or file with, the SEC;
(d) promptly, such additional information regarding the business,
financial or corporate affairs of the Borrower or any Subsidiary as the
Administrative Agent, at the request of any Bank, may from time to time request;
and
(e) concurrently with the declaration of any dividends or
distributions or the agreement to make any advances by the Borrower to MW, a
notice of the amount and proposed date of any dividend, distribution or advance.
6.3 NOTICES. The Borrower shall promptly notify each Agent and each Bank:
(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that foreseeably will
become a Default or Event of Default;
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(b) of any matter that has resulted or may result in a Material
Adverse Effect, including (i) breach or non-performance of, or any default
under, a Contractual Obligation of the Borrower or any Subsidiary; (ii) any
dispute, litigation, investigation, proceeding or suspension between the
Borrower or any Subsidiary and any Governmental Authority; or (iii) the
commencement of, or any material development in, any litigation or proceeding
affecting the Borrower or any Subsidiary, including pursuant to any applicable
Environmental Laws;
(c) of the occurrence of any of the following events affecting the
Borrower or any ERISA Affiliate (but in no event more than 10 days after such
event), and deliver to the Administrative Agent and each Bank a copy of any
notice with respect to such event that is filed with a Governmental Authority
and any notice delivered by a Governmental Authority to the Borrower or any
ERISA Affiliate with respect to such event:
(i) an ERISA Event which would result in a material liability to
Borrower;
(ii) a material increase in the Unfunded Pension Liability of any
Pension Plan;
(iii) the adoption of, or the commencement of contributions to,
any Plan subject to Section 412 of the Code by the Borrower or any ERISA
Affiliate; or
(iv) the adoption of any amendment to a Plan subject to Section
412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability.
(d) of any material change in accounting policies or financial
reporting practices by the Borrower or any of its consolidated Subsidiaries.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Borrower or any affected
Subsidiary proposes to take with respect thereto and at what time. Each notice
under SUBSECTION 6.3(a) shall describe with particularity any and all clauses or
provisions of this Agreement or other Loan Document that have been (or
foreseeably will be) breached or violated.
6.4 PRESERVATION OF CORPORATE EXISTENCE, ETC. The Borrower shall, and
shall cause each Subsidiary to:
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(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation;
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises necessary
or desirable in the normal conduct of its business except in connection with
transactions permitted by SECTION 7.3 and sales of assets permitted by SECTION
7.2;
(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
6.5 MAINTENANCE OF PROPERTY. The Borrower shall maintain, and shall cause
each Subsidiary to maintain, and preserve all its property which is used or
useful in its business in good working order and condition, ordinary wear and
tear excepted, except as permitted by SECTION 7.2. The Borrower and each
Subsidiary shall use the standard of care typical in the industry in the
operation and maintenance of its facilities.
6.6 INSURANCE. The Borrower shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons.
6.7 PAYMENT OF OBLIGATIONS. The Borrower shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable, all
of their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being contested
in good faith by appropriate proceedings and adequate reserves in accordance
with GAAP are being maintained by the Borrower or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a Lien
upon its property; and
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(c) all Indebtedness, as and when due and payable, but subject to any
subordination provisions contained in any instrument or agreement evidencing
such Indebtedness.
6.8 COMPLIANCE WITH LAWS. The Borrower shall comply, and shall cause
each Subsidiary to comply, in all material respects with all Requirements of Law
of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
6.9 COMPLIANCE WITH ERISA. The Borrower shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
6.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Borrower shall
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Borrower and such Subsidiary. The
Borrower shall permit, and shall cause each Subsidiary to permit,
representatives and independent contractors of the Administrative Agent or any
Bank to visit and inspect any of their respective properties, to examine their
respective corporate, financial and operating records, and make copies thereof
or abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective directors, officers, and independent public
accountants, all at the expense of the Borrower and at such reasonable times
during normal business hours and as often as may be reasonably desired, upon
reasonable advance notice to the Borrower; PROVIDED, HOWEVER, when an Event of
Default exists the Administrative Agent or any Bank may do any of the foregoing
at the expense of the Borrower at any time during normal business hours and
without advance notice.
6.11 ENVIRONMENTAL LAWS. The Borrower shall, and shall cause each
Subsidiary to, conduct its operations and keep and maintain its property in
compliance with all Environmental Laws.
6.12 USE OF PROCEEDS. The proceeds of the Existing Signature Note were
used by the Borrower to acquire Amoco Enterprises, Inc., Amoco Motor Club, Inc.
and Amoco Enterprises Canada, Limited. Concurrently with the Borrowing
hereunder, the Borrower shall use the proceeds of the Loans to repay the
Existing Signature Note.
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6.13 GUARANTIES. Within fifteen days of the Original Closing Date, the
Borrower shall cause each Guarantor to deliver to the Banks (a) a certificate of
the Secretary or Assistant Secretary of each Guarantor, as to (i) copies of the
resolutions of its board of directors authorizing its Guaranty, (ii) the names
and true signatures of its officers authorized to execute, deliver and perform
its Guaranty, and (iii) its articles or certificate of incorporation and bylaws,
and (b) an opinion of counsel acceptable to the Banks as to the due
authorization, execution, delivery and validity of the Guaranties (such opinion
to be in form and substance satisfactory to the Banks).
ARTICLE VII
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Required Banks
waive compliance in writing:
7.1 LIMITATION ON LIENS. The Borrower shall not, and shall not suffer or
permit any Subsidiary to, directly or indirectly, make, create, incur, assume or
suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("PERMITTED
LIENS"):
(a) any Lien existing on property of the Borrower or any Subsidiary
on the Original Closing Date and set forth in SCHEDULE 7.1 securing Indebtedness
outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that non-payment thereof is permitted by SECTION 6.7, provided that no notice of
lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property subject thereto;
(e) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other social security
legislation;
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(f) Liens on the property of the Borrower or its Subsidiary securing
(i) the non-delinquent performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, (ii) contingent obligations on
surety and appeal bonds, and (iii) other non-delinquent obligations of a like
nature; in each case, incurred in the ordinary course of business;
(g) Liens consisting of judgment or judicial attachment liens,
provided that the enforcement of such Liens is effectively stayed and all such
liens in the aggregate at any time outstanding for the Borrower and its
Subsidiaries do not exceed $500,000;
(h) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Borrower and its
Subsidiaries;
(i) Liens securing obligations in respect of capital leases on assets
subject to such leases, provided that such capital leases are otherwise
permitted hereunder;
(j) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; PROVIDED, THAT (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Borrower or any Subsidiary in excess of those set forth by
regulations promulgated by the FRB, and (ii) such deposit account is not
intended by the Borrower or any Subsidiary to provide collateral to the
depository institution;
(k) deposits by the Subsidiaries of the Borrower which are required
by applicable regulation or in the ordinary course of business; and
(l) Liens arising in the ordinary course of business for sums being
contested in good faith and by appropriate proceedings and with respect to which
adequate reserves are being maintained in accordance with GAAP, or for sums not
due, and in either case not involving any deposits or advances for borrowed
money or the deferred purchase price of property or services.
7.2 DISPOSITION OF ASSETS. The Borrower shall not, and shall not suffer
or permit any Subsidiary to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one or a series of
transactions) any
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property (including accounts and notes receivable, with or without recourse)
or enter into any agreement to do any of the foregoing, except:
(a) dispositions of inventory, or used, worn-out or surplus equipment,
all in the ordinary course of business;
(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to
the purchase price of such replacement equipment;
(c) dispositions not otherwise permitted hereunder which are made for
fair market value; PROVIDED, that (i) after giving effect to any such
disposition, no Default or Event of Default would exist, (ii) the aggregate
sales price from such disposition shall be paid in cash, (iii) the assets
which are subject of such disposition do not include accounts or notes
receivable and (iv) the aggregate value of all assets so sold by the Borrower
and its Subsidiaries, together, shall not exceed in any fiscal year
$5,000,000 (except that in fiscal year 1997, the aggregate value of all such
assets can be in excess of $5,000,000 but shall not exceed $10,000,000);
(d) dispositions of investments of the types permitted by SUBSECTIONS
7.4(a) and 7.4(d); and
(e) sales by the Borrower of accounts receivable pursuant to the
Retail Credit Program Agreement or MWCC Receivables Purchase Agreement (each
as defined in the MW Credit Agreement).
7.3 CONSOLIDATIONS AND MERGERS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, merge, consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions all or substantially all of its assets
(whether now owned or hereafter acquired) to or in favor of any Person,
except:
(a) any Guarantor may merge with the Borrower; PROVIDED, that the
Borrower shall be the continuing or surviving corporation, or with any one or
more Guarantors; and further PROVIDED, that if any transaction shall be
between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned
Subsidiary shall be the continuing or surviving corporation; and
(b) any Subsidiary may sell all or substantially all of its assets
(upon voluntary liquidation or otherwise), to the Borrower or another
Wholly-Owned Subsidiary.
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7.4 LOANS AND INVESTMENTS. The Borrower shall not purchase or acquire,
or suffer or permit any Subsidiary to purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations
or other securities of, or any interest in, any Person, or make or commit to
make any Acquisitions, or make or commit to make any advance, loan, extension
of credit or capital contribution to or any other investment in, any Person
including any Affiliate of the Borrower, except for:
(a) investments in cash equivalents and short term marketable
securities;
(b) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(c) extensions of credit and investments (i) by the Borrower or any
Subsidiary of the Borrower to the Borrower or any of the Guarantors (ii) or
by any Guarantor to another Guarantor or (iii) by an Insurance Subsidiary to
an Insurance Subsidiary or (iv) by a Subsidiary which is not an Insurance
Subsidiary or a Guarantor to a Subsidiary which is not an Insurance
Subsidiary or a Guarantor or (v) by an Insurance Subsidiary to a Subsidiary
which is not an Insurance Subsidiary or a Guarantor;
(d) extensions of credit and investments in the ordinary course of
business by Subsidiaries of the Borrower;
(e) advance to MW;
(f) investments set forth on SCHEDULE 7.4;
(g) other investments not exceeding $2,000,000 in the aggregate;
(h) intercompany advances among the Borrower and its Subsidiaries
for administrative and operational services being provided by the Borrower or
one of its Subsidiaries; and
(i) in addition to the investments and extensions of credit
permitted under subsection 7.4(c) investments and extensions of credit (net
of repayments) by the Borrower and all Subsidiaries of the Borrower which are
Guarantors, as a group, to all other Subsidiaries of the Borrower, as a
group, or by all Subsidiaries of the Borrower which are neither Insurance
Subsidiaries nor Guarantors, as a group, to all Insurance Subsidiaries of the
Borrower, as a group, provided the aggregate amount of such net investments
and extensions of credit made after September 30, 1996 shall not exceed $30
million.
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7.5 LIMITATION ON INDEBTEDNESS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume, suffer to exist,
or otherwise become or remain directly or indirectly liable with respect to,
any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations permitted
pursuant to SECTION 7.8;
(c) Indebtedness existing on the Original Closing Date and set forth
in SCHEDULE 7.5;
(d) Indebtedness incurred in connection with leases permitted
pursuant to SECTION 7.9;
(e) Indebtedness permitted by SUBSECTIONS 7.4(c) and 7.4(i); and
(f) Indebtedness owed to MW.
7.6 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate (other than a Wholly-Owned Subsidiary of the Borrower and Scrip
Plus, Inc.), except upon fair and reasonable terms no less favorable to the
Borrower or such Subsidiary than would be obtained in a comparable
arm's-length transaction with a Person not an Affiliate of the Borrower or
such Subsidiary.
7.7 USE OF PROCEEDS. The Borrower shall not, and shall not suffer or
permit any Subsidiary to, use any portion of the Loan proceeds, directly and
indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise
refinance indebtedness of the Borrower or others incurred to purchase or
carry Margin Stock, (iii) to extend credit for the purpose of purchasing or
carrying any Margin Stock, or (iv) to acquire any security in any transaction
that is subject to Section 13 or 14 of the Exchange Act.
7.8 CONTINGENT OBLIGATIONS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume or suffer to exist
any Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary course of
business;
(b) Swap Contracts entered into in the ordinary course of business
as bona fide hedging transactions;
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(c) Contingent Obligations of the Borrower and its Subsidiaries
listed in SCHEDULE 7.8;
(d) the Guaranties; and
(e) Contingent Obligations incurred in the ordinary course of
business by Insurance Subsidiaries.
7.9 LEASE OBLIGATIONS. The Borrower shall not, and shall not suffer or
permit any Subsidiary to, create or suffer to exist any obligations for the
payment of rent for any property under lease or agreement to lease, except
for:
(a) leases of the Borrower and of Subsidiaries in existence on the
Original Closing Date and any renewal, extension or refinancing thereof;
(b) operating leases entered into by the Borrower or any Subsidiary
after the Original Closing Date in the ordinary course of business
(including, without limitation, leasebacks in connection with dispositions
permitted under Section 7.2(c)); and
(c) capital leases other than those permitted under clause (a) of
this Section, entered into by the Borrower or any Subsidiary after the
Original Closing Date to finance the acquisition of equipment; PROVIDED, that
the aggregate net present value of all future rental payments for all such
capital leases shall not exceed in any fiscal year $10,000,000;
7.10 ERISA. The Borrower shall not, and shall not suffer or permit any
of its ERISA Affiliates to: (a) engage in a prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan
which has resulted or could reasonably expected to result in liability of the
Borrower in an aggregate amount in excess of $500,000; or (b) engage in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
7.11 CHANGE IN BUSINESS. The Borrower shall not, and shall not suffer
or permit any Subsidiary to, engage in any material line of business
substantially different from those lines of business carried on by the
Borrower and its Subsidiaries on the date hereof.
7.12 ACCOUNTING CHANGES. The Borrower shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment
or reporting practices, except as required by GAAP, or change the fiscal year
of the Borrower or of any Subsidiary.
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ARTICLE VIII
EVENTS OF DEFAULT
8.1 EVENT OF DEFAULT. Any of the following shall constitute an "EVENT
OF DEFAULT":
(a) NON-PAYMENT. The Borrower fails to pay, (i) when and as
required to be paid herein, any amount of principal of any Loan, or (ii)
within two Business Days after the same becomes due, any interest, fee or any
other amount payable hereunder or under any other Loan Document; or
(b) REPRESENTATION OR WARRANTY. Any representation or warranty by
the Borrower or any Subsidiary made or deemed made herein, in any other Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Borrower, any Subsidiary, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document, is incorrect in any material respect on or as of the date made or
deemed made; or
(c) SPECIFIC DEFAULTS. The Borrower fails to perform or observe any
term, covenant or agreement contained in any of SECTION 6.1, 6.2, 6.3, 6.9 or
6.13 or in ARTICLE VII (except Sections 7.1, 7.4, 7.5 (to the limited extent
provided for in SECTION 8.1(d)) and 7.8); or
(d) SPECIAL DEFAULTS. The Borrower fails to perform or observe any
term, covenant or agreement contained in any of Sections 7.1, 7.4, 7.5 (to
the extent, and only to the extent, such Default under SECTION 7.5 is also a
Default under SECTION 7.4) or 7.8 and such failure shall continue unremedied
for a period of two Business Days (or with respect to SECTIONS 7.4 or 7.5 one
Business Day) after the earlier of (i) the date upon which a Responsible
Officer knew or reasonably should have known of such failure or (ii) the date
upon which written notice thereof is given to the Borrower by any Bank; or
(e) OTHER DEFAULTS. The Borrower fails to perform or observe any
other term, covenant or agreement contained in this Agreement or any other
Loan Document, and such failure shall continue unremedied for a period of
20 days after the earlier of (i) the date upon which a Responsible Officer
knew or reasonably should have known of such failure or (ii) the date upon
which written notice thereof is given to the Borrower by the Administrative
Agent or any Bank; or
(f) CROSS-DEFAULT. (i) MW, any of its Subsidiaries, the Borrower or
any Subsidiary of the Borrower (A) fails to make any payment in respect of
any Indebtedness or Contingent
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Obligation (other than in respect of Swap Contracts) or lease obligations
under the Designated Leases, having an aggregate principal amount (including
undrawn committed or available amounts and including amounts owing to all
creditors under any combined or syndicated credit arrangement) of more than
$5,000,000 when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise) and such failure continues after the
applicable grace or notice period, if any, specified in the relevant document
on the date of such failure; or (B) fails to perform or observe any other
condition or covenant, or any other event shall occur or condition exist,
under any agreement or instrument relating to any such Indebtedness or
Contingent Obligation or lease obligation under the Designated Leases, and
such failure continues after the applicable grace or notice period, if any,
specified in the relevant document on the date of such failure if the effect
of such failure, event or condition is to cause, or to permit the holder or
holders of such Indebtedness or beneficiary or beneficiaries of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause such Indebtedness or Contingent
Obligation or lease obligation under the Designated Leases to be declared to
be due and payable prior to its stated maturity, or such Contingent
Obligation to become payable or cash collateral in respect thereof to be
demanded; or (ii) there occurs under any Swap Contract an early termination
date resulting from (1) any event or default under such Swap Contract as to
which MW, any Subsidiary of MW, the Borrower or any Subsidiary is the
defaulting party or (2) any termination event as to which MW, any Subsidiary
of MW, the Borrower or any Subsidiary is an affected party, and, in either
event, the swap termination value owed by MW, any Subsidiary of MW, the
Borrower or such Subsidiary as a result thereof is greater then $5,000,000; or
(G) INSOLVENCY; VOLUNTARY PROCEEDINGS. MW or the Borrower or any
Subsidiary of MW (i) ceases or fails to be solvent, or generally fails to
pay, or admits in writing its inability to pay, its debts as they become due,
subject to applicable grace periods, if any, whether at stated maturity or
otherwise; (ii) voluntarily ceases to conduct its business in the ordinary
course; (iii) commences any Insolvency Proceeding with respect to itself; or
(iv) takes any action to effectuate or authorize any of the foregoing; or
(h) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against MW or the Borrower or any Subsidiary
of MW, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of MW's or the
Borrower's or any MW Subsidiary's properties, and any such proceeding or
petition shall not be dismissed, or such writ, judgment, warrant of
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attachment, execution or similar process shall not be released, vacated or
fully bonded within 60 days after commencement, filing or levy; (ii) MW or
the Borrower or any Subsidiary of MW admits the material allegations of a
petition against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or
(iii) MW or the Borrower or any Subsidiary of MW acquiesces in the
appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar Person for
itself or a substantial portion of its property or business; or
(i) ERISA. (i) An ERISA Event shall occur with respect to a Pension
Plan or Multiemployer Plan which has resulted or could reasonably be expected
to result in liability of the Borrower under Title IV of ERISA to the Pension
Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$500,000; (ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans at any time exceeds $500,000; or (iii) the Borrower or any
ERISA Affiliate shall fail to pay when due, after the expiration of any
applicable grace period, any installment payment with respect to its
withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan
in an aggregate amount in excess of $500,000; or
(j) MONETARY JUDGMENTS. One or more non-interlocutory judgments,
non-interlocutory orders, decrees or arbitration awards is entered against the
Borrower or any Subsidiary involving in the aggregate a liability (to the
extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related series of
transactions, incidents or conditions, of $500,000 or more, and the same
shall remain unsatisfied, unvacated and unstayed pending appeal for a period
of 10 days after the entry thereof; or
(k) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order or
decree is entered against the Borrower or any Subsidiary which does or would
reasonably be expected to have a Material Adverse Effect, and there shall be
any period of 10 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(l) CHANGE OF CONTROL. There occurs any Change of Control; or
(m) GUARANTOR DEFAULTS. Any Guarantor fails in any material respect
to perform or observe any term, covenant or agreement in its Guaranty; or the
Guaranty of any Guarantor is for any reason partially (including with respect
to future advances) or wholly revoked or invalidated, or otherwise ceases
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to be in full force and effect, or any Guarantor or any other Person contests
in any manner the validity or enforceability thereof or denies that it has
any further liability or obligation thereunder; or any event described at
subsections (f) or (g) of this Section occurs with respect to any Guarantor;
or
(n) MW CREDIT AGREEMENT EVENT OF DEFAULT. Any Event of Default (as
defined in the MW Credit Agreement) shall occur; or
(o) MINIMUM NET WORTH. The net worth of the Borrower and its
Subsidiaries (calculated on a consolidated basis in accordance with GAAP) is
less than $450,000,000 at any time; or
(p) IMPAIRMENT. The Banks in good faith believe that the prospect of
payment of all or any part of the Obligations evidenced by the Notes is
impaired.
8.2 REMEDIES. If any Event of Default occurs, the Administrative Agent
shall, at the request of, or may, with the consent of, the Required Banks,
(a) declare the Commitment of each Bank to be terminated, whereupon
such Commitments shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or
payable hereunder or under any other Loan Document to be immediately due and
payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by the Borrower; and
(c) exercise on behalf of itself and the Banks all rights and
remedies available to it and the Banks under the Loan Documents or applicable
law;
PROVIDED, HOWEVER, that upon the occurrence of any event specified in
subsection (g) or (h) of SECTION 8.1 (in the case of clause (i) of subsection
(h) upon the expiration of the 60-day period mentioned therein), the
obligation of each Bank to make its Loan shall automatically terminate and
the unpaid principal amount of all outstanding Loans and all interest and
other amounts as aforesaid shall automatically become due and payable without
further act of any Agent or any Bank.
8.3 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
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ARTICLE IX
THE AGENT
9.1 APPOINTMENT AND AUTHORIZATION; "AGENTS". Each Bank hereby
irrevocably (subject to Section 9.9) appoints, designates and authorizes the
Agents to take such action on its behalf under the provisions of this
Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, neither
Agent shall have any duties or responsibilities, except those expressly set
forth herein, nor shall either Agent have or be deemed to have any fiduciary
relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against either Agent.
Without limiting the generality of the foregoing sentence, the use of the
term "agent" in this Agreement with reference to either of the Agents is not
intended to connote any fiduciary or other implied (or express) obligations
arising under agency doctrine of any applicable law. Instead, such term is
used merely as a matter of market custom, and is intended to create or
reflect only an administrative relationship between independent contracting
parties.
9.2 DELEGATION OF DUTIES. Each of the Agents may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. Neither of the Agents shall
be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.
9.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or
in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or
willful misconduct), or (ii) be responsible in any manner to any of the Banks
for any recital, statement, representation or warranty made by the Borrower
or any Subsidiary or Affiliate of the Borrower, or any officer thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for
in, or received by either Agent under or in connection with, this Agreement
or any other Loan Document, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document,
or for any failure of the Borrower or any other party
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to any Loan Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Bank to ascertain
or to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or
to inspect the properties, books or records of the Borrower or any of the
Borrower's Subsidiaries or Affiliates.
9.4 RELIANCE BY AGENTS. (a) Each of the Agents shall be entitled to
rely, and shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, telegram, facsimile, telex
or telephone message, statement or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons, and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other
experts selected by the Agents. Each of the Agents shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Banks as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Each of the Agents shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement
or any other Loan Document in accordance with a request or consent of the
Required Banks and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the
conditions specified in Sections 4.1 and 4.3, each Bank that has executed the
Existing Credit Agreement and this Agreement shall be deemed to have
consented to, approved or accepted or to be satisfied with, each document or
other matter either sent by either Agent to such Bank for consent, approval,
acceptance or satisfaction, or required thereunder to be consented to or
approved by or acceptable or satisfactory to the Bank.
9.5 NOTICE OF DEFAULT. Neither Agent shall be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default (except in the
case of the Administrative Agent, with respect to defaults in the payment of
principal, interest and fees required to be paid to the Administrative Agent
for the account of the Banks) unless such Agent has received written notice
from a Bank or the Borrower referring to this Agreement, describing such
Default or Event or Default and stating that such notice is a "notice of
default". Each of the Agents will notify the Banks of its receipt of any such
notice. The Administrative Agent shall take such action with respect to such
Default or Event of Default as may be requested by the Required Banks in
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accordance with Article VIII; PROVIDED, HOWEVER, that unless and until the
Administrative Agent has received any such request, the Administrative Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall
deem advisable or in the best interest of the Banks.
9.6 CREDIT DECISION. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that
no act by either Agent hereinafter taken, including any review of the affairs
of the Borrower and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Bank. Each Bank
represents to the Agents that it has, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it
has deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries, and all applicable
bank regulatory laws relating to the transactions contemplated hereby, and
made its own decision to enter into this Agreement and to extend credit to the
Borrower hereunder. Each Bank also represents that it will, independently and
without reliance upon any Agent-Related Person and based on such documents
and information as it shall deem appropriate at the time, continue to make
its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by the
Agents, neither Agent shall have any duty or responsibility to provide any
Bank with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of
the Borrower which may come into the possession of any of the Agent-Related
Persons.
9.7 INDEMNIFICATION OF AGENTS. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand
the Agent-Related Persons (to the extent not reimbursed by or on behalf of
the Borrower and without limiting the obligation of the Borrower to do so),
pro rata, from and against any and all Indemnified Liabilities; PROVIDED,
HOWEVER, that no Bank shall be liable for the payment to the Agent-Related
Persons of any portion of such Indemnified Liabilities resulting solely from
such Person's gross negligence or willful misconduct. Without limitation of
the foregoing, each Bank shall reimburse each of the Agents upon demand for
such Banks ratable share of any costs or out-of-pocket expenses
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(including Attorney Costs) incurred by either of the Agents in connection
with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities
under, this Agreement, any other Loan Document, or any document contemplated
by or referred to herein, to the extent that either of the Agents is not
reimbursed for such expenses by or on behalf of the Borrower. The undertaking
in this Section shall survive the payment of all Obligations hereunder and
the resignation or replacement of either of the Agents.
9.8 AGENTS IN INDIVIDUAL CAPACITY. Each of BNS and BNY may make loans
to, issue letters of credit for the account of, accept deposits from, acquire
equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Borrower and its
Subsidiaries and Affiliates as though BNS and BNY were not the Agents
hereunder and without notice to or consent of the Banks. The Banks
acknowledge that, pursuant to such activities, BNS and BNY may receive
information regarding the Borrower or its Affiliates (including information
that may be subject to confidentiality obligations in favor of the Borrower or
such Subsidiary) and acknowledge that neither of the Agents shall be under any
obligation to provide such information to them. With respect to its Loans,
BNS and BNY shall have the same rights and powers under this Agreement as any
other Bank and may exercise the same as though they were not the Agents.
9.9 SUCCESSOR AGENTS. Each of the Agents may, and at the request of the
Required Banks shall, resign as Agent upon 30 days' notice to the Banks. If
either of the Agents shall resign under this Agreement, the Required Banks
shall appoint from among the Banks a successor agent for the Banks. If no
successor agent is appointed prior to the effective date of the resignation
of such retiring Agent, the Agents may appoint, after consulting with the
Banks and the Borrower, a successor agent from among the Banks. Upon the
acceptance of its appointment as successor agent hereunder, such successor
agent shall succeed to all the rights, powers and duties of the retiring
Agent and the term "Agent" shall mean such successor agent and the retiring
Agent's appointment, powers and duties as Agent shall be terminated. After
any retiring Agent's resignation hereunder as Agent, the provisions of this
Article IX and Sections 10.4 and 10.5 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the
date which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective
and the Banks shall perform all of the
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duties of the Agent hereunder until such time, if any, as the Required Banks
appoint a successor agent as provided for above.
9.10 WITHHOLDING TAX. (a) If any Bank is a "foreign corporation,
partnership or trust" within the meaning of the Code and such Bank claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441
or 1442 of the Code, such Bank agrees with and in favor of the Administrative
Agent, to deliver to the Administrative Agent:
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, two properly completed
and executed copies of IRS Form 1001 before the payment of any interest
in the first calendar year and before the payment of any interest in
each third succeeding calendar year during which interest may be paid
under this Agreement;
(ii) if such Bank claims that interest paid under this Agreement is
exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two
properly completed and executed copies of IRS Form 4224 before the
payment of any interest is due in the first taxable year of such Bank
and in each succeeding taxable year of such Bank during which interest
may be paid under this Agreement; and
(iii) such other form or forms as may be required under the Code or
other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Administrative Agent of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Bank claims exemption from, or reduction of, withholding tax
under a United States tax treaty by providing IRS Form 1001 and such Bank
sells, assigns, grants a participation in, or otherwise transfers all or part
of the Obligations of the Borrower to such Bank, such Bank agrees to notify
the Administrative Agent of the percentage amount in which it is no longer
the beneficial owner of Obligations of the Borrower to such Bank. To the
extent of such percentage amount, the Administrative Agent will treat such
Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax by
filing IRS Form 4224 with the Administrative Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of
the Borrower to such
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Bank, such Bank agrees to undertake sole responsibility for complying with
the withholding tax requirements imposed by Sections 1441 and 1442 of the
Code.
(d) If any Bank is entitled to a reduction in the applicable withholding
tax, the Administrative Agent may withhold from any interest payment to such
Bank an amount equivalent to the applicable withholding tax after taking into
account such reduction. However, if the forms or other documentation required
by subsection (a) of this Section are not delivered to the Administrative
Agent, then the Administrative Agent may withhold from any interest payment
to such Bank not providing such forms or other documentation an amount
equivalent to the applicable withholding tax imposed by Sections 1441 and
1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the United States
or other jurisdiction asserts a claim that the Administrative Agent did not
properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered or was not properly executed,
or because such Bank failed to notify the Administrative Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason) such Bank shall indemnify the
Administrative Agent fully for all amounts paid, directly or indirectly, by
the Administrative Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Administrative Agent under this Section, together with all
costs and expenses (including Attorney Costs). The obligation of the Banks
under this subsection shall survive the payment of all Obligations and the
resignation or replacement of the Administrative Agent.
ARTICLE X
MISCELLANEOUS
10.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Borrower or any applicable Subsidiary therefrom, shall be
effective unless the same shall be in writing and signed by the Required
Banks (or by the Administrative Agent at the written request of the Required
Banks) and the Borrower and acknowledged by the Administrative Agent, and
then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; PROVIDED, HOWEVER,
that no such waiver, amendment, or consent shall, unless in writing signed by
all the Banks
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and the Borrower and acknowledged by the Administrative Agent, do any of the
following:
(a) increase or extend the Commitment of any Bank (or reinstate any
Commitment terminated pursuant to Section 8.2);
(b) postpone or delay any date fixed by this Agreement or any other Loan
Document for any payment of principal, interest, fees or other amounts due to
the Banks (or any of them) hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or (subject to clause (ii) below) any fees or other amounts
payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Loans which is required for the Banks or any of them
to take any action hereunder; or
(e) release any of the Guaranties; or
(f) amend this Section, or Section 2.10, or any provision herein
providing for consent or other action by all Banks;
and, PROVIDED FURTHER, that (i) no amendment, waiver or consent shall, unless
in writing and signed by the Administrative Agent in addition to the Required
Banks or all the Banks, as the case may be, affect the rights or duties of
the Administrative Agent under this Agreement or any other Loan Document, and
(ii) any fee letters may be amended, or rights or privileges thereunder
waived, in a writing executed by the parties thereto.
10.2 NOTICES. (a) All notices, requests and other communications shall
be in writing (including, unless the context expressly otherwise provides, by
facsimile transmission, provided that any matter transmitted by the Borrower
by facsimile (i) shall be immediately confirmed by a telephone call to the
recipient at the number specified on SCHEDULE 10.2, and (ii) shall be
followed promptly by delivery of a hard copy original thereof) and mailed,
faxed or delivered, to the address or facsimile number specified for notices
on SCHEDULE 10.2; or, as directed to the Borrower or to the Administrative
Agent, to such other address as shall be designated by such party in a
written notice to the other parties, and as directed to any other party, at
such other address as shall be designated by such party in a written notice
to the Borrower and to the Administrative Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be
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effective when delivered for overnight (next-day) delivery, or transmitted in
legible form by facsimile machine, respectively, or if mailed, upon the third
Business Day after the date deposited into the U.S. mail, or if delivered, upon
delivery; except that notices pursuant to ARTICLE II or X shall not be effective
until actually received by the Administrative Agent.
(c) Any agreement of the Agents and the Banks herein to receive
certain notices by telephone or facsimile is solely for the convenience and at
the request of the Borrower. The Agents and the Banks shall be entitled to rely
on the authority of any Person purporting to be a Person authorized by the
Borrower to give such notice and the Agents and the Banks shall not have any
liability to the Borrower or other Person on account of any action taken or not
taken by the Agents or the Banks in reliance upon such telephonic or facsimile
notice. The obligation of the Borrower to repay the Loans shall not be affected
in any way or to any extent by any failure by the Agents and the Banks to
receive written confirmation of any telephonic or facsimile notice or the
receipt by the Agents and the Banks of a confirmation which is at variance with
the terms understood by the Agents and the Banks to be contained in the
telephonic or facsimile notice.
10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of any Agent or Bank, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
10.4 COSTS AND EXPENSES. The Borrower shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse any Agent and/or any Bank within five Business
Days after demand (subject to SUBSECTION 4.1(i)) for all costs and expenses
incurred by such Agent and/or by such Bank which is an Agent in connection
with the development, preparation, delivery, administration and execution of,
and any amendment, supplement, waiver or modification to (in each case,
whether or not consummated), this Agreement, any Loan Document and any other
documents prepared in connection herewith or therewith, and the consummation
of the transactions contemplated hereby and thereby, including reasonable
Attorney Costs incurred by such Agent with respect thereto; and
(b) pay or reimburse any Agent and/or any Bank within five Business
Days after demand for all costs and expenses (including Attorney Costs)
incurred by such Agent and/or such
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Bank in connection with the enforcement, attempted enforcement, or preservation
of any rights or remedies under this Agreement or any other Loan Document during
the existence of an Event of Default or after acceleration of the Loans
(including in connection with any restructuring regarding the Loans, and
including in any Insolvency Proceeding or appellate proceeding).
10.5 BORROWER INDEMNIFICATION. Whether or not the transactions
contemplated hereby are consummated, the Borrower shall indemnify and hold the
Agent-Related Persons, each Bank and each of their respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"INDEMNIFIED PERSON") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this
Agreement or any document contemplated by or referred to herein, or the
transactions contemplated hereby, or any action taken or omitted by any such
Person under or in connection with any of the foregoing, including with
respect to any investigation, litigation or proceeding (including any
Insolvency Proceeding or appellate proceeding) related to or arising out of
this Agreement or the Loans or the use of the proceeds thereof, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively,
the "INDEMNIFIED LIABILITIES"); PROVIDED, that the Borrower shall have no
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities resulting solely from the gross negligence or willful misconduct
of such Indemnified Person. The agreements in this Section shall survive
payment of all other Obligations.
10.6 PAYMENTS SET ASIDE. To the extent that the Borrower makes a payment
to the Administrative Agent or the Banks, or the Administrative Agent or the
Banks exercise their right of set-off, and such payment or the proceeds of such
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by the Administrative Agent or such Bank in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any Insolvency Proceeding or otherwise, then (a) to the extent
of such recovery the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such set-off had not occurred, and (b) each Bank
severally agrees to pay to the Administrative Agent upon demand its Pro Rata
Share of any amount so recovered from or repaid by the Administrative Agent.
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10.7 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Administrative Agent and each Bank.
10.8 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) Any Bank may, with the written
consent of the Administrative Agent, which consent shall not be unreasonably
withheld, at any time assign and delegate to one or more Eligible Assignees
(provided that no written consent of the Administrative Agent shall be
required in connection with any assignment and delegation by a Bank to an
Eligible Assignee that is an Affiliate of such Bank) (each an "ASSIGNEE") all,
or any ratable part of all, of the Loans, the obligations, and the other
rights and obligations of such Bank hereunder, in a minimum amount of
$5,000,000; PROVIDED, HOWEVER, that the Borrower and the Administrative Agent
may continue to deal solely and directly with such Bank in connection with the
interest so assigned to an Assignee until (i) written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to the
Borrower and the Administrative Agent by such Bank and the Assignee; (ii) such
Bank and its Assignee shall have delivered to the Borrower and the
Administrative Agent an assignment and acceptance agreement in the form of
EXHIBIT G ("ASSIGNMENT AND ACCEPTANCE") together with any Note or Notes
subject to such assignment and (iii) the assignor Bank or Assignee has paid to
the Administrative Agent a processing fee in the amount of $3,000.
(b) From and after the date that the Administrative Agent notifies
the assignor Bank that it has received (and provided its consent with respect
to) an executed Assignment and Acceptance and payment of the above-referenced
processing fee, (i) the Assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, shall have the rights and
obligations of a Bank under the Loan Documents, and (ii) the assignor Bank
shall, to the extent that rights and obligations hereunder and under the other
Loan Documents have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under
the Loan Documents.
(c) Within five Business Days after its receipt of notice by the
Administrative Agent that it has received an executed Assignment and
Acceptance and payment of the processing fee, (and provided that it consents
to such assignment in accordance with SUBSECTION 10.8(a)), the Borrower shall
execute and deliver to the Administrative Agent, new Notes evidencing
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such Assignee's assigned Loans, Obligations and, if the assignor Bank has
retained a portion of its Loans, replacement Notes in the principal amount of
the Loans retained by the assignor Bank (such Notes to be in exchange for, but
not in payment of, the Notes held by such Bank). Immediately upon each
Assignee's making its processing fee payment under the Assignment and
Acceptance, this Agreement shall be deemed to be amended to the extent, but
only to the extent, necessary to reflect the addition of the Assignee and the
Administrative Agent shall deliver a revised SCHEDULE 2.1 to the Banks and the
Borrower to reflect such assignment.
(d) Any Bank may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Borrower (a "PARTICIPANT") participating
interests in any Loans and the other interests of that Bank (the "originating
Bank") hereunder and under the other Loan Documents; PROVIDED, HOWEVER, that
(i) the originating Bank's obligations under this Agreement shall remain
unchanged, (ii) the originating Bank shall remain solely responsible for the
performance of such obligations, (iii) the Borrower and the Administrative
Agent shall continue to deal solely and directly with the originating Bank in
connection with the originating Bank's rights and obligations under this
Agreement and the other Loan Documents, and (iv) no Bank shall transfer or
grant any participating interest under which the Participant has rights to
approve any amendment to, or any consent or waiver with respect to, this
Agreement or any other Loan Document, except to the extent such amendment,
consent or waiver would postpone or delay any date fixed for payment of
principal, interest, fees or other amounts hereunder or reduce the principal
of or rate of interest specified herein. In the case of any such
participation, the Participant shall not have any rights under this Agreement,
or any of the other Loan Documents, and all amounts payable by the Borrower
hereunder shall be determined as if such Bank had not sold such participation;
except that, if amounts outstanding under this Agreement are due and unpaid,
or shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have
the right of set-off in respect of its participating interest in amounts owing
under this Agreement to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement.
(e) Notwithstanding any other provision in this Agreement, any Bank
may at any time create a security interest in, or pledge, all or any portion
of its rights under and interest in this Agreement and the Note held by it in
favor of any Federal Reserve Bank in accordance with Regulation A of the FRB
or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal
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Reserve Bank may enforce such pledge or security interest in any manner
permitted under applicable law.
10.9 CONFIDENTIALITY. Each Agent and each Bank agrees to take and to
cause its Affiliates to take normal and reasonable precautions and exercise
due care to maintain the confidentiality of all information identified as
"confidential" or "secret" by the Borrower and provided to it by the Borrower
or any Subsidiary or by the Agents on the Borrower's or such Subsidiary's
behalf, under this Agreement or any other Loan Document, and neither it nor
any of its Affiliates shall use any such information other than in connection
with or in enforcement of this Agreement and the other Loan Documents or in
connection with other business now or hereafter existing or contemplated with
the Borrower or any Subsidiary; except to the extent such information (i) was
or becomes generally available to the public other than as a result of
disclosure by an Agent or a Bank, or (ii) was or becomes available on a
non-confidential basis from a source other than the Borrower or any
Subsidiary; PROVIDED, that such source is not bound by a confidentiality
agreement with the Borrower known to the Agents or Banks; PROVIDED, HOWEVER,
that any Agent or any Bank may disclose such information (A) at the request or
pursuant to any requirement of any Governmental Authority to which such Agent
or such Agent or any Bank is subject or in connection with an examination of
such Agent or such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which any Agent or
any Bank or their respective Affiliates may be party; (E) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under any other Loan Document; (F) to such Agent's or such Bank's independent
auditors and other professional advisors; (G) to any Participant, actual or
potential, provided that such Person agrees in writing to keep such
information confidential to the same extent required of the Agents and the
Banks hereunder; (H) as to any Agent or any Bank or its Affiliate, as
expressly permitted under the terms of any other document or agreement
regarding confidentiality to which the Borrower or any Subsidiary is party or
is deemed party with such Agent, such Bank or such Affiliate; and (I) to its
Affiliates.
10.10 SET-OFF. In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time,
without prior notice to the Borrower, any such notice being waived by the
Borrower to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held by, and other indebtedness at any time owing by, such
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Bank to or for the credit or the account of the Borrower against any and all
Obligations owing to such Bank, now or hereafter existing, irrespective of
whether or not the Agents or such Bank shall have made demand under this
Agreement or any Loan Document and although such Obligations may be contingent
or unmatured. Each Bank agrees promptly to notify the Borrower and the
Administrative Agent after any such set-off and application made by such Bank;
PROVIDED, HOWEVER, that the failure to give such notice shall not affect the
validity of such set-off and application.
10.11 AUTOMATIC DEBITS OF FEES. With respect to any fee, or any other
cost or expense (including Attorney Costs) due and payable to the Agents or any
Bank under the Loan Documents, the Borrower hereby irrevocably authorizes such
Agent or such Bank to debit any deposit account of the Borrower with such Agent
or such Bank in an amount such that the aggregate amount debited from all such
deposit accounts does not exceed such fee or other cost or expense. If there
are insufficient funds in such deposit accounts to cover the amount of the fee
or other cost or expense then due, such debits will be reversed (in whole or in
part, in such Agent's or such Bank's sole discretion) and such amount not
debited shall be deemed to be unpaid. No such debit under this Section shall be
deemed a set-off.
10.12 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Bank shall
notify the Administrative Agent in writing of any changes in the address to
which notices to such Bank should be directed, of addresses of any Lending
Office, of payment instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the Administrative
Agent shall reasonably request.
10.13 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
10.14 SEVERABILITY. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
10.15 NO THIRD PARTIES BENEFITED. This Agreement is made and entered
into for the sole protection and legal benefit of the Borrower, the Banks, the
Agents, the Agent-Related Persons and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal beneficiary of, or have
any direct
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or indirect cause of action or claim in connection with, this Agreement or any
of the other Loan Documents.
10.16 GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT AND OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF ILLINOIS; PROVIDED THAT THE AGENTS AND THE BANKS SHALL RETAIN ALL
RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR
OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF THE AGENTS, THE BORROWER AND THE BANKS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NONEXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE AGENTS, THE BORROWER AND THE BANKS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE AGENTS, THE BORROWER AND
THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW.
10.17 WAIVER OF JURY TRIAL. THE AGENTS, THE BORROWER AND THE BANKS
EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR PARTICIPANT, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. THE AGENTS, THE BORROWER AND THE BANKS EACH AGREE THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO
ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART,
TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS.
10.18 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Agents, the
Borrower and the Banks, and supersedes all prior or contemporaneous agreements
and understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
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10.19 REAFFIRMATION, RESTATEMENT AND WAIVERS. This Agreement
constitutes an amendment and restatement of the Existing Credit Agreement and
the indebtedness evidenced by the Existing Credit Agreement is continuing
indebtedness, and nothing herein shall be deemed to constitute a payment,
settlement or novation of the indebtedness evidenced by the Existing Credit
Agreement except to the extent provided herein, or to release or otherwise
adversely affect any lien, mortgage or security interest securing such
indebtedness or any rights of any Agent or any Bank against any guarantor,
surety or other party primarily or secondarily liable for such indebtedness.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Chicago, Illinois by their proper and duly
authorized officers as of the day and year first above written.
SIGNATURE FINANCIAL/MARKETING, INC.
By: /s/ Alan Portelli
------------------------------
Title: EXECUTIVE VP & CFO
----------------------------
THE BANK OF NEW YORK, in its individual
capacity and in its capacity as Documentation
Agent
By: /s/ Michael Flannery
------------------------------
Title: VICE PRESIDENT
----------------------------
THE BANK OF NOVA SCOTIA, in its individual
capacity and in its capacity as
Administrative Agent
By: /s/ A.S. Norsworthy
------------------------------------
Title: SR. TEAM LEADER - LOAN OPERATIONS
------------------------------------
A. S. NORSWORTHY
SR. TEAM LEADER-LOAN OPERATIONS
<PAGE>
GUARANTOR ACKNOWLEDGMENT
AND REAFFIRMATION
------------------------------
The undersigned, each a guarantor with
respect to the Borrower's obligations to the Banks under the Credit Agreement
dated as of September 27, 1996 among Signature Financial/Marketing, Inc. (the
"Borrower"), The Bank of Nova Scotia and The Bank of New York (the "Existing
Credit Agreement"), each hereby (i) acknowledge and consent to the execution,
delivery and performance by the Borrower of the Credit Agreement dated as of
September 27, 1996 as amended and restated as of October 21, 1996 among
Signature Financial/Marketing, Inc., various Banks, and The Bank of Nova
Scotia and The Bank of New York as agents (the "RESTATED CREDIT AGREEMENT"),
and (ii) reaffirm and agree that the respective guaranty to which the
undersigned is party and all other documents and agreements executed and
delivered by the undersigned to the Banks in connection with the Existing
Credit Agreement (as amended and restated through the Restated Credit
Agreement) are in full force and effect, without defense, offset or
counterclaim. (Capitalized terms used herein have the meanings specified in
the Restated Credit Agreement.)
MONTGOMERY WARD & CO., INCORPORATED
By /s/ Douglas V. Gathany
----------------------------
Title: TREASURER
CREDIT CARD SENTINEL, INC.
By /s/ John B. Euwema
----------------------------
Title: SR. VP, SEC. AND
GENERAL COUNSEL
ISS AGENCY, INC.
By /s/ John B. Euwema
----------------------------
Title: SR. VP, SEC. AND
GENERAL COUNSEL
MONTGOMERY WARD CLUBS, INC.
By /s/ John B. Euwema
----------------------------
Title: SR. VP, SEC. AND
GENERAL COUNSEL
MONTGOMERY WARD ENTERPRISES, INC.
By /s/ John B. Euwema
----------------------------
Title: SR. VP, SEC. AND
GENERAL COUNSEL
<PAGE>
SIGNATURECARD, INC.
By /s/ John B. Euwema
----------------------------
Title: SR. VP, SEC. AND
GENERAL COUNSEL
MONTGOMERY WARD FINANCIAL
CENTER, INC.
By /s/ John B. Euwema
----------------------------
Title: SR. VP, SEC. AND
GENERAL COUNSEL
MONTGOMERY WARD AGENCY, INC.
By /s/ John B. Euwema
----------------------------
Title: SR. VP, SEC. AND
GENERAL COUNSEL
NATIONAL DENTAL SERVICE, INC.
By /s/ John B. Euwema
----------------------------
Title: SR. VP, SEC. AND
GENERAL COUNSEL
SIGNATURE DIRECT, INC.
By /s/ John B. Euwema
----------------------------
Title: SR. VP, SEC. AND
GENERAL COUNSEL
SIGNATURE INVESTMENT ADVISORS, INC.
By /s/ John B. Euwema
----------------------------
Title: SR. VP, SEC. AND
GENERAL COUNSEL
AMOCO MOTOR CLUB, INC.
By /s/ John B. Euwema
----------------------------
Title: SR. VP, SEC. AND
GENERAL COUNSEL
<PAGE>
AMENDMENT
TO
CREDIT AGREEMENT
THIS AMENDMENT (the "Amendment") dated as of December 23, 1996, is
made and entered into among SIGNATURE FINANCIAL/MARKETING, INC. (the "Borrower")
and the banks listed on the signature pages hereof (herein, together with their
respective successors and assigns, collectively called the "Banks" and
individually called a "Bank").
WHEREAS the Banks are parties to that certain Credit Agreement dated
as of September 27, 1996, as amended and restated as of October 21, 1996 (the
"Credit Agreement"), among Signature Financial/Marketing, Inc., various Banks,
The Bank of New York as Documentation Agent, and The Bank of Nova Scotia, as
Administrative Agent; and
WHEREAS the Borrower and the Banks desire to amend the Credit
Agreement in certain respects;
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
AMENDMENTS
1.1 SECTION 1.1 of the Credit Agreement is hereby amended so that the
following definition shall read in its entirety as follows:
"MATURITY DATE" means the earlier to occur of: (a) August 29, 1997;
and (b) the date on which the Obligations are due and payable in accordance
with the provisions of this agreement.
1.2 SECTION 2 of the Credit Agreement is hereby amended by adding the
following SECTION 2.11 thereto:
2.11 MANDATORY PREPAYMENTS. Following receipt by the Borrower or any
Subsidiary of any net cash proceeds from any sale, transfer or disposition
or sale of any asset for which consent is required under SECTION 7.2 or
which is otherwise outside the ordinary course of business, the Borrower
shall make a mandatory prepayment of the Loans, such prepayment to be equal
to the amount of such Net Proceeds or the aggregate unpaid principal amount
of all Loans then outstanding, whichever is less. Each prepayment pursuant
to this
<PAGE>
SECTION 2.11 shall be made within 3 Business Days of the date upon which
the amount of the net cash proceeds which have not theretofore been applied
by the Borrower to prepayments under this Agreement shall equal or exceed
$1,000,000. Sales or transfers pursuant to SECTION 7.2(c) or 7.2(e) shall
not be subject to this SECTION 2.11 regardless of whether such sales or
transfers are in or outside the ordinary course of business.
1.3 SECTION 7.4(i) of the Credit Agreement is amended by substituting
"$65 million" for "$30 million".
1.4 SECTION 8.1(f) of the Credit Agreement is hereby corrected by
replacing in lines 21 and 22 the phrase "of such Indebtedness" with the word
"thereof".
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Agents and the
Banks as follows:
2.1 NO DEFAULT. No Default or Event of Default has occurred and is
continuing or will exist after giving effect to this Amendment.
2.2 DUE EXECUTION. The execution, delivery and performance of this
Amendment, (i) are within the Borrower's corporate powers, (ii) have been duly
authorized by all necessary corporate action, (iii) do not require any
governmental approval which has not been previously obtained (and each such
governmental approval that has been previously obtained remains effective), (iv)
do not and will not contravene or conflict with any provision of law, or of any
judgment, decree or order, or of the Borrower's charter or by-laws, and (v) do
not and will not contravene or conflict with, or cause any Lien to arise under,
any provision of any agreement binding upon the Borrower, any Subsidiary or any
of their respective properties.
2.3 VALIDITY. The Credit Agreement as amended by this Amendment
constitutes the legal, valid and binding obligations of the Borrower,
enforceable against it in accordance with its respective terms, without defense,
counterclaim or offset.
2.4 CREDIT AGREEMENT. All representations and warranties of the
Borrower contained in SECTIONS 5.1, 5.2, 5.3, 5.4, 5.6, 5.8, 5.11, 5.13, 5.14,
and 5.18 of the Credit Agreement are true and correct as of the date hereof with
the same effect as though made on the date hereof.
<PAGE>
ARTICLE III
GENERAL
3.1 EXPENSES. The Borrower agrees to pay all fees and expenses of
McDermott, Will & Emery as counsel to the Documentation Agent and the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment.
3.2 EFFECTIVENESS. This Amendment shall become effective on the date
on which, the Documentary Agent shall have received counterparts of this
Amendment whether on the same or different counterparts, executed by the
Borrower and the Required Banks (or in the case of any Bank as to which an
executed counterpart shall not have been so received, telegraphic, telefax,
telex or other written confirmation of execution of a counterpart hereof by such
Bank).
3.3 DEFINITIONS. Except as otherwise herein specifically defined,
all the capitalized terms contained herein shall have the meaning ascribed to
such terms in the Credit Agreement.
3.4 REAFFIRMATION. Except as hereinabove expressly provided, all the
terms and provisions of the Credit Agreement shall remain in full force and
effect and all references therein and in any related documents to the Credit
Agreement shall henceforth refer to the Credit Agreement as amended by this
Amendment. This Amendment shall be deemed incorporated into, and a part of, the
Credit Agreement.
3.5 SUCCESSORS. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
3.6 GOVERNING LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of Illinois.
3.7 COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts and each such
counterpart shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same agreement.
<PAGE>
Delivered at Chicago, Illinois as of the day, month and year first
above written.
SIGNATURE FINANCIAL/MARKETING, INC.
By: /s/ G. Joseph Reddington
-------------------------------------
Name: G. Joseph Reddington
ACCEPTED AND APPROVED:
THE BANK OF NEW YORK, in its
individual capacity and in its
capacity as Documentation Agent
By: /s/ Michael Flannery
-------------------------------------
Name: Michael Flannery
THE BANK OF NOVA SCOTIA, in its
individual capacity and in its
capacity as Administrative Agent
By: /s/ J.H. Youssef
-------------------------------------
Name: J.H. Youssef
<PAGE>
GUARANTY REAFFIRMED:
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Douglas V. Gathany
-------------------------------------
Name: Douglas V. Gathany
CREDIT CARD SENTINEL, INC
ISS AGENCY, INC.
MONTGOMERY WARD CLUBS, INC.
MONTGOMERY WARD ENTERPRISES, INC.
SIGNATURECARD, INC.
MONTGOMERY WARD FINANCIAL
CENTER, INC.
MONTGOMERY WARD AGENCY, INC.
NATIONAL DENTAL SERVICE, INC.
SIGNATURE DIRECT, INC.
SIGNATURE INVESTMENT ADVISORS,
INC.
AMOCO MOTOR CLUB, INC.
By: /s/ G. Joseph Reddington
-------------------------------------
Name: G. Joseph Reddington
<PAGE>
AMENDMENT
TO
CREDIT AGREEMENT
THIS AMENDMENT (the "Amendment") dated as of December 23, 1996, is
made and entered into among MONTGOMERY WARD & CO., INCORPORATED (the "Company")
and the banks listed on the signature pages hereof (herein, together with their
respective successors and assigns, collectively called the "Lenders" and
individually called a "Lender").
WHEREAS the Lenders are parties to that certain Credit Agreement dated
as of October 4, 1996 (the "Credit Agreement"), among Montgomery Ward & Co.,
Incorporated, various Lenders, The Bank of New York as Documentation Agent, and
The Bank of Nova Scotia, as Administrative Agent; and
WHEREAS the Company and the Lenders desire to amend the Credit
Agreement in certain respects;
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
AMENDMENTS
1.1 SECTION 1.1 of the Credit Agreement is hereby amended by adding
definitions of "Guarantor" and "Guaranty" and by amending the following
definitions to read in their entirety as follows:
"EXISTING CREDIT AGREEMENTS" means collectively (i) the Long-term
Credit Agreement, dated September 15, 1994, as amended through December 23,
1996 (and with the consent of the Required Lenders, as further amended or
modified from time to time), among the Company, various lenders from time
to time party thereto and certain agents listed on the signature pages
thereof (the "Long Term Credit Agreement"), (ii) the Short Term Credit
Agreement, dated September 15, 1994, as amended through December 23, 1996
(and, with the consent of the Required Lenders, as further amended and
modified from time to time PROVIDED, THAT any increase in the aggregate
commitments thereunder which is provided for therein shall not be deemed an
amendment or modification) among the Company, various lenders from time to
time party thereto and certain agents
<PAGE>
listed on the signature pages thereof (the "Short Term Credit Agreement").
"GUARANTOR" means Lechmere, Inc.
"GUARANTY" means the guaranty substantially in the form of EXHIBIT F.
"TERMINATION DATE" means, with respect to each Lender, the earlier to
occur of (i) August 29, 1997, or (ii) such other date on which the
Aggregate Commitments shall terminate pursuant to SECTION 5 or 13.2 or be
reduced to zero pursuant to SECTION 2.6 and, if in any case such day is not
a Business Day, the next preceding Business Day.
1.2 SECTION 11 of the Credit Agreement is hereby amended
by replacing in SUBSECTION (i) the phrase "the Effective Date" with "December
23, 1996".
1.3 EVENTS OF DEFAULT. SECTION 13.1(e) of the Credit Agreement is
amended to read in its entirety as follows:
(e) SPECIFIED NON-COMPLIANCE WITH THIS AGREEMENT. Failure by the
Company to comply with or to perform its obligations under SECTIONS 11.3,
11.4, 11.5, 11.6, 11.17, 11.18, 11.20 or 11.21 of the Existing Credit
Agreements as incorporated herein pursuant to SECTION 11.
1.4 SECTION 13.1 of the Credit Agreement is further amended by adding
thereto SECTION 13.1(l) as follows:
(l) GUARANTOR DEFAULTS. Guarantor fails in any material respect to
perform or observe any term, covenant or agreement in its Guaranty; or the
Guaranty of Guarantor is for any reason partially (including with respect
to future advances) or wholly revoked or invalidated, or otherwise ceases
to be in full force and effect, or Guarantor or any other Person contests
in any manner the validity or enforceability thereof or denies that it has
any further liability or obligation thereunder.
1.5 The Credit Agreement is further amended by adding EXHIBIT F in the
form attached hereto.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Agents and the
Lenders as follows:
<PAGE>
2.1 NO DEFAULT. No Event of Default or Unmatured Event of Default
has occurred and is continuing or will exist after giving effect to this
Amendment.
2.2 DUE EXECUTION. The execution, delivery and performance of this
Agreement, (i) are within the Company's corporate powers, (ii) have been duly
authorized by all necessary corporate action, (iii) do not require any
governmental approval which has not been previously obtained (and each such
governmental approval that has been previously obtained remains effective), (iv)
do not and will not contravene or conflict with any provision of law, or of any
judgment, decree or order, or of the Company's charter or by-laws, and (v) do
not and will not contravene or conflict with, or cause any Lien to arise under,
any provision of any agreement binding upon the Company, any Subsidiary or any
of their respective properties.
2.3 VALIDITY. The Credit Agreement as amended by this Amendment
constitutes the legal, valid and binding obligations of the Company, enforceable
against it in accordance with its respective terms, without defense,
counterclaim or offset.
2.4 CREDIT AGREEMENT. All representations and warranties of the
Company contained in SECTIONS 10.1, 10.2, 10.3, 10.4(a), 10.7, 10.10, 10.11,
10.12, 10.15 and 10.18 of the Credit Agreement are true and correct as of the
date hereof with the same effect as though made on the date hereof.
ARTICLE III
GENERAL
3.1 EXPENSES. The Company agrees to pay all fees and expenses of
McDermott, Will & Emery as counsel to the Documentation Agent and the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment.
3.2 EFFECTIVENESS. Article I of this Amendment shall become
effective as of the date on which, the Documentation Agent shall have received
the following in form and substance reasonably satisfactory to the Documentation
Agent:
(a) AMENDMENT. Counterparts of this Amendment, whether on the same
or different counterparts, executed by the Company and the Required Lenders
(or in the case of any Lender as to which an executed counterpart shall not
have been so received, telegraphic, telefax, telex or other written
confirmation of execution of a counterpart hereof by such Lender).
(b) GUARANTY. The Guaranty executed by the Guarantor;
<PAGE>
(c) RESOLUTIONS. Copies of the resolutions of the board of
directors of each of the Company and the Guarantor authorizing the
transactions contemplated by this Amendment and the Guaranty, certified by
the Secretary or an Assistant Secretary (or in the case of the Guarantor,
the Clerk or Assistant Clerk) of the Company and the Guarantor;
(d) INCUMBENCY. A certificate of the Secretary or Assistant
Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk)
of each of the Company and the Guarantor certifying the names and true
signatures of the officers of the Company or the Guarantor authorized to
execute, deliver and perform, as applicable, this Amendment and the
Guaranty; and
(e) OPINION OF COUNSEL FOR THE COMPANY AND THE GUARANTOR. A letter
from Altheimer & Gray, counsel for the Company and the Guarantor, addressed
to the Agents and the Banks substantially in the form attached hereto.
3.3 DEFINITIONS. Except as otherwise herein specifically defined,
all the capitalized terms contained herein shall have the meaning ascribed to
such terms in the Credit Agreement.
3.4 REAFFIRMATION. Except as hereinabove expressly provided, all the
terms and provisions of the Credit Agreement shall remain in full force and
effect and all references therein and in any related documents to the Credit
Agreement shall henceforth refer to the Credit Agreement as amended by this
Amendment. This Amendment shall be deemed incorporated into, and a part of, the
Credit Agreement.
3.5 SUCCESSORS. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
3.6 GOVERNING LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of Illinois.
3.7 COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts and each such
counterpart shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same agreement.
<PAGE>
Delivered at Chicago, Illinois as of the day, month and year first
above written.
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Douglas V. Gathany
----------------------------------
Name: Douglas V. Gathany
ACCEPTED AND APPROVED:
THE BANK OF NEW YORK, in its
individual capacity and in
its capacity as Documentation Agent
By: /s/ Michael Flannery
-------------------------------------
Name: Michael Flannery
THE BANK OF NOVA SCOTIA, in its
individual capacity and in its
capacity as Administrative Agent
By: /s/ J.H. Youssef
-------------------------------------
Name: J.H. Youssef
Title: Senior Manager Finance & Administration
GENERAL ELECTRIC CAPITAL CORPORATION,
in its individual capacity
By: /s/ J. S. Werner
-------------------------------------
Name: J. S. Werner
Title: Senior V.P.
<PAGE>
SECOND AMENDMENT
TO
CREDIT AGREEMENT
THIS AMENDMENT (the "Amendment") dated as of December 23, 1996 (the
"Second Amendment Effective Date"), is made and entered into among MONTGOMERY
WARD & CO., INCORPORATED (the "Company") and the banks listed on the signature
pages hereof (herein, together with their respective successors and assigns,
collectively called the "Lenders" and individually called a "Lender").
WHEREAS the Lenders are parties to that certain Credit Agreement dated
as of October 4, 1996, as amended as of December 23, 1996 (the "Credit
Agreement"), among Montgomery Ward & Co., Incorporated, various Lenders, The
Bank of New York as Documentation Agent, and The Bank of Nova Scotia, as
Administrative Agent; and
WHEREAS the Company and the Lenders desire to amend the Credit
Agreement in certain respects;
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
AMENDMENTS
1.1 SECTION 1.1 of the Credit Agreement is hereby amended by adding
the following definition to read in its entirety as follows:
"APPLICABLE MARGIN" means as to any Type of Loan, for any period set
forth below, a rate per annum, as follows:
EURODOLLAR BASE RATE
PERIOD LOAN LOAN
------ ---------- ---------
Prior to December 23, 1.50% 0.00%
1996
December 23, 1996 1.50% 0.25%
through March 31, 1997
April 1, 1997 2.00% 0.75%
through June 30, 1997
<PAGE>
EURODOLLAR BASE RATE
PERIOD LOAN LOAN
------ ---------- ---------
After June 30, 1997 2.50% 1.25%
1.2 SECTION 6.1 of the Credit Agreement is hereby amended so that
SECTION 6.1 shall read in its entirety as follows:
6.1 INTEREST RATES. The Company hereby promises to pay interest on
the unpaid principal amount of each Loan for the period commencing on the
Funding Date of such Loan until such Loan is paid in full, as follows:
(a) if such Loan is a Base Rate Loan, at a rate per
annum equal to the Base Rate from time to time in effect,
plus the Applicable Margin;
(b) if such Loan is a Eurodollar Loan, at a rate per
annum during each Interest Period equal to the Eurodollar
Rate applicable to such Interest Period, plus the Applicable
Margin;
PROVIDED, HOWEVER, that after maturity of any Loan (whether by acceleration
or otherwise), such Loan shall bear interest on the unpaid principal amount
thereof at a rate per annum equal to the Base Rate from time to time in
effect (but not less than the applicable interest rate in effect at
maturity) plus 2% per annum. The Company hereby further promises to pay
any additional interest on the unpaid principal amount of each applicable
Eurodollar Loan, whether before or after the maturity thereof, as may be
required in accordance with SECTION 9.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Agents and the
Lenders as follows:
2.1 NO DEFAULT. No Event of Default or Unmatured Event of Default
has occurred and is continuing or will exist after giving effect to this
Amendment.
2.2 DUE EXECUTION. The execution, delivery and performance of this
Agreement, (i) are within the Company's corporate powers, (ii) have been duly
authorized by all necessary corporate action, (iii) do not require any
governmental approval
2
<PAGE>
which has not been previously obtained (and each such governmental approval that
has been previously obtained remains effective), (iv) do not and will not
contravene or conflict with any provision of law, or of any judgment, decree or
order, or of the Company's charter or by-laws, and (v) do not and will not
contravene or conflict with, or cause any Lien to arise under, any provision of
any agreement binding upon the Company, any Subsidiary or any of their
respective properties.
2.3 VALIDITY. The Credit Agreement as amended by this Amendment
constitutes the legal, valid and binding obligations of the Company, enforceable
against it in accordance with its respective terms, without defense,
counterclaim or offset.
2.4 CREDIT AGREEMENT. All representations and warranties of the
Company contained in SECTIONS 10.1, 10.2, 10.3, 10.4(a), 10.7, 10.10, 10.11,
10.12, 10.15 and 10.18 of the Credit Agreement are true and correct as of the
date hereof with the same effect as though made on the date hereof.
ARTICLE III
GENERAL
3.1 EXPENSES. The Company agrees to pay all fees and expenses of
McDermott, Will & Emery as counsel to the Documentation Agent and the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment.
3.2 EFFECTIVENESS. (a) Article I of this Amendment shall become
effective as of the Second Amendment Effective Date, subject, however, to
receipt by the Documentation Agent of counterparts of this Amendment, whether
on the same or different counterparts, executed by the Company and the Required
Lenders (or in the case of any Lender as to which an executed counterpart shall
not have been so received, telegraphic, telefax, telex or other written
confirmation of execution of a counterpart hereof by such Lender) in form and
substance reasonably satisfactory to the Documentation Agent.
(b) Concurrent with the effectiveness of this Amendment pursuant to
SECTION 3.2(a), the Company hereby agrees that it will cause the following
documents to be furnished to the Documentation Agent in form and substance
reasonably satisfactory to the Documentation Agent.
(i) RESOLUTIONS. Copies of the resolutions of the board of
directors of each of the Company and the Guarantor authorizing the
transactions contemplated by this Amendment and the Guaranty, certified by
the Secretary or an Assistant Secretary (or in the case of the Guarantor,
the Clerk or Assistant Clerk) of the Company and the Guarantor;
3
<PAGE>
(ii) INCUMBENCY. A certificate of the Secretary or Assistant
Secretary (or in the case of the Guarantor, the Clerk or Assistant Clerk)
of each of the Company and the Guarantor certifying the names and true
signatures of the officers of the Company or the Guarantor authorized to
execute, deliver and perform, as applicable, this Amendment and the
Guaranty; and
(iii) OPINION OF COUNSEL FOR THE COMPANY AND THE GUARANTOR. A
letter from Altheimer & Gray, counsel for the Company and the Guarantor,
addressed to the Agents and the Banks substantially in the form attached
hereto.
3.3 DEFINITIONS. Except as otherwise herein specifically defined,
all the capitalized terms contained herein shall have the meaning ascribed to
such terms in the Credit Agreement.
3.4 REAFFIRMATION. Except as hereinabove expressly provided, all the
terms and provisions of the Credit Agreement shall remain in full force and
effect and all references therein and in any related documents to the Credit
Agreement shall henceforth refer to the Credit Agreement as amended by this
Amendment. This Amendment shall be deemed incorporated into, and a part of, the
Credit Agreement.
3.5 SUCCESSORS. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
3.6 GOVERNING LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of Illinois.
3.7 COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts and each such
counterpart shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same agreement.
4
<PAGE>
Delivered at Chicago, Illinois as of the day, month and year first above
written.
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Douglas V. Gathany
-------------------------------
Name: Douglas V. Gathany
ACCEPTED AND APPROVED:
THE BANK OF NEW YORK, in its
individual capacity and in
its capacity as Documentation Agent
By:
------------------------------
Name:
THE BANK OF NOVA SCOTIA, in its
individual capacity and in its
capacity as Administrative Agent
By:
------------------------------
Name:
GENERAL ELECTRIC CAPITAL CORPORATION,
in its individual capacity
By:
------------------------------
Name:
<PAGE>
GUARANTY REAFFIRMED:
LECHMERE, INC.
By: /s/ Carol J. Harms
------------------------------
Name: Carol J. Harms
<PAGE>
CONFIDENTIAL
INTERIM CONSUMER CREDIT CARD PROGRAM
Dated as of April 1, 1996, As
Amended, Restated and Renamed the
BANK CREDIT CARD PROGRAM AGREEMENT
Dated as of
April 1, 1996
by and between
MONOGRAM CREDIT CARD BANK OF GEORGIA
and
MONTGOMERY WARD & CO., INCORPORATED
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINED TERMS.............................................................2
2. DEFINITIONAL MATTERS.....................................................25
3. ESTABLISHING ACCOUNTS AND ADDING INDEBTEDNESS............................25
3.1. Payment in Respect of Accounts and Indebtedness On and After
the Conversion Date...............................................25
3.2. Payment Amount....................................................26
3.3. Support Fees......................................................29
3.4. Ineligible Indebtedness...........................................33
3.5. Finance Charges...................................................36
3.6. Fees Relating to Overlimit Approvals and Temporary Limit
Increase Approvals................................................39
3.7. Starter Card Accounts and Marginal Card Accounts..................40
3.8. Monthly Statements................................................41
4. [ARTICLE INTENTIONALLY OMITTED]..........................................42
5. RELATIONSHIP OF PARTIES; SERVICING.......................................42
5.1. Ownership of Accounts.............................................42
5.2. Monogram's Responsibilities.......................................42
5.3. Monogram's Liabilities............................................46
5.4. MW's Responsibilities.............................................47
5.5. Promotions and Solicitations......................................54
5.6. [Section Intentionally Omitted.]..................................56
5.7. Use of Customer List..............................................56
5.8. Monogram's Records................................................58
5.9. Representatives...................................................58
5.10. Preferred Customer Services.......................................58
5.11. Right to Contract.................................................58
5.12. Limitation on Monogram............................................59
5.13. Right of First Refusal in Respect of Other Credit, Debit or
Charge Programs...................................................59
5.14. Acquisitions/Divestitures/Store Closings..........................61
5.15. The Licensed Marks................................................71
5.16. MW Coordinator; Marketing Committee...............................76
5.17. Customer Moves....................................................78
6. CONDITIONS PRECEDENT.....................................................78
6.1. Conditions to Monogram's Obligations..............................78
6.2. Conditions to MW's Obligations....................................80
6.3. Conditions to Advances on Accounts by Monogram....................80
6.4. Conditions to MW's Obligation to Submit Charge Slips and Credit
Slips.............................................................82
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7. SECURITY AND ACCESS TO DATA..............................................82
7.1. Nature of Program; Security Interest..............................82
7.2. Returns of Merchandise............................................84
7.3. Notices to Monogram...............................................85
7.4. Further Assurances................................................85
7.5. Attorney-in-Fact..................................................85
7.6. Continued Liability...............................................86
7.7. Other Party May Perform...........................................86
7.8. Receipt of Payments...............................................86
7.9. Access to Data by Monogram........................................87
7.10. Access to Data by MW..............................................87
7.11. Audit of Information..............................................88
7.12. Right of Setoff...................................................88
8. REPRESENTATIONS AND WARRANTIES OF MW.....................................88
8.1. Corporate Existence...............................................89
8.2. Executive Offices and Stores......................................89
8.3. Corporate Power; Authorization; Enforceable Obligations...........90
8.4. Solvency..........................................................90
8.5. Financials........................................................90
8.6. No Default........................................................91
8.7. Margin Regulations................................................91
8.8. No Litigation.....................................................91
8.9. Accounts..........................................................91
8.10. [Section Intentionally Omitted.]..................................92
8.11. The Licensed Marks................................................92
9. REPRESENTATIONS AND WARRANTIES OF MONOGRAM...............................92
9.1. Corporate Existence...............................................92
9.2. Corporate Power; Authorization; Enforceable Obligations...........93
9.3. Solvency..........................................................94
10. FINANCIAL STATEMENTS AND INFORMATION.....................................94
10.1. MW's Reports and Notices..........................................94
10.2. [Section Intentionally Omitted.]..................................94
11. INDEMNIFICATION..........................................................95
11.1. Indemnification by MW.............................................95
11.2. Indemnification by Monogram.......................................96
11.3. Defense of Third Party Claims.....................................97
11.4. Payment of Indemnified Amounts....................................98
11.5. Insurance and Mitigation..........................................98
12. AFFIRMATIVE COVENANTS OF MW..............................................98
12.1. Monogram's Forms..................................................98
12.2. Compliance with Law...............................................99
12.3. MW's Affiliates and Authorized Licensees..........................99
12.4. Protection Contracts.............................................100
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Page
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13. AFFIRMATIVE COVENANTS OF MONOGRAM.......................................102
13.1. Compliance with Law..............................................102
13.2. Securitization, Assignment and Sale Compliance...................103
13.3. Sales of Accounts and Indebtedness...............................103
14. NEGATIVE COVENANTS OF MW................................................104
14.1. Liens............................................................104
14.2. [Section Intentionally Omitted.].................................104
14.3. Payments In Respect of Sales on Authorized Affiliates' Credit
Cards............................................................104
14.4. Submission of Charge Transaction Data by Stores Only.............104
15. TERM....................................................................104
15.1. Term and Termination.............................................104
15.2. Effect of Termination and Reaching the Maximum Aggregate
Cardholders' Balance.............................................105
15.3. Securitization/Participation.....................................124
16. EVENTS OF DEFAULT; RIGHTS AND REMEDIES..................................124
16.1. MW Defaults......................................................124
16.2. Monogram Defaults................................................126
16.3. Monogram Remedies................................................128
16.4. MW Remedies......................................................128
17. MISCELLANEOUS...........................................................128
17.1. Termination of Interim Agreement; Complete Agreement;
Modification of Agreement; Assignment and Sale of Interest.......128
17.2. [Section Intentionally Omitted.].................................130
17.3. [Section Intentionally Omitted.].................................130
17.4. [Section Intentionally Omitted.].................................130
17.5. No Waiver........................................................130
17.6. Remedies.........................................................130
17.7. Severability.....................................................130
17.8. Parties..........................................................130
17.9. Authorized Signature.............................................130
17.10. Governing Law....................................................131
17.11. Notices..........................................................131
17.12. Confidentiality..................................................132
17.13. Payments.........................................................133
17.14. [Section Intentionally Omitted.].................................133
17.15. Section Titles...................................................133
17.16. Counterparts.....................................................133
17.17. Disclosure.......................................................134
17.18. Estoppel Certificates............................................134
17.19. Foreign Stores...................................................134
17.20. [Section Intentionally Omitted.].................................134
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17.21. Third Party Beneficiaries........................................134
17.22. Force Majeure....................................................134
17.23. Closing..........................................................134
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INTERIM CONSUMER CREDIT CARD PROGRAM AGREEMENT, dated as of April 1,
1996, as Amended, Restated and Renamed as the BANK CREDIT CARD PROGRAM
AGREEMENT, dated as of April 1, 1996, by and between MONTGOMERY WARD & CO.,
INCORPORATED ("MW"), an Illinois corporation with its chief executive offices
located at 619 West Chicago Avenue, Chicago, Illinois 60671, and MONOGRAM CREDIT
CARD BANK OF GEORGIA ("Monogram"), a Georgia banking corporation with its
principal place of business located at 7840 Roswell Road, Atlanta, Georgia
30350.
W I T N E S S E T H:
WHEREAS, Monogram has established programs to extend bankcard credit
to qualified customers for the purchase of goods and services for personal,
family or household uses; and
WHEREAS, MW and certain Authorized Affiliates and Authorized Licensees
(both as hereinafter defined) are engaged in the business of selling Merchandise
(as hereinafter defined) and serving customers; and
WHEREAS, MW, together with Montgomery Ward Credit Corporation ("MWCC")
entered into that certain Account Purchase Agreement, dated as of June 24, 1988,
as amended (the "Original Account Purchase Agreement"), pursuant to which MWCC
purchased certain accounts of, and operated a private label program in
conjunction with, MW; and
WHEREAS, MW and MWCC have decided to terminate certain of their
obligations under the Original Account Purchase Agreement; and
WHEREAS, as a result of a contribution of capital from General
Electric Capital Corporation ("GE Capital"), Monogram now owns certain accounts,
indebtedness and related items previously owned by MWCC under the Original
Account Purchase Agreement; and
WHEREAS, MW and Monogram have entered into that certain Interim
Consumer Credit Card Program Agreement, dated as of April 1, 1996 (the "Interim
Agreement") pursuant to which Monogram has (i) issued Credit Cards (as
hereinafter defined) and (ii) directly extended credit to individuals buying
Merchandise at Stores (as hereinafter defined) pursuant to Accounts (including
Old Accounts) (both capitalized terms as hereinafter defined); and
WHEREAS, MW and Monogram previously have executed an agreement, also
dated as of April 1, 1996 (the "Noneffective Agreement"), that amended and
restated the Interim Agreement, which Noneffective Agreement required, as a
condition to its effectiveness, that the transactions contemplated in such
Noneffective Agreement be approved by Monogram's shareholder; and
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WHEREAS, GE Capital, Monogram's sole shareholder, has determined not
to approve the transactions contemplated by the Noneffective Agreement without
certain modifications; and
WHEREAS, because the Noneffective Agreement shall not become
effective, both MW and Monogram desire to enter into this Agreement (as
hereinafter defined) amending, restating and renaming the Interim Agreement as
provided herein (if the conditions precedent hereto are satisfied or waived on
or prior to the Closing Date), under which Agreement Monogram will continue to
issue Credit Cards and extend credit directly to individuals buying Merchandise
at Stores pursuant to Accounts (including Old Accounts) under the terms and
conditions set forth herein; and
WHEREAS, the Interim Agreement will terminate if this Agreement
becomes effective, the conditions precedent having been met or waived, as of the
date hereof or such other date as may be agreed to by the parties; and
WHEREAS, MW has requested GE Capital, and GE Capital has agreed, to
guaranty the obligations of Monogram hereunder.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. DEFINED TERMS
As used in this Agreement, the following terms shall have the
respective meanings set forth below:
"Account" shall mean the following:
(a) a Credit Card-accessed open-end consumer credit account
established by Monogram for use in connection with the Program
(including, without limitation, an Old Account which was obtained
by Monogram and an account arising under the Interim Agreement)
by a Cardholder, where the Credit Card bears one of the Licensed
Marks and pursuant to which such Cardholder may finance, for
personal, family or household purposes only, the purchase of
Merchandise at Stores, subject to the terms of a Credit Card
Agreement;
(b) any and all Account Documentation;
(c) accounts, accounts receivable, other receivables, indebtedness,
contract rights, choses in action,
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general intangibles, chattel paper, instruments, documents,
notes, obligations and all proceeds of the foregoing (as each of
those terms which is defined in the Code is so defined) arising
in connection with the Credit Card-accessed open-end credit
account referred to in subsection (a) of this definition;
(d) any and all rights and remedies as to stoppage-in-transit,
reclamation, return and repossession of Merchandise financed
pursuant thereto;
(e) to the extent assignable, any and all goods or other property,
contracts of indemnity, guaranties or sureties standing as
security for payment of an Account;
(f) any and all proceeds of insurance and other proceeds at any time
standing as security for payment of an Account; and
(g) any and all other rights, remedies, benefits, interests and
titles, both legal and equitable, in respect of the foregoing.
"Accounts" shall not include (a) those generated pursuant to layaway plans and
(b) those excluded pursuant to Section 5.14 hereof. Except as otherwise
expressly provided herein, reference in this Agreement to Accounts only shall
include all Accounts (including, without limitation, Old Accounts, Starter Card
Accounts, Marginal Card Accounts and accounts created under the Interim
Agreement), portions thereof and participations therein then owned or held by
Monogram or any direct or indirect assignee or secured party of, or purchaser
from, Monogram (collectively, "Assignees"), provided that "Assignees" in no
event shall include: (1) MW or an MW Designee, (2) any Person other than an
Affiliate of Monogram who has purchased Monogram Defaulted Indebtedness, or (3)
with respect to Accounts and Indebtedness purchased by MWCC from Monogram under
the Delinquent Account Purchase Agreement, MWCC. With respect to SECTIONS
15.2(2)(i)(B) AND (iii), 15.2(3) AND 15.2(4) (and unless otherwise provided
therein), to the extent any Indebtedness relating to Accounts is not owned by
Monogram or Assignees, the reference to Accounts shall only include the
Indebtedness owned by Monogram and/or Assignees. Except as otherwise expressly
provided, references in this Agreement to Accounts shall include written-off
Accounts.
"Account Documentation" shall mean any and all documentation relating
to Accounts, including, without limitation, Credit Card Documentation, Charge
Transaction Data, checks
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or other forms of payment with respect to an Account, credit bureau reports (to
the extent not prohibited from transfer by contract with the credit bureau to
the extent such prohibition has not been waived), adverse action notices, change
of terms notices, other notices, correspondence, memoranda, documents, stubs,
instruments, certificates, agreements, invoices, sales or shipping slips,
delivery and other receipts, magnetic tapes, disks, hard copy formats or other
computer-readable data transmissions, any microfilm, electronic or other copy of
any of the foregoing, and any other written, electronic or other records or
materials of whatever form or nature, including, without limitation, tangible
and intangible information, arising from or relating or pertaining to any of the
foregoing.
"Account-Related Agreement" shall mean that certain Account Purchase
Agreement, dated as of June 24, 1988, as amended, restated and renamed the
Account-Related Agreement, dated as of April 1, 1996 and executed and effective
simultaneously herewith, between MW and MWCC.
"Acquiree" shall mean either (i) an existing retail operation (E.G.,
stores, mail order and home television shopping) or (ii) to the extent of its
retail operation, a Person that operates a retail operation, which operation or
Person is acquired by, or becomes an Affiliate of, MW.
"Acquiree Credit Program" shall mean an open-end consumer credit
program pursuant to which consumers may finance or otherwise obtain credit for
retail purchases of goods and/or services from an Acquiree to the extent such
program: (i) is operated by such Acquiree (whether in-house or in connection
with an outside Person) and (ii) involves the use of the Acquiree's trademarks,
trade names, service marks, logos and/or other proprietary designations.
"Acquiror Credit Program" shall mean an open-end consumer credit
program pursuant to which consumers may finance or otherwise obtain credit for
retail purchases of goods and/or services from (as appropriate) a Section 2
Acquiror or Post-Control Loss Acquiror to the extent such program: (i) is
operated by such Section 2 Acquiror or Post-Control Loss Acquiror (whether
in-house or in connection with an outside Person) and (ii) involves the use of
such Section 2 Acquiror's or Post-Control Loss Acquiror's trademarks, trade
names, service marks, logos and/or other proprietary designations.
"Acquisition Notice" shall have the meaning assigned to such term in
SECTION 5.14(1)(b)(i) hereof.
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"Affiliate" shall mean, with respect to any Person, each Person that
controls, is controlled by, or is under common control with, such Person,
provided, however, that (a) the term "Affiliate" shall not include any
individual, and no individuals shall be taken into account in any
determinations under this definition, and (b) neither any direct or indirect
owner of equity securities of MW, including General Electric Company and GE
Capital, other than Montgomery Ward Holding Corp. so long as it owns all of
the outstanding common equity securities of MW ("Holding"), nor any of said
Person's Subsidiaries (except that MW, Holding and their respective
Subsidiaries may be considered Affiliates of each other), shall be considered
to be an Affiliate of MW based solely on its ownership of such equity
securities, nor shall MW, Holding and/or their respective Subsidiaries be
considered Affiliate(s) of any such owner (including General Electric Company
and GE Capital) or such owner's Subsidiaries (except that MW, Holding and
their respective Subsidiaries may be considered Affiliates of each other).
For the purpose of this definition, "control" of a Person shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of
voting securities, by contract, or otherwise.
"AFF Promotion" shall have the meaning assigned to it in SECTION
3.5(2) hereof.
"Aggregate Extra Risk Dollar Amount of Monthly Credit Sales" shall
mean, for each Fiscal Month, the sum of the Extra Risk Dollar Amount of Monthly
Credit Sales for such Fiscal Month.
"Aggregate Cardholders' Balance" shall mean, at any time, the
aggregate of all Indebtedness, but exclusive of any Monogram Defaulted
Indebtedness.
"Aggregate Layer Balance" shall have the meaning assigned to it in
SECTION 3.3(2)(v) hereof.
"Agreement" shall mean this Bank Credit Card Program Agreement,
including all amendments, restatements, replacements, modifications,
supplements, exhibits and schedules hereto, and shall refer to this Agreement as
the same may be in effect at the time such reference is operative.
"Anticipated Credit Promotion Amount" shall have the meaning set forth
in SECTION 3.5(3)(i) hereof.
"Assignees" shall have the meaning assigned to it in the definition of
"Account" in SECTION 1 hereof.
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"Authorized Affiliate" shall mean any Affiliate of MW who (a) is
listed on EXHIBIT A or (b)(i) Monogram, in response to a request by MW, has
agreed in writing (such agreement not to be unreasonably withheld or delayed)
may accept Credit Cards in connection with said Affiliate's sale of consumer
goods and/or services and (ii) has executed an agreement containing, among other
provisions, those contained in EXHIBIT B hereto. Unless otherwise agreed by the
parties, EXHIBIT A shall be deemed amended to delete reference to any Person
identified thereon on the first date such Person no longer is an Affiliate of MW
and such Person shall not be an Authorized Affiliate for or during any time
periods thereafter.
"Authorized Charges" shall have the meaning assigned to it in SECTION
3.5(1) hereof.
"Authorized Licensee" shall mean (a) the Signature Companies, if they
no longer are Authorized Affiliates and (b) any Person who (i) is listed on
EXHIBIT C, (ii)(x) Monogram, in response to a request by MW, has agreed in
writing (such agreement not to be unreasonably withheld or delayed) may accept
Credit Cards in connection with said Person's sale of consumer goods and/or
services in the manner and scope approved and (y) has executed an agreement in
substantially the form of EXHIBIT D1 or D2 hereto, or (iii)(x) leases or
licenses space in any Store operated by MW or an Authorized Affiliate of MW and
(y) has executed an agreement in substantially the form of EXHIBIT D1 or D2
hereto, in each case, as to, and to the extent of, such Person's activities
conducted in such Store(s); provided, however, no Person shall be an Authorized
Licensee for or during any time period(s) after MW advises Monogram such Person
no longer shall be an Authorized Licensee, except that the Signature Companies
shall be Authorized Licensees at all times they no longer are Authorized
Affiliates.
"Balance Sheet" shall have the meaning assigned to it in SECTION 8.5
hereof.
"Bankruptcy Code" shall mean Title 11 of the United States Code, as
now constituted or as hereafter amended, or any successor law.
"Billing Cycle" shall mean the time period between regular periodic
Billing Dates for an Account.
"Billing Date" shall mean, collectively, those dates during a
Settlement Period as of which Accounts are billed.
"Billing Statement" shall mean a summary of credit and/or debit
transactions on an Account for a Billing Cycle,
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including, without limitation, a descriptive statement covering purchases of
Merchandise and/or a statement with past due information.
"Business Day" shall mean any day except (i) Saturday, (ii) Sunday or
(iii) a day on which banks are required or permitted to be closed in the State
of Georgia to the extent that the bank or banks from which Monogram wires funds
under this Agreement actually are closed on such day.
"Cancellation Date" shall have the meaning assigned to it in SECTION
5.13(3) hereof.
"Cardholder" shall mean any natural person who is or may become
obligated under, with respect to, or on account of, an Account.
"Cash Price" shall have the meaning assigned to it in SECTION
5.4(5)(iii) hereof.
"Charge Slip" shall mean evidence of a sale of Merchandise at a Store
to be charged on an Account, including, without limitation, an invoice, sales
slip, memorandum of purchase or similar document or an electronic or magnetic
transmission.
"Charge Transaction Data" shall mean Cardholder identification and
transaction information with regard to (i) each purchase of Merchandise on an
Account and (ii) each return, exchange or adjustment for Merchandise purchased
on an Account.
"Closing Date" shall mean December 23, 1996, or such later date as may
be agreed to by the parties in writing.
"Code" or "UCC" shall mean the Uniform Commercial Code (or similar
personal property security law) of the jurisdiction with respect to which such
term is used, as now constituted or hereafter amended, or any successor law.
"Competitor" shall mean those Persons (and their Affiliates) that own
or control the retail operations now commonly known as Sears or J.C. Penney or
any successors to such retail operations.
"Contractual Method" shall mean the method of calculating Monogram
Defaulted Indebtedness whereby all Indebtedness in respect of an Account shall
be considered Monogram Defaulted Indebtedness in the Billing Cycle following the
Billing Cycle in which the Cardholder is considered past due for one hundred
fifty (150) days on one minimum payment, all in
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accordance with Monogram's policies and practices, including, without
limitation, such policies and practices with respect to extensions, recycles,
partial payments (which shall require Cardholders to pay a minimum of 90% of the
required periodic payment specified in their Credit Card Agreements to avoid
further aging) and other adjustments, as of the date hereof. For the avoidance
of doubt, by way of example: For a Cardholder who first is billed on the
fifteenth of month one, the related payment is due on the fifteenth of month
two. If a payment is not made by the fifteenth of month three, such payment is
considered past due for thirty (30) days or more on one minimum payment. In
summary, there is a two-month timing difference between the time an Account is
billed and when it is considered one month past due.
"Control Loss Event" shall mean an event the result of which is that
GE Capital (or an Affiliate thereof) no longer possesses the rights to block or
prevent all of the actions set forth in the subsections of Section 5.3 of the
Stockholders' Agreement, dated as of June 17, 1988, as amended and restated as
of August 1, 1994, between BFB Acquisition Corp., Bernard F. Brennan, GE Capital
and certain other Persons (the "Stockholders' Agreement"), whether or not the
Stockholders' Agreement remains in effect.
"Conversion Date" shall mean April 1, 1996.
"Credit Account" shall have the meaning assigned to it in SECTION
3.7(1) hereof.
"Credit Card" shall mean a card issued by Monogram bearing the words
"Montgomery Ward" and/or another of the Licensed Marks and issued to a
Cardholder, which card allows said Cardholder to purchase Merchandise under an
Account.
"Credit Card Agreement" shall mean a credit card agreement between
Monogram and a Cardholder governing the use of an Account, including an Old
Account, together with any amendments, modifications, restatements, replacements
or supplements which now or hereafter may be made to such Credit Card Agreement.
"Credit Card Application" shall mean Monogram's credit application,
which application must be completed and submitted for review to Monogram by
individuals who wish to become Cardholders.
"Credit Card Documentation" shall mean, with respect to Accounts, all
Credit Card Applications, Credit Card Agreements, Credit Cards, Charge Slips,
Credit Slips and Billing Statements relating to such Accounts.
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"Credit Card Receivables Sale Agreement" shall mean that certain
Credit Card Receivables Sale Agreement, dated as of April 1, 1996, between
Monogram and MWCC, as such agreement may be amended, restated, replaced,
modified and/or supplemented from time to time, provided that, unless agreed to
or approved by MW, such changes shall not adversely affect MW under this
Agreement or any other agreement(s) between MW and Affiliates of Monogram
relating to the Program.
"Credit Limit" shall mean, with respect to any Cardholder on any date,
the dollar limit set by Monogram for such Cardholder to allow him/her to make
purchases on his/her Account to the extent of such limit, as the same is
adjusted from time to time (it being understood that such adjustments shall not
include those purchase-specific or temporary adjustments made by Monogram
thereto).
"Credit Promotions" shall have the meaning assigned to it in SECTION
3.5(2) hereof.
"Credit Promotions Account" shall have the meaning assigned to it in
SECTION 3.5(3) hereof.
"Credit Sales" shall mean, for any period, the total gross sales
price, including sales tax, LESS returns and allowances, for such period arising
from the sale of Merchandise by MW, Authorized Affiliates and Authorized
Licensees pursuant to Accounts.
"Credit Slip" shall mean evidence of an adjustment or credit on an
Account for a return or exchange of Merchandise purchased on such Account.
"Customer List" shall mean any identification (whether in hard copy,
magnetic tape or other format) of (i) Cardholders and/or (ii) applicants for
Accounts (both categories of Persons in their capacities as credit customers or
potential credit customers with respect to purchases from Stores), on the
Conversion Date or any date(s) thereafter, including, without limitation, any
list identifying the name, address, telephone number and social security number
of any such Person, alone or together with any other information that Monogram
has in its files with respect to such Person in connection with the Program.
For the avoidance of doubt, it is acknowledged and agreed that the Customer List
shall not include any such identifications of cardholders obligated in respect
of Accounts on and after the date sold to MWCC under the Delinquent Account
Purchase Agreement. For purposes of this definition, the Customer List shall
include any identification(s) of Cardholders or applicants
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<PAGE>
for Accounts provided to MW by Monogram and maintained by MW, whether or not
Monogram has maintained such identification(s).
"Decremental Layer Balance" shall have the meaning assigned to it in
SECTION 3.3(2)(iv) hereof.
"Delinquent Account Purchase Agreement" shall mean that certain
Delinquent Account Purchase Agreement, dated as of April 1, 1996, between MWCC
and Monogram, as such agreement may be amended, restated, replaced, modified
and/or supplemented from time to time, provided that, unless agreed to or
approved by MW, such changes shall not adversely affect MW under this Agreement
or other agreement(s) between MW and Affiliates of Monogram relating to the
Program.
"Delivery Date" shall have the meaning assigned to it in SECTION
5.4(5)(ii) hereof.
"Designated Insured Percentage" shall have the meaning assigned to
such term in SECTION 12.4(1) hereof.
"Divested Store" shall have the meaning assigned to it in the
definition of "MW Divestiture" in SECTION 1 hereof.
"Divestiture Contract Date" shall mean, for any contemplated MW
Divestiture, the date of execution of the agreement(s) governing such
contemplated MW Divestiture.
"Divestiture Date" shall mean the date of the closing of any MW
Divestiture.
"Divestiture Notice" shall have the meaning assigned to such term in
Section 5.14(3)(i).
"Divestiture-Related Account" shall mean, as of any Divestiture Date,
an Account (except to the extent of Indebtedness on such Account sold to MWCC
under the Credit Card Receivables Sale Agreement, which Indebtedness shall not
be included within this definition) the primary Cardholder in respect of which
lives in a zip code area within fifty (50) miles of the zip code area of a
Divested Store being sold or otherwise transferred for value as part of the MW
Divestiture in question on such Divestiture Date, but (i) does not live within
fifty (50) miles of the zip code area of a retail Store location operated by MW
or an Authorized Affiliate not being sold or otherwise transferred for value on
such Divestiture Date and (ii) has not made a purchase on his or her Account
through a non-retail Store location operated by MW or Authorized Affiliate
during the immediately preceding 12-month period.
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"Divestiture-Related Account Purchase Price" shall mean, for any
Divestiture-Related Accounts to be sold on any date, an amount equal to: (i)
[ ]* as to Indebtedness on such Divestiture-Related Accounts (which,
for the avoidance of doubt, shall not include Indebtedness sold to MWCC under
the Credit Card Receivables Sale Agreement) on such date, [ ]* (ii)
[ ]* computed in accordance with Monogram's Accounting Practices and
based on the proportion of the Aggregate Cardholders' Balance of the
Indebtedness described in subsection (i) of this definition to all Indebtedness
(which shall not include Indebtedness sold to MWCC under the Credit Card
Receivables Sale Agreement) other than Monogram Defaulted Indebtedness.
"Dominant Card" shall have the meaning assigned to it in SECTION
5.14(6) hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Existing Program" shall have the meaning assigned to that term in
SECTION 5.13(2) hereof.
"Extra Risk Dollar Amount of Monthly Credit Sales" shall mean, for
each Fiscal Month for each Person (or division of each Person) for whom
algorithms for Overlimit Approvals have been set by each party, a dollar amount
equal to (i) the Indebtedness created by sales by such Person in such Fiscal
Month which would not have been made without Overlimit Approvals, MULTIPLIED BY
(ii) the percentage derived by use of such algorithms (as each such Person's
algorithms may be modified by such Person from time to time).
"Final Blended Rate" shall have the meaning assigned to it in SECTION
3.3(3)(v) hereof.
"Fiscal Month" shall mean, during any Fiscal Year, each month as
defined by Monogram on its fiscal calendar for that Fiscal Year.
"Fiscal Year" shall mean a fiscal year the dates of which are
specified by Monogram, provided each Fiscal Year must end on December 31 or
within seven (7) days before or after December 31 of each year.
"Five-Year Rate" shall have the meaning assigned to it in SECTION
3.3(2)(viii) hereof.
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*Confidential treatment has been requested with respect to this information.
<PAGE>
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"GE Capital" shall have the meaning assigned to it in the RECITALS
hereto.
"Governmental Authority" means the United States, any State, or any
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, in each case whether national, State or local.
"Guaranty" shall mean that certain Guaranty of Bank Credit Card
Program Agreement, of even date herewith, the form of which is attached hereto
as EXHIBIT E hereto.
"Holding" shall have the meaning assigned to it in the definition of
"Affiliate" in SECTION 1 hereof.
"Incremental Layer Balance" shall have the meaning assigned to it in
SECTION 3.3(2)(iv) hereof.
"Indebtedness" shall mean, at any time, the outstanding obligation
incurred by a Cardholder under an Account (including any Old Account),
including, without limitation, any charges for Merchandise (which includes
insurance financed pursuant to an Account), sales tax, finance charges and any
other charges in respect of an Account, whether accrued or billed, inclusive of
finance charges subject to possible reversal due to unexpired AFF Promotions, as
all such charges are determined pursuant to Monogram's Accounting Practices.
For the avoidance of doubt, reference in this Agreement to Indebtedness (i)
shall include only all Indebtedness then owned or held by Monogram or Assignees
and (ii) shall not include (a) Indebtedness sold to MWCC under the Delinquent
Account Purchase Agreement and (b) Monogram Defaulted Indebtedness sold to any
Person other than an Affiliate of Monogram.
"Ineligible Indebtedness" shall mean Indebtedness which MW is required
to purchase from Monogram pursuant to SECTION 3.4 hereof.
"Infringements" shall have the meaning assigned to such term in
SECTION 5.15(6) hereof.
"Initial Term" shall have the meaning assigned to such term in SECTION
15.1(1) hereof.
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"In-Store Payment" shall mean any payment on an Account made by a
Cardholder (or any other person acting on behalf of a Cardholder) at a Store.
"Insurance Lapse Date" shall have the meaning assigned to it in
SECTION 12.4(2).
"Interim Agreement" shall have the meaning assigned to it in the
RECITALS hereto.
"Interim Percentage" shall mean an amount equal to (a) the sum of (i)
the amount reasonably estimated by MW to represent the potential cost to perform
the outstanding obligations under the Protection and (ii) the amount reasonably
estimated by Monogram to represent the potential cost to perform the outstanding
obligations under the Protection, DIVIDED BY (b) 2. Each such estimate shall be
based upon an actuarial estimate of the costs to Monogram and/or its Affiliates
of providing the Protection.
"Layer Balance" shall have the meaning assigned to it in SECTION
3.3(2)(iv) hereof.
"Layer Balance Date" shall have the meaning assigned to it in SECTION
3.3(2)(iii) hereof.
"Layer Blended Rate" shall have the meaning assigned to it in SECTION
3.3(2)(vi) hereof.
"License Term" shall have the meaning assigned to it in SECTION
5.15(5) hereof.
"Licensed Marks" shall mean the trademarks, trade names, service
marks, logos and other proprietary designations of MW listed on SCHEDULE 5.15
hereto, which Schedule (as amended by MW from time to time) at all times shall
contain all trademarks, trade names, service marks, logos and other proprietary
designations of MW and Authorized Affiliates used in connection with their
retail operations.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest (including, without limitation, any interest of a buyer of accounts or
chattel paper that is subject to Article 9 of the Code), encumbrance,
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any lease or title
retention agreement, any financing lease having substantially the same economic
effect as any of the fore-
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going, and the filing of, or agreement to file, any financing statement pursuant
to the Code).
"Liquidation Account" shall have the meaning assigned to it in SECTION
6.3(5) hereof.
"Liquidation Account Commercial Paper Rate" shall mean, as of the last
Business Day of any Settlement Period, [ ]* sold by or through any
Person as published in The Wall Street Journal on that day, or if not published
therein, as published or made available by such other source as Monogram
reasonably shall determine.
"Marginal Card Account" shall mean an Account, until such time, if
any, such Account has been converted to a Credit Account pursuant to SECTION 3.7
hereof, established by Monogram for an applicant who does not meet the credit
requirements for a Credit Account but exceeds the credit requirements for a
Starter Card Account, and includes an Old Account acquired or established by
MWCC for an applicant who did not meet MWCC's credit requirements for a credit
account but exceeded MWCC's credit requirements for a Starter Card Account.
"Marketing Agreement" shall mean any agreement(s) between the
Signature Companies and MW and/or Affiliates of MW relating to, among other
things, the use by the Signature Companies of customer lists, names and
trademarks of MW and/or its Affiliates in connection with the Signature
Companies' sales and operations, as such agreement(s) may be amended, restated,
replaced, modified and/or supplemented from time to time, but only to the extent
the initial such agreement is entered into in connection with the purchase or
other acquisition of the Signature Companies by an Affiliate of Monogram.
"Marketing Committee" shall have the meaning assigned to it in SECTION
5.16(1) hereof.
"Maximum Aggregate Cardholders' Balance" shall mean (a) the amount
equal to the difference between (i) [ ]* (which is based on current
credit terms) and (ii) the aggregate of indebtedness on accounts owned by an
Affiliate of Monogram in connection with any agreement with MW relating to
the Program excluding (i) any indebtedness written off by such Affiliate in
accordance with it accounting practices and (ii) for the avoidance of doubt,
Indebtedness, or (b) such higher amount as MW and Monogram may from time to
time agree to as provided herein.
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"Merchandise" shall mean goods and services including, without
limitation, accessories, installation, delivery services, automotive services,
repair services, service contracts, warranties, insurance and club fees, as well
as any other items which Monogram from time to time agrees may be sold on
Accounts, for personal, family or household use. Merchandise shall include
items that are new or used at the time of sale, including clearance items and
items that are returned or repossessed and restored to the inventory and
subsequently offered for resale.
"Modified Thirty-Day Commercial Paper Rate" shall have the meaning
assigned to such term in SECTION 3.3(2)(vii) hereof.
"Money Cost Balance" shall have the meaning assigned to it in SECTION
3.3(2)(i) hereof.
"Money Cost Model" shall have the meaning assigned to it in SECTION
3.3 hereof.
"Money Cost Net Receivable Balance" shall have the meaning assigned to
it in SECTION 3.3(2)(ii) hereof.
"Monogram" shall have the meaning assigned to it in the INTRODUCTORY
PARAGRAPH hereof.
"Monogram Default" shall have the meaning assigned to it in SECTION
16.2 hereof.
"Monogram Defaulted Indebtedness" shall mean any Indebtedness,
including, without limitation, Old Indebtedness and Indebtedness arising
pursuant to Marginal Card Accounts and Starter Card Accounts, (a) where Monogram
and/or an Affiliate of Monogram has received official notice that the Cardholder
in respect of such Indebtedness has filed a petition for relief under the
Bankruptcy Code, made a general assignment for the benefit of creditors, had
filed against it any petition or other application for relief under the
Bankruptcy Code, or has suffered a receiver or trustee to be appointed for all
or a significant portion of its assets, and Monogram has concluded that the
relevant Indebtedness should be written off on its books, (b) where Monogram
and/or an Affiliate of Monogram has received reliable notice that the Cardholder
has died and the earlier occurs of (i) the receipt of information that there are
no assets in the estate or that there has been a judicial determination that
there are no assets in the estate, or (ii) ninety (90) days have elapsed since
Monogram and/or an Affiliate of Monogram received such notification of death,
(c) where the Cardholder has asserted that the Indebtedness was fraudulently
incurred and the claim of fraud is not frivolous, (d) where Merchandise has been
repossessed and the Cash Price of such Merchandise is a
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substantial portion of the Indebtedness outstanding on the Account immediately
prior to the time of repossession, (e) where a settlement is reached with a
Cardholder as to the total amount owing in connection with an Account and such
amount has been paid, to the extent of such unpaid amount, (f) where
verification is obtained that the Cardholder is confined to a jail, nursing home
or similar institution, (g) where the Indebtedness is deemed by Monogram to be
uncollectible due to the fact that the Account of which it is a part has been
chronically past due and delinquent, or (h) where any Indebtedness in respect of
an Account becomes Monogram Defaulted Indebtedness based on the Contractual
Method. Notwithstanding the foregoing, in no event shall Monogram Defaulted
Indebtedness include (x) Indebtedness written off prior to the Conversion Date,
or (y) Indebtedness that is Monogram Defaulted Indebtedness due to the fraud of
Monogram, its employees, agents or representatives. Monogram Defaulted
Indebtedness shall be deemed to be such after the first event set forth above
which qualifies it as such occurs; provided, that with respect to subsections
(b)-(g) above, Monogram Defaulted Indebtedness shall be deemed to be such within
a reasonable time, not to exceed one hundred twenty (120) days, after the first
event set forth above which qualifies it as such occurs. For the avoidance of
doubt, it is understood and agreed that (1) all references in this Agreement to
Monogram Defaulted Indebtedness includes all such Indebtedness owned by Monogram
and/or owned or held by any Assignees, including an Affiliate of Monogram, and
(2) notwithstanding any policies or procedures with respect to the financial
reporting of finance charges, late fees, insufficient fund fees and other
charges and fees assessed to a Cardholder, Monogram Defaulted Indebtedness shall
include all such charges and fees billed to a Cardholder with respect to
Indebtedness which are unpaid at the time such Indebtedness becomes Monogram
Defaulted Indebtedness, and (3) references to an Affiliate of Monogram shall
mean only such Affiliates or parts of such Affiliates that participate in the
Program.
"Monogram's Accounting Practices" shall mean the general accounting
practices followed by Monogram on a consistent basis with respect to the manner
in which it conducts its business, which practices shall be in accordance with
GAAP, including, without limitation, Monogram's practices for accruing charges
and calculating receivables, except that, notwithstanding any policies or
procedures under GAAP or of Monogram with respect to the accounting and
reporting of finance and other charges, Indebtedness shall include all finance
and other charges (i) billed to Cardholders with respect to AFF Promotions where
charges are subject to credit if the Cardholders make all payments under the
terms of such AFF Promotions and (ii) accruing and/or billed on delinquent
Accounts after the point (currently
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90 days) at which Monogram no longer accrues such fees and charges under GAAP.
"Monthly Billed Indebtedness" shall mean, for any Settlement Period,
the sum of Indebtedness during such Settlement Period, as computed pursuant to
Monogram's Accounting Practices, but without the deduction of any allowance for
bad debts, billed to Cardholders on each Billing Cycle closing date during that
Settlement Period and billed to MW during that Settlement Period in connection
with Reduced Accounts.
"Monthly Payment Period" shall have the meaning assigned to such term
in the Account-Related Agreement.
"Monthly Yield Percentage" shall mean, for any Settlement Period or
part thereof, the amount (expressed as a percentage) obtained by (a) dividing
(i) the total amount of finance charges billed to Cardholders or billed to MW in
connection with Reduced Accounts during such period with respect to
Indebtedness, less all finance charges credited in respect of such Indebtedness
during such period (other than finance charges credited during such period as
the result of (x) payments on such Accounts by Cardholders, (y) payments on such
Accounts by MW in connection with Reduced Accounts, and (z) successful
completion of AFF Promotions) by (ii) Monthly Billed Indebtedness for such
period, (b) multiplying such quotient by 12 and (c) rounding the resulting
product to two (2) decimal places.
"MW" shall have the meaning assigned to it in the Introductory
Paragraph hereto.
"MW Coordinator" shall mean the employee of MW in charge of
coordinating MW's responsibilities under this Agreement.
"MW Default" shall have the meaning assigned to it in SECTION 16.1
hereof.
"MW Designee" shall have the meaning assigned to it in SECTION
15.2(2)(i)(B) hereof.
"MW Divestiture" means any sale or other transfer for value, directly
or indirectly, of retail Store locations (other than (i) the sale or transfer to
Monogram, an Affiliate of Monogram or an Authorized Affiliate; (ii) a sale of
all or substantially all of the business of MW where this Agreement is assigned
as provided in SECTION 17.1(3), and (iii) Stock or other direct or indirect
transfers of equity interests in MW), by MW or a Relevant Authorized Affiliate
to a Person or Persons who, after the relevant divestiture, shall continue to
operate the retail
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Store locations to be sold or transferred as retail store locations in which
more than [ ]* of sales will be made utilizing open-end
consumer credit programs bearing such acquiror's tradestyle (such percentage of
sales will be presumed to be more than [ ]* unless demonstrated
otherwise by MW and each such location to be referred to as a "Divested Store"),
which sale or transfer occurs in one or more transactions or series of
transactions on a cumulative basis during any rolling 18-month period where the
Divested Store in question, when coupled with Divested Stores previously
divested during such rolling 18-month period by MW and Relevant Authorized
Affiliates, accounted for a total of [ ]* or more of Credit Sales
(such percentage for each Divested Store being determined by comparing the
Credit Sales for each Divested Store in question to Credit Sales for all Stores
during the 12-month period prior to the date on which MW delivers (or is
obligated to deliver) the Divestiture Notice, as to each Store divestiture in
question) (it being understood that for purposes of allocating Credit Sales to
Store(s): (a) an Account of a Cardholder whose zip code area is within fifty
(50) miles of the zip code area(s) of the Divested Store or Stores being so sold
or otherwise transferred for value shall be attributed to such Store or Stores
unless (i) there is another retail Store location or locations operated by MW or
an Authorized Affiliate not being sold or otherwise transferred for value as
part of such divestiture within fifty (50) miles of such Cardholder's zip code
area or (ii) the Cardholder has made a purchase on his or her Account through a
non-retail Store location operated by MW or an Authorized Affiliate during the
immediately preceding 12-month period; and (b) if Store(s) are sold or otherwise
transferred for value at any time during the first twelve months following the
date hereof, the percentage of credit sales attributable to such Stores will be
determined using (as necessary) monthly credit sales figures under the program
operated pursuant to the Original Account Purchase Agreement).
When determining whether a MW Divestiture has occurred "on a cumulative basis
during any rolling 18-month period," each new occurrence of an event shall be
considered together with all prior such events that occurred during the
immediately preceding rolling 18-month period such that the relevant percentage
calculated with respect to a divestiture for one 12-month period is added to the
relevant percentage(s) calculated with respect to divestiture(s) (within the
rolling 18-month period) for other 12-month periods. Example: On Day 1, MW
sells Stores operated by MW which accounted for [ ]* of Credit Sales
during the 12 months immediately preceding delivery of the related Divestiture
Notice. There has been no MW Divestiture. On Day 400, a Relevant Authorized
Affiliate sells Stores which accounted for [ ]* of Credit Sales during
the 12 months immediately preceding delivery
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*Confidential treatment has been requested with respect to this information.
<PAGE>
of the related Divestiture Notice. Since MW and Relevant Authorized Affiliates
have sold Stores as to which [ ]* of Credit Sales were attributable
during a rolling 18-month period (albeit calculated on different bases), an
MW Divestiture has occurred.
"MWCC" shall have the meaning assigned to it in the RECITALS hereto.
"Net Layer Balance Product" shall have the meaning assigned to it in
SECTION 3.3(3)(ii) hereof.
"Net Receivable Balance" shall mean, for the day in question, the
amount by which (a) the Aggregate Cardholders' Balance (other than the portion
thereof comprising Indebtedness sold to MWCC under the Credit Card Receivables
Sale Agreement) as of the opening of business of such day, as computed pursuant
to Monogram's Accounting Practices, exceeds (b) the amount of any allowance for
bad debts on the books of Monogram or Assignees other than MWCC with respect to
the Indebtedness comprising the Aggregate Cardholders' Balance (again other than
the portion thereof comprising Indebtedness sold to MWCC under the Credit Card
Receivables Sale Agreement), as of the opening of business on such day, also as
computed pursuant to Monogram's Accounting Practices.
"New Indebtedness" shall mean any Indebtedness arising on or after the
Conversion Date.
"New Mark" shall have the meaning assigned to it in SECTION 5.15(1)(b)
hereof.
"Non-Converted Accounts" shall mean any account, account receivable,
other receivable, indebtedness, contract right, chose in action, general
intangible, chattel paper, instrument, document, note, or obligation and all
proceeds of the foregoing to the extent purchased and/or established by MWCC
prior to April 1, 1996, owned by MWCC or MW on such date, and not sold by MWCC
to GE Capital on such date, wherever located, purchased or established under the
Original Account Purchase Agreement arising out of the sale of Merchandise to
any MWCC Cardholder (as defined in the Account-Related Agreement), including
those owned by MWCC Assignees (as defined in the Account-Related Agreement).
Non-Converted Accounts shall include the foregoing items, whether or not written
off.
"Obligations" shall mean, on any day, any and all liabilities or
obligations owing by MW to Monogram or any of Monogram's Affiliates pursuant to
this Agreement or the Account-Related Agreement, including those obligations
incurred prior to the date hereof. The term includes, without limitation, any
fee,
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*Confidential treatment has been requested with respect to this information.
<PAGE>
charge, expense, attorney's fee or other sum chargeable to MW pursuant to this
Agreement or the Account-Related Agreement.
"Old Account" shall mean any account arising prior to the Conversion
Date under the Original Account Purchase Agreement, the terms of which were
governed by either (i) a credit agreement between a consumer and MW and assigned
to MWCC or (ii) an agreement between a consumer and MWCC with respect to the
State of Washington, both if and to the extent Monogram acquires such account
and converts it to an Account.
"Old Indebtedness" shall mean any Indebtedness arising on an Old
Account prior to the Conversion Date.
"Original Account Purchase Agreement" shall have the meaning assigned
to it in the RECITALS hereto.
"Overlimit Approval" shall mean any decision by Monogram, granted at
MW's request, to allow a Cardholder to make a purchase on his/her Account in
excess of such Cardholder's Credit Limit.
"Payment Amount" shall have the meaning assigned to it in SECTION
3.2(1) hereof.
"Permitted Businesses" shall have the meaning assigned to it in
SECTION 5.15(2) hereof.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Post-Control Loss Acquiror" shall mean any Person (other than
Monogram, Affiliates of Monogram or an Affiliate of MW) who: (i) operates, or
after the relevant divestiture by MW or an Authorized Affiliate will operate, a
Divested Store, and (ii) makes an acquisition which would constitute a MW
Divestiture at any time on or after a Control Loss Event.
"Primary Card" shall mean, for any Cardholder, either (i) the Credit
Card or (ii) a credit card issued under any other agreement between an Affiliate
of MW and Monogram, which Monogram and MW reasonably project will generate the
greatest amount of private label credit purchases at Stores on such Credit Card
or credit card by residents living in that Cardholder's or card-
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holder's zip code during the twelve month period following such determination.
"Prime Rate" shall mean, on any day, [ ]* (or, if such
publication or index is discontinued, such other publication or index of similar
type mutually agreed to by MW and Monogram), regardless of whether such rate is
ever applied.
"Program" shall mean the program established by Monogram with MW under
this Agreement and made available to qualified applicants for the purchase of
Merchandise, which program shall include, without limitation, the extension of
credit to qualified applicants, billings, collections and customer services by
Monogram, accounting between the parties, and all other aspects of the
customized credit plan specified herein and in Credit Card Agreements.
"Protection" shall have the meaning assigned to it in SECTION 12.4(1).
"Protection Account" shall have the meaning assigned to such term in
SECTION 12.4(2) hereof.
"Provisions" shall have the meaning assigned to such term in SECTION
15.2(1).
"Purchased Monogram Account" shall mean any Account (as defined in the
Account-Related Agreement), including any Indebtedness thereon, purchased by
MWCC from Monogram under the Delinquent Account Purchase Agreement, including
those owned by MWCC Assignees (as defined in the Account-Related Agreement).
Purchased Monogram Accounts shall include such Accounts that are written off.
For the avoidance of doubt, it is acknowledged that Purchased Monogram Accounts
do not include those written-off accounts and/or indebtedness sold to third
parties.
"Purchaser" shall have the meaning assigned to it in SECTION 17.1(4)
hereof.
"Reduced Accounts" shall have the meaning assigned to it in SECTION
3.5(1) hereof. Reduced Accounts shall not include Accounts to the extent
subject to Skip Free Promotions or AFF Promotions.
"Reduced Charges" shall have the meaning assigned to it in SECTION
3.5(1) hereof.
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<PAGE>
"Relevant Authorized Affiliate" shall mean any Authorized Affiliate,
to the extent such Authorized Affiliate is not a party to an agreement with
Monogram or an Affiliate of Monogram providing for the operation by Monogram or
such Affiliate of a credit card program relating to such Authorized Affiliate.
"Remade Monogram Representations and Warranties" shall have the
meaning assigned to it in SECTION 9 hereof.
"Remade MW Representations and Warranties" shall have the meaning
assigned to it in SECTION 8 hereof.
"Response Date" shall have the meaning assigned to it in SECTION
15.2(3)(i) hereof.
"Retailer Department" shall have the meaning assigned to it in SECTION
17.1(4) hereof.
"Section 2 Acquiror" shall have the meaning assigned to such term in
SECTION 5.14(2) hereof.
"Settlement Period" shall mean a Fiscal Month. Each Fiscal Year shall
contain twelve (12) Settlement Periods.
"Signature Companies" shall mean those companies owned by MW prior to
the Conversion Date and operating as part of the group of companies known as
Signature, whether or not the word Signature is used in the names of such
companies, and any successors thereto or assignees thereof.
"Signature License" shall mean any agreement between Monogram and the
Signature Companies in substantially the form attached as EXHIBIT F hereto,
which EXHIBIT F may be amended only with MW's consent.
"Skip Free Promotions" shall have the meaning assigned to it in
SECTION 3.5(2) hereof.
"Solvent" shall mean, when used with respect to any Person, that (a)
the present fair salable value of such Person's assets as a going concern is in
excess of the total amount of its liabilities as would be reflected on a balance
sheet for a going concern determined in accordance with GAAP, and (b) such
Person is presently generally able to pay its debts as they become due,
excluding any debts that are subject to a bona fide dispute. The phrase
"present fair salable value" of a Person's assets is intended to mean that value
which can be obtained if the assets are sold within a reasonable time in
arm's-length transactions in an existing and not theoretical market.
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"Starter Card Account" shall mean an Account, until such time, if any,
such Account has been converted to a Credit Account pursuant to SECTION 3.7
hereof, established by Monogram for an applicant who does not meet Monogram's
credit requirements for a Credit Account or the requirements for a Marginal Card
Account, and includes an Old Account acquired or established by MWCC for an
applicant who did not meet MWCC's credit requirements for a credit account or
the credit requirements for a Marginal Card Account.
"State" shall mean a State of the United States of America or the
District of Columbia.
"Stock" shall mean all shares, options, interests, participations or
other equivalents (regardless of how designated) of or in a corporation or other
entity, whether voting or nonvoting, including, without limitation, common stock
preferred stock, or warrants or options for any of the foregoing.
"Stockholders' Agreement" shall have the meaning assigned to such term
in the definition of "Control Loss Event" in SECTION 1 hereof.
"Stores" shall mean retail establishments and other means to conduct
retail businesses (E.G., mail order or home television shopping) operated by MW,
Authorized Affiliates or Authorized Licensees.
"Store Closing" shall mean (i) a permanent closing of a retail Store
location or locations by MW or a Relevant Authorized Affiliate, (ii) the sale or
other transfer for value (other than (x) the sale or transfer to Monogram, an
Affiliate of Monogram or an Authorized Affiliate, (y) a sale of all or
substantially all of the business of MW where this Agreement is assigned as
provided in SECTION 17.1(3) or (z) Stock or other direct or indirect transfers
of equity interests in MW) of a retail Store location or locations by MW or a
Relevant Authorized Affiliate to a Person or Persons who shall not operate such
store as a retail store in which more than [ ]* of sales will
be made utilizing open-end consumer credit programs bearing such acquiror's
tradestyle (such percentage of sales will be presumed to be greater than
[ ]* unless otherwise demonstrated by MW), or (iii) the sale or other
transfer for value (other than (a) the sale or transfer of the Signature
Companies to Monogram or an Affiliate of Monogram or a sale or transfer to an
Authorized Affiliate, (b) a sale of all or substantially all of the business of
MW where this Agreement is assigned as provided in SECTION 17.1(3) or (c) Stock
or other direct or indirect transfers of equity interests in MW) or permanent
closing by MW or a Relevant Authorized Affiliate of a
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*Confidential treatment has been requested with respect to this information.
<PAGE>
Store or Stores that does not involve the sale or closing of a retail Store
location or locations (E.G., the sale or permanent closing of all or a portion
of the operations of Montgomery Ward Direct, Inc. occurring during such time as
it is a Relevant Authorized Affiliate), provided an event specified in (iii)
shall not constitute a Store Closing if the acquiror's involvement is
transparent to consumers and the acquiror is authorized to and does accept the
Credit Card. For the avoidance of doubt, it is acknowledged that an event
constituting an MW Divestiture shall not constitute a Store Closing.
"Store Closing Date" shall mean the date of any Store Closing.
"Store Closing-Related Account" shall mean, as of any Store Closing
Date, an Account, the primary Cardholder in respect of which:
(i) (x) lives in a zip code area within fifty (50) miles of the
zip code area of a retail Store location operated by MW or a
Relevant Authorized Affiliate and being closed or sold as
part of a Store Closing, but not within fifty (50) miles of
the zip code area of a retail Store location or locations
operated by MW or an Authorized Affiliate not being closed
or sold on the Store Closing Date and (y) has not made a
purchase at a non-retail Store location during the
immediately preceding 12-month period; or
(ii) in the event that the relevant Store Closing does not
involve the closing of a retail Store location, has not made
a purchase on his or her Account at a Store other than the
Store(s) that are closing or being sold as part of the Store
Closing in question within the immediately preceding
12-month period.
"Subsidiary" shall mean, with respect to any Person, any corporation
of which an aggregate of more than fifty percent (50%) of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly,
owned by such Person and/or one or more Subsidiaries of such Person.
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"Temporary Limit Increase Approval" shall mean any decision by
Monogram, granted at MW's request, to raise a Cardholder's Credit Limit for a
specified period of time.
"Termination Date" shall have the meaning assigned to it in SECTION
15.2(3)(ii) hereof.
"Three-Year Rate" shall have the meaning assigned to it in SECTION
3.3(2)(viii) hereof.
"Transparent Servicing" shall have the meaning assigned to it in
SECTION 5.2(1)(i) hereof.
"Triggering Signature Acquisition" shall mean the first date upon
which both of the following events have occurred: (i) an acquisition or other
transfer of all or substantially all of the Stock or assets of the Signature
Companies to an Affiliate of Monogram, and (ii) the effectiveness of a Marketing
Agreement.
2. DEFINITIONAL MATTERS
Any accounting term used herein shall have, unless otherwise
specifically provided herein, the meaning customarily given in accordance with
GAAP, and all financial computations hereunder shall be computed, unless
otherwise specifically provided herein, in accordance with GAAP. That certain
terms or computations are explicitly modified by the phrase "in accordance with
GAAP" shall in no way be construed to limit the foregoing. All other undefined
terms contained herein shall, unless the context indicates otherwise, have the
meanings provided for by the Code in the State of Illinois to the extent the
same are used or defined therein. The words "herein," "hereof," "hereunder,"
and other words of similar import refer to this Agreement as a whole, including
the exhibits and schedules hereto, as the same may from time to time be amended
or supplemented, and not to any particular section, subsection or clause
contained in this Agreement. Wherever from the context it appears appropriate,
each term stated in either the singular or plural shall include the singular and
the plural, and pronouns stated in the masculine, feminine or neuter gender
shall include the masculine, the feminine and the neuter.
3. ESTABLISHING ACCOUNTS AND ADDING INDEBTEDNESS
3.1. PAYMENT IN RESPECT OF ACCOUNTS AND INDEBTEDNESS ON AND AFTER THE
CONVERSION DATE.
(1) Subject to the provisions hereof (including, but not limited
to, SECTION 5 hereof), during the term of this Agreement, MW shall hold (and
shall (i) cause Authorized
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Affiliates and (ii) use best efforts to cause Authorized Licensees to hold) for
Monogram all Charge Slips arising in connection with Accounts and Monogram shall
pay MW with respect to such Charge Slips as provided in SECTION 3.2 (subject to
the approval by Monogram of the Credit Limits relating thereto and the
acceptance by Monogram of new Cardholders pursuant to SECTION 5.2 hereof).
(2) Notwithstanding any other provision contained herein,
Monogram may, but shall not be obligated to, extend credit to Cardholders in
connection with the Program at any time such extension would cause the Aggregate
Cardholders' Balance (excluding for this purpose the portion of the Aggregate
Cardholders' Balance owned by any Person other than MWCC, who has purchased such
portion of the Aggregate Cardholders' Balances from Monogram on what is,
effectively, a non-recourse basis (such non-recourse determination to be made by
Monogram in its reasonable judgment)) to exceed the Maximum Aggregate
Cardholders' Balance.
(3) Monogram agrees (a) annually at any time during each Fiscal
Year, and (b) at such other time as there may be proposed a change in credit
terms, policies or procedures pursuant to this Agreement that could increase the
amount of Indebtedness incurred by Cardholders, to review any request by MW to
increase the Maximum Aggregate Cardholders' Balance for the ensuing two (2) year
period. In making such request, MW may furnish to Monogram the then current
five-year plan of MW, which plan will be based on reasonable estimates and
projections. Monogram will act reasonably within the context of this Agreement
in responding to any request by MW to increase the amount of the Maximum
Aggregate Cardholders' Balance.
3.2. PAYMENT AMOUNT.
(1) The amount that Monogram shall pay to MW (or, at Monogram's
option where appropriate, to the Signature Companies if they become Affiliates
of Monogram) with respect to each item of New Indebtedness, which amount shall
constitute an advance by Monogram to the relevant Cardholder, shall be
[ ]* (the "Payment Amount"). A computer-readable medium, or information
in such form as is mutually approved by the parties hereto, concerning such
Indebtedness, shall be transmitted to Monogram at the office or office(s)
Monogram designates, as such office(s) may from time to time be changed upon
not less than fifteen (15) Business Days' advance notice to MW, provided such
new offices contain the necessary computer and telecommunications capabilities.
Monogram shall pay MW (or the Signature Companies if appropriate) the Payment
Amount for all New Indebtedness on or
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before 2:00 P.M. Eastern Time of each Business Day during the term of this
Agreement for which said information has been received at such office or offices
by Monogram on or before 11:00 A.M. Eastern Time on the prior Business Day.
Monogram shall tender any payments to MW by wire transfer of immediately
available same day federal funds into one bank account from time to time
designated by MW, as such bank account may from time to time be changed upon not
less than fifteen (15) Business Days' advance notice to Monogram. For example,
if such information on Indebtedness which arose on Friday, Saturday and Sunday
is provided to Monogram by 11:00 A.M. Eastern Time on the following Monday
(assuming that Monday is a Business Day), a payment for those three (3) days
shall be wired to MW on or before 2:00 P.M. Eastern Time on that Tuesday
(assuming that Tuesday is a Business Day). If, after taking reasonable
precautions, as a result of a circumstance beyond the reasonable control (E.G.,
computer or telecommunications breakdown) of MW, such information with respect
to any day has not been received by 11:00 A.M. Eastern Time on a Business Day,
and provided MW thereafter takes all reasonable steps to deliver such
information to Monogram by alternate means, Monogram shall pay MW on or before
2:00 P.M. Eastern Time the next Business Day thereafter an estimated amount
equal to the amount payable to MW for the same day during the preceding calendar
week for which information was provided (after taking into account appropriate
differences in such days, such as one being a holiday), and such estimated
payment shall be adjusted on the first Business Day after the actual information
is available by 11:00 A.M. Eastern Time on such Business Day by a payment on or
before 2:00 P.M. Eastern Time on the following Business Day by wire transfer of
immediately available same day federal funds from MW to Monogram, or Monogram to
MW, as the case may be. Any such adjusting payment made by MW to Monogram shall
include interest on the adjustment amount at the Prime Rate from the time the
estimated payment was made until the adjusting payment is made. In the event an
estimated payment is made, MW shall provide such information as soon as possible
and shall pay Monogram within thirty (30) days after billing for any lost
finance or other charges on Accounts accruing until such information is
provided, but only to the extent such finance or other charges were lost due to
the failure to provide such information. For example, if on a Monday (assuming
that Monday is a Business Day) the information is not transmitted by 11:00 A.M.
Eastern Time for the immediately preceding Friday, Saturday and Sunday, an
estimated payment in the circumstances described above will be made on or before
2:00 P.M. Eastern Time on that Tuesday (assuming that Tuesday is a Business Day)
equal to the amount that was payable for the immediately preceding Friday,
Saturday and Sunday for which the information was provided (after taking into
account appropriate differences in such days, such as one being a holiday).
Assuming the actual information for such
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Friday, Saturday and Sunday is first available by 11:00 A.M. Eastern Time the
following Thursday (assuming that Thursday is a Business Day and MW shall have
made the information available as soon as possible), the adjusting payment,
together with interest thereon at the Prime Rate if provided for above, shall be
made on or before 2:00 P.M. Eastern Time on the following Friday (assuming the
following Friday is a Business Day). Notwithstanding the above, the parties
identified on SCHEDULE 3.2(1) hereto shall submit their own computer-readable
medium concerning their items of New Indebtedness to Monogram in conformity with
the practice in effect prior to the date of this Agreement.
(2) Payments by Monogram pursuant to this SECTION 3.2 shall be
reduced by the amount of Credit Slips submitted by MW, Authorized Affiliates or
Authorized Licensees from time to time to Monogram (which Credit Slips shall
include sufficient information to credit the proper Account), and by the amount
of any other adjustments that are not generated through a Store as may be agreed
to by the parties hereto.
(3) MW shall allocate as appropriate all payments made by
Monogram hereunder among itself, Authorized Affiliates and Authorized Licensees
in accordance with their respective interests and Monogram shall not be
responsible or liable for or in connection with MW's failure to do so; provided,
however, that MW hereby acknowledges that (i) Monogram, in its sole discretion,
may pay the Signature Companies, if they become Affiliates of Monogram, directly
for advances made by Monogram to Cardholders in connection with purchases by
Cardholders from the Signature Companies and (ii) if Authorized Affiliates have
agreements with Monogram establishing separate credit programs, Monogram may pay
such Authorized Affiliates directly for advances to cardholders using credit
cards issued under such other credit programs. MW releases Monogram from any
liability to MW in connection with any payments by Monogram as authorized
pursuant to subsections (i) and (ii).
(4) Notwithstanding any other provision of this Agreement, it is
understood and agreed that, in the event that the Signature Companies become
Affiliates of Monogram, Monogram shall enter into an agreement with the
Signature Companies pursuant to which Monogram shall (i) directly pay the
Signature Companies in respect of advances made to Cardholders under the Program
and (ii) charge back to the Signature Companies directly any Ineligible
Indebtedness resulting from sales by the Signature Companies.
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3.3. SUPPORT FEES.
(1) To reflect changes in money costs with respect to advances
that Monogram makes to Cardholders, MW shall pay a monthly fee to Monogram to
the extent provided in subsection (3) below. For the purposes of calculating
such servicing support fee, the model described below (the "Money Cost Model")
shall be used, irrespective of whether Monogram's actual money costs are more or
less than those calculated by use of the Money Cost Model.
(2) For the purposes of the Money Cost Model:
(i) The "Money Cost Balance" for a Settlement Period
shall be [ ]* as of the last calendar day
of that Settlement Period.
(ii) "Money Cost Net Receivable Balance" means, for the
day in question, the amount by which (A) the
Aggregate Cardholders' Balance as of the close of
business of such day, as computed pursuant to
Monogram's Accounting Practices, exceeds (B) the sum
of (x) the amount of any allowance for bad debts
with respect to the Aggregate Cardholders' Balance
recorded by Monogram, as of the close of business on
such day, as computed pursuant to Monogram's
Accounting Practices, and (y) the amount of any
allowance for bad debt with respect to the Aggregate
Cardholders' Balance that would have been recorded
by MWCC and/or other Assignees as of the close of
business on such day if such Persons computed their
allowance for bad debts according to Monogram's
Accounting Practices.
(iii) The initial "Layer Balance Date" shall mean May 27,
1988. The last day of the equivalent Settlement
Period (in which the first Layer Balance Date
occurs) during each subsequent year shall also be a
"Layer Balance Date" (it being understood such
subsequent years shall include 1988 and all years
thereafter prior to effectiveness of
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this Agreement and calculations for such years shall
be made in accordance with the Original Account
Purchase Agreement).
(iv) A "Layer Balance" shall mean, with respect to the
first Layer Balance Date, an amount equal to
[ ]*, and with respect to each
subsequent Layer Balance Date, an amount equal to
the difference (whether the difference is an excess
or deficiency), if any, between the Money Cost
Balance for the Settlement Period during which such
subsequent Layer Balance Date occurs and the Money
Cost Balance for the Settlement Period during which
the immediately preceding Layer Balance Date occurs
(subject to the foregoing proviso in this
subsection). A Layer Balance with respect to each
Layer Balance Date after the first Layer Balance
Date shall be called an "Incremental Layer Balance"
if the later Money Cost Balance exceeds the earlier
Money Cost Balance and a "Decremental Layer Balance"
if the later Money Cost Balance is less than the
earlier Money Cost Balance.
(v) The "Aggregate Layer Balance" shall mean, with
respect to the twelve (12) consecutive Settlement
Periods following each Layer Balance Date, the
amount by which (A) the sum of the initial Layer
Balance plus all Incremental Layer Balances, exceeds
(B) the sum of all Decremental Layer Balances.
(vi) A "Layer Blended Rate" shall mean, with respect to
each Layer Balance (whether the initial Layer
Balance or an Incremental Layer Balance or a
Decremental Layer Balance), the percentage equal to
the sum of the following percentages: (A)
[ ]* of the Modified Thirty-
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Day Commercial Paper Rate, (B) [ ]* of the sum
of the rate for three-year U.S. Treasury Notes
described in (viii) below plus [ ]* (the
"Three-Year Rate"), and (C) [ ]* of the
sum of the rate for five-year U.S. Treasury Notes
described in (viii) below plus [ ]*
(the "Five-Year Rate"). The Layer Blended Rate shall
be calculated separately for each Layer Balance.
(vii) "Modified Thirty-Day Commercial Paper Rate" shall
mean, as of the last Business Day of each Settlement
Period, [ ]* as published in The Wall
Street Journal on that day or, if not published
therein, as published or made available by such
other source as Monogram reasonably shall determine.
The Modified Thirty-Day Commercial Paper Rate shall
be determined separately for each Settlement Period.
(viii) The Three-Year Rate and the Five-Year Rate shall be
equal to the rates shown in [ ]* for the month
designated in any given report for their respective
maturities or, if such publication or index is
discontinued, such other publication or index of
similar type mutually agreed to by MW and Monogram.
The Three-Year Rate and the Five-Year Rate shall be
set for the first Layer Balance as of the first
Layer Balance Date (or if such day is not a Business
Day, the immediately preceding Business Day) and
shall be reset to such rates in effect as of each
third and each fifth Layer Balance Date thereafter
(or if such day is not a Business Day, the
immediately
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preceding Business Day), as the case may be, plus
the spreads of sixty (60) basis points and seventy
(70) basis points, respectively, on three-year and
five-year treasury notes, as specified in (vi)
above.
(ix) The Three-Year Rate and the Five-Year Rate shall
initially be set for each subsequent Layer Balance
in the same manner as the rates shown on the first
Layer Balance Date for such subsequent Layer Balance
(or if such day is not a Business Day, the
immediately preceding Business Day) and reset for
such subsequent Layer Balance as of each third and
each fifth Layer Balance Date thereafter (or if such
day is not a Business Day, the immediately preceding
Business Day), as the case may be, following the
first Layer Balance Date for such subsequent Layer
Balance. Thus, the Three-Year Rate with respect to
each Layer Balance gets reset every three (3) years
and the Five-Year Rate with respect to such Layer
Balance gets reset every five (5) years.
(3) The Money Cost Model shall be computed for each Settlement
Period as follows:
(i) Multiply each Layer Balance by the Layer Blended
Rate for such Layer Balance. Inasmuch as the
Modified Thirty-Day Commercial Paper Rate component
of the Layer Blended Rate is computed separately for
each Settlement Period (as described in (2)(vii)
above) and the Three Year Rate and Five Year Rate
may change each three and five years (as described
in (2)(viii) and (ix) above), respectively, the
Layer Blended Rate shall be calculated separately
for each Settlement Period and for each Layer
Balance.
(ii) For each Settlement Period, determine the amount by
which (A) the sum of the
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products resulting from the calculations in (i)
above with respect to the initial Layer Balance and
each of the Incremental Layer Balances, exceeds (B)
the sum of the products resulting from the
calculations in (i) above with respect to each of
the Decremental Layer Balances. Such excess shall
be the "Net Layer Balance Product" for such
Settlement Period.
(iii) If the Money Cost Balance for a Settlement Period
shall be more or less than the Aggregate Layer
Balance for such Settlement Period, multiply the
excess or deficiency, as the case may be, by the
Modified Thirty-Day Commercial Paper Rate for such
Settlement Period.
(iv) Add (if the Money Cost Balance exceeds the Aggregate
Layer Balance) or subtract (if the Money Cost
Balance is less than the Aggregate Layer Balance),
the product calculated pursuant to (iii) above for a
Settlement Period to or from, as the case may be,
the Net Layer Balance Product for such Settlement
Period.
(v) Divide the sum or difference, as the case may be,
calculated pursuant to (iv) above for a Settlement
Period by the Money Cost Balance for such Settlement
Period. The resulting percentage shall be the
"Final Blended Rate" for such Settlement Period.
(4) To the extent that the Final Blended Rate for a Settlement
Period exceeds [ ]* per annum, MW shall pay to Monogram, as a fee
for such Settlement Period, [ ]* (or PRO RATA portion thereof if this
Agreement is in effect during only a portion of such Settlement Period). Such
payment shall be made as provided in SECTION 3.8. The calculation of such fee
is illustrated in EXHIBIT 3.3 annexed hereto.
3.4. INELIGIBLE INDEBTEDNESS. When any (i) New Indebtedness on
Accounts held by Monogram and established or
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added pursuant to this Agreement (including, without limitation, New
Indebtedness pursuant to Old Accounts and New Indebtedness that is Monogram
Defaulted Indebtedness) becomes Ineligible Indebtedness or (ii) Old Indebtedness
becomes Ineligible Indebtedness and MW has not made and shall not be obligated
to make payment to MWCC in connection with MWCC's chargeback thereof, Monogram
shall have the right, subject to the terms hereof, during the term and after the
expiration of this Agreement as provided in SECTION 15.2 to require MW to
purchase such Ineligible Indebtedness for [ ]*. Until such time as
Monogram, in its sole discretion, exercises its right to require MW
to purchase Ineligible Indebtedness, Monogram shall use its best efforts to
collect such Ineligible Indebtedness from the relevant Cardholder to the extent
such Indebtedness is the valid obligation of the Cardholder. The purchase price
for such Ineligible Indebtedness shall be paid directly by MW to Monogram or, at
Monogram's option, offset by Monogram against amounts owed by Monogram to MW
provided that MW may dispute any amounts so offset. Upon any such purchase,
Monogram and its Assignees hereby assigns MW all of their right, title and
interest in and to such Indebtedness, free and clear of any and all Liens
created by Monogram or its Affiliates, but without any other warranty, and any
ownership interest of Monogram and/or Assignees in such Indebtedness shall be
terminated. After MW has purchased such Ineligible Indebtedness (a) the
obligation of Monogram to service such Ineligible Indebtedness, as set forth in
SECTION 5.2 hereof, shall be terminated, (b) all payments in respect of such
Ineligible Indebtedness shall be promptly forwarded by Monogram to MW, and (c)
upon MW's request, Monogram shall deliver to MW all available Account
Documentation received by Monogram with respect to such Ineligible Indebtedness,
provided if MW is unable to enforce or collect any Ineligible Indebtedness due
to Monogram's failure to deliver such Account Documentation that it previously
received, Monogram shall purchase such Ineligible Indebtedness from MW.
The following items qualify to the extent set forth herein for
chargeback as Ineligible Indebtedness in respect of Indebtedness: (a)
unidentifiable media, (b) unauthorized charges, (c) failure to obtain proper
identification, (d) merchandise adjustments, and (e) missing media. It is the
responsibility of Monogram to provide MW with the following information, if
available, with respect to all chargebacks by Monogram hereunder: account name,
account number, address, Merchandise description, Store at which the sale was
made, amount and reason for chargeback. Following are guidelines for the
issuing of chargebacks which must be complied with.
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(1) UNIDENTIFIABLE MEDIA. Unidentifiable media is media that
does not have a valid account number, or media with an account number that is
illegibly imprinted or written in. Monogram will directly request the media
from the Store at which the sale was made. The Store at which the sale was made
is responsible for providing a legible copy of the media with correct account
number to Monogram within ten (10) days after notice to such Store. Monogram
has the right to chargeback to MW if (a) the Store has not responded to the
request for media before expiration of the ten (10) day period, and (b) Monogram
after reasonable efforts is unable to identify the Indebtedness represented by
the media with a valid account number. Notwithstanding the foregoing, all
chargebacks by Monogram for unidentifiable media must occur within sixty (60)
days after the retail sale date to the Cardholder. MW has sixty (60) days after
the date of the chargeback to complete additional research and, if successful,
reverse the chargeback, whereupon such Ineligible Indebtedness shall again
become Indebtedness with respect to which Monogram shall make payment to MW.
(2) UNAUTHORIZED CHARGES. An unauthorized charge is a sale that
has been abstracted without approval. (These charges will lack an approval code
from the P.O.S. system, have an invalid authorization code, lack an approval
code from the credit center, or lack an approval code for amounts over the floor
limit when floor limits are in effect. It is understood that charges that are
equal to or less than the floor limit when it is in effect will be deemed
authorized.) Monogram and MW shall work closely to continue the charge
authorization control mechanisms in place in Stores prior to the Conversion Date
and to develop new mechanisms to minimize violations of the authorization
system. Monogram may immediately chargeback to MW unauthorized charges that are
made on a stolen plate or a fraudulent account, provided that Monogram has
notified MW and, if the Store is not operated by the Signature Companies or MW,
the Store at which the sale was made, of the unauthorized charges within thirty
(30) days after receipt by Monogram and/or Assignees of a complaint from a
Cardholder. In addition, Monogram may chargeback to MW other unauthorized
charges to an Account that is or becomes delinquent, provided that Monogram has
notified MW and, if the Store is not operated by the Signature Companies or MW,
the Store at which the sale was made, of the unauthorized charges within thirty
(30) days after Monogram's discovery of the unauthorized charges.
(3) FAILURE TO OBTAIN PROPER IDENTIFICATION. Failure to obtain
proper identification refers to all credit purchases made by a customer shopping
without a Credit Card or a priority credit pass where a Store fails to require
(to the extent permitted by law) the customer to identify himself with a
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<PAGE>
valid permanent driver's license for his state of residence or a state-issued
identification card. Tickets or temporary licenses are not acceptable. The
name, address and signature on the driver's license must correspond with the
name, address and signature on the Charge Slip. If the customer does not have a
valid driver's license, the credit center supervisor on duty will instruct the
salesperson to ask for other appropriate identification. In any instance where
positive identification is required, the document used for identification must
be noted on the Charge Slip. If in the process of investigating a customer
dispute it is determined that the Store at which the sale was made failed to
obtain proper identification in the manner required pursuant to these provisions
and a fraudulent charge resulted, Monogram may chargeback to MW.
Notwithstanding the foregoing, in no event may Monogram chargeback to MW any
items described in this subsection later than sixty (60) days after Monogram
discovers the failure.
(4) MERCHANDISE ADJUSTMENTS. Requests received by Monogram
and/or Assignees from customers for Merchandise adjustments will be promptly
communicated by Monogram directly to the Store at which the sale was made.
Merchandise adjustment requests that are not frivolous and that are not resolved
by MW within eighteen (18) days after notification to MW and, if the Store is
not operated by the Signature Companies or MW, the Store at which the sale was
made, may be charged back by Monogram to MW. Notwithstanding the foregoing, in
no event may Monogram chargeback to MW any adjustments described in this
subsection later than thirty (30) days after receipt of the request for
adjustment from the customer.
(5) MISSING MEDIA. Requests received by Monogram and/or
Assignees from customers for supporting sales media will be promptly
communicated by Monogram directly to the issuing location. MW is responsible
for providing Monogram with the requested media within ten (10) days of receipt
of the request. Indebtedness represented by media not provided within such ten
(10) day period may be charged back by Monogram to MW. MW has thirty (30) days
after the chargeback to locate the media and reverse the chargeback, whereupon
such Ineligible Indebtedness shall become Indebtedness to be purchased by
Monogram. Notwithstanding the foregoing, in no event may Monogram chargeback to
MW any items described in this subsection later than thirty (30) days after the
receipt of the request for adjustment from the customer.
3.5. FINANCE CHARGES.
(1) If during the term of this Agreement, MW from time to time
requests that Monogram impose lower finance charges ("Reduced Charges") on
Indebtedness incurred pursuant to any
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<PAGE>
group of Accounts ("Reduced Accounts") than the finance charges in effect on the
Conversion Date as such Conversion Date finance charges may from time to time be
adjusted and set by Monogram (the "Authorized Charges"), and Monogram approves
such request (such approval not to be unreasonably withheld), Monogram shall
charge such Reduced Charges on the Reduced Accounts for such period as MW
designates, and MW shall pay Monogram, for each Settlement Period of this
Agreement, a fee equal to [ ]* Such request and approval, as set
forth above, shall include, without limitation, the imposition by Monogram of
different Reduced Charges to different groups of Reduced Accounts, provided
Monogram is given sufficient prior notice, and provided Monogram (or its
servicer) has the capability of charging such Reduced Charges. In no event
shall MW designate a period for Reduced Charges to be in effect which is of
a shorter duration than is reasonably needed by Monogram to give any notices
which might be required by law to Cardholders of the changes in finance charge
rates. MW shall reimburse Monogram for any incremental costs incurred in
connection with Reduced Accounts on account of the Reduced Charges, including,
without limitation, in preparing and mailing any such notices as may
be required by law. This subsection shall not apply to (i) the reduction in the
nominal annual percentage rate in Arkansas in July 1996 with respect to extended
terms transactions and (ii) the promotions under (2) below.
(2) From time to time Monogram shall make available to MW during
the term of this Agreement, to encourage Account acquisition and usage, certain
credit promotions pursuant to which (a) Cardholders are not required to make any
finance charge or other payments for or in connection with new purchases under
the Credit Promotion on Accounts for stated periods after the dates of such
purchases ("Skip Free Promotions") or (b) Cardholders can obtain credits for the
payment of finance charges by paying amounts due for or in connection with new
purchases on Accounts by specified dates ("AFF Promotions"). Skip Free
Promotions, AFF Promotions and any other credit promotions approved by Monogram
and conducted under the Program are collectively referred to herein as "Credit
Promotions." MW shall pay to Monogram monthly (during such time as the related
Indebtedness is not Monogram Defaulted Indebtedness), the following amounts
(plus amounts owed under subsection (1) above):
(i) with respect to Skip Free Promotions, a dollar amount
equal to (x) [ ]*
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[ ]* of Charge Slips subject to the terms of
Skip Free Promotions during Billing Cycles ending in
the preceding Settlement Period and shall include
Charge Slips not correctly coded as Skip Free
Promotions during preceding Settlement Periods,
MULTIPLIED BY (y) [ ]* (it being understood
that, with respect to any Charge Slip, the number of
Settlement Periods during which an amount will be
billed shall not exceed the number of months of the
relevant Skip Free Promotion);
(ii) with respect to AFF Promotions, a dollar amount equal
to (x) [ ]* in connection with AFF Promotions
during the preceding Settlement Period and shall
include sales not correctly coded as AFF Promotions
during preceding Settlement Periods, DIVIDED BY
[ ]* for such Settlement Period, MULTIPLIED
BY (y) [ ]* per annum; and
(iii) any amounts owed by MW with respect to Credit
Promotions other than AFF Promotions and Skip Free
Promotions.
(3) Monogram shall establish on its books an account known as
the "Credit Promotions Account." This Credit Promotions Account shall be
non-interest bearing, shall not represent segregated funds and may be commingled
by Monogram with other funds. The Credit Promotions Account shall be maintained
as follows:
(i) On the Conversion Date, MW shall pay Monogram an
amount equal to what Monogram reasonably estimates to
be [ ]* (the "Anticipated Credit Promotion
Amount"). The amount of such payment shall be
credited to the Credit Promotions Account. On
October 1, 1996 and on each April 1 and
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October 1 thereafter, MW shall pay Monogram an amount
equal to the difference, if positive, between the
Anticipated Credit Promotion Amount and the balance
of the Credit Promotions Account and such amount when
paid shall be credited to the Credit Promotions
Account. In addition, if Monogram debits the Credit
Promotions Account (as specified in the first
sentence of subparagraph (ii) below), MW shall
immediately pay Monogram such amount and such amount
when paid shall be credited to the Credit Promotions
Account.
(ii) Monogram may debit the Credit Promotions Account
where MW fails to pay Monogram when due the amount MW
has been billed by Monogram with respect to Credit
Promotions. In addition, on October 1, 1996 and on
each April 1 and October 1 thereafter, Monogram will
calculate and pay MW an amount equal to the
difference, if positive, between the balance of the
Credit Promotions Account and the Anticipated Credit
Promotions Amount and the Credit Promotions Account
shall be debited for such amount when so paid.
(iii) After termination of this Agreement and at such time
MW no longer is obligated to make payments with
respect to Credit Promotions hereunder, Monogram
shall debit the Credit Promotions Account for the
balance thereof and pay such amount to MW.
3.6. FEES RELATING TO OVERLIMIT APPROVALS AND TEMPORARY LIMIT INCREASE
APPROVALS.
(1) MW shall pay to Monogram monthly with respect to Overlimit
Approvals made during the immediately preceding Fiscal Month a dollar amount
equal to the product of (i) the Aggregate Extra Risk Dollar Amount of Monthly
Credit Sales made during the immediately preceding Fiscal Month, MULTIPLIED BY
(ii) twenty-five percent (25%).
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(2) MW shall pay to Monogram monthly with respect to Temporary
Limit Increase Approvals made during the immediately preceding Fiscal Month a
dollar amount equal to (i) [ ]*, MULTIPLIED BY (ii) the product
of (x) the sum of Indebtedness created by advances on behalf of Cardholders
during the immediately preceding Fiscal Month which would not have been made
without such Temporary Limit Increase Approvals, MULTIPLIED BY (y) a percentage
agreed to by the parties as applicable with respect to Temporary Limit Increase
Approvals at that time.
(3) On December 23, 1996, to the extent not deducted by Monogram
from amounts owed to MW by Monogram under SECTION 5.5(5) hereof on such date, MW
shall pay to Monogram in cash (a) the amount of fees which would have accrued or
been payable under SECTIONS 3.6(1) AND 3.6(2) commencing on the Conversion Date
through and including the last day of the Fiscal Month of November 1996 and (b)
the amount of fees that are estimated to accrue and be payable under Section
3.6(1) for the Fiscal Month of December 1996.
3.7. STARTER CARD ACCOUNTS AND MARGINAL CARD ACCOUNTS.
(1) During the term of this Agreement, Monogram shall establish
Starter Card Accounts and Marginal Card Accounts meeting its credit criteria
established from time to time in its discretion. Monogram will evaluate the
performance of each Starter Card Account and Marginal Card Account within two
years after the date said Account was established (and from time to time
thereafter if such Account remains a Starter Card Account or Marginal Card
Account) and if Monogram at any time determines that said Starter Card Account
or Marginal Card Account meets acceptable performance standards set by Monogram
in its sole discretion, will change the terms of such Starter Card Account or
Marginal Card Account to the terms then applicable to its regular Accounts known
as "Credit Accounts" (or any successors thereto), the terms of which, on the
date hereof, are as set out on SCHEDULE 3.7 hereto.
(2) In lieu of a discount on advances on behalf of Cardholders
of Starter Card Accounts with respect to the creation of Indebtedness on Starter
Card Accounts, MW shall pay Monogram monthly a dollar amount equal to (i) the
sum of Charge Slips arising during the preceding Settlement Period in connection
with Starter Card Accounts with respect to which the annual finance charge rate
being assessed is less than 24%, MULTIPLIED BY (ii) [ ]*.
(3) On December 23, 1996, to the extent not deducted by Monogram
from amounts owed to MW by Monogram under SECTION 5.5(5) hereof on such date, MW
shall pay to Monogram in
40
*Confidential treatment has been requested with respect to this information.
<PAGE>
cash (a) the amount of fees which would have accrued or been payable under
SECTION 3.7(2) commencing on the Conversion Date through and including the last
day of the Fiscal Month of November 1996 and (b) the amount of fees that are
estimated to accrue and be payable under Section 3.7(2) for the Fiscal Month of
December 1996.
3.8. MONTHLY STATEMENTS.
(1) Except as otherwise expressly provided in respect of certain
amounts owed for Fiscal Year 1996, Monogram shall provide to MW a monthly
statement showing sufficient detail as reasonably requested by MW of the
calculations for the immediately preceding Settlement Period of the fees and
other amounts owed by each party to the other including, without limitation,
those set forth in SECTIONS 3.5, 3.6, 3.7, AND 5.5 hereof. With respect to the
amounts estimated pursuant to SECTIONS 3.6(3)(b), 3.7(3)(b) AND 5.5(5)(b) for
the Fiscal Month of December 1996, any adjustments to the estimated payments
shall be calculated and paid by the appropriate party on January 31, 1997,
subject to the provisions of this Section. Notwithstanding any other provision
of this Agreement, all obligations due one party by the other shall be netted or
otherwise offset against each other except as provided in the next sentence.
After giving effect to such netting or offset calculation, the resulting net
amount shall be paid by the party responsible therefor, provided that, during
the Monthly Payment Period, MW shall have no right (and Monogram shall have no
obligation), on any date, to net from any amounts owed to Monogram by MW
hereunder any amounts owed to MW by Monogram on that date under Section 5.5
hereof, and Monogram shall pay to MWCC, if not otherwise netted, any amounts
owed to MW under Section 5.5. Except as otherwise expressly provided, payment
shall be due within thirty days after Monogram provides said monthly statement.
The parties expressly understand, acknowledge and agree that neither party
hereto shall be obligated at any point in time to make any payment until a
netting or offset calculation as described above is given effect such that only
the net amount shall be due and payable except as provided in the second
preceding sentence. It is understood and agreed that, if at any time MW owes
Monogram for or in connection with Credit Promotions or Reduced Accounts, more
than the amount of the balance of the Credit Promotions Account, MW shall pay
the difference to Monogram immediately upon notice from Monogram.
(2) It is understood and agreed that, for purposes of this
Section 3.8, (a) amounts owed by MW to Monogram on any date shall be deemed for
purposes of netting and other offset to include amounts owed by MW to MWCC on
that date and (b) Monogram shall pay MWCC any amounts due MWCC by MW from
amounts
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<PAGE>
Monogram would otherwise owe MW but has not paid because of such netting and
other offset.
4. [ARTICLE INTENTIONALLY OMITTED]
5. RELATIONSHIP OF PARTIES; SERVICING
5.1. OWNERSHIP OF ACCOUNTS.
(1) Until such time as Monogram sells and/or assigns its
interest therein: (i) Monogram shall be the sole and exclusive owner of all
Accounts, Indebtedness and Account Documentation and, except as otherwise
specifically provided herein, shall have all rights, powers, and privileges with
respect thereto as such owner, including, without limitation, the right, power
and privilege to review periodically the creditworthiness of Cardholders to
determine the range of credit limits to be made available to individual
Cardholders, whether to suspend or terminate credit privileges of any
Cardholder, and whether to sell all or part of its interest in Accounts and/or
Indebtedness and (ii) any purchase of Merchandise in connection with an Account,
unless sold by Monogram, shall create the relationship of debtor and creditor
between the purchasing Cardholder and Monogram, respectively. MW acknowledges
and agrees that: (a) it has no right, title or interest in or to (w) any of the
Accounts, Indebtedness, or Account Documentation, (x) the Customer List (except
to the extent otherwise expressly provided herein), (y) deposits, credit
balances and reserves on the books of Monogram and/or Assignees relative to any
Accounts (except to the extent otherwise expressly provided herein) or (z) any
proceeds of the foregoing; and (b) until such time as Monogram sells and/or
assigns its interest in an Account, Monogram extends credit directly to the
Cardholder.
(2) Except as otherwise provided in SECTION 15 of this Agreement
(in the event that MW exercises the right described in SECTION 15.2(2)(i)(b)) or
as otherwise agreed by Monogram, Monogram shall be entitled to (i) receive all
payments made by Cardholders on Accounts, and (ii) retain for its account all
finance and other charges on Accounts.
5.2. MONOGRAM'S RESPONSIBILITIES. During the term of this Agreement,
Monogram shall operate (except as may otherwise be explicitly provided herein),
at its sole cost and expense, credit operations and facilities relating to the
Program in a high quality, ethical manner, in such a way as not to disparage or
embarrass MW or its name, and, without limiting the generality of the foregoing,
with a level of service to Cardholders and MW that is not less than the level of
service provided by MWCC to similarly situated persons and MW prior to the
Conversion Date
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<PAGE>
(it being understood that the collection of Accounts in accordance with
applicable debt collections laws, the sending of adverse action letters, and the
legally required or MW approved (both the substance and the language) changes of
Account terms to the extent approved by MW pursuant to Section 5.2(8), do not
disparage or embarrass MW or its name); PROVIDED, HOWEVER, that all of
Monogram's future obligations under this SECTION 5.2 with respect to any Account
shall cease on the date upon which Monogram sells all of its interest in such
Account to MWCC. Monogram's responsibilities shall include, without limitation,
the following, all of which shall be performed by or on behalf of Monogram at
its sole cost and expense (it being understood that Monogram's future
obligations under this section with respect to any Account shall cease upon
Monogram's sale of all of its interest therein to MWCC:
(1) In connection with its establishment and servicing of
Accounts and Indebtedness other than Monogram Defaulted Indebtedness, Monogram
shall:
(i) in performing its duties under this Agreement which
require contact with Cardholders and prospective
Cardholders, make the involvement of Monogram, its
Affiliates or any other Person acting on Monogram's
behalf transparent to Cardholders to the extent that
Monogram reasonably determines that it may properly
do so, but it is understood that (x) Credit Card
Agreements shall be between Monogram (or one of its
Affiliates) and Cardholders and (y) Cardholders shall
be informed that Monogram (or one of its Affiliates)
is the party extending credit to them ("Transparent
Servicing");
(ii) review all applications for credit by or on behalf of
prospective Cardholders, determine the
creditworthiness of prospective Cardholders and
approve creditworthy applicants;
(iii) establish and revise credit limits for particular
Cardholders;
(iv) establish Accounts and add Indebtedness meeting
Monogram's standards;
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<PAGE>
(v) promptly prepare and mail Billing Statements to
Cardholders, receive and promptly post payments, and
prepare billing and collection forms and such other
forms as are required to carry out Monogram's
responsibilities pursuant to this Agreement; and
(vi) issue Credit Cards using such Licensed Marks and
designs as are from time to time designated by MW, it
being understood that Credit Cards may be issued
under more than one of the Licensed Marks at any
given time, and the Licensed Marks used on Credit
Cards may not necessarily include the tradename
Montgomery Ward.
(2) Monogram shall take reasonable efforts to collect, or cause
to be collected, the Indebtedness, and, in connection therewith, Monogram shall
conduct, or cause to be conducted, collection activities in such a manner and
use, or cause to be used, such technology as is consistent with the consumer
credit collection industry.
(3) Monogram shall provide all necessary and proper (a)
promotional materials and signs in a format acceptable to MW, or reimburse MW
for such promotional materials and signs that MW provides with Monogram's
approval, (b) Credit Card Application forms, (c) Credit Card Agreements, and (d)
legally required credit disclosure forms and customer payment receipt forms that
are compatible with MW's point-of-sale registers, or reimburse MW for such
customer payment receipt forms as MW provides. Notwithstanding the foregoing,
MW shall bear the expense for the foregoing items in this subsection (3) that
are used in and/or distributed from Stores, unless Monogram changes the form
thereof, in which case Monogram shall at its expense replace those then held in
Stores.
(4) Other than with respect to Monogram Defaulted Indebtedness,
Monogram shall use its best efforts to design systems to achieve, employ
qualified personnel to meet, and otherwise satisfy on average the following
standards for credit customer service:
(i) limited information applications transmitted
electronically or telephoned to Monogram shall,
within fifteen (15) minutes, be approved or
44
<PAGE>
rejected and the decision transmitted to MW;
(ii) full information or promotional applications received
by mail shall, within ten (10) days of receipt, be
approved or rejected and decision sent to the
potential Cardholder;
(iii) credit authorization referral requests shall be
approved or denied within one (1) minute of receipt;
(iv) adjustment requests shall be handled within one
hundred-fifty (150) seconds of the customer's initial
telephone contact;
(v) to the extent practicable, remittances received by
Monogram shall be processed on the same day;
(vi) Billing Statements shall be mailed within four (4)
days after the Billing Date;
(vii) credit balances shall be mailed within three (3) days
of a customer's request;
(viii) credit cards approved for issuance shall be mailed
within two (2) days of approval; and
(ix) point-of-sale authorizations shall be determined
electronically, and shall be operative during all
times Stores are open.
Monogram and MW mutually agree to survey a random sample of Cardholders and
prospective Cardholders to assess compliance with these standards, and to share
equally the cost of such assessment. Monogram periodically shall provide to MW,
upon MW's reasonable request and within a reasonable time period thereafter, a
written report concerning its level of performance against these standards,
including a list of complaints received from governmental officials, complaints
of illegal debt collection practices, complaints of employee rudeness, and
complaints asserting that prior complaints relating to Monogram's
responsibilities hereunder have not been corrected. If, ignoring
45
<PAGE>
isolated occurrences, a standard set forth in this SECTION 5.2(4) is not being
achieved, Monogram will report to MW on the steps being taken to correct the
problem and take all reasonable required steps in order to meet the standard.
(5) Monogram shall provide at its expense a telecommunication
link between MW's mainframe computer system and (a) Monogram's credit approval,
adjustment and collection locations, and (b) Monogram's mainframe computer,
which computer shall provide access to Monogram's credit master file.
(6) Monogram shall communicate electronically to MW, Authorized
Affiliates and Authorized Licensees in the manner used by MWCC prior to the
Conversion Date so as to attempt to minimize the circumstances under which
direct oral communication is necessary in connection with the approval of the
use of credit by a Cardholder, although there are instances in which such oral
communication is necessary. Monogram shall provide at its expense a toll-free
telephone number for use by MW, Authorized Affiliates and Authorized Licensees
to obtain credit authorization for Indebtedness if the electronic
telecommunication link is inoperable, or when Monogram directs Store personnel
to contact it concerning a credit transaction. Monogram shall also provide at
its expense another toll-free telephone number for use by Cardholders in Stores
owned by MW.
(7) Monogram shall promptly advise MW of any Cardholder's
complaint or inquiry concerning Merchandise or the service, promotion or
delivery thereof if Monogram determines such complaint or inquiry is material.
Monogram shall promptly advise MW of any governmental investigation or
governmental legal action concerning Monogram's responsibilities under this
Agreement.
(8) Monogram shall provide MW with change-in-term notices prior
to mailing such notices, which notices MW shall have the right to review and
approve, but such approval shall not be unreasonably withheld or delayed; it
being understood that approval is not required for legally required language and
further understood that an inadvertent failure to comply with this provision by
Monogram shall not give rise to a breach of contract by Monogram unless such
failure has a material adverse effect on MW.
5.3. MONOGRAM'S LIABILITIES. Provided Monogram complies with the
provisions of this Agreement, the rejection for credit of any applicant, or any
number of applicants, shall not give rise to any claim, liability, demand,
offset, defense or counterclaim by MW against Monogram. Monogram may furnish
credit information concerning creditworthiness with respect to any
46
<PAGE>
Cardholder or prospective Cardholder to any credit bureau, credit interchange or
any other Person to whom such information may lawfully be sent for credit
evaluation or collection purposes, it being understood that Monogram shall in no
event transfer lists of Cardholders for promotional or other use except (a) as
specified in SECTION 5.7 and (b) for the determination of creditworthiness and
to perform merge-purge functions against a list of prospective Cardholders in
connection with such determination, and (except as specified in SECTION 5.7) any
such Person to whom information is so provided must execute an agreement
providing for confidentiality (including reasonable liquidated damage
provisions, which provisions shall initially be based on SCHEDULE 5.3 annexed
hereto, which schedule shall be reviewed, and if necessary revised, at each
fifth (5th) year anniversary of the date hereof) in which such Person agrees it
will not use, or permit any other Person to obtain or use, such information for
any use (including promotion) except the determination of creditworthiness,
provided any such agreement with a credit bureau need not provide for liquidated
damages. Upon request of MW, Monogram shall seed its list of Cardholders with
such names and addresses as MW may reasonably request.
5.4. MW'S RESPONSIBILITIES.
(1) During the term of this Agreement, MW, at its expense, shall
(i) perform, (ii) cause each Authorized Affiliate to perform and (iii) use its
best efforts to cause each Authorized Licensee to perform, all in-store services
of the type provided by MW or any such Person for or to MWCC during the two-year
period immediately prior to the date of this Agreement, to the extent, and in
the manner, that MW has done so during said period, in order to encourage the
creation of Accounts and facilitate the use of Accounts by Cardholders. The
services to be performed by MW, Authorized Affiliates and Authorized Licensees
shall include the following in-store activities:
(i) Promoting, as specified in SECTION 5.5, and accepting
applications for, Accounts, communicating credit
information about prospective Cardholders through
electronic means to Monogram and, in certain
exceptional circumstances, if electronic means are
not available, telephoning such credit information to
the designated Monogram office, and upon decision by
Monogram, either issuing a temporary credit pass or
communicating an oral rejection to applicant.
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<PAGE>
(ii) Preparing changes of address for Cardholders, taking
requests for adjustments from Cardholders and
promptly forwarding all such information to the
designated Monogram office.
(iii) Obtaining authorization for additional Indebtedness
on Accounts, which authorization shall be obtained
prior to sales on Accounts; PROVIDED, HOWEVER, that
in the event of a breakdown of the electronic
authorization system, MW and each Authorized
Affiliate and Authorized Licensee may (A) permit any
Cardholder to incur Indebtedness below the floor
limit established by Monogram from time to time,
provided the floor limit shall in no event be less
than Seventy-Five Dollars ($75), or such higher
amount as is agreed to by the parties hereto on an
emergency basis in the event of a prolonged
breakdown, and (B) permit any Cardholder to incur
Indebtedness in excess of such floor limit upon (i)
receipt of telephonic approval from Monogram, (ii)
obtaining new addresses when requested by Monogram,
and (iii) verifying identification.
(iv) Assisting Cardholders in communicating with Monogram
through toll-free telephone number facilities
maintained in the Stores operated by MW, which shall
include providing and maintaining existing types of
telecommunication equipment (but not the toll-free
number) in the Stores at their expense.
(v) Except as otherwise directed by Monogram in
accordance with SECTION 7.8 hereof or as otherwise
agreed by MW and Monogram, accepting during the term
of this Agreement In-Store Payments at Stores
designated by MW (if any Stores are so designated),
processing such payments, providing receipts to or
for Cardholders relat-
48
<PAGE>
ing to such payments (it being understood that upon
request of Monogram said receipts shall indicate that
such payments are accepted as a convenience for
Cardholders by MW as agent for the Cardholder and are
not deemed to be paid until received by Monogram) and
transferring said payments to Monogram as provided
herein. The foregoing acceptance of payments will
initially be processed in the following manner, all
of which may be revised by mutual agreement of the
parties from time to time: Stores will each Business
Day gather all In-Store Payments made that Business
Day (including In-Store Payments made at unmanned
areas designated by Stores as areas where such
payments can be made (I.E., lockboxes)). Cash and
checks which represent payments on Accounts may be
commingled with normal Store receipts, delivered and
deposited into MW's local bank account according to
current practices, and thereafter concentrated daily
on each Business Day into MW's bank accounts. Any
checks returned by a bank ("returned items") will
automatically be presented for a second deposit.
Checks which are returned by the depository bank to
MW or any Store will be batched by MW or the Store
and mailed to MW's accounting office. MW's
accounting office will maintain a log of the number
of returned items and forward those checks each
Business Day to Monogram. MW will report the number
of In-Store Payments deposited and the dollar amount
of all such payments to Monogram each Business Day.
Unless the amounts of In-Store Payments are applied
by Monogram to reduce amounts payable by Monogram to
MW, MW will wire transfer immediately available
federal funds to Monogram on the Business Day
following the deposit in its concentration account
the amount of In-Store Payments so deposited, reduced
by the sum of the
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<PAGE>
amount of returned items and the bank fees for
returned items. Payments shall not be deemed to be
made to Monogram or credited to Accounts until they
either are delivered to Monogram or applied by
Monogram to reduce amounts payable by Monogram to MW.
MW shall promptly furnish to Monogram any
documentation relating to In-Store Payments and bank
fees for returned items as may be from time to time
requested by Monogram. Notwithstanding the
foregoing, it is understood and agreed that MW shall
not solicit Cardholders (or other Persons acting on
behalf of Cardholders) to make In-Store Payments. It
is acknowledged and agreed that each of MW,
Authorized Affiliates and Authorized Licensees shall
have no right, title or interest in any In-Store
Payments and shall take possession of such payments
solely as agent on behalf of Cardholders for transfer
to Monogram.
(vi) Promoting and distributing premiums provided by
Monogram to consumers responding to pre-approved new
account acquisition programs.
(vii) Managing in-store host and hostess programs.
(viii) Providing special services such as free gift wrapping
to preferred card customers.
(ix) Training and employing sufficient personnel to
promote the creation and use of Accounts and perform
the duties specified in this SECTION 5.4(1).
(x) Continuing to offer assistance to customers
requesting Credit Card Applications and resolution of
credit-related problems.
(xi) Displaying promotional material related to Accounts
prominently in appropriate areas of Stores attractive
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<PAGE>
to, and frequented by, customers as determined in the
sole discretion of MW and each Authorized Affiliate
and Authorized Licensee (as appropriate).
(2) MW, at its expense, shall provide all necessary and proper
forms of Charge Slips and/or microfilm copies thereof, imprinters and forms of
Credit Slips. In addition, MW shall keep (and shall cause Authorized Affiliates
and use its best efforts to cause Authorized Licensees to keep), at no expense
to Monogram, completed Credit Card Applications, Charge Slips, Credit Slips
and/or copies thereof for seven (7) years (two (2) years at Stores and five (5)
subsequent years in a central storage location), any or all of which shall be
provided to Monogram or its designee at Monogram's request.
(3) MW shall (and shall cause Authorized Affiliates and use its
best efforts to cause Authorized Licensees to) communicate electronically with
Monogram at the point-of-sale in the manner that MW communicated with MWCC prior
to the Conversion Date so as to attempt to minimize the circumstances under
which direct oral communication is necessary in connection with the approval of
the use of credit by a Cardholder, although there are instances in which such
oral communication is necessary.
(4) MW, Authorized Affiliates, Authorized Licensees and Monogram
each may replace or modify their respective equipment and methodology for
processing credit sales utilized on the Conversion Date, including, without
limitation, existing point-of-sale registers and other communication devices,
provided that (a) either the replacement equipment or methodology is compatible
at no additional expense with equipment and methodology then being used by the
recipient of the communication, or the party so replacing or modifying obtains
or pays the cost of obtaining compatible equipment, or making the necessary
adjustment to the existing equipment, for the other(s), and (b) such replacement
equipment and methodology will be no less effective than the existing equipment
and methodology in handling credit sales and avoiding the necessity of oral
communications regarding credit approvals.
(5) In no event shall MW be required (except to the extent
explicitly provided for below) to repossess or dispose of Merchandise in
connection with the collection of Indebtedness on Accounts held by Monogram.
Upon request, MW shall pay (or shall cause the appropriate Authorized Affiliate
or Authorized Licensee to pay) for Merchandise which is tangible personal
property purchased through Indebtedness on Accounts and which was obtained by or
at the direction of Monogram or its Affiliate at
51
<PAGE>
its sole expense, provided such Merchandise will be limited to those sold in
connection with Accounts which are three (3) or more months past due or where
the Cardholder has filed a petition for relief under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors. Such payment
shall be applied to reduce the Indebtedness in question. Monogram or its
Affiliate shall, at its sole expense, deliver such Merchandise to locations as
from time to time specified by MW.
(i) Upon the Delivery Date, Monogram or its Affiliate
shall assign, with any required documentation, title
to such Merchandise, free and clear of all Liens, to
MW, the Authorized Affiliate or the Authorized
Licensee (as indicated by MW) and MW shall (or shall
cause the Appropriate Authorized Affiliate or
Authorized Licensee to) make the required payment to
Monogram within thirty (30) days after the Delivery
Date (defined below).
(ii) Merchandise shall be paid for as follows:
Payment
Delivery Date Due Monogram
------------------- -----------------
(Months After Sale) (% of Cash Price)
0 - 30 months [ ]*
31 months or more [ ]*
The "Delivery Date" is the date Merchandise is delivered to
MW after repossession or retaking.
(iii) For purposes of this Agreement, the "Cash Price" for
any Merchandise shall mean the cash price of such
Merchandise when sold to the Cardholder, including
tax and transportation charges on the original
purchase, but excluding any service contracts.
Monogram shall be responsible for any taxes imposed
on the sale by Monogram to MW or Authorized
Affiliates or Authorized Licensees under this
paragraph.
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*Confidential treatment has been requested with respect to this information.
<PAGE>
(iv) If the balance of the entire Indebtedness in respect
of the Account is less than the payment due Monogram
or its Affiliate as described in (ii) above, such
balance rather than such payment amount, shall be
paid by MW or the Authorized Affiliate or Authorized
Licensee.
(v) MW, Authorized Affiliates and Authorized Licensees
shall have no obligation to accept such Merchandise
if the amount to be paid to Monogram in (ii) of this
subsection (or to its Assignees under any similar
provision in an agreement with MW) is equal to or
exceeds [ ]* during the preceding twelve
(12) Settlement Periods, provided that during the
first twelve Settlement Periods after the date of
this Agreement net credit sales under the Original
Account Purchase Agreement may be used for
measurement purposes.
(vi) Upon request, MW shall and shall cause its Authorized
Affiliates and use best efforts to cause its
Authorized Licensees, as applicable, to inform
Monogram of the price it obtains for such Merchandise
and the cost, if any, of storage and sale.
(vii) Upon request MW may, if it elects, assist in
repossessing or retaking Merchandise. In such event,
Monogram shall pay MW [ ]* if the
Merchandise is picked up from the Cardholder and
shipped as directed by Monogram and [ ]*
if the Merchandise is delivered to a Store and
shipped as directed by Monogram.
In repossessing Merchandise, Monogram agrees to abide by, and cause others
acting with respect thereto to abide by, all applicable laws and regulations and
to act in a reasonable and ethical manner. All provisions of this SECTION
5.4(5) will, at the request of MW or Monogram, be reviewed and revised to the
53
<PAGE>
extent agreed, on each two (2) year anniversary of the date hereof.
(6) MW shall promptly advise Monogram of any governmental
investigation or governmental legal action (a) concerning MW's responsibilities
under this Agreement, or (b) which reasonably may be expected to affect
Monogram, the Program and/or the Accounts and Indebtedness.
(7) MW shall ensure that Credit Cards are accepted at all Stores
operated by MW or an Authorized Affiliate.
(8) MW shall ensure that credit cards issued by Monogram and/or
Affiliates of Monogram and bearing the name of any Authorized Affiliate(s) shall
be accepted at all retail stores operated by MW or Authorized Affiliates.
5.5. PROMOTIONS AND SOLICITATIONS.
(1) During the term of this Agreement, MW shall make available
to Persons currently approved Credit Card Applications, including Credit Card
Agreements. In addition, MW shall promote the sale of Merchandise through the
creation and use of Accounts in accordance with its practices prior to the
Conversion Date to the extent permitted by law. Any material change from such
past practices shall be mutually agreed upon by MW and Monogram, provided that
advertising by MW (including, without limitation, all print and/or television
advertising) shall refer to the availability of Accounts in accordance with past
practices to the extent permitted by law.
(2) During the term of this Agreement, Monogram monthly shall
pay MW for expenses for Credit Promotions incurred by MW in connection with
specific promotional programs mutually approved by the parties in writing during
each Fiscal Year during the term of this Agreement an amount equal to
[ ]* of the preceding Settlement Period's Credit Sales, less any amounts
incurred by Monogram and/or its designee during that Settlement Period and
qualified under subsection (3) below, provided that, in the event that MW
exercises its rights under Section 15.2(2)(iii), no amounts will be due under
this subsection (2) for periods thereafter. If Monogram expends funds pursuant
to this subsection it shall provide to the other party reasonable detail of
such expenditures. Programs shall be mutually approved if they reasonably meet
the criteria set forth below. Each such program is subject to the following
criteria:
(i) The primary purpose of each such program shall be to
increase Credit Sales and/or open
54
*Confidential treatment has been requested with respect to this information.
<PAGE>
new Accounts. Programs will also be permitted which will
encourage Cardholders to increase their existing
Indebtedness on such Accounts if such programs are coupled
with an extra value or incentive offer to Cardholders
provided by MW at its own expense.
(ii) There shall be sufficient lead time for each such program to
receive reasonably adequate planning, support and
integration to achieve its desired objectives.
If this Agreement terminates in the middle of a Settlement Period, the payment
shall be proportionalized.
(3) In determining amounts otherwise payable to MW under
subsection (2) above, Monogram may deduct the amount of expenses incurred by
Monogram and/or its designee in connection with Credit Promotions in connection
with store openings and conversions to specialty stores; postage; promotional
credit card reissuance; credit bureau fees; reasonable salaries and other
expense for employees of Monogram and/or its designee who work virtually
full-time on development of promotional programs, provided the portion of
promotional expenses attributable to such employees shall not exceed for any
calendar year, calculated on a year-to-date basis after the Conversion Date, the
lesser of (a) the amount actually expended by Monogram and/or its designee, and
(b) [ ]* premiums (except premiums given in connection with programs to
induce existing Cardholders to increase their Indebtedness); data processing
fees for merging and purging new lists and existing lists; creative agency
costs; co-op mailings; letter shop costs; outside telemarketing services;
outside host and hostess services; supplies (including envelopes); list fees;
advertising; and employee incentives to promote credit sales, such as in-store
host and hostess programs. Any computations for calendar years which are not
full calendar years shall be proportionalized by the number of full Settlement
Periods in such partial calendar year.
(4) During the term of this Agreement, Monogram shall pay to MW
monthly the amount of [ ]* in connection with Credit Promotions offered
by MW and Monogram under this Agreement; provided that, if MW shall incur, pay
to Monogram (by deductions of amounts otherwise owed to MW hereunder) or spend
less than [ ]* for Credit Promotions during any such Fiscal Year, the
difference shall be repaid by MW to Monogram and provided that, in the event
that MW exercises its rights under Section 15.2(2)(iii), no amounts will be
due under this subsection (4) for periods thereafter.
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(5) MW hereby directs Monogram to pay, and Monogram shall pay to
MWCC on December 23, 1996, (a) the amounts which would have accrued or been
payable under subsection (2) above (after deducting the amount specified in
subsection (3) above) and subsection (4) above commencing on the Conversion Date
through and including the last day of the Fiscal Month of November 1996, less
any amounts owed to Monogram on such date pursuant to SECTIONS 3.6(3) OR 3.7(3)
hereof and (b) the amounts which are estimated to accrue and be payable under
subsection (2) above (after deducting the amount specified in subsection (3)
above) and subsection (4) above for the Fiscal Month of December 1996.
Commencing with the Fiscal Month of January 1997 and thereafter during the
Monthly Payment Period, the amounts owed under subsections (2) and (4) will be
paid to MWCC as provided in SECTION 3.8 hereof.
5.6. [SECTION INTENTIONALLY OMITTED.]
5.7. USE OF CUSTOMER LIST.
(1) MW acknowledges and agrees that Monogram is the sole and
exclusive owner of the Customer List. Monogram hereby grants to MW for the term
of this Agreement an exclusive and royalty-free license to use (or sublicense or
assign the right to use) the Customer List for all purposes, including for
advertisement, solicitations or other marketing efforts, regardless of the
manner or media through which the marketing effort is made, and regardless of
whether the product or service has previously been marketed by MW, except that
Monogram shall have the exclusive right (even as to MW) to use the Customer
List: (i) to operate the Program in accordance with this Agreement and any
related agreement entered into by MW and Monogram and/or an Affiliate of
Monogram; (ii) to exercise its rights to use the Customer List upon termination
of this Agreement to the extent specifically provided in this Agreement; and
(iii) upon the occurrence of a Triggering Signature Acquisition and thereafter,
to grant to the Signature Companies the exclusive rights specified in the
Signature License during the term of the Signature License. In connection with
MW's exercise of the rights granted under the preceding sentence, MW shall:
(a) fulfill its obligations under SECTION 17.12 hereof;
(b) sell (or cause the sales of) credit insurance on
Accounts to the extent legally permissible and
customary in the retail industry;
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(c) with respect to credit insurance and any other
insurance marketed by MW or its designee(s) and
charged on or offered in connection with Accounts,
ensure that (i) any insurer selected by MW and/or its
designee after the Conversion Date is reasonably
acceptable to Monogram with regard to service and
financial soundness (it being understood that the
Signature Companies shall be presumed to be
reasonably acceptable to Monogram at all time such
companies are Affiliates of MW or Monogram), (ii) any
fees for servicing paid to Monogram in connection
with insurance are reasonably acceptable to Monogram,
and (iii) any changes in the type of credit insurance
products offered after the Conversion Date are
reasonably acceptable to Monogram (except that widely
sold credit insurance products shall be deemed
acceptable to Monogram); and
(d) not use, or allow any other Person to use, the
Customer List directly or indirectly to provide any
consumer or commercial financing programs for the
retail sale of goods and/or services at Stores
(including credit, debit or charge card programs),
whether operated in-house by MW or in connection with
an outside Person, provided that, subject to the
Signature License and Monogram's rights under
SECTION 5.13, (i) MW may use that portion of the
Customer List comprising Persons who applied for
Accounts and were rejected by Monogram to provide any
closed end consumer or commercial financing programs
for the retail sale of goods and/or services at
Stores; and (ii) MW may use the Customer List in
connection with the Existing Programs described in
SECTION 5.13(2)(b) AND (c) and, with the consent of
Monogram or its Affiliate (as appropriate), SECTION
5.13(2)(a).
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(2) Monogram will maintain, update and provide to MW a 3% Test
File along with other files necessary to provide MW with reasonable access to
data required for MW's marketing, advertising research and real estate purposes
approximating the degree of access to data that was available to MW prior to the
Conversion Date. Upon mutual agreement of the parties, any incremental (over
historical) cost of a new venture that is not in the current normal course of
MW's business will be reimbursed by MW to Monogram within thirty (30) days after
billing.
(3) Monogram shall provide the Customer List to MW hereunder in
the same manner, and to the same extent, as lists of cardholders were provided
to MW by Monogram or its Affiliates prior to the Conversion Date.
(4) Monogram shall enforce its rights under the Signature
License at all times such license is in effect.
5.8. MONOGRAM'S RECORDS. As part of Monogram's servicing activities,
Monogram and its Assignees may store Account Documentation forwarded to Monogram
on microfilm or other media and Monogram and its Assignees may, in the normal
course of its business, destroy Account Documentation in the form forwarded to
Monogram once such Account Documentation has been microfilmed or otherwise
recorded.
5.9. REPRESENTATIVES. During the term of this Agreement, senior
management officers of MW shall have the right to make inspections of credit
facilities used by Monogram to service Accounts during normal business hours
with reasonable advance notice to Monogram.
5.10. PREFERRED CUSTOMER SERVICES. Monogram shall continue throughout
the term of the Agreement to provide, at its expense, a toll-free number or its
equivalent to so-called preferred customers, together with the additional
services provided to such customers (other than those in-store services to be
provided by MW as provided for in SECTION 5.4), in substantially the same manner
as they have been provided by MWCC prior to the Conversion Date.
5.11. RIGHT TO CONTRACT. In addition to the rights of assignment as
set forth in SECTION 17.1, and subject to the limitations set forth in SECTION
17.1, Monogram may delegate its obligations under this SECTION 5 to any
Affiliate of Monogram, provided (a) such delegation shall in no way release or
affect the liability and obligation of Monogram and the guarantor to perform
Monogram's obligations under this Agreement, (b) such delegation preserves
Transparent Servicing to the public, and (c) the delegatee shall assume
Monogram's obligations under this
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Agreement so delegated, and shall be jointly and severally liable with Monogram
for such obligations, which assumption shall occur automatically upon such
delegation. Notwithstanding the foregoing, in no event shall Monogram delegate
any of its obligations under this Agreement to, or permit such obligations to be
performed by, a Competitor, except to the extent permitted by SECTION 15.2(6) or
17.1(4).
5.12. LIMITATION ON MONOGRAM. Monogram shall not, and shall not
permit any other Person (including pursuant to SECTION 5.11) to, directly or
indirectly utilize for any purpose other than the servicing of Accounts and
Cardholders (a) personnel that handle incoming Cardholder inquiries (other than
mail inquiries) directly with Cardholders (unless Monogram maintains other means
for achieving Transparent Servicing) provided that this obligation shall be
limited to the term of this Agreement, or (b) the Credit Card Agreements,
Accounts and Credit Cards that may be issued pursuant thereto, provided,
however, that Monogram may use such Accounts for financing purposes, including,
without limitation, securitizing Indebtedness or selling participations in
Indebtedness or selling Indebtedness and/or Accounts. It is understood that the
Credit Cards to be issued in connection with the Accounts and Credit Card
Agreements may not be directly or indirectly utilized to extend credit, make
sales of products or services, or for any other purpose by anyone other than MW,
its Authorized Affiliates and Authorized Licensees or as permitted by this
Agreement (including in connection with the issuance of replacement or
substitute cards under SECTION 5.14 hereof).
5.13. RIGHT OF FIRST REFUSAL IN RESPECT OF OTHER CREDIT, DEBIT OR
CHARGE PROGRAMS.
(1) Except as authorized in subsection (2) hereof, MW shall
not during the term of this Agreement (a) directly or through an Affiliate or
other Person advertise, promote, sponsor, solicit, permit solicitation of or
make available to its customers or otherwise provide at any Store operated by
MW or an Authorized Affiliate any program (whether operated in-house by MW or
in connection with an outside Person) which is similar in purpose or effect
to the Program or (b) use or authorize any other Person to use the Licensed
Marks in connection with any program which is similar in purpose or effect to
the Program (except that, notwithstanding the foregoing, MW may accept credit
cards in Stores as specifically provided in SECTION 5.14). For the avoidance
of doubt, closed-end credit programs to Persons to whom Monogram has denied
an Account or Cardholders with respect to whom Monogram has not approved an
advance shall not be considered covered by this subsection but shall be
subject to subsection (3).
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(2) MW and Affiliates of MW may advertise, promote, sponsor,
solicit, permit solicitation of, or make available to their customers or
otherwise provide at any Store, the following financing programs, each, as to
(b) and (c) below, in the form in which it exists on the date hereof, and
whether or not it otherwise would be deemed or considered similar in purpose or
effect to the Program (collectively, the "Existing Programs"): (a) any credit,
debit or charge card program or facility provided under any agreement with
Monogram or one of its Affiliates, including the Program; (b) the program
involving the issuance of co-branded secured cards by Orchard Savings & Loan;
(c) the program available to MW's employees in connection with Bridgestone tire
and other automotive sales where such employees receive certain benefits based
upon Bridgestone tire and other automotive sales; and (d) subject to subsection
(4) below, general purpose credit cards widely accepted in the market in
question, whether or not taken on the date hereof, provided (i) such cards do
not involve the use of the Licensed Marks and/or any other tradename under which
MW or any of its Affiliates conduct retail operations from time to time or any
variation thereof, and/or (ii) such cards are not "sponsored" or "co-sponsored"
by MW or any of its Affiliates (E.G., co-branded cards).
(3) This subsection will apply to programs not covered by
subsection (1), will apply to programs covered by subsection (2) to the extent
provided below, and is subject to the provisions of SECTION 5.14. Monogram
shall have a right of first refusal (which right can be assigned by Monogram to
one of its Affiliates) with respect to any determination by MW to implement (i)
any consumer or commercial financing programs for the retail sale of goods
and/or services at Stores (including credit, debit or charge card programs)
other than the Existing Programs (whether operated in-house by MW or in
connection with an outside Person), and/or (ii) any substantially modified
version of the Existing Programs (whether operated in-house by MW or in
connection with an outside Person) described in Section 5.13(2)(b) or (c). MW
shall notify Monogram in writing of any such determination and provide a
proposal therefor and Monogram shall have sixty (60) days thereafter in which to
exercise its right of first refusal by notice to MW, whereupon the parties will
enter into a written agreement on the terms at least as favorable to Monogram as
those contained in the proposal to be negotiated. If Monogram determines not to
exercise its right of first refusal and MW proposes to provide the new or
modified program in connection with a third party, MW (i) may enter into an
agreement with such third party only on terms no more favorable to the third
party overall than those offered to Monogram or MW may operate the program
in-house. In such event, Monogram shall have no further rights in connection
therewith at
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any time thereafter, except as specified in the next sentence, and such program
shall not be subject to the terms of this Agreement, except that such program
shall not be featured more prominently in advertising or in-store marketing
efforts than the Program. If the aggregate amount of sales on those programs as
to which Monogram did not exercise its right of first refusal are greater than
[ ]* during any Fiscal Year preceding a Fiscal Year in which MW may
cancel (without cost) or not be legally bound to continue the largest of the
programs with respect to which Monogram did not exercise its right of first
refusal, at least one hundred eighty (180) days prior to the date
upon which it first is legally and contractually permissible for Monogram or
Monogram's designee to take over such program at no cost to MW (the
"Cancellation Date"), MW shall provide Monogram or Monogram's Affiliate with a
term sheet indicating financial and other significant terms that MW reasonably
anticipates reflects those upon which such program could be continued after the
Cancellation Date. Monogram or Monogram's Affiliate shall have ninety (90) days
thereafter in which to exercise a right to take over the program on the
Cancellation Date. If Monogram or Monogram's Affiliate exercises such right,
the parties shall enter into a written agreement on terms at least as favorable
to Monogram or Monogram's Affiliate as those contained in the term sheet. If
Monogram or Monogram's Affiliate determines not to exercise its right and MW
determines to continue the program with a third party, MW may (i) enter into an
agreement with such third party only on terms no more favorable to the third
party overall than those offered to Monogram or Monogram's Affiliate, (ii)
operate the program in-house or (iii) present a revised term sheet to Monogram
in which case these provisions shall apply to any revised term sheet as they did
to the original term sheet. In such event, Monogram and Monogram's Affiliate
shall have no further rights in connection therewith at any time thereafter and
such program shall not be subject to the terms of this Agreement, except that
such program shall not be featured more prominently in advertising or in-store
marketing efforts than the Program.
(4) With Marketing Committee approval, MW may display
applications and in-store solicitation for cards and facilities permitted
hereunder other than the Program, provided Marketing Committee approval is not
required in connection with the American Express card or any other card or
facility that is permitted to be used pursuant to this Agreement if the issuer
thereof will not permit the utilization thereof unless the store displays
applications or otherwise solicits holders thereof.
5.14. ACQUISITIONS/DIVESTITURES/STORE CLOSINGS. The parties shall
have the following rights in connection with
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<PAGE>
certain acquisition, divestiture or closing of Stores during the term of this
Agreement.
(1) ACQUISITIONS
(a) If MW or an Affiliate of MW acquires an Acquiree that
operates a retail operation that has an Acquiree Credit Program with outstanding
credit card receivables of less than [ ]*, Monogram shall purchase for
cash all such receivables at the face value thereof if Monogram, in its
reasonable discretion, determines the creditworthiness of the account debtors,
the account servicing requirements and the account documentation relating to
such accounts to be satisfactory. In the event of such purchase, such credit
card receivables will be serviced in the same manner as provided in this
Agreement, and such receivables will be deemed Accounts and Indebtedness.
(b) If MW or an Affiliate of MW determines to acquire an
Acquiree that has an Acquiree Credit Program with outstanding credit card
receivables equal to or greater than [ ]*, or with outstanding credit
card receivables of less than [ ]* if Monogram does not acquire the
receivables as provided in (a) above:
(i) At least forty-five (45) days prior to consummation
of such acquisition, MW shall deliver to Monogram a
written notice setting forth, in reasonable detail,
the circumstances of the impending acquisition
including, without limitation, the identity of each
Acquiree (the "Acquisition Notice").
(ii) Within twenty (20) days after delivery of the
Acquisition Notice, MW shall provide Monogram with a
written proposal setting forth terms under which
Monogram may take over any existing Acquiree Credit
Program as soon as it is contractually or legally
possible to do so, or if there is no existing
Acquiree Credit Program, extend the Program to the
Acquiree. The parties thereafter shall work
earnestly together in good faith to agree on the
proposal or other terms acceptable to both
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<PAGE>
parties with regard to the credit quality and
economic implications of such acquisition under which
Monogram may take over any existing Acquiree Credit
Program as soon as it is contractually or legally
possible to do so, or if there is no existing
Acquiree Credit Program, extend the Program to the
Acquiree.
(iii) If the parties are unable to agree upon the proposal
or other terms pursuant to (ii) above, MW may: (A)
finance, either through its own resources or with
third parties, the existing Acquiree Credit Program,
or develop and so finance a new credit card program
for the Acquiree if one does not then exist, provided
that in either such instance, MW shall not enter into
an agreement with a third party relating thereto
until MW has advised Monogram of the terms of such
proposed agreement, and (B) use the credit card of
the Acquiree Credit Program, or the newly developed
program, in the Acquiree's stores, in which event the
credit agreements and indebtedness generated in the
Acquiree's stores pursuant to such Acquiree Credit
Program shall not be deemed to be indebtedness or
accounts subject to this Agreement. In addition, MW
and its Affiliates may, if not otherwise permitted
pursuant to this Agreement, use the credit card of
the Acquiree Credit Program, or the newly developed
program, in Stores, provided that the Credit Card
remains the Dominant Card.
(iv) If, following a period of operation described in
(iii) above, MW determines that any or all of an
Acquiree's stores are to be operated as "Montgomery
Ward" stores, or under such other trade name as MW or
its other Affiliates are then conducting any of their
retail operations (e.g., Electric Avenue), Monogram
and MW
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shall work earnestly together in good faith to agree
on terms acceptable to both parties to enable
Monogram to take over the Acquiree Credit Program, or
any newly developed program as may have been
developed by MW as provided above. If the parties
are unable to agree upon such terms, MW and its
Affiliates may use the Credit Card in such stores,
and shall also continue to have the same rights as
set forth in (iii) above. The Credit Card shall
remain the Dominant Card in such event.
(2) CERTAIN DIVESTITURES; STOCK TRANSFERS.
Without limiting the generality of SECTION 17.1(3) hereof,
if at any time before, at the time of, or after the occurrence of a Control Loss
Event all or substantially all of the business of MW, or Stock of MW having
fifty percent (50%) or more of the ordinary voting power in the election of
directors or other Persons with comparable decision-making authority is, in
either case directly or indirectly, acquired during the term of this Agreement
by a Person (other than Monogram, Affiliates of Monogram, or an Affiliate of MW
on the Conversion Date) ("Section 2 Acquiror"), regardless of the form of the
transaction, the following shall apply:
(i) The parties shall work earnestly together in good
faith to agree on terms acceptable to both parties
with regard to the credit quality and economic
implications of such acquisition, such that Monogram
may take over the Acquiror Credit Program, if one
exists, on the first date upon which it is legally
and contractually permissible to do so without cost
to MW or said Acquiror, or to extend the Program into
the Section 2 Acquiror's stores if no Acquiror Credit
Program exists. Notwithstanding the foregoing, the
Section 2 Acquiror shall not be obligated to either
permit the Acquiror Credit Program to be taken over
by Monogram, permit Monogram to extend the Program
into the Section 2 Acquiror's stores or, except as
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specified in SECTION 17.1(3) hereof, enter into
any other contract with Monogram.
(ii) If the parties are unable to agree on terms under
(2)(i) above: (A) the Section 2 Acquiror may use the
Credit Card in the Section 2 Acquiror's stores,
provided that the credit and servicing economics of
such use are consistent with those in Stores in
Monogram's reasonable judgment, and (B) if not
otherwise permitted pursuant to this Agreement, the
credit card of the Acquiror Credit Program may be
used in Stores, provided that under this subsection
the Credit Card remains the Dominant Card. If the
Credit Card is used in the Section 2 Acquiror's
stores, any accounts and indebtedness generated in
connection therewith shall be deemed Accounts and
Indebtedness. Any accounts or indebtedness otherwise
generated in the Section 2 Acquiror's stores shall
not be deemed to be accounts or indebtedness subject
to this Agreement.
(3) DIVESTITURES OCCURRING AFTER A CONTROL LOSS EVENT.
Without limiting the generality of SECTION 17.1(3) hereof, if at
any time after the occurrence of a Control Loss Event there is a MW Divestiture,
the parties' rights and obligations shall be as follows:
(i) At least forty-five (45) days prior to any
Divestiture Contract Date, MW shall deliver to
Monogram a written notice setting forth, in
reasonable detail, the circumstances of the impending
MW Divestiture including, without limitation, the
identity of each Post-Control Loss Acquiror and the
assets which are to be divested (the "Divestiture
Notice").
(ii) Within thirty (30) days after its receipt of a
Divestiture Notice, at
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Monogram's request, MW shall use its best efforts to
cause the Acquiror to negotiate with Monogram the
terms under which Monogram may take over the Acquiror
Credit Program, if one exists, on the first date upon
which it is legally and contractually permissible to
do so without cost to MW or said Acquiror, or to
extend the Program into the Post-Control Loss
Acquiror's stores if no Acquiror Credit Program
exists.
(iii) If Monogram and the Post-Control Loss Acquiror do not
reach agreement as specified in subsection (ii)
above: (x) Monogram may by notice to MW given at
least fifteen (15) days prior to the Divestiture Date
require MW to purchase (directly or through a
designee), on the Divestiture Date, (1) all
Divestiture-Related Accounts, but only such Accounts
relating to Divested Stores that are divested on or
after the time at which sufficient divestitures have
occurred to satisfy the test of a MW Divestiture, and
(2) subject to the Signature License, such portion
of the Customer List relating to such
Divestiture-Related Accounts, all for the
Divestiture-Related Account Purchase Price on the
opening of business on the purchase date, and, upon
such purchase MW or its designee shall thereupon own
all such Divestiture-Related Accounts and, subject to
all rights granted to the Signature Companies under
the Signature License, such related portion of the
Customer List, provided that MW shall have no
obligation to purchase such Accounts and such portion
of the Customer List if the Post-Control Loss
Acquiror agrees, in writing in a form reasonably
acceptable to Monogram, not to operate or sponsor any
Acquiror Credit Program for a period of four (4)
years after the Divestiture Date (it being understood
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that Monogram or its Affiliate under such
circumstances may issue replacement and/or substitute
credit cards to cardholders obligated in respect of
such Divestiture-Related Accounts as if such
Divestiture-Related Accounts were Store
Closing-Related Accounts under subsection (4)(ii)
below) or (y) if on the day after the Divestiture
Date, the Aggregate Cardholders' Balance is less than
[ ]* Monogram may at its option terminate
this Agreement upon one hundred and fifty (150) days'
notice to MW (which notice must be given within one
hundred and fifty (150) days after the Divestiture
Date, in which event MW shall purchase within one
hundred and fifty (150) days thereafter: (i) subject
to all rights granted to the Signature Companies
under the Signature License, the Customer List, (ii)
all Divestiture-Related Accounts that it would be
required to purchase under SUBSECTION 3(iii)(x) for
the Divestiture-Related Account Purchase Price, and
(iii) all other Accounts for the [ ]*
therefor, in which case Monogram shall sell such
items. Upon purchase under SUBSECTION
(3)(iii)(y), MW or its designee shall thereupon own
all such Divestiture-Related Accounts, other Accounts
and, subject to all rights of the Signature Companies
under the Signature License, the Customer List and MW
shall have the rights it would have under SECTION
15.2(2)(ii) (which rights shall be exercised in
accordance with procedures reasonably agreed to by
the parties), and upon such purchase under SUBSECTION
(3)(iii)(x) or (y), the transfers shall occur subject
to the rights set forth in the first sentence of the
last paragraph of SECTION 15.2(2)(i). In the event
that MW fails to purchase said Customer List,
Accounts and
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<PAGE>
Indebtedness when required by Monogram pursuant to
SUBSECTION (3)(iii)(x) OR (y), Monogram (at its
option exercised in its sole discretion) may, in
addition to any other rights Monogram may have
hereunder or at law or in equity at any time issue,
or authorize another Person to issue, to some or all
Cardholders a replacement or substitute
widely-accepted general purpose card, whether or not
co-branded, and market (or authorize the issuer to
market) to the holders of such replacement or
substitute cards in manners consistent with the
practices with respect to such replacement or
substitute cards subject to the terms of SECTION
5.14(4)(ii) relating to the issuance of replacement
or substitute cards.
(iv) Unless Monogram exercises its rights and MW purchases
Accounts under (3)(iii), (A) the Post-Control Loss
Acquiror may use the Credit Card in the Post-Control
Loss Acquiror's stores, provided that the credit and
servicing economics of such use are consistent with
those in Stores in Monogram's reasonable judgment,
and (B) if not otherwise permitted pursuant to this
Agreement, the credit card of the Acquiror Credit
Program may be used in Stores, provided that under
this subsection (B) the Credit Card remains the
Dominant Card. If the Credit Card is used in the
Post-Control Loss Acquiror's stores any accounts and
indebtedness generated in connection therewith shall
be deemed Accounts and Indebtedness. Any accounts or
indebtedness otherwise generated in the Post-Control
Loss Acquiror's stores shall not be deemed to be
accounts or indebtedness subject to the Agreement.
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(4) STORE CLOSINGS.
At any time there is a Store Closing:
(i) At least ninety (90) days prior to any Store Closing
Date, MW shall deliver to Monogram a written notice
identifying the retail Store location or locations
that will be closed or sold on such Store Closing
Date.
(ii) Monogram and/or an Affiliate of Monogram (at their
option exercised in their sole discretion) at any
time that Monogram owns Store Closing-Related
Accounts in connection with such Store Closing may
issue to some or all Cardholders obligated in respect
thereof a replacement or substitute widely-accepted
general purpose credit card, whether or not
co-branded (provided that in no event shall such
replacement or substitute card bear on its face a
trademark, service mark or name of a competitor of MW
or an Authorized Affiliate) and market (or authorize
the issuer to market) to the holders of such
replacement or substitute cards in manners consistent
with the practices with respect to such replacement
or substitute cards; and provided further that,
subject to the Signature License and Monogram's
rights under SECTION 5.13, MW may use the names of
persons obligated in respect of such Store
Closing-Related Accounts after the replacement and/or
substitute cards are issued, except that, for a
period ending four (4) years after the effective date
of termination, MW shall not use, or allow any other
Person to use such portion of the Customer List
directly or indirectly to provide any consumer or
commercial financing programs for the retail sale of
goods and/or services at Stores (including credit,
debit or charge card programs), whether operated
in-house by MW or in connection with an outside
Person, provided that, subject to the
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Signature License, (i) MW may use such portion of the
Customer List to the extent comprised of Persons who
applied for Accounts and were rejected by Monogram to
provide any closed end consumer or commercial
financing programs for the retail sale of goods
and/or services in Stores and (ii) MW may use the
Customer List in connection with the Existing
Programs described in SECTION 5.13(2)(b) and (c) and,
with the consent of Monogram or its Affiliate (as
appropriate) the Existing Program described in
SECTION 5.13(2)(a). For the avoidance of doubt, it
is acknowledged and agreed that, in the event that
Monogram and/or its Affiliate exercises its rights
under this subsection (ii), accounts and indebtedness
generated using such replacement or substitute cards
shall not be deemed Accounts and Indebtedness.
(5) Nothing in this SECTION 5.14 is intended to limit the right
to use the Credit Card in any Stores if such Stores were not acquired as part of
the acquisition of an ongoing retail operation.
(6) "Dominant Card" shall mean the credit card that is featured
more prominently in advertising and in-store marketing efforts, and the
aggregate annual credit sales of which for the period in question are at least
[ ]* the annual aggregate credit sales through all other cards used.
(7) MW and Monogram each shall, subject to the provisions of
this SECTION 5.14, use reasonable efforts to accommodate all reasonable requests
of the other in connection with implementing this SECTION 5.14.
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5.15. THE LICENSED MARKS.
(1) GRANT. During the License Term (as defined in subsection
(5) below):
(a) MW hereby grants to Monogram, and Monogram accepts,
the non-exclusive, non-royalty bearing right and license to use the
Licensed Marks in the United States of America and elsewhere as provided in
this Agreement, upon the terms and conditions hereinafter set forth. Such
license includes the rights to sublicense, subcontract and/or assign to the
extent provided herein and/or with MW's prior written consent.
(b) If MW adopts a trademark, trade name, service mark,
logo or other proprietary mark which is used by MW or an Authorized
Affiliate in connection with the operation of, or retail sales at, Stores
but which is not listed on SCHEDULE 5.15 hereto (a "New Mark") and Monogram
requests that such New Mark be added to SCHEDULE 5.15 and licensed
hereunder, MW shall not unreasonably fail to do so, and such New Mark shall
be added to SCHEDULE 5.15 by amendment of this Agreement.
(2) PERMITTED USES. Monogram and its permitted sublicensees,
subcontractors and assignees may use the Licensed Marks solely in connection
with the creation, establishment, marketing and administration of, and the
provision of services related to, the Program, Accounts and/or Indebtedness, all
as provided herein and, to the extent Monogram has rights therein in connection
with the Program, including with respect to both Old Indebtedness and New
Indebtedness (collectively, the "Permitted Businesses"). The Permitted
Businesses shall include, without limitation, the solicitation of Cardholders
and potential Cardholders, acceptance of Credit Card Applications, the issuance
and reissuance of Credit Cards, the provision of accounting services to
Cardholders, the provision of Billing Statements and other correspondence
relating to Accounts to Cardholders, the extension of credit to Cardholders, and
the advertisement and/or promotion of the Program.
(3) RESTRICTIONS AND QUALITY CONTROLS. Monogram's right to use
the Licensed Marks shall be subject to the following conditions and
restrictions:
(a) All displays of the Licensed Marks shall conform to
standards set by MW from time to time for its own displays of the Licensed
Marks. MW shall have the unilateral right, at its sole discretion, to
amend SCHEDULE 5.15 by substituting a modified logo if such
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modified logo is adopted by MW for all or a substantial portion of its own
business. If this occurs, MW shall have the right to require Monogram to
substitute the amended logo form for the prior logo form effective on a
date at least 180 days after the date MW notifies Monogram of the change,
provided that Monogram's out-of-pocket costs shall be borne as agreed by
the parties.
(b) Monogram shall include all notices and legends with
respect to the Licensed Marks as are or may be required by applicable
federal, state and local trademark laws which may be reasonably requested
by MW.
(c) Monogram shall at no time adopt or use, without MW's
prior written consent, any variation of the Licensed Marks or any word or
mark similar to or likely to be confused with the Licensed Marks.
(d) To the extent that Monogram and its permitted
sublicensees, subcontractors and assigns are permitted to originate their
own advertising and promotional materials hereunder, and if any of them do
so, the originator shall prior to first publication of each such piece
submit same to MW for approval as to form of Licensed Mark usage. Such
approval shall not be unreasonably withheld and shall be deemed to have
been given unless written notice of disapproval shall be given by MW to
Monogram within thirty (30) business days of receipt of such submission.
(e) Monogram shall conduct the Permitted Businesses in
accordance with this Agreement. MW shall have inspection rights, and
compliance deficiencies shall be remedied, as provided herein.
(f) Monogram shall conduct the Permitted Businesses in a
dignified manner, consistent with and enhancing the general reputation of
the Licensed Marks and MW, and in accordance with good trademark practice.
(g) Monogram shall not do anything or commit any act
which might materially prejudice or adversely affect the validity of the
Licensed Marks or MW's ownership thereof (it being understood that the
collection of Accounts in accordance with applicable debt collection laws,
the sending of adverse action letters, and the legally required or MW
approved (both substance and the language) changing of terms of Accounts do
not prejudice or adversely
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affect the validity of the Licensed Marks or MW's ownership thereof).
(h) Monogram shall, during the term of this Agreement and
after termination hereof, execute such documents as MW may request from
time to time to ensure that all right, title and interest in and to the
Licensed Marks reside in MW.
(i) Notwithstanding any other provision in this Agreement
to the contrary, Monogram shall not be required to obtain MW's approval of
billing and collection forms, notices, letters, telephone routines, or
other communications in which the only use of the Licensed Marks is the use
thereof in text to identify the Program and/or the Credit Card, to identify
the names of Stores that accept Credit Cards, and/or to describe
transactions financed under the Credit Cards, provided that Monogram in no
event shall use the Licensed Marks in a manner which adversely affects the
goodwill associated with the Licensed Marks (it again being understood that
communications in accordance with applicable debt collection laws, adverse
action letters, and the legally required (both substance and the language)
or MW approved changes in the terms of Accounts do not adversely affect
goodwill).
(j) Except as otherwise provided herein, once materials
bearing the Licensed Marks have been approved (or deemed approved) by MW,
Monogram may use its existing stock of such materials, except that MW may
require that Monogram cease use of such existing stock if MW pays for the
replacement thereof.
(4) OWNERSHIP. Monogram hereby acknowledges MW's exclusive
right, title and interest in and to the Licensed Marks and MW's exclusive right
to use and license the use of the Licensed Marks. Any and all goodwill arising
from use of the Licensed Marks under this Agreement shall inure solely to the
benefit of MW. Monogram agrees not to claim any title to the Licensed Marks or
any right to use the Licensed Marks except as permitted by this Agreement. In
particular, Monogram agrees that it will not assert that any failure of MW to
set standards for, or police Monogram's use of, the Licensed Marks results in an
abandonment of MW's rights in the Licensed Marks. Monogram shall not directly
or indirectly question, attack, contest or, in any other manner, impugn the
validity of the Licensed Marks or MW's rights in and to the Licensed Marks, or
the license herein granted, including, without limitation thereto, in any action
in which enforcement of any provision of this Agreement is sought; nor shall
Monogram willingly become a party adverse to MW in
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litigation in which a third party is contesting the validity of the Licensed
Marks or MW's rights in and to the Licensed Marks.
(5) LICENSE TERM. (a) The license granted in this Section 5.15
shall terminate upon the later of (i) the termination of this Agreement, or (ii)
the date on which the Aggregate Cardholders' Balance is zero (the time from the
date hereof to the later such date being referred to as the "License Term").
Upon expiration of the License Term, (a) all rights of Monogram with respect to
the Licensed Marks shall terminate and revert to MW, and (b) Monogram shall
immediately discontinue use of the Licensed Marks. The foregoing
notwithstanding, it is understood that in no event shall the termination of this
Agreement affect the rights of Monogram (or any authorized purchaser of Accounts
and/or Indebtedness) to utilize the Licensed Marks in connection with the
collection of Indebtedness.
(6) INFRINGEMENT. (a) Monogram shall notify MW promptly of any
infringements, imitations or unauthorized use of the Licensed Marks by any
credit provider(s) (collectively, "Infringements") of which Monogram becomes
aware. MW shall take such steps as it deems reasonable in the circumstances to
abate any such Infringements. Except as provided below, MW shall have the sole
right, at its expense, to bring any action on account of any infringements, and
Monogram shall cooperate with MW as MW may request (and at MW's expense), in
connection with any such action reasonably brought by MW. MW may settle
infringements at its sole discretion (but shall use best efforts not to settle
in a manner that conflicts with Monogram's rights hereunder), and may retain any
and all resulting damages and/or other compensation paid by the infringer(s).
If MW does not undertake appropriate steps to abate an Infringement within
ninety (90) calendar days after notice thereof from Monogram, Monogram may
prosecute the same, at its expense, provided that no settlement shall be made
without the prior written approval of MW. Monogram shall advise MW periodically
of the status of such action and promptly of any material developments. MW
reserves the right to participate at any time in such proceedings. In the event
that any damage, settlement and/or compensation are paid in connection with any
such action brought by Monogram, Monogram shall first retain an amount
reimbursing its expenses, any remaining amount shall be divided equally between
MW and Monogram.
(b) MW shall have the sole right, at its expense, to
defend and settle any action that may be commenced against MW or Monogram
alleging that use of the Licensed Marks infringe any rights of others. In such
event, Monogram shall, at the reasonable direction of MW, promptly discontinue
its use of the Licensed Marks alleged to infringe
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rights of others. If MW does not give notice to Monogram of its intent to
defend or settle such action against Monogram or affecting Monogram's use of the
Licensed Marks within ninety (90) calendar days after notice thereof from
Monogram, Monogram may defend the same, at its expense, provided that no
settlement shall be made without the prior written approval of MW. Monogram
shall advise MW periodically of the status of such action and promptly of any
material developments. MW reserves the right to participate at any time in such
proceedings. It is understood that nothing in this Section 5.15(6)(b) is
intended to limit or otherwise modify MW's indemnification obligation under
SECTION 5.15(7)(a)) hereof.
(7) INDEMNIFICATION. In addition to and without limiting any
indemnifications specified under Section 11 hereof:
(a) MW, at its expense, shall defend and indemnify and
save and hold harmless Monogram, Monogram's Assignees and Affiliates, the
employees, officers, directors, shareholders, partners, attorneys and
agents of Monogram and Monogram's Assignees and Affiliates, and all of the
respective heirs, legal representatives, successors and permitted assigns
of the foregoing from and against any and all liabilities, claims, causes
of action, suits, damages and expenses, including reasonable attorneys'
fees and expenses, which Monogram, Monogram's Assignees or Affiliates or
each of the above described Persons becomes liable for, or may incur or be
compelled to pay by reason of claims that Monogram's, Monogram's Assignees
or Affiliates' or each of the above described Persons' use of the Licensed
Marks in accordance with this Agreement violates any rights of the claimant
except claims subject to Section 11.2 hereof.
(b) Monogram, at its expense, shall defend and indemnify
and save and hold harmless MW, MW's Affiliates and Authorized Licensees,
the employees, officers, directors, shareholders, partners, attorneys and
agents of MW and MW's Affiliates, and all of the respective heirs, legal
representatives, successors and permitted assigns of the foregoing from and
against any and all liabilities, claims, causes of action, suits, damages
and expenses, including reasonable attorneys' fees and expenses, which such
Persons become liable for, or may incur or be compelled to pay by reason of
claims arising from any use of the Licensed Marks, whether by Monogram or
its permitted subcontractors and sublicensees, except claims subject to
subsection (a) above or SECTION 11.1 hereof.
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(8) MATERIAL FURNISHED BY MW. MW shall cooperate with Monogram
in furnishing art work, photographs, drawings, samples, graphics requirements
and other such materials relating to the Licensed Marks which may reasonably be
requested by Monogram, the cost of which shall be borne as agreed by the
parties.
5.16. MW COORDINATOR; MARKETING COMMITTEE.
(1) As promptly as practicable after the date hereof, MW shall
designate a MW Coordinator. In addition, as promptly as practicable after the
date hereof, MW and Monogram shall organize a marketing committee (the
"Marketing Committee"), which shall consist of six members. Three members of
the Marketing Committee shall be designated by Monogram, and three members of
the Marketing Committee shall be designated by MW.
(2) The approval of at least a majority of the six members of
the Marketing Committee shall constitute the act of the Marketing Committee.
(3) Each member of the Marketing Committee shall serve until his
or her successor is appointed by the party that appointed him or her or his or
her earlier resignation or inability to serve. Upon the resignation or
inability to serve of any member of the Marketing Committee, the party that
originally appointed such member shall appoint a successor.
(4) During the term of this Agreement, the Marketing Committee
shall attempt to meet quarterly, but in all events shall meet at least three
times each year. At each quarterly meeting of the Marketing Committee,
Monogram's representative shall provide MW with a report on the Program,
including a reasonable description of changes effected to the Program during the
prior quarter without Marketing Committee approval.
(5) The parties acknowledge that Monogram, as the sole owner of
the Accounts and Indebtedness and operator of the Program may make changes to
the Program from time to time, subject to subsection (6) below.
(6) The parties acknowledge that, notwithstanding the fact that
the Accounts and Indebtedness are solely Monogram's Accounts and Indebtedness
and that the Program is conducted by Monogram, there may be certain changes over
time to the Program which could have an adverse competitive, economic or other
impact on MW, and that to protect MW's interests as a seller of Merchandise and
its interest in the continuing goodwill of the Cardholders and its reputation
(and subject to
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the provisions of Section 5.16(7)), Monogram shall not effect any change to the
Program during the term of this Agreement, which could have such adverse impact
on MW without the approval of the MW Coordinator or the Marketing Committee,
which approval shall be withheld only if the MW Coordinator or Marketing
Committee (as appropriate) reasonably determines that the proposed change, if
implemented, would have such adverse impact on MW. If Monogram, in its
discretion, first seeks approval of a proposed change from the MW Coordinator
and the MW Coordinator does not approve such change (or does not approve such
change within a reasonable time after Monogram's request (which reasonable time
shall not exceed ten (10) days)), Monogram may seek approval of such change from
the Marketing Committee. If the Marketing Committee does not approve such
change (or does not approve such change within a reasonable time after
Monogram's request (which reasonable time shall not exceed sixty (60) days)),
any party hereto may, within thirty (30) days thereafter, institute an
arbitration proceeding to resolve such determination. Any such arbitration
shall be conducted in accordance with the rules of the American Arbitration
Association (or any successor thereto) then in effect or the rules of a similar
association chosen by the Marketing Committee if the American Arbitration
Association (or a successor thereto) is not then in existence. There shall be
three (3) arbitrators, one selected by MW, one selected by Monogram and a third
selected by the first two, each of whom is experienced in complex financial
transactions. Monogram and MW each shall bear their own costs to arbitrate.
The parties shall equally split the costs, if any, of the American Arbitration
Association and the arbitrators' fee. The arbitration shall be conducted at a
place in New York, New York to be selected by the arbitrators. The law of the
State of New York shall govern any arbitration hereunder. The decision of the
arbitrators shall be final and binding on the parties, and any party may have
such award entered as a judgment in a court of competent jurisdiction and
enforce it like any other judgment. In reaching any decisions, the arbitrators
shall be governed by the terms and conditions of this Agreement and shall not
modify the terms and conditions hereof. Where a dispute is not covered by a
term or condition, the arbitrators shall seek to resolve the dispute
expeditiously and in a manner giving regard to Monogram's interests as the owner
of Accounts and Indebtedness and MW's interests as a seller of Merchandise and
its interest in the continuing goodwill of the Cardholders and its reputation.
Whenever this Agreement refers to a matter approved by the Marketing Committee,
such reference shall be deemed to be the conclusion of the arbitrators if such
matter was decided through arbitration.
(7) In reaching its decisions, the Marketing Committee and any
arbitrators shall be governed by the basic principle that the purpose of this
Agreement is to provide
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ongoing strong support to the retail and marketing efforts of MW, its Authorized
Affiliates and Authorized Licensees so that they can remain competitive and
responsive to customers' needs in all relevant markets, while recognizing the
need for Monogram and its Affiliates with respect to their participation in the
Program to maintain a fair and reasonable profit and to provide ongoing strong
support to credit quality and business development efforts of Monogram in
connection with Accounts. In approving any suggested changes, the Marketing
Committee and the arbitrators may consider whether the then Aggregate
Cardholders' Balance is adequate to cover any reasonably anticipated increase in
the amount of Indebtedness incurred by Cardholders arising out of the change.
(8) Notwithstanding any other provision of this Agreement to the
contrary, each of Monogram and MW may take any actions without prior Marketing
Committee approval that Monogram or MW, as the case may be, believes in good
faith, after consultation with counsel and reasonable notice to the other party,
are required by Law or by demand of any Governmental Authority.
5.17. CUSTOMER MOVES. During the term of this Agreement, Monogram and
MW will adopt and implement mutually agreed upon procedures reasonably designed
to direct the issuance of Credit Cards or credit cards issued by Monogram under
agreements with MW or Affiliates of MW in each situation where a Cardholder's or
cardholder's address changes to the knowledge of Monogram and the Cardholder's
Credit Card or cardholder's credit card is not the Primary Card for the new
address. Monogram will issue Primary Cards in accordance with such agreed-upon
procedures.
6. CONDITIONS PRECEDENT
6.1. CONDITIONS TO MONOGRAM'S OBLIGATIONS. Notwithstanding any other
provision of this Agreement, Monogram shall have no obligation or liability
hereunder unless and until Monogram shall have waived or received (which
Monogram shall acknowledge in writing to MW if so waived or received), in form
and substance reasonably satisfactory to Monogram, on or before the Closing
Date:
(1) Evidence that, Monogram has filed financing statements (form
UCC-1 or others) with all filing officers desired by Monogram.
(2) Evidence that all actions necessary to perfect the first
priority of Monogram's Lien in and to Indebtedness and Accounts and, to insure
that Monogram has good
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title in and to such Indebtedness and Accounts, have been taken, including,
without limitation, the filing of duly signed and executed termination
statements or assignments to Monogram pursuant to the Code with respect to any
and all Liens (other than Monogram's Lien) in and to such Indebtedness and
Accounts, provided that this condition shall not be deemed not satisfied if the
interest of Monogram in Accounts and Indebtedness has been encumbered by Liens
created or caused by Monogram or its Affiliates.
(3) A favorable opinion of counsel to MW, dated as of the
Closing Date, substantially in the form annexed hereto as SCHEDULE 6.1(3).
(4) [Section Intentionally Omitted.]
(5) Resolutions of MW's board of directors, certified by the
secretary or assistant secretary of MW, as of the Closing Date, to be duly
adopted and in full force and effect on such date, authorizing (i) the
execution, delivery and performance of this Agreement and all documents executed
and to be executed pursuant hereto, (ii) the establishment of Accounts by
Monogram and the granting of the Liens herein provided for, and (iii) specific
officers to execute and deliver this Agreement and all other related documents
and instruments.
(6) [Section Intentionally Omitted.]
(7) The Financials referred to in SECTION 8.5 hereof.
(8) [Section Intentionally Omitted.]
(9) Certificate of the secretary or assistant secretary of MW as
to incumbency and signatures of the officers of MW, together with evidence of
the incumbency of such secretary or assistant secretary.
(10) [Section Intentionally Omitted.]
(11) Evidence that, commencing as of April 1, 1996, Monogram is
listed as an additional named insured with an assignment of benefit only to
Monogram under credit insurance and credit property insurance sold on Accounts.
(12) Evidence that the Account-Related Agreement has been
executed by MW and is, or upon the effectiveness of this Agreement shall be,
effective.
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6.2. CONDITIONS TO MW'S OBLIGATIONS. Notwithstanding any other
provision of this Agreement, MW shall have no obligation or liability hereunder
unless and until MW shall have waived or received (which MW shall acknowledge in
writing to Monogram if so waived or received), in form and substance reasonably
satisfactory to MW, on or before the Closing Date:
(1) A favorable opinion of counsel to Monogram opining as to
Monogram, dated as of the Closing Date, substantially in the form annexed hereto
as EXHIBIT 6.2(1).
(2) Resolutions of Monogram's Board of Directors, certified by
the secretary or assistant secretary of Monogram as of the Closing Date, to be
duly adopted and in full force and effect on such date, authorizing (i) the
execution, delivery and performance of this Agreement and all other documents
executed and to be executed pursuant hereto, (ii) the establishment of the
Program, and (iii) specific officers to execute and deliver this Agreement and
all other related documents and instruments.
(3) Resolutions generally authorizing the execution, delivery and
performance of guaranties, as contained in minutes certified by an attesting
secretary of GE Capital, and evidence that the Person executing and delivering
the Guaranty on behalf of GE Capital is authorized under such resolutions to do
so.
(4) Certificates of the secretary or assistant secretary of
Monogram and GE Capital, respectively, dated as of the Closing Date, as to the
incumbency and signatures of the officers of Monogram and GE Capital, together
with evidence of the incumbency of such secretary or assistant secretary.
6.3. CONDITIONS TO ADVANCES ON ACCOUNTS BY MONOGRAM. It will be a
condition precedent to the obligation of Monogram to make advances on Accounts
on behalf of Cardholders (which condition may be waived by Monogram, but any
such waiver shall not apply to future advances as to which there is no waiver)
that the following statements shall be true and correct as of the date of each
such advance by Monogram:
(1) All of the representations and warranties of MW contained in
SECTION 8 of this Agreement which (a) if not true and correct would constitute a
MW Default pursuant to SECTION 16.1 and (b) are Remade MW Representations and
Warranties as provided in SECTION 8, shall be correct in all material respects
on and as of the date of any such advance as though made on and as of such date.
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(2) No event shall have occurred and be continuing, or would
result from such advance, which constitutes a MW Default.
(3) MW shall have caused the last certificate as required by
SECTION 10.1 to be delivered to Monogram.
(4) No outstanding Lien shall have been placed against the
Accounts or Indebtedness owned by, or Charge Slips or Credit Slips to be
tendered to, Monogram, taken as a whole (other than Liens created or caused by
Monogram or Assignees); PROVIDED, HOWEVER, that, if at any time, an outstanding
Lien or Liens in an aggregate amount less than [ ]* shall have been
placed against the Accounts or Indebtedness owned by, or Charge Slips or Credit
Slips to be tendered to, Monogram, taken as a whole (other than Liens created
or caused by Monogram or Assignees), Monogram shall continue to make advances
on Accounts on behalf of Cardholders unless (i) MW fails to promptly commence
action to remove such Lien(s), or (ii) such Lien(s) have not been removed
thirty (30) days after MW has had knowledge of the existence thereof; and
PROVIDED FURTHER that, if at any time, an outstanding Lien or Liens
resulting from a judgment or tax assessment against MW shall have been placed
against the Accounts or Indebtedness owned by, or Charge Slips or Credit Slips
to be tendered to, Monogram, taken as a whole (other than Liens created or
caused by Monogram or Assignees), Monogram shall continue to make advances on
Accounts on behalf of Cardholders unless MW fails to (i) promptly commence
action to remove such Lien(s) and (ii) provide, or cause to be provided,
security reasonably acceptable to Monogram.
(5) No event shall have occurred and be continuing which is
described in SECTION 16.1(5), except that if a petition has been filed under the
bankruptcy laws by a Person other than MW, until the earlier of sixty (60) days
after an involuntary petition has been filed under the bankruptcy laws or an
adjudication that MW is a bankrupt under such laws, upon request of MW, Monogram
shall pay the Payment Amount in respect of Charge Slips and Credit Slips at
[ ]* of the face amount of the Indebtedness to be advanced on behalf
of the Cardholder and Monogram shall credit to a non-segregated reserve
account established by Monogram on its books (the "Liquidation Account")
[ ]* of such face amount, provided that Monogram shall not be obligated
to pay such Payment Amount(s) during such period after the earliest to occur of
(a) fifteen (15) days after the event described in SECTION 16.1(5) shall first
occur, (b) a trustee shall be appointed in any proceeding described therein, or
(c) an order for relief shall be entered in such proceeding, unless an order in
such form as shall be
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reasonably acceptable to Monogram approving such payment pursuant to the terms
of this Agreement (including the Liquidation Account) shall have been entered
for the benefit of Monogram by a court of competent jurisdiction. MW shall have
no right, title or interest in or to the Liquidation Account, except that such
balance of the Liquidation Account shall be paid to MW upon the earlier of the
time(s) when (a) an event under SECTION 16.1(5) is no longer continuing, or (b)
the later of (i) the date on which all Accounts have been liquidated or (ii) all
of MW's Obligations have been paid or otherwise satisfied in full. Such
Liquidation Account shall bear interest at a daily rate equivalent to 1/365th of
the Liquidation Account Commercial Paper Rate, calculated on a simple basis, in
effect from time to time as of the last Business Days of the Settlement Periods
during which there is a balance outstanding in the Liquidation Account, and such
interest shall be added to the balance of the Liquidation Account.
The acceptance by MW of each payment for Indebtedness shall be deemed to
constitute representations and warranties by MW that the conditions in this
SECTION 6.3 have been satisfied.
6.4. CONDITIONS TO MW'S OBLIGATION TO SUBMIT CHARGE SLIPS AND CREDIT
SLIPS. It will be a condition precedent to the obligation of MW to submit
Charge Slips and Credit Slips to Monogram (which condition may be waived by MW,
but any such waiver shall not apply to future submissions as to which there is
no waiver) that the following statements shall be true and correct as of the
date of each submission:
(1) All of the representations and warranties of Monogram
contained in SECTION 9 of this Agreement which (a) if not true and correct would
constitute a Monogram Default pursuant to SECTION 16.2, and (b) are Remade
Monogram Representations and Warranties as provided in SECTION 9 shall be
correct in all material respects on and as of the date of each such submission
as though made on and as of such date.
(2) No event shall have occurred and be continuing, or would
result from such submission, which constitutes a Monogram Default.
7. SECURITY AND ACCESS TO DATA
7.1. NATURE OF PROGRAM; SECURITY INTEREST.
(i) The parties hereto intend and agree that the transactions
contemplated herein shall constitute a program for the extension of consumer
credit and service by Monogram to individuals who wish to obtain financing from
Monogram to purchase Merchandise at Stores and that MW shall have no right,
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title or interest in or to Accounts, Indebtedness and/or Account Documentation
and/or any of the proceeds of any of the foregoing. Against the possibility
that, despite such agreement and intentions of the parties, MW is found to have
some right, title or interest in or to Accounts, Indebtedness or Account
Documentation or any of the proceeds of any of the foregoing, and to provide
Monogram with further assurance, secure Monogram's rights under the Program
(including its right to collect Accounts and Indebtedness hereunder), and secure
payment and/or performance of all of MW's Obligations, MW hereby grants, and
continues, to Monogram a present and continuing security interest (subject to no
other Liens caused by or arising from the acts or omissions, whether direct or
indirect, of MW, its Affiliates and/or Authorized Licensees) in and to the
following property or interests in property of MW, whether now existing or
hereafter created or acquired: (a) all Accounts and Indebtedness; (b) all
Account Documentation; (c) all Purchased Monogram Accounts; (d) all
Non-Converted Accounts; (e) all MWCC Account Documentation; and (f) all proceeds
of any of the foregoing.
(ii) The parties hereto intend and agree that MW shall have no
title to, or ownership of, deposits, credit balances and/or reserves on the
books of Monogram, MWCC or any of their respective Affiliates relative to the
Program, this Agreement or the Account-Related Agreement (whether such reserves
are held by such Person on its own behalf or for the benefit of an Affiliate)
and/or any of the proceeds of any of the foregoing, except such right and
interest in or to any of the foregoing as expressly provided herein or in the
Account-Related Agreement. Against the possibility that, despite such agreement
and intentions of the parties, MW is found to have an ownership interest in or
to such deposits, credit balances and/or reserves or any of the proceeds of any
of the foregoing, and to provide Monogram with further assurance, secure
Monogram's rights against MW and its Affiliates under the Program (including its
right to collect Accounts and Indebtedness hereunder), and secure payment and/or
performance of all of MW's Obligations, MW hereby grants, and continues, to
Monogram a present and continuing security interest (subject to no other Liens
caused by or arising from the acts or omissions, whether direct or indirect, of
MW, its Affiliates and/or Authorized Licensees) in and to the following property
or interests in property of MW, whether now existing or hereafter created or
acquired: (a) all deposits, credit balances and/or reserves on the books of
Monogram, MWCC or any of their respective Affiliates relative to the Program,
this Agreement or the Account-Related Agreement (whether such reserves are held
by such Person on its own behalf or for the benefit of an Affiliate) including,
without limitation, the Credit Promotions Account, Liquidation Account and
Protection Account described in SECTIONS 3.5, 6.3 AND 12.4, respectively, the
MWCC Payment Reserve Account
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(as defined in the Account-Related Agreement) and any amounts held by Monogram
for transmission to MWCC; and (b) all proceeds of any of the foregoing.
(iii) The parties hereto intend and agree that MW shall have no
right, title or interest in or to returned and/or repossessed Merchandise, to
the extent such Merchandise was purchased on an Account, a Purchased Monogram
Account and/or a Non-Converted Account and Monogram, MWCC, Assignees and/or MWCC
Assignees (as defined in the Account-Related Agreement) have not been paid by MW
with respect thereto, or any of the proceeds of any of the foregoing. Against
the possibility that, despite such agreement and intentions of the parties, MW
is found to have some right, title or interest in or to such returned and/or
repossessed Merchandise or any of the proceeds of any of the foregoing, and to
provide Monogram with further assurance, secure Monogram's rights under the
Program (including its right to collect Accounts and Indebtedness hereunder),
and secure payment and/or performance of all of MW's Obligations, MW hereby
grants, and continues, to Monogram a present and continuing security interest
(subject to no other Liens caused by or arising from the acts or omissions,
whether direct or indirect, of MW, its Affiliates and/or Authorized Licensees)
in and to the following property or interests in property of MW, whether now
existing or hereafter created or acquired: (a) all returned and/or repossessed
Merchandise, to the extent such Merchandise was purchased on an Account, a
Purchased Monogram Account and/or a Non-Converted Account and Monogram, MWCC,
Assignees and/or MWCC Assignees (as defined in the Account-Related Agreement)
have not been paid by MW with respect thereto; and (b) all proceeds of any of
the foregoing.
(iv) MW agrees to cooperate fully with Monogram in order to give
effect to the security interest granted in this SECTION 7.1 including, without
limitation, the filing of UCC-1s or comparable statements in order to perfect
and continue such security interest, notifying Monogram as to its knowledge of
any Liens or purported Liens held or asserted by Persons other than Monogram or
its Assignees and the obtaining of such releases and agreements from its
creditors as Monogram may require.
7.2. RETURNS OF MERCHANDISE. MW shall, and shall cause its Authorized
Affiliates and Authorized Licensees to, notify Monogram, as soon as reasonably
practical (and with sufficient detail to credit the applicable amounts), of all
credits granted to Cardholders with respect to returned Merchandise that was
purchased pursuant to Accounts creating Indebtedness. To the extent Monogram
does not receive an offset pursuant to SECTION 3.2 hereof for such credit, MW
will pay (or will cause the appropriate Authorized Affiliate or Authorized
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Licensee to pay) the amount of such credit to Monogram within thirty (30) days
after the issuance of such credit.
7.3. NOTICES TO MONOGRAM. MW shall and shall (i) cause Authorized
Affiliates to, and (ii) use best efforts to cause Authorized Licensees to, use
best efforts to promptly furnish to, or inform Monogram of, all material
information known to any of them relating to the collectability of an Account,
any changes of address of Cardholders, and notices of filings under the
Bankruptcy Code with respect to Cardholders.
7.4. FURTHER ASSURANCES. In addition to the undertakings specifically
provided for in this Agreement, MW and Monogram shall each do all other things
and sign and deliver all other documents and instruments reasonably requested by
the other to perfect, protect, maintain and help enforce the Liens of Monogram
and the priority of such Liens, and all other rights granted pursuant to this
Agreement. Such acts shall include, without limitation, indicating on the books
and records of MW that Accounts and Indebtedness are the property of Monogram
and/or its Assignees and are subject to a Lien pursuant to this Agreement; the
filing of financing statements, amendments, and termination statements under the
Code relating to the Accounts and Indebtedness; and the delivery of any Account
Documentation (including, without limitation, computer tapes) the physical
possession of which Monogram requires in connection with the ownership,
collection and enforcement of Accounts and Indebtedness. If MW fails to do so
within ten (10) Business Days after request, MW irrevocably authorizes Monogram
to execute alone any financing statement or any other document or instrument
which may be required to perfect or protect any Lien granted to Monogram
pursuant to this Agreement, and authorizes Monogram to sign MW's name on the
same.
7.5. ATTORNEY-IN-FACT. MW appoints (and shall (i) cause each
Authorized Affiliate to appoint and (ii) use best efforts to cause Authorized
Licensees to appoint) Monogram or Monogram's designee as their attorney-in-fact
(a) to endorse its name on any checks, notes, acceptances, money orders, drafts,
or other forms of payment of or security for any Account or Indebtedness, (b) to
sign its name(s) on any notices to any Cardholder in connection with the
collection of Indebtedness, (c) to send requests for verification of any Account
or Indebtedness to Cardholders, (d) to sue Cardholders for the collection of
Indebtedness and (e) to do all things necessary to carry out or enforce the
obligations of Cardholders and to preserve Monogram's Lien in and to Accounts
and Indebtedness. This power, being coupled with an interest, is irrevocable
until there shall no longer be any Indebtedness. Monogram shall, in exercising
such power of attorney-in-fact, comply with all governmental laws,
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rules and regulations, act so as not to injure or adversely affect the business
or reputation of MW, Authorized Affiliates and/or Authorized Licensees (it being
understood that the collection of Accounts in accordance with applicable debt
collections laws, the sending of adverse action letters, and the legally
required or MW approved changes of Account terms do not injure or adversely
affect such businesses or reputations), and be responsible for all obligations
and liabilities arising out of the actions so taken.
7.6. CONTINUED LIABILITY. MW shall (and shall cause Authorized
Affiliates and use best efforts to cause Authorized Licensees to) perform all of
their respective duties and obligations under any contracts or agreements
between them and any Cardholders that relate to Merchandise sold on Accounts (as
opposed to the Credit Card Agreement, Account or Indebtedness). Anything herein
to the contrary notwithstanding, (a) MW, its Authorized Affiliates and the
Authorized Licensees shall remain liable under any contracts and agreements with
any Cardholder that relate to the Merchandise sold (as opposed to the Credit
Card Agreement, Account, or Indebtedness), and to the extent set forth therein
to perform all of their duties and obligations pursuant thereto to the same
extent as if this Agreement had not been executed; (b) the exercise by Monogram
of any rights pursuant to this Agreement shall not release MW, its Authorized
Affiliates or Authorized Licensees from any of such duties or obligations under
the contracts and agreements; and (c) except to the extent specifically set
forth herein, Monogram shall not have any obligation or liability with respect
to any Merchandise by reason of this Agreement, be obligated to perform any of
the obligations or duties of MW pursuant to this Agreement, or be obligated to
perform any of the obligations or duties of Authorized Affiliates or Authorized
Licensees.
7.7. OTHER PARTY MAY PERFORM. If either MW or Monogram fails to
perform any of its duties or obligations contained herein and such failure has
remained unremedied for a period of fifteen (15) days after notice to it from
the other party, or if such failure is not reasonably susceptible of being cured
within such fifteen (15) day period, if it fails to commence to cure such
failure within such fifteen (15) day period and diligently proceed to cure
thereafter, the other party may itself perform, or cause performance of, such
duties or obligations, and the reasonably incurred expenses of the performing
party incurred in connection therewith shall be payable by the other party on
demand.
7.8. RECEIPT OF PAYMENTS. The primary and exclusive right to effect
collection of Indebtedness shall be vested in Monogram and Monogram may, at any
time, in its sole discretion,
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subject to the proviso below, notify Cardholders to make payments directly to it
in accordance with its instructions, provided that Monogram shall permit during
the term of this Agreement, Cardholders to make In-Store Payments at all times
prior to the earliest of (a) occurrence of a MW Default, (b) such time as
Monogram has a reasonable basis for believing a MW Default is likely to occur or
(c) Monogram reasonably concludes that continued acceptance of In-Store Payments
raises concerns regarding Monogram's safety and soundness or other legal
concerns.
7.9. ACCESS TO DATA BY MONOGRAM. In addition to the other rights set
forth in this Agreement, Monogram (by any of its officers, employees, designees
and/or agents) shall have the right, during normal business hours, in such a
manner as to minimize interference with MW's normal business operations, to
examine, audit, inspect, and make extracts from all of the data, records, files,
and books of account including, without limitation, non-financial information
under the control of MW relating to the Accounts, Cardholders and Indebtedness,
and MW shall use its best efforts to facilitate Monogram's exercise of such
right, including the assignment of such personnel of MW for the assistance of
Monogram as Monogram shall reasonably request. MW shall deliver any document or
instrument necessary for Monogram to obtain such information from any Person
maintaining records for MW. Except as otherwise specifically provided in this
Agreement, the party reviewing or copying such information shall do so at its
own expense.
7.10. ACCESS TO DATA BY MW. In addition to the other rights set forth
in this Agreement (E.G., MW's rights pursuant to SECTION 5.7), MW (by any of its
officers, employees, designees, and/or agents) shall have the right, during
normal business hours, in such a manner as to minimize interference with
Monogram's normal business operations, to examine, audit, inspect, copy and make
extracts from all of the data, records, files and books of account under the
control of Monogram relating to Accounts, Cardholders and Indebtedness,
including, without limitation, non-financial information under the control of
Monogram relating to the Accounts, Cardholders and Indebtedness, and Monogram
shall use its best efforts to facilitate MW's exercise of such rights, including
the assignment of such personnel of Monogram for the assistance of MW as MW
shall reasonably request. Monogram shall deliver any document or instrument
necessary for MW to obtain such information from any Person maintaining records
for Monogram. Except as otherwise specifically provided in this Agreement
(E.G., MW's access to information pursuant to SECTION 5.7 at no expense to MW),
the party reviewing or copying such information shall do so at its own expense.
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7.11. AUDIT OF INFORMATION. MW's and Monogram's right to audit
information as provided in Section 7.9 and 7.10 shall include the right to audit
information necessary to determine if payments, credits, calculations or
allocations made by either of them pursuant to this Agreement were accurate. If
a party does not object in writing to the other party respecting any calculation
or with respect to the amount of any payment, credit or allocation made under
such sections within twenty-four (24) months after the date of such payment,
credit, calculation or allocation, the calculation or the amount of such
payment, credit or allocation shall be final. Each party shall maintain for a
period of at least three (3) years, or any longer period as provided herein or
during which an item is being contested, information reasonably sufficient for
the other to perform such audits.
7.12. RIGHT OF SETOFF. Except as specifically provided in this
Agreement, and except during the period that the other party has committed an
unremedied MW Default or Monogram Default, as the case may be, or an unremedied
act has occurred or event is continuing which with the giving of notice or the
passage of time or both, would be a MW Default or Monogram Default, as the case
may be, neither MW nor Monogram shall have, and they each hereby waive, the
right to setoff, and to appropriate and apply to the payment of amounts owing to
it in connection with this Agreement, any and all money or property of the other
then held by it.
8. REPRESENTATIONS AND WARRANTIES OF MW
MW makes the following representations and warranties to Monogram as
set forth below in this SECTION 8 as of the date hereof. Each and all of such
representations and warranties shall survive the execution and delivery of this
Agreement as long as a claim may be made, except for those set forth in SECTION
8.5 which shall only survive to the extent Monogram gives MW written notice of
any misrepresentation or breach of warranty (specifying in reasonable detail the
basis thereof) on or before fifteen (15) months after the date hereof. Each and
all of such representations and warranties which are set forth in SECTIONS
8.1(a), 8.1(b), 8.1(c), 8.1(d), 8.2(b), 8.2(c), 8.2(d), 8.4, 8.6, 8.7, 8.9, and
8.11 shall be deemed to be restated and remade ("Remade MW Representations and
Warranties") on each date on which Monogram is required to make advances on
Accounts on behalf of Cardholders. Notwithstanding anything to the contrary
contained in this Agreement, except for the representations and warranties set
forth in SECTION 8.9, in no event shall MW be liable (by way of indemnification
or otherwise) for any misrepresentation or breach of warranty, to be read
without limitation as to materiality for the purposes of this sentence,
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until the aggregate amount recoverable under this Agreement on account thereof
exceeds [ ]*, and then only to the extent of the excess of such
aggregate amount recoverable over [ ]*.
8.1. CORPORATE EXISTENCE. MW (a) is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Illinois,
or such other state in which it may be incorporated, (b) is duly qualified as a
foreign corporation and in good standing under the laws of each jurisdiction
where its ownership or lease of property or the conduct of its business requires
such qualification, except where failure to be so qualified will not have a
material adverse effect on the business, operations, property, or financial
condition of MW, the Accounts or the Indebtedness (such Accounts and
Indebtedness taken as a whole), Monogram's Lien in and to the Accounts and
Indebtedness (such Accounts and Indebtedness taken as a whole), or the priority
of such Lien, (c) has the requisite corporate power and authority to own,
pledge, mortgage, or otherwise encumber and operate its properties, to lease the
properties it operates under lease, and to conduct its business as now,
heretofore, and proposed to be conducted, (d) has all material licenses,
permits, consents, or approvals from or by, and has made all necessary filings
with, and has given all necessary notices to, all governmental authorities
having jurisdiction, to the extent required for such ownership, operation, and
conduct, except where failure to obtain such licenses, permits, consents, or
approvals, or to make such filings or give such notices, does not have a
material adverse effect on the business, operations, property, or financial
condition of MW, or the Accounts or Indebtedness (such Accounts and Indebtedness
taken as a whole), and (e) is in compliance with its certificate of
incorporation and by-laws.
8.2. EXECUTIVE OFFICES AND STORES. (a) The chief executive office of
MW is at 619 West Chicago Avenue, Chicago, Illinois 60671, (b) the chief
executive office of MW will during the term of this Agreement be located at such
location or at such other location as MW shall, from time to time, specify upon
at least forty-five (45) days prior written notice to Monogram, (c) all records
relating to Accounts and Indebtedness and maintained by MW are maintained at
Stores, or at such other locations as are set forth on SCHEDULE 8.2 annexed
hereto, as such schedule may be amended by MW from time to time upon forty-five
(45) days prior written notice to Monogram, and (d) SCHEDULE 8.2 contains a
complete and correct listing of the addresses of all Stores operated by MW
and/or an Authorized Affiliate, as such schedule may be amended by MW from time
to time at least sixty (60) days prior to the commencement, or ten (10) days
prior to a termination, of a retail store's operations.
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8.3. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
execution, delivery, and performance of this Agreement by MW and all instruments
and documents to be executed by MW on the date hereof pursuant to this
Agreement, and the creation of all Liens to be granted by MW as provided for
herein: (a) are within MW's power; (b) have been duly authorized by all
necessary or proper corporate action, including the consent of shareholders
where required; (c) are not in contravention of any provision of MW's
certificate of incorporation or by-laws; (d) will not violate any law or
regulation applicable to MW or any order or decree applicable to MW of any court
or governmental instrumentality; (e) except as set forth on SCHEDULE 8.3 annexed
hereto, will not conflict with or result in the breach or termination of,
constitute a default under, or accelerate any performance required by, any
indenture, mortgage, deed of trust, lease, agreement, or other instrument to
which MW is a party or by which MW or any of its property is bound, which
conflicts, breaches, or defaults, either individually, or in the aggregate will
have a material adverse effect on the business, operations, property, or
financial condition of MW, the Accounts and Indebtedness (such Accounts and
Indebtedness taken as a whole), Monogram's Lien in and to the Accounts and
Indebtedness (such Accounts and Indebtedness taken as a whole), or the priority
of such Lien; and (f) do not require any filing (other than the filings
contemplated hereby) or registration by MW with, or the consent or approval of,
any governmental body, agency, authority, or any other Person which has not been
made or obtained previously where such failure to file, register or obtain
consent or approval either individually, or in the aggregate, will have a
material adverse effect on the business, operations, property or financial
condition of MW, the Accounts and Indebtedness (such Accounts and Indebtedness
taken as a whole), Monogram's Lien in and to the Accounts and Indebtedness (such
Accounts and Indebtedness taken as a whole), or the priority of such Lien. This
Agreement has been duly executed and delivered by MW and constitutes the legal,
valid, and binding obligation of MW, enforceable against MW in accordance with
its terms except as such enforcement may be limited by applicable bankruptcy,
moratorium, reorganization, or other laws or legal principles affecting the
rights of creditors generally or by general principles of equity (whether or not
a proceeding is brought in a court of law or equity).
8.4. SOLVENCY. MW is Solvent.
8.5. FINANCIALS. The consolidated balance sheet of MW as of December
30, 1995 (the "Balance Sheet"), and the related statements of income,
shareholders' equity, and changes in financial position for the fiscal year then
ended, certified by Arthur Andersen & Company, independent public accountants,
were
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prepared in accordance with GAAP applied on a consistent basis (except as
disclosed therein), and present fairly the consolidated financial position of MW
as at such date and the results of its operations and changes in financial
position for the fiscal year then ended.
8.6. NO DEFAULT. MW is not in default pursuant to or in respect of
any contract, agreement, lease, or other instrument to which it is a party, nor
has MW received any notice of default pursuant to any such contract, agreement,
lease, or other instrument, in either case where such default would have a
material adverse effect on the business, operations, property, or financial
condition of MW, the Accounts and Indebtedness (such Accounts and Indebtedness
taken as a whole), Monogram's Lien in and to the Accounts and Indebtedness (such
Accounts and Indebtedness taken as a whole), or the priority of such Lien. No
MW Default or event which, with the giving of notice, the lapse of time, or
both, would be a MW Default, has occurred and is continuing.
8.7. MARGIN REGULATIONS. This Agreement and the transactions
contemplated hereby are not considered a "purpose credit" within the meaning of
regulations G, T, U or X of the Federal Reserve Board and do not violate such
regulations. MW has neither taken, nor permitted any agent acting on its behalf
to take, any action which might cause this Agreement or any document or
instrument delivered pursuant hereto to violate any regulation of the Federal
Reserve Board.
8.8. NO LITIGATION. Except as set forth on SCHEDULE 8.8 annexed
hereto (which schedule specifies those claims involving consumer credit), no
action, claim, or proceeding not covered by insurance which reasonably may be
expected to result in a liability of MW in an amount in excess of, for each such
action, claim or liability, [ ]* is now pending or, to the knowledge of
MW, threatened against MW, at law, in equity, or otherwise, before any court,
board, commission, agency, or instrumentality of any federal, state, or local
government or of any agency or subdivision thereof or before any arbitrator or
panel of arbitrators, nor to the knowledge of MW does a state of facts exist
which might give rise to any such proceedings. None of such matters set forth
on SCHEDULE 8.8 questions the validity of this Agreement or any action taken
or to be taken pursuant hereto or any of the conditions precedent thereto.
8.9. ACCOUNTS. With respect to each item of Indebtedness established
and/or added by Monogram (and, to the extent applicable, each Account (including
each Old Account)) at the time of establishment/addition: (a) MW has not
purported to
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create Liens with respect thereto, in favor of any Person other than Monogram or
an Affiliate; (b) arises or arose in connection with a bona fide sale and
delivery of Merchandise by MW, Affiliates of MW or licensees, or the
predecessors of any of the foregoing, to a Cardholder; and (c) is for a
liquidated amount as stated in the Account Documentation relating thereto,
subject to returns, allowances and other adjustments in the ordinary course of
business.
8.10. [SECTION INTENTIONALLY OMITTED.]
8.11. THE LICENSED MARKS. MW is the owner of the Licensed Marks and
has the right, power and authority to license Monogram and authorized designees
to use the Licensed Marks as set forth in SECTION 5.15 hereof and the use of the
Licensed Marks by Monogram or said designees in a manner approved (or deemed
approved) by MW shall not (i) violate any applicable Federal, state or local
law, rule or regulation or (ii) infringe upon the right(s) of any third party.
MW shall execute such documents as Monogram reasonably may request from time to
time to ensure that right, title and interest in the Licensed Marks resides in
MW.
9. REPRESENTATIONS AND WARRANTIES OF MONOGRAM
Monogram makes the following representations and warranties to MW as
set forth below in this SECTION 9 as of the date hereof. Each and all of such
representations and warranties shall survive the execution and delivery of this
Agreement as long as a claim may be made. Each and all of such representations
and warranties which are set forth in SECTIONS 9.1(a), 9.1(b), 9.1 (last
sentence) and 9.3 shall be deemed to be restated and remade ("Remade Monogram
Representations and Warranties"), on each date on which Monogram is required to
make advances on Accounts on behalf of Cardholders. Notwithstanding anything to
the contrary contained in this Agreement, in no event shall Monogram be liable
(by way of indemnification or otherwise) for any misrepresentation or breach of
warranty, to be read without limitations as to materiality for purposes of this
sentence, until the aggregate amount recoverable under this Agreement on account
thereof exceeds [ ]*, and then only to the extent of the excess of such
aggregate amount recoverable over [ ]*.
9.1. CORPORATE EXISTENCE. Monogram (as to all periods on and after
the Conversion Date) (a) is a banking corporation duly chartered or organized
(as appropriate), validly existing, and in good standing under the laws of the
State of Georgia, (b) has the requisite power and authority to own, pledge,
mortgage,
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or otherwise encumber and operate its properties, to lease the properties it
operates under lease, and to conduct its business as now, heretofore, and
proposed to be conducted, and (c) is in compliance with its charter and by-laws.
Monogram has all material licenses, permits, consents, or approvals from or by,
and has made all necessary filings with, and has given all necessary notices to,
all governmental authorities having jurisdiction, to the extent required for
such ownership, operation, and conduct, except where failure to obtain such
licenses, permits, consents, or approvals, or to make such filings or give such
notices, does not have a material adverse effect on its business, operations,
property, or financial condition.
9.2. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
execution, delivery, and performance of this Agreement by Monogram, and all
instruments and documents to be executed by Monogram on the date hereof pursuant
to this Agreement (a) are within Monogram's powers; (b) have been duly
authorized by all necessary or proper action, including the consent of
shareholders where required; (c) are not in contravention of any provision of
Monogram's charter or by-laws; (d) will not violate any law or regulation
applicable to Monogram or any order or decree against Monogram of any court or
governmental instrumentality; (e) except as set forth on SCHEDULE 9.2 annexed
hereto, will not conflict with or result in the breach or termination of,
constitute a default under, or accelerate any performance required by, any
indenture, mortgage, deed of trust, lease, agreement, or other instrument to
which Monogram is a party or by which Monogram or any of its property is bound,
which conflicts, breaches, or defaults, either individually, or in the
aggregate, will have a material adverse effect on Monogram's business,
operations, property, or financial condition; and (f) do not require any filing
or registration by Monogram with or the consent or approval of any governmental
body, agency, authority, or, as to consents and approvals needed by Monogram,
any other Person which has not been made or obtained previously where such
failure to file, register or obtain consent or approval either individually, or
in the aggregate, will have a material adverse effect on its businesses,
operations, property or financial condition, the Accounts and Indebtedness (such
Accounts and Indebtedness taken as a whole), Monogram's Lien in and to the
Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), or
the priority of such Lien. Upon approval of the transactions herein by its
shareholder(s), this Agreement has been duly executed and delivered by Monogram
and constitutes Monogram's legal, valid, and binding obligation, enforceable
against it in accordance with its terms except as such enforcement may be
limited by applicable bankruptcy, moratorium, reorganization, or other laws or
legal principles affecting the rights of creditors generally or by general
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principles of equity (whether or not a proceeding is brought in a court of law
or equity).
9.3. SOLVENCY. Monogram is Solvent.
10. FINANCIAL STATEMENTS AND INFORMATION
10.1. MW'S REPORTS AND NOTICES. Until the end of the term of this
Agreement, MW shall deliver to Monogram:
(1) Within sixty (60) days after the end of each fiscal quarter
of MW (except the last), MW's unaudited consolidated balance sheets as of the
close of such quarter and the related statements of income, shareholder's
equity, and changes in cash flow for such fiscal quarter, accompanied by the
certification on behalf of MW by MW's chief executive or operating officer or
chief financial officer that such financial statements were prepared in
accordance with GAAP applied on a consistent basis (except as disclosed
therein), and present fairly the consolidated financial position of MW as of the
end of such fiscal quarter and the results of its operations and changes in cash
flow, subject to non-recurring and year-end adjustments, provided the foregoing
financial statements are read in the context of the audited financial statements
for the preceding fiscal year, and any notes thereto, and that, except as noted
therein, to the actual knowledge of such officer of MW there are no MW Defaults
or events which, with the passage of time or giving of notice or both, would
constitute a MW Default.
(2) Within one hundred twenty (120) days after the close of each
fiscal year, a copy of the consolidated annual financial statements of MW,
consisting of a consolidated balance sheet and related statements of income,
shareholder's equity, and changes in cash flow, all prepared in accordance with
GAAP on a consistent basis (except as disclosed therein), certified by the
independent public accountants regularly retained by MW, and accompanied by a
certification on behalf of MW by MW's chief executive or operating officer or
chief financial officer that, except as noted therein, to the actual knowledge
of such officer, there are no MW Defaults or events which, with the passage of
time or giving of notice or both, would constitute a MW Default.
(3) Such other information respecting the Accounts and
Indebtedness or MW's business or financial condition with respect to such
Accounts and Indebtedness, as Monogram may, from time to time, reasonably
request.
10.2. [SECTION INTENTIONALLY OMITTED.]
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11. INDEMNIFICATION
11.1. INDEMNIFICATION BY MW. MW agrees to protect, indemnify, and
hold harmless Monogram, its Assignees and Affiliates, the employees, officers,
directors, shareholders, partners, attorneys and agents of Monogram and its
Assignees and Affiliates, and all of the respective heirs, legal
representatives, successors and permitted assigns of the foregoing against any
and all liabilities, costs, and expenses (including reasonable attorneys' fees
and expenses), judgments, damages, claims, demands, offsets, defenses,
counterclaims, actions, or proceedings, by whomsoever asserted, including,
without limitation, Cardholders with respect to Accounts, and any Person who
prosecutes or defends any actions or proceedings, whether as representative of
or on behalf of a class or interested group or otherwise, arising out of,
connected with, or resulting from (a) any breach by MW of any of its covenants,
representations, or warranties contained in this Agreement, (b) any changes or
failure (unless such failure is a result of a circumstance beyond MW's
reasonable control) in computer systems or programs provided, or caused to be
provided, by MW that have an adverse impact on Monogram's ability to obtain and
utilize the services, information and data to be provided by MW to Monogram
pursuant to this Agreement, which adverse impact is not remedied within ten (10)
days after the occurrence thereof if it materially adversely affects Monogram's
business, or within thirty (30) days in all other events, provided Monogram
promptly advises MW of such matter after becoming aware thereof (it being
understood that this indemnity shall not apply to periods prior to the
expiration of the applicable cure period), (c) any product liability claim
arising out of the use by any Person of any Merchandise the purchase of which
was financed by an Account including, without limitation, an Old Account, (d)
any misrepresentation by employees of MW, an Affiliate of MW or an Authorized
Licensee relating to credit terms, (e) failure of MW, any Affiliate of MW or any
Authorized Licensee to have all material licenses, permits, consents, or
approvals from or by, and make all necessary filings with, and give all
necessary notices to, all governmental authorities having jurisdiction, to the
extent required for the ownership or operation of its properties, the conduct of
its business, or the creation of Accounts or Indebtedness, (f) an assertion,
demand, claim, suit, counterclaim or other proceeding by a Person other than an
indemnified party that an Account or Accounts is or are unlawful or otherwise
actionable because the balance thereon does not decrease at least partially each
month because the sum of the insurance premiums and finance charges posted to
the Account or Accounts is in excess of the minimum monthly payment, provided
further that MW's indemnification obligation shall not apply to any assertion,
demand, claim, suit, counterclaim or other
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proceeding to the extent arising from, and based solely upon, new sale activity
(renewals shall not be deemed for this purpose to be new sales if they occur
within sixty (60) days after MW or an Affiliate thereof no longer owns all or
substantially all of the Stock or assets of the Signature Companies) occurring
on any date on which MW does not directly own all or substantially all the Stock
or assets of the Signature Companies, (g) the reporting of credit losses and/or
sales taxes to federal, state or local governments or governmental units and
payments made or due to or from MW to such governments or governmental units
involving, relating to, or based in whole or in part on credit losses and/or
sales taxes, or (h) any act or failure to act by a Person involved in selling or
facilitating the sale of Merchandise on Accounts, including such Persons as
Valuevision International, Inc., to the extent such act or failure to act arises
out of, occurs, is connected with, or results from a sale or attempt to sell
Merchandise on an Account or a solicitation or application for an Account,
including failure of such a Person (i) to act in accordance with instructions
given by Monogram to the extent permitted or contemplated by this Agreement or
(ii) to perform MW's obligations under this Agreement, PROVIDED, HOWEVER, MW
shall have no liability under this subpart (i), if the act or failure to act is
the result of Monogram's failure to comply with this Agreement.
11.2. INDEMNIFICATION BY MONOGRAM. Monogram agrees to protect,
indemnify, and hold harmless MW, its Affiliates, the employees, officers,
directors, shareholders, partners, attorneys and agents of MW and its
Affiliates, and all of the respective heirs, legal representatives, successors
and permitted assigns of the foregoing against any and all liabilities, costs,
and expenses (including reasonable attorneys' fees and expenses), judgments,
damages, claims, demands, offsets, defenses, counterclaims, actions, or
proceedings, by whomsoever asserted, including, without limitation, Cardholders
with respect to Accounts, and any Person who prosecutes or defends any actions
or proceedings, whether as representative of or on behalf of a class or
interested group or otherwise, arising out of, connected with, or resulting from
(a) any breach by Monogram of any of its covenants, representations, or
warranties contained in this Agreement, (b) any changes or failure (unless such
failure is a result of a circumstance beyond Monogram's reasonable control) in
computer systems or programs provided, or caused to be provided, by Monogram
that have an adverse impact on MW's ability to obtain and utilize the services,
information and data to be provided by Monogram to MW pursuant to this
Agreement, which adverse impact is not remedied within ten (10) days after the
occurrence thereof if it materially adversely affects MW's business, or within
thirty (30) days in all other events, provided MW promptly advises Monogram of
such matter after becoming aware thereof (it
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being understood that this indemnity shall not apply to periods prior to the
expiration of the applicable cure period), (c) any claim asserted as a result of
the exercise of the power-of-attorney granted to Monogram herein or any
collection efforts by, or at the direction of, Monogram, including the
repossession of Merchandise, (d) any misrepresentation by employees of Monogram
or its Affiliates relating to credit terms, or (e) failure of Monogram to have
all material licenses, permits, consents or approvals from or by, and make all
necessary filings with, and give all necessary notices to, all governmental
authorities having jurisdiction, to the extent required for the ownership or
operation of its properties, or the conduct of its business or the ownership or
servicing of Accounts or Indebtedness.
11.3. DEFENSE OF THIRD PARTY CLAIMS. In the event that any legal
proceeding shall be instituted, or that any claim or demand shall be asserted by
any Person in respect of which one party hereto is entitled to receive payment
from the other party hereto pursuant to SECTIONS 11.1 and 11.2, the party
seeking indemnification shall promptly cause written notice of the assertion of
any claim of which it has knowledge which is covered by this indemnity to be
forwarded to the other party, which other party shall, to the extent of its
indemnification, and at its own expense, by counsel of its choice, which must be
reasonably satisfactory to the party seeking indemnification, defend the party
seeking indemnification against, and negotiate, settle, or otherwise deal with
any proceeding, claim, or demand which is related to any matter indemnified
against by the indemnifying party hereunder; PROVIDED, HOWEVER, that no
settlement shall be made without the prior written consent of the party seeking
indemnification, which consent shall not be unreasonably withheld; and PROVIDED
FURTHER that the indemnifying party shall keep the party seeking indemnification
advised as to the status of the matter. The party seeking indemnification may
participate in any such proceeding with counsel of its choice at its expense. If
the party seeking indemnification refuses to approve a proposed settlement that
is acceptable to the claimant, the indemnifying party may, at its option,
deposit the proposed settlement with the party seeking indemnification and
thereupon be relieved of any further indemnity obligation in connection with
such claim, including, but not limited to, attorneys' fees and expenses
thereafter incurred. If upon the resolution of any such claim or proceeding
which is the subject of the aggregate dollar limitations on claims set forth in
SECTIONS 8 and 9 the aggregate amount of claims and related expenses which are
subject to such limitation for which the indemnifying party is then liable is
less than its limitation, any reasonable attorneys' fees and expenses incurred
by the indemnifying party in defending against such claim shall within thirty
(30) days after demand be paid by the indemnified party to the indemnifying
party. The
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parties hereto agree to cooperate fully with the defense, negotiation, or
settlement of any such legal proceeding, claim or demand, but without expense to
the party seeking indemnification.
11.4. PAYMENT OF INDEMNIFIED AMOUNTS. After any final judgment or
award shall have been rendered by a court, arbitration board or administrative
agency of competent jurisdiction, and the expiration of the time in which to
appeal therefrom, or a settlement shall have been consummated, or the parties
shall have arrived at a mutually binding agreement with respect to each separate
matter indemnified hereunder, the party seeking indemnification shall forward to
the other party notice of any sums due and owing by the other party with respect
to such matter and such other party shall be required to pay all of the sums so
owing to the party seeking indemnification by check (or at the option of the
recipient by wire transfer constituting immediately available federal funds)
within thirty (30) days after the date of such notice.
11.5. INSURANCE AND MITIGATION. The indemnified party shall use its
best efforts to minimize the indemnifying party's obligation to indemnify by
recovering, to the maximum extent possible without incurring any material
expense, reimbursement from insurance carriers under effective insurance
policies covering such liability. An indemnified party shall not be able to
recover from an indemnifying party hereunder for any damages to the extent that
the indemnified party shall have recovered under its insurance. The
indemnifications provided for in this Agreement shall be net of tax benefits, if
any. The indemnified party shall, at all times, use its reasonable efforts to
minimize the indemnity obligation of the indemnifying party through remedial
action which it has reason to know may minimize such obligations, provided that
the indemnifying party shall have first agreed to reimburse the indemnified
party for its cost, if any, in taking such remedial action.
12. AFFIRMATIVE COVENANTS OF MW
MW covenants and agrees that, unless Monogram shall consent in
writing, from and after the Conversion Date until the end of the term of this
Agreement:
12.1. MONOGRAM'S FORMS. MW shall use only forms and contracts
evidencing the Credit Card Agreement and comprising Account Documentation
approved by Monogram to the extent of, and in connection with, the legal content
thereof, E.G., in connection with compliance with truth-in-lending laws and
regulations.
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12.2. COMPLIANCE WITH LAW. MW's own actions, and the actions of
Authorized Affiliates and Authorized Licensees in connection with the Agreement,
and the actions of Persons on MW's behalf (or failures to act where any of the
foregoing has a duty to act under this Agreement) shall comply with all federal,
state, and local laws, statutes, ordinances, rules, regulations, orders and
rulings, including, without limitation, court and FTC orders, ERISA, those
regarding the collection, payment and deposit of employees' income,
unemployment, and social security taxes, and those relating to environmental
matters. Without limiting the generality of the foregoing, MW shall
additionally be obligated to cause all forms utilized by MW, Authorized
Affiliates and/or Authorized Licensees, other than those forms to be provided by
Monogram as provided in this Agreement, to comply with those laws, statutes,
ordinances, rules, regulation, orders and rulings during the term of this
Agreement, which obligation shall include from time to time providing revisions
of such forms so that they so comply. MW shall not be responsible for
noncompliance pursuant to this SECTION 12.2 where noncompliance is a result of
Monogram's failure to comply with any such matters, to the extent Monogram is
required by this Agreement to so comply. In addition, MW shall take all
reasonable measures as conveyed by Monogram to comply with the provisions of 12
U.S.C. Section 1972(1)(B).
12.3. MW'S AFFILIATES AND AUTHORIZED LICENSEES. MW shall (a) forward
to Monogram an executed copy of any now existing or future contract(s) with
Authorized Affiliates pertaining to Accounts and Indebtedness; (b) upon the
request of Monogram, forward to Monogram an executed copy of any now existing or
future contract(s) with Authorized Licensees pertaining to Accounts and
Indebtedness; (c) use best efforts to revise such agreements to acknowledge
that, on and after the Conversion Date, (i) any payment to any such Person in
respect of a Charge Slip submitted under the Program shall constitute an advance
by Monogram to the relevant Cardholder, (ii) Monogram is the creditor with
respect to, and owner of, all Accounts and (iii) in the event an Authorized
Affiliate and/or Authorized Licensee fails to revise its agreement as specified
in subsections (i) and (ii), provide a notice of termination or nonrenewal of
its agreement with such Person on the earliest legally permissible date; and (d)
use best efforts to obtain from each Authorized Licensee identified on EXHIBIT C
an agreement in substantially the form attached as EXHIBIT D1 OR D2 hereto (as
appropriate). In the event that an Authorized Licensee no longer has a
department in any Store operated by MW or an Authorized Affiliate or should no
longer be considered an Authorized Licensee, MW shall so notify Monogram and
such Person no longer shall be an Authorized Licensee (and, if necessary,
EXHIBIT C shall be modified accordingly).
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12.4. PROTECTION CONTRACTS.
(1) Subject to SUBSECTION (2) below, at all times after the Closing
Date, MW shall, in connection with all future sales on Accounts by MW, its
Affiliates or designees (other than Affiliates or designees that are licensed
insurance companies) of protection for Merchandise (provided MW, its Affiliates
or designees receive consideration for such sale of protection in addition to
the consideration paid for the Merchandise), including, without limitation, the
sale of extended warranties and service contracts (collectively, "Protection"),
ensure that Protection shall be backed by insurance so that, if the party
obligated on the Protection does not perform, an insurance company at all times
reasonably acceptable to Monogram shall be obligated to pay, and/or perform
under, a percentage of such Protection (based on the dollar amount of the sale
price relating to the Protection) for all calendar quarters and portions thereof
beginning after the Closing Date equal to at least [ ]* of the aggregate
dollar amount of the sale price relating to such Protection sold during each
such calendar quarter, it being understood that some Protection will be wholly
insured and other Protection will not be insured to any extent. MW shall
insure all other Protection at Monogram's request (made by Monogram in its
sole discretion) and at Monogram's expense.
(2) Anything in subsection (1) to the contrary notwithstanding, if on
any date after execution hereof MW no longer is able to fulfill all or any
portion of its obligation under the first sentence of subsection (1) at a cost
to MW to obtain the insurance coverage comparable to the cost to MW of obtaining
such coverage on the day immediately preceding such date, MW: (i) promptly (and
in all events at least ninety (90) days prior to any lapse or termination of
such insurance coverage with respect to Protection) shall so advise Monogram,
and (ii) negotiate in good faith with an Affiliate of Monogram designated by
Monogram during such period the terms under which that Affiliate is willing to
provide (at MW's expense) the insurance coverage necessary to fulfill MW's
obligation. If MW and said Affiliate agree on such terms, the Affiliate shall
provide such coverage commencing upon the date that MW's prior coverage lapses
or terminates (the "Insurance Lapse Date"). If MW and said Affiliate do not
agree on such terms, MW and Monogram shall negotiate a deduction from Charge
Slips relating to Protection so as to meet MW's obligation and in connection
therewith MW shall furnish Monogram with information relating to its prior
experience with Protection, including the terms of insurance coverage.
Beginning on the Insurance Lapse Date, Monogram may deduct from the Payment
Amount otherwise to be paid to MW in respect of Charge Slips relating to sales
of Protection a percentage of the amount of such Charge Slips, which percentage
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shall be an amount from time to time actuarially estimated by the parties to
represent the cost to Monogram and/or its Affiliates to perform the outstanding
obligations under the Protection that MW was otherwise to insure at its cost.
Monogram shall credit any amounts so deducted to a non-segregated reserve
account established by Monogram on its books (the "Protection Account").
Monogram annually shall determine whether the balance of the Protection Account
exceeds the amount then actuarially estimated to represent the cost to Monogram
and/or its Affiliates to perform the outstanding obligations under the
Protection. If the balance exceeds such amount, Monogram shall debit the
Protection Account for the difference and pay such amount to MW. If the balance
is less than such amount, MW promptly shall pay to Monogram the shortfall, which
amount shall be credited to the Protection Account by Monogram. In all other
respects, the Protection Account shall be credited, debited and/or terminated in
a manner agreed upon by the parties, it being agreed that such Protection
Account shall be utilized, during such time as MW is performing or causing to be
performed the obligations under the Protection, to reimburse MW or its designee
upon demand for the costs incurred by MW or its designee in performing
obligations under the Protection. Except as provided herein or as may otherwise
be agreed by the parties in writing, MW shall have no right, title or interest
in or to the Protection Account. Such Protection Account shall bear interest at
a rate agreed to by the parties and such interest shall be added to the balance
of the Protection Account.
(3) If an Affiliate of Monogram does not provide required insurance
coverage as provided in (2) above and the parties are unable to agree from time
to time on a percentage to be deducted from such Charge Slips, the matter shall
be referred to the Marketing Committee (and, if necessary, arbitration as
provided in SECTION 5.16 hereof) for determination of the appropriate percentage
to be deducted from such Charge Slips. Unless the Marketing Committee or
arbitrator (as appropriate) have agreed upon a percentage prior to the Insurance
Lapse Date, beginning on the Insurance Lapse Date until the date upon which the
Marketing Committee or arbitrator makes its decision, Monogram may deduct from
Charge Slips relating to sales of Protection a percentage of the amounts thereof
equal to the Interim Percentage as to the Protection in question. In the event
that the percentage thereafter determined by the Marketing Committee or
arbitrator is less than the amount of the Interim Percentage, Monogram shall pay
promptly to MW an amount equal to the difference between (i) the balance of the
Protection Account and (ii) the amount that would have been in the Protection
Account on such date if such percentage had been in effect at all times on and
after the Insurance Lapse Date. In the event that the percentage thereafter
determined by the Marketing Committee
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or arbitrator is greater than the amount of the Interim Percentage, MW
immediately shall pay to Monogram for credit to the Protection Account an amount
equal to the difference between (i) the amount that would have been in the
Protection Account if such percentage had been in effect at all times on and
after the Insurance Lapse Date and (ii) the balance of the Protection Account.
Thereafter, Monogram may deduct from Charge Slips the percentage determined by
the Marketing Committee or arbitrator as to the Protection in question until
such time as a new percentage is agreed to (or determined by the Marketing
Committee or arbitrator), or until such time as MW maintains the Designated
Insured Percentage as to the Protection in question, at which time appropriate
adjustments will be made.
(4) MW shall submit to Monogram for Monogram's prior approval all
policies relating to Protection entered after the Closing Date. If Monogram at
any time determines that an insurance company insuring any portion of the
Designated Percentage of the Protection no longer is reasonably acceptable to
Monogram and MW at such time is unable to terminate its relationship with such
company or companies without penalty, the parties shall negotiate in good faith
an arrangement providing Monogram with the level of protection that Monogram
would have had if such insurance company had remained acceptable (which
arrangement may include, without limitation, deduction by Monogram of an
agreed-to percentage from Charge Slips relating to Protection and/or purchase by
MW or Monogram of supplementary insurance).
(5) MW shall not, in connection with the selling of Protection, offer
to return to Cardholders some or all of the purchase price paid by them
therefor.
(6) MW shall ensure that Monogram is listed as an additional named
insured, with an assignment of benefit only to Monogram, as to Accounts under
any new credit insurance and credit property insurance policies in effect with
respect to insurance sold by MW or its Authorized Affiliates for Accounts on or
after the Closing Date.
13. AFFIRMATIVE COVENANTS OF MONOGRAM
Monogram covenants and agrees that, unless MW shall consent in
writing, from and after the Conversion Date until the end of the term of this
Agreement:
13.1. COMPLIANCE WITH LAW. Monogram's own actions and the actions of
Persons on its behalf (or failures to act where any of the foregoing has a duty
to act under this Agreement), shall comply with all federal, state, and local
laws, statutes,
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ordinances, rules, regulations, orders and rulings, including, without
limitation, court orders and orders of the Federal Trade Commission, ERISA,
those regarding the collection, payment and deposit of employees' income,
unemployment and social security taxes, and those relating to environmental
matters. Without limiting the generality of the foregoing, Monogram shall
additionally be obligated to cause all Accounts and Indebtedness thereon, as
well as Credit Card Agreements, Billing Statements, other Account Documentation
provided by Monogram under this Agreement, or explicitly approved by Monogram in
writing as provided in SECTION 12.1, any other documents utilized by Monogram,
insurance (to the extent of limitations on finance charges thereon), finance
charges, and credit procedures relating to such Accounts and Indebtedness, to
comply with those laws, statutes, ordinances, rules, regulations, orders and
rulings during the term of this Agreement, including, but not limited to,
so-called truth-in-lending or usury laws that may from time to time be in
effect, which obligation shall include from time to time providing MW with
revisions to credit procedures, Credit Card Agreements, periodic billing
statements, other Account Documentation provided by Monogram under this
Agreement, and any other documents utilized by Monogram, including those
previously prepared by or on behalf of MW, so that they so comply, provided,
however, that Monogram shall not be responsible for the compliance of (i) any
disclosure requested by MW of an alternative credit source (i.e., a grantor of
closed-end credit) on Credit Card Applications or Credit Card Agreements or (ii)
the manner in which, if requested by MW, consent is obtained from applicant(s)
seeking Accounts for submission of information or other materials to an
alternative credit source, whether by such applicant's completion of a Credit
Application or Credit Card Agreement or otherwise. Monogram shall not be
responsible for noncompliance pursuant to this SECTION 13.1 where noncompliance
is a result of MW's failure to comply with any such matters, to the extent MW is
required by this Agreement to so comply.
13.2. SECURITIZATION, ASSIGNMENT AND SALE COMPLIANCE. Monogram shall
comply with the terms of all agreements relating to the securitization,
assignment or sale of Accounts.
13.3. SALES OF ACCOUNTS AND INDEBTEDNESS. In the event that Monogram
sells Accounts and Indebtedness under circumstances where neither Monogram nor a
servicer designated by Monogram provides servicing for such Accounts and
Indebtedness once sold, Monogram shall ensure that the purchaser(s) thereof
shall agree to (i) comply with applicable laws and (ii) indemnify Monogram and
MW for damages resulting from any failure to so comply.
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14. NEGATIVE COVENANTS OF MW
14.1. LIENS. MW shall not (except as provided herein) intentionally
cause a Lien to be placed against the Accounts or Indebtedness.
14.2. [Section Intentionally Omitted.]
14.3. PAYMENTS IN RESPECT OF SALES ON AUTHORIZED AFFILIATES' CREDIT
CARDS. In the event that (i) MW accepts credit cards issued by Monogram or its
Affiliates and bearing the name(s) of Authorized Affiliate(s) and (ii) Monogram
and/or its Affiliates pays such Authorized Affiliate(s) with respect thereto, MW
shall not seek payment from Monogram or otherwise attempt to hold Monogram
liable therefor.
14.4. SUBMISSION OF CHARGE TRANSACTION DATA BY STORES ONLY. MW shall
not submit to Monogram (and shall prohibit other Persons from submitting to
Monogram) any Charge Transaction Data arising other than in connection with a
sale of Merchandise to a Cardholder by MW, an Authorized Affiliate or an
Authorized Licensee.
15. TERM
15.1. TERM AND TERMINATION.
(1) Except as otherwise provided herein, the term of this
Agreement shall commence on the date hereof and shall continue (unless
terminated pursuant to another provision of this SECTION 15.1) until December
31, 2011 (the "Initial Term") and from year to year thereafter, unless
terminated by either party hereto effective on the last day of the Initial Term
or any December 31 thereafter upon giving written notice to the other of the
election to terminate effective on the last day of the Initial Term or any
December 31 thereafter, which notice in either event shall be given not less
than ten (10) years prior to the effective date of termination.
(2) The term of the Agreement may also terminate at the election
of MW in the event that Monogram fails to increase, upon the reasonable request
of MW from time to time as provided in SECTION 3.1, the Maximum Aggregate
Cardholders' Balance to an amount requested to finance Cardholders with respect
to all Accounts and Indebtedness that may arise during the next two (2) year
period based on MW's then current five-year plan. This right is in addition to
other rights that MW has as provided in SECTION 15.2(4).
(3) The term of this Agreement may also terminate at the
election of the non-defaulting party in the
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event of a MW Default or Monogram Default as set forth in SECTION 16.
(4) The term of this Agreement may also terminate at the
election of MW as set forth in SECTION 17.1(4).
(5) The term of this Agreement may also terminate at the
election of either party in the event that the Account-Related Agreement between
MW and MWCC terminates other than as a result of the occurrence of an event of
default thereunder.
(6) The term of this Agreement may also terminate as provided in
SECTION 5.14(3)(iii).
(7) This Agreement shall automatically terminate if any of the
conditions to closing set forth in Article 6 shall not have been satisfied or
waived by the appropriate party on or prior to the Closing Date.
15.2. EFFECT OF TERMINATION AND REACHING THE MAXIMUM AGGREGATE
CARDHOLDERS' BALANCE.
(1) No termination (regardless of cause or procedure) of this
Agreement shall in any way affect or impair the powers, obligations, duties,
rights, indemnities, liabilities, undertakings, covenants, warranties and/or
representations (individually and collectively, "Provisions") of MW or Monogram
with respect to times and/or events occurring prior to such termination,
including the obligation to make payments in respect of obligations (including
indemnification obligations) arising prior to the termination date. No
Provision with respect to times and/or events occurring after termination shall
survive termination except (i) those set forth in the previous sentence or as
otherwise stated in this Agreement to survive termination, (ii) those Provisions
contained in SECTIONS 5.1, 5.2(7), 5.4(2), 5.4(6), 5.7 (to the extent consistent
with any express provisions of this Section 15), 5.15 (to the extent provided
therein), 7.4, 7.6, 7.7, 11, 15.2, 17.11, 17.12, 17.13, 17.21, 17.22 and, unless
MW or MW Designee has purchased all Accounts and Indebtedness, to the extent
they relate to Accounts and Indebtedness owned or held by Monogram and/or
Assignees, 3.4 (for twelve months after the effective date of termination),
5.4(1)(ii), 5.4(5) (for twelve months after the effective date of termination),
5.12 (EXCEPT (a)), 7.1, 7.2, 7.3, 7.5, 7.8 and 14.1, shall also survive subject
to any express limitations on such survival set forth in this Agreement
(together with those Provisions stated to survive in (i) above, the "Surviving
Provisions"), (iii) any other Provision that should reasonably survive to
accomplish a reasonable separation of the parties,
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taking into account the pattern of the Surviving Provisions and the Provisions
that are expressly stated not to survive; provided that the burden of proof in
the event of dispute as to whether a Provision other than a Surviving Provision
survives is on the party contending for survival, and (iv) MW and Monogram shall
be liable for any damages suffered by the other in the event of a termination
due to a MW Default or Monogram Default, respectively. Except as specifically
provided herein to the contrary, upon such termination (i) Monogram and
Assignees shall continue to own Accounts and Indebtedness which they owned prior
to such termination and (ii) provided that MW or MW Designee has purchased all
Accounts and Indebtedness, MW shall, subject to the rights granted to the
Signature Companies under the Signature License, be given full ownership of and
all rights to the Customer List. In the event of termination, during but before
the end of a Fiscal Year, any payment due with respect to part of a Fiscal Year
shall be made sixty (60) days after termination.
(2) With regard to a termination of this Agreement pursuant to
SECTIONS 15.1(1) or, if not appropriately governed by the other sections of this
SECTION 15.2, 15.1(5):
(i) MW (or a third party designated by MW) may at MW's
option:
(A) purchase (or authorize a third party to
purchase), as of the opening of business on the
date of termination and subject to the restriction
contained in SECTION 15.3 below, (x) all existing
Accounts and Indebtedness (other than Indebtedness
sold to MWCC under the Credit Card Receivables
Sale Agreement, it being understood that MWCC
shall have the sale obligation with respect
thereto); and (y) subject to all rights granted
to the Signature Companies under the Signature
License, the Customer List, all for a price equal
to the Net Receivable Balance on the opening of
business on such date, in which case the
provisions of (ii) below shall apply, and MW or
such third party shall thereupon own all
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of the Accounts and Indebtedness (other than
Indebtedness sold to MWCC under the Credit Card
Receivables Agreement) and, subject to all rights
granted to the Signature Companies under the
Signature License, the Customer List;
(B) (x) require Monogram to participate to MW or a
third party designated by MW (a "MW Designee") all
new Indebtedness on existing Accounts created
after the date MW notifies Monogram of the option
it has chosen (in which case the provisions of
(iii) below shall apply, and MW or MW Designee, as
the case may be, at no additional cost thereto,
shall be transferred ownership of (i) each Account
at such time as there is no longer Indebtedness
outstanding on such Account other than that
participated to MW or MW Designee and (ii) subject
to all rights granted to the Signature Companies
under the Signature License, all rights in that
portion of the Customer List comprising Accounts
so transferred; provided that, in the event that
counsel to Monogram reasonably determines that
participation, or any level of participation
(e.g., participation of more than [ ]* of
Monogram's interest in Indebtedness), is not
legally advisable, Monogram shall not be required
to allow the participation described in this
subsection (B) and the parties shall use best
efforts to agree upon a comparable procedure
designed to
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accomplish the objectives underlying this
subsection (B)), and (y) establish new accounts
for, and extend credit to, Persons who apply for
Accounts at or after this option is selected; or
(C) not purchase existing Accounts or
Indebtedness, and not create new accounts or
participate in new indebtedness on existing
Accounts pursuant to (A) or (B) above but, subject
to all rights granted to the Signature Companies
under the Signature License and the rights granted
to Monogram in the provisions of subsection (iv)
below, have the exclusive right (without any fee
being payable to Monogram and with all revenue and
income derived therefrom belonging to MW) to use
(or sublicense or assign the right to use) the
Customer List for all purposes, including for
advertisement, solicitations or other marketing
efforts, regardless of the manner or media through
which the marketing effort is made, regardless of
whether the product or service was previously
marketed by MW, provided that for a period ending
four (4) years after the effective date of
termination, MW shall not use, or allow any other
Person to use, the Customer List directly or
indirectly to provide any consumer or commercial
financing programs for the retail sale of goods
and/or services at Stores (including credit, debit
or charge card programs), whether operated
in-house by MW or in
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connection with an outside Person, provided that,
subject to the Signature License: (i) MW may use
that portion of the Customer List comprising
Persons who applied for Accounts and were rejected
by Monogram to provide any closed end consumer or
commercial financing programs for the retail sale
of goods and/or services at Stores; and (ii) MW
may use the Customer List in connection with the
Existing Programs described in SECTION 5.13(2)(b)
and (c) and, with the consent of Monogram or its
Affiliate (as appropriate), the Existing Program
described in Section 5.13(2)(a). If option (C) is
selected, the provisions of (iv) below shall
apply.
The transfer of ownership to MW or a MW Designee
of Accounts under options (A) or (B) and
indebtedness under option (B) shall include the
right to receive all such Accounts, indebtedness
and the Account Documentation related thereto free
and clear of all Liens created or caused by
Monogram and/or its Affiliates and Monogram and/or
its Affiliates shall execute, and cooperate in the
filing by MW of all Code statements and other
documents needed to so transfer the Accounts and
Indebtedness to MW. In the event MW selects
option (A) or (B) above, Monogram shall use its
best efforts for twenty-four (24) months prior to
the effective date of termination to assist MW in
MW's developing financing and servicing
capabilities for the
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Accounts and Indebtedness. MW shall notify
Monogram of the option it has chosen pursuant to
this SECTION 15.2(2)(i) not later than twenty-four
(24) months prior to the effective date of
termination or, if this Agreement has terminated
pursuant to SECTION 15.1(5), not later than such
lesser time as is reasonable and fair to both
parties under the circumstances.
(ii) If MW chooses option (A) above, to the extent Monogram
maintains, or causes to be maintained, equipment,
facilities and/or employees substantially dedicated to
servicing Accounts and Indebtedness prior to the
effective date of termination, upon the effective date
of termination, Monogram shall offer to MW (and MW
shall purchase) such equipment, [ ]*; assign,
or if not assignable, sublease, such facilities
(to the extent Monogram's leases to such facilities
are assignable or permit subleasing, and Monogram shall
in negotiating such leases use its best efforts to
obtain assignable leases)[ ]* and employ such
personnel on terms comparable to the terms under which
they were employed. In the event MW purchases such
equipment, leases such facilities and/or employs such
personnel, Monogram shall concurrently therewith license
(on a royalty-free basis) to MW, for its exclusive
internal use, the software necessary for MW to service
the Accounts and Indebtedness
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in a manner similar to that in which Monogram serviced
such Accounts and Indebtedness prior to the effective
date of termination. MW shall pay all costs associated
with converting such software to MW's system, including
the reasonable costs of Monogram's assistance in such
conversion, and shall incur all further costs of
maintaining such software. MW shall also be so
entitled to such license if such equipment, facilities
and/or personnel are not substantially dedicated to
servicing Accounts and Indebtedness prior to the
effective date of termination. Such software is
confidential trade secret information that is
proprietary to Monogram, and MW shall not disclose such
software to any other Person or in any other instance
(except those listed in SECTION 17.12(1)(a) with prior
notice thereof and SECTION 17.12(1)(e), provided the
consent pursuant to such SECTION 17.12(1)(e) will not
be unreasonably withheld with regard to a consultant
who shall execute a confidentiality agreement
reasonably acceptable to Monogram). In addition,
Monogram shall use its best efforts to cooperate with
and assist any Person designated by MW to service
Accounts and Indebtedness in a manner similar to
Monogram's servicing of Accounts and Indebtedness, and
MW shall pay Monogram's reasonable out-of-pocket costs
incurred in such cooperation.
(iii) If MW chooses option (B) above, Monogram shall continue
to collect on each Account and Indebtedness and each
account and indebtedness owned by MW or an MW Designee
until the balance thereon owned by Monogram and/or its
Assignee(s) is paid. At MW's request, Monogram shall
continue to service (including collection) Accounts and
Indebtedness and
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accounts and indebtedness owned by MW or an MW Designee
until the effective date of termination, which
servicing shall be done in the same manner and with the
same degree of care with which Monogram serviced
Accounts and Indebtedness prior to Monogram's receipt
of notice of election pursuant to SECTION 15.2(2).
Until the effective date of termination, MW shall pay
Monogram a fee for servicing equal to the sum of (a)
[ ]* Such costs shall be computed in
accordance with Monogram's Accounting Practices or the
accounting practices of its servicer (as appropriate).
Neither Monogram nor its servicer shall change the
components of such costs in anticipation of the
effectiveness of these provisions, or immediately prior
to or during the period described in this subsection
(iii), but such costs shall include additional
out-of-pocket expenses to Monogram or its servicer
required for the servicing of accounts and
indebtedness, other than transition costs including,
without limitation, accounts and indebtedness owned by
MW. Anything in SECTION 5.5 to the contrary
notwithstanding, during the period that this subsection
(iii) is operative, the provisions of SECTION
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5.5 shall not apply, including, without limitation, any
obligation of Monogram to pay any amounts accruing
thereunder during such period. Upon the effective date
of termination, MW shall have the same obligation to
purchase (and Monogram shall have the same obligation
to sell) such equipment, lease such facilities, and
employ such personnel, and the same right to obtain a
royalty-free license, as is set forth in (ii) above.
Payments on Accounts as to which MW or MW Designee owns
Indebtedness (the definition of Indebtedness being
expanded to include that owned by MW or MW Designee for
purposes of the following portion of this subsection)
shall be applied and, to the extent specified below,
remitted to MW or MW Designee after receipt as quickly
as the parties mutually determine to be reasonable in
the following order to the extent practicable (and if
not practicable, in such other manner reasonably agreed
to by the parties): first in respect of charges for
insurance, next to finance charges on Indebtedness
which finance charges shall be paid to each party
proportionately based on the amount of Indebtedness and
indebtedness owned by Monogram, MWCC and Assignees on
the one hand and MW or MW Designee on the other hand,
next to the principal portion of the Indebtedness and
indebtedness owned by Monogram, MWCC and Assignees and
finally to the principal portion of the Indebtedness
owned by MW or MW Designee. Payments on accounts
entirely owned by MW or MW Designee received by
Monogram shall be remitted to MW or MW Designee after
receipt as quickly as the parties mutually determine to
be reasonable. MW or MW Designee shall have the right
to issue substitute credit cards for its own private
label credit card program, or
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otherwise, on or after the effective date of
termination or, prior to the effective date of
termination, on accounts not owned by Monogram or any
Assignee, provided, however, MW shall permit
Cardholders obligated in respect of Indebtedness and
indebtedness owned by Monogram, MWCC and Assignees
(other than Monogram Defaulted Indebtedness) to utilize
Credit Cards. At any time before or at the effective
date of termination, MW or MW Designee shall have the
option to purchase (x) all Accounts and Indebtedness
(other than Indebtedness sold to MWCC under the Credit
Card Receivables Sale Agreement, it being understood
that MWCC shall have the sale obligation with respect
thereto) and (y) subject to all rights granted to the
Signature Companies under the Signature License, the
Customer List, all upon three (3) months prior written
notice to Monogram for a price equal to [ ]* on
the opening of business on such date, it being
understood that the [ ]* does not include for
this purpose the Indebtedness that has been
participated to MW or MW Designee and it being further
understood that, if this Agreement has terminated
pursuant to SECTION 15.1(5), such notice period and
purchase date may be shortened in a manner reasonable
and fair to both parties under the circumstances. For
the period subsequent to the period described in this
subsection (iii), the parties shall mutually approve
and agree to procedures to facilitate collection on
Accounts and Indebtedness. In carrying out this
subsection, MW or MW Designee shall bear all costs
of complying with, and shall comply with, the laws
applicable to Monogram because of their relationship
with
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Monogram, including but not limited to 12 U.S.C.
Section 371c.
(iv) If MW chooses option (C) above, MW shall have no rights
in the Accounts and Indebtedness after the effective
date of termination, except to the extent set forth in
(C) above. In addition: (i) Monogram shall have the
right (in addition to and retaining all other rights it
may have under the terms of the Agreement or applicable
law) to (x) liquidate the remaining Accounts in any
lawful manner which may be expeditious or economically
advantageous to Monogram, including by issuing (or
authorizing an Affiliate of Monogram to issue) to
Cardholders a replacement or substitute widely-accepted
general purpose credit card, whether or not co-branded
(provided that in no event shall such replacement or
substitute card bear on its face a trademark, service
mark or name of a retail competitor of MW or an
Authorized Affiliate) and marketing (or authorizing the
issuer to market) to the holders of such replacement or
substitute cards in manners consistent with the
practices with respect to such replacement or
substitute cards, and (y) use the Licensed Marks in
accordance with the terms of this Agreement to
communicate with Cardholders during the License Term in
connection with its collection efforts; and (ii) MW
shall be obligated to (x) fulfill its obligations under
SECTION 3.4 for a period of twelve (12) months after
termination, provided that the aggregate of such
purchases shall not exceed the amount of such purchases
for the twelve (12) months immediately prior to
termination and (y) cooperate with Monogram in order to
effectuate an orderly liquidation, including by
accepting (at Monogram's request) for a period four (4)
years
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after the effective date of termination any permitted
replacement or substitute credit cards issued by
Monogram (or an Affiliate of Monogram).
(3) If MW desires to elect to terminate this Agreement pursuant
to SECTION 15.1(2):
(i) MW shall not later than a date two hundred and seventy
(270) days from the earlier of the day Monogram
notifies MW in writing that Monogram has decided not to
raise the Maximum Aggregate Cardholders' Balance, or
the date its response to a request for an increase is
due (the "Response Date"), elect whether it chooses to
terminate this Agreement, and if so, choose among the
options described in SECTION 15.2(2)(i) above.
Monogram must respond to any request by MW to increase
the Maximum Aggregate Cardholders' Balance within
ninety (90) days after request or such longer period as
permitted by MW.
(ii) If MW chooses either option (A) or (B) in SECTION
15.2(2)(i) above: (I) this Agreement shall continue in
full force and effect (without any Maximum Aggregate
Cardholders' Balance limitation on Monogram's
obligation to make advances on behalf of Cardholders in
respect of Indebtedness) until a date twelve (12)
months from the Response Date at which time this
Agreement will terminate (the "Termination Date"); (II)
if option (A) is chosen, MW shall purchase, as of the
opening of business on the Termination Date and subject
to the restriction contained in SECTION 15.3 below, (x)
all existing Accounts and Indebtedness (other than
Accounts and Indebtedness sold to MWCC under the Credit
Card Receivables Sale Agreement, it being understood
that MWCC shall have the sale obligation with respect
thereto) and (y) subject
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to all rights granted to the Signature Companies
under the Signature License, the Customer List,
all for a price equal to [ ]* on the opening
of business on such date, and Monogram shall continue
to service such accounts and indebtedness and the
Indebtedness sold to MWCC under the Credit Card
Receivables Sale Agreement in the same manner and with
the same degree of care with which it had serviced such
Accounts and Indebtedness prior to the Termination Date
for a fee equal to [ ]* for a period of twelve
(12) months after the Termination Date (in which case
such costs shall be computed in accordance with
Monogram's Accounting Practices or the accounting
practices of Monogram's servicer (as appropriate)).
Neither Monogram nor its servicer shall change the
components of such costs in anticipation of the
effectiveness of these provisions, or immediately
prior to or during such twelve (12) month period
after the Termination Date, but such costs shall
include additional out-of-pocket expenses to
Monogram or its servicer required for the servicing
of accounts and indebtedness, other than transition
costs, and payments received on accounts shall be
remitted to MW on the next Business Day after receipt;
(III) if option (B) is chosen, Monogram shall provide
the services described in SECTION 15.2(2)(iii) for the
fee described therein, for a period of twelve (12)
months after the Termination Date, and the other
provisions of such SECTION 15.2(2)(iii) shall apply
as if such period were the period prior to the
effective date of termination
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referred to therein; (IV) at any time during and at the
end of the twelve (12) month period after the
Termination Date, MW shall have the right to purchase
and Monogram shall have the same obligation to sell
(both subject to the restriction contained in SECTION
15.3 below) (x) all Accounts and Indebtedness (other
than Accounts and Indebtedness sold to MWCC under the
Credit Card Receivables Sale Agreement) and (y) subject
to all rights granted to the Signature Companies under
the Signature License, the Customer List, all as
provided in SECTION 15.2(2)(iii) if option (B) is
chosen; and (V) upon the expiration of the twelve (12)
month period after the Termination Date or such earlier
time during the twelve (12) month period after the
Termination Date designated by MW on the Response Date
or upon three (3) months prior written notice, MW shall
have the same obligation to purchase such equipment,
lease such facilities, employ such personnel and the
same right to obtain a royalty-free license as set
forth in SECTION 15.2(2)(ii) above. To the extent
Monogram does not maintain, or cause to be maintained,
all reasonably necessary equipment, facilities, or
employees substantially dedicated to servicing such
Accounts and Indebtedness as of the date of
termination, Monogram shall, at the end of the twelve
(12) month period following the Termination Date, if MW
so requests, relocate credit facilities and arrange the
acquisition and delivery to MW of additional equipment,
employees and operational systems, within reasonable
commuting distance of the facilities being used, to
enable MW to service accounts and indebtedness,
including, without limitation, accounts and
indebtedness thereafter arising, with minimal
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business disruption and in the same manner (including
Transparent Servicing) that Monogram was required to
service Accounts and Indebtedness under this Agreement
(i.e., substantially deliver a so-called "turn-key"
operation). This shall not require Monogram to incur
new capital expenditures, determined in accordance with
GAAP. The reasonable costs which would not be capital
expenditures under GAAP incurred in such transition (if
related to nondedicated equipment, facilities and
employees only), including, without limitation, costs
of a computer operation (as to which the parties
anticipate that the vast majority of costs, as
determined in accordance with GAAP, would be capital
costs) and costs of hiring new employees (including, to
the extent Monogram does not employ sufficient
employees for a turn-key operation, reasonable agency
and recruitment fees), shall be shared equally by MW
and Monogram. MW shall notify Monogram in writing
whether it wishes such a turn-key operation on or prior
to the Termination Date.
(iii) If MW chooses option (C) in SECTION 15.2(2)(i) above,
this Agreement shall terminate as of the date which is
ninety (90) days from the Response Date, and thereupon
the provisions of SECTION 15.2(2)(i)(C) and (iv) shall
apply. In addition, MW's obligations under SECTION 3.4
shall continue for a period of twelve (12) months after
termination, provided that the aggregate of such
purchases shall not exceed the amount of such purchases
for the twelve (12) months immediately prior to
termination.
(4) If Monogram decides not to raise the Maximum Aggregate
Cardholders' Balance and MW does not elect pursuant to SECTION 15.1(2) to
terminate this Agreement as a result of such refusal (it being understood that
MW shall still,
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even if it exercises the rights set forth below, have the right at any time
thereafter to so elect to terminate this Agreement if a subsequent request to
increase the Maximum Aggregate Cardholders' Balance is denied), this Agreement
shall remain in full force and effect, subject to the following from and after
the Response Date:
(i) In the event the Aggregate Cardholders' Balance
(excluding for this purpose the portion of the
Aggregate Cardholders' Balance owned by any Person
other than MWCC, who has purchased such portion of the
Aggregate Cardholders' Balances from Monogram on what
is, effectively, a non-recourse basis (such
non-recourse determination to be made by Monogram in
its reasonable judgment)) exceeds ninety percent (90%)
of the Maximum Aggregate Cardholders' Balance, at MW's
option but subject to any restrictions reasonably
deemed by Monogram as necessary to comply with law
and/or banking regulations (A) random selections of
whole Accounts (other than (x) Indebtedness sold to
MWCC under the Credit Card Receivables Sale Agreement,
it being understood that MWCC shall have the sale
obligation with respect thereto, and (y) Monogram
Defaulted Indebtedness and written off Accounts), shall
be purchased or otherwise financed or disposed of by MW
or MW Designee, and/or MW or MW Designee may establish
new accounts for, and extend credit to, random
selections of Persons who apply for Accounts such that
the amount of Aggregate Cardholders' Balance is at all
times no less than eighty percent (80%) of the Maximum
Aggregate Cardholders' Balance, whereupon all rights to
Accounts so transferred and, subject to the rights of
the Signature Companies under the Signature License,
related portions of the Customer List shall be
transferred to MW or MW Designee and/or (B) MW may
require Monogram to
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increase the minimum monthly payments on all or
specified Accounts (excluding any written off Accounts
sold by Monogram), provided such higher minimum
payments, if higher than those on Accounts on the
Conversion Date, shall be implemented by Monogram
unless such change shall cause Monogram or any
Affiliate of Monogram involved in the Program to
receive less than a fair and reasonable profit (the
amount of which profit, if not agreed to by the
parties, shall be determined by arbitration in
accordance with the procedures set forth in SECTION
5.16 hereof).
(ii) In the event that Monogram and/or its Affiliates own
less than [ ]* of the aggregate of
non-written-off Indebtedness and non-written-off
indebtedness in connection with the Program owned by MW
and/or MW Designee (which may result from a growth in
aggregate indebtedness) when compared to the total sum
of Indebtedness owned by Monogram and/or its Affiliates
and indebtedness in connection with the Program owned
by MW and/or MW Designee, a Person other than Monogram
may at MW's election service accounts and indebtedness
that were purchased and/or financed by MW pursuant to
(i) above or from MWCC in connection with such
Accounts.
(iii) [Section intentionally omitted.]
(iv) If MW purchases Credit Card Agreements and Accounts and
Indebtedness relating thereto pursuant to SECTION
15.2(4)(i)(A) above, it shall pay Monogram (A) a cash
purchase price therefor equal to [ ]*, and (B)
the unamortized portion of the reasonable marketing
costs incurred by Monogram
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and/or MWCC (or their respective servicers) in
initially obtaining and opening such transferred
Accounts. The amortization schedule and determination
of the amount of marketing cost incurred by Monogram
and/or MWCC (or their respective servicers) in
obtaining and opening such transferred Accounts shall
be mutually approved by the parties hereto on a
reasonable basis. In such event Monogram will transfer
to MW free and clear of all Liens created or caused by
Monogram and/or its Affiliates the Account
Documentation, Accounts and Indebtedness relating
thereto in a manner similar to that in which such items
were originally advanced upon by Monogram, and shall
execute and cooperate in the filing by MW of all Code
statements and other documents needed to so transfer
such items. If MW or MW Designee establishes or holds
new accounts pursuant to SECTION 15.2(4)(i)(A), and if
such new accounts were generated through marketing
efforts (as determined based on the source of account
code) performed at the expense of Monogram or its
servicer, MW shall pay to Monogram the marketing cost
incurred by Monogram or its servicer allocable to each
such new account. The amount of such allocable
marketing cost shall be mutually approved by the
parties hereto on a reasonable basis.
(v) Subject to the provisions of subsection (ii) above, if
MW elects the option described in SECTION 15.2(4)(i)(A)
above, Monogram or its designee shall collect and
service any accounts in question for MW's or MW
Designee's account in the manner Monogram collects and
services the Accounts and Indebtedness and MW shall
pay, or cause to be paid, to Monogram or its designee a
service fee equal to its pro rata share of
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[ ]* Such costs shall be computed in accordance
with Monogram's Accounting Practices. Monogram shall
not change the components of such costs in anticipation
of the effectiveness of these provisions, or immediately
prior to or after the effective time of this provision,
but such costs shall include all additional
out-of-pocket expenses to Monogram required for the
servicing of accounts and indebtedness. Payments
received on such accounts shall be remitted to MW on
the next Business Day after receipt.
(5) Upon a termination of this Agreement by MW pursuant to
SECTION 15.1(3) due to an Monogram Default, MW may, if it so elects, choose
among the options described in SECTION 15.2(2)(i) in which case the other
provisions of SECTION 15.2(2) which correspond to the option selected shall
apply except that the servicing period described in SECTION 15.2(2)(iii) shall
instead be deemed to be a period commencing at the effective date of termination
and ending two (2) years thereafter. The exercise of the rights set forth in
this SECTION 15.2(5) by MW shall in no way limit its right to exercise any other
rights or remedies available to it at law or in equity as a result of such
Monogram Default.
(6) If MW desires to elect to terminate this Agreement
pursuant to SECTION 15.1(4), MW may, if it so elects, treat such termination
in the same manner as provided in SECTION 15.2(3), exercise any of the rights
set forth therein, and the "Response Date" as used therein shall be the date
that MW elects to terminate this Agreement pursuant to SECTION 17.1(3), which
termination will be effective on the date that is twelve (12) months after
the Response Date (I.E., the Termination Date described in SECTION 15.2(3))
if MW elects option (A) or (B) under SECTION 15.2(2)(i). If MW does elect to
exercise such rights pursuant to SECTION 15.2(3), Monogram shall cause all
services provided by Monogram thereunder to be provided by and under the
control of a Person other than a Competitor, except that mainframe computer
services may be provided through a
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Competitor if Monogram obtains a confidentiality agreement from the Competitor
satisfactory to MW.
(7) If this Agreement terminates pursuant to SECTION 15.1(7),
such termination shall be without liability by one party to the other party.
15.3. SECURITIZATION/PARTICIPATION. It is recognized that Monogram
and/or its Assignees shall have the right to securitize, participate or
otherwise finance or refinance Accounts, Indebtedness and/or any legal or
beneficial interest therein, including (without prejudice to the generality of
the foregoing) the right to vest in any Person through which Monogram and/or its
Assignees elects to securitize, participate, finance or refinance the Accounts
and Indebtedness as aforesaid such rights and obligations in connection with the
administration of the Accounts and Indebtedness as shall be customarily vested
in such Persons for such purposes or as Monogram and/or its assignees shall
reasonably require or deem necessary for the purpose of effecting the aforesaid
securitization, participation, financing or refinancing. The parties also
recognize that certain provisions in SECTION 15.2 require Monogram to sell
Accounts and/or service facilities to MW. SECTION 15.2 is to be read so as to
be in harmony with the rights of and obligations to third parties in connection
with financings described in the first sentence hereof. Notwithstanding any of
the foregoing, Monogram shall maintain MW in substantially the same financial
position as though MW's rights under or as a result of SECTION 15.2 were not
affected by any securitization, participation, financing or refinancing,
recognizing the obligation of the parties to minimize any adverse effect on MW.
16. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
16.1. MW DEFAULTS. The occurrence of any one or more of the following
events (regardless of the reason therefor) shall constitute a "MW Default"
hereunder:
(1) MW shall fail to make any payment of any amount in excess of
[ ]* in the aggregate when due and payable or declared due and payable
under this Agreement, and the same shall remain unremedied for a period of
ten (10) Business Days after Monogram shall have made written demand therefor,
or such longer period as may be required to resolve any good faith dispute as
to whether any such amount is owed hereunder.
(2) MW shall (a) fail or neglect to perform any of the covenants
contained in SECTION 12.2 of this Agreement (provided that such failure or
neglect shall occur on a repeated
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and sustained basis with a conscious disregard of MW's obligations with respect
thereto, and relate to laws and regulations governing Credit Card Agreements,
Accounts and Indebtedness owned by Monogram), and such failure or neglect shall
remain unremedied for a period of thirty (30) days after notice thereof by
Monogram to MW, or if such failure or neglect is not reasonably susceptible of
being cured within such thirty (30) day period, if MW fails to commence to cure
such failure or neglect during such thirty (30) day period and diligently
proceed to cure thereafter, or (b) intentionally refuse to submit Charge Slips
or Credit Slips to Monogram as required by this Agreement with the intent to
avoid its obligations hereunder (which intent will be deemed not to exist if
there is a good faith dispute as to whether MW is so obligated to make such
submissions), or (c) fail or neglect to perform any of the covenants of MW
(including negative covenants) contained in SECTION 5.13(1) of this Agreement
(provided such failure shall have a material adverse impact upon Monogram, its
Affiliates or the Program) and such failure or neglect shall remain unremedied
for a period of thirty (30) days after notice thereof by Monogram to MW, or if
such failure or neglect is not reasonably susceptible of being cured within such
thirty (30) day period, if MW fails to commence to cure such failure or neglect
during such thirty (30) day period and diligently proceed to cure thereafter.
(3) Any representation or warranty made by MW to Monogram
pursuant to SECTIONS 8.1(a), 8.1(c), 8.2(a), 8.3(a), 8.3(b), 8.3(c), 8.3(f), 8.3
(last sentence), 8.4, or 8.5 of this Agreement shall not be true and correct in
any material respect as of the date when made or, if applicable, restated and
remade, and MW fails within thirty (30) days after notice thereof by Monogram to
MW, to correct the underlying basis which causes the representation or warranty
to be untrue, provided that in the case of SECTION 8.4, the thirty (30) day cure
period shall not apply.
(4) (a) Any material portion of the Accounts or Indebtedness
then owned by Monogram shall be attached, seized, levied upon or subjected to a
writ by a creditor of MW and such action is not being contested by or on behalf
of MW in good faith, which contest shall include providing such security as may
be reasonably necessary to protect Monogram, or (b) any material portion of the
Accounts or Indebtedness then owned by Monogram shall come within the possession
of any receiver, trustee, custodian, or assignee for the benefit of creditors of
MW and such action is not being contested by or on behalf of MW in good faith,
which contest shall include providing such security as may be reasonably
necessary to protect Monogram.
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(5) MW shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors, or
any proceeding shall be instituted by or against MW seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
custodian, receiver, trustee or other similar official for it or for any
substantial part of its property and, in the case of any such proceedings
instituted against MW (but not instituted by it), either such proceedings shall
remain undismissed or unstayed for a period of sixty (60) days or any such
adjudication or relief sought occurs; or MW shall take any corporate action to
authorize any of the actions set forth in this subsection.
(6) [Section Intentionally Omitted.]
(7) [Section Intentionally Omitted.]
(8) MW assigns the Agreement in a manner not permitted by
SECTION 17.1.
(9) In connection with any of MW's indebtedness on money
borrowed, either (a) the holder or holders of such indebtedness shall accelerate
all of the outstanding balance thereof and the amount accelerated shall be
greater than or equal to [ ]*, or (b) any scheduled payments of principal
or interest in an aggregate amount in excess of [ ]* shall remain unpaid
for a period longer than one hundred twenty (120) days beyond the date due.
(10) MW shall have committed an MW Default under the
Account-Related Agreement.
16.2. MONOGRAM DEFAULTS. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute a
"Monogram Default" hereunder:
(1) Monogram shall fail (other than a failure on an isolated and
unintentional basis) to make payments in excess of [ ]* in the aggregate
when required by SECTION 3 of this Agreement.
(2) Monogram shall fail to make any payment (other than payments
covered by (1) above) of any amount in excess of [ ]* in the aggregate
when due and payable or declared due and payable under this Agreement,
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*Confidential treatment has been requested with respect to this information.
<PAGE>
and the same shall remain unremedied for a period of ten (10) Business Days
after MW shall have made written demand therefor, or such longer period as may
be required to resolve any good faith dispute as to whether any such amount is
owed hereunder.
(3) Monogram shall fail or neglect to perform any of the
covenants contained in SECTION 13.1 of this Agreement (provided that such
failure or neglect shall occur on a repeated and sustained basis with a
conscious disregard of Monogram's obligations with respect thereto and relate to
laws and regulations governing Credit Card Agreements, Accounts and
Indebtedness), and such failure or neglect shall remain unremedied for a period
of thirty (30) days after notice thereof by MW to Monogram, or if such failure
or neglect is not reasonably susceptible of being cured within such thirty (30)
day period, if Monogram fails to commence to cure such failure, neglect or
refusal during such thirty (30) day period and diligently proceed to cure
thereafter.
(4) Any representation or warranty made by Monogram pursuant to
SECTIONS 9.1(a), 9.1(b), 9.2(a), 9.2(b), 9.2(c), 9.2(f), 9.2 (last sentence), or
9.3 of this Agreement shall not be true and correct in any material respect as
of the date when made or reaffirmed, and Monogram fails within thirty (30) days
after notice thereof by MW to Monogram, to correct the underlying basis which
causes the representation or warranty to be untrue, provided that in the case of
SECTION 9.3, the thirty (30) day cure period shall not apply.
(5) (a) Any material portion of the Accounts or Indebtedness
shall be attached, seized, levied upon or subjected to a writ by a creditor of
Monogram and such action is not being contested by or on behalf of Monogram in
good faith, which contest shall include providing such security as may be
reasonably necessary to protect MW, or (b) any material portion of the Accounts
or Indebtedness shall come within the possession of any receiver, trustee,
custodian, or assignee for the benefit of creditors of Monogram and such action
is not being contested by or on behalf of Monogram in good faith, which contest
shall include providing such security as may be reasonably necessary to protect
MW.
(6) Monogram shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against Monogram seeking
to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or
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<PAGE>
seeking the entry of an order for relief or the appointment of a custodian,
receiver, trustee or other similar official for it or for any substantial part
of its property and, in the case of any such proceedings instituted against
Monogram (but not instituted by it), either such proceedings shall remain
undismissed or unstayed for a period of sixty (60) days or any such adjudication
or relief sought occurs; or Monogram shall take any corporate action to
authorize any of the actions set forth in this subsection.
(7) [Section Intentionally Omitted.]
(8) [Section Intentionally Omitted.]
(9) Monogram assigns this Agreement in a manner not permitted by
SECTIONS 17.1.
(10) A party other than MW shall have committed a MWCC Default
under the Account-Related Agreement.
16.3. MONOGRAM REMEDIES. If any MW Default shall have occurred and be
continuing:
(1) Monogram, in its discretion, upon written notice to MW, may
terminate this Agreement.
(2) In addition to (1) above, Monogram may exercise any other
rights or remedies available to it at law or in equity, subject to the terms of
this Agreement.
16.4. MW REMEDIES. If any Monogram Default shall have occurred and be
continuing:
(1) MW, in its discretion, upon written notice to Monogram, may
terminate this Agreement.
(2) In addition to (1) above, MW may exercise any other rights
or remedies available to it at law or in equity, subject to the terms of this
Agreement.
17. MISCELLANEOUS
17.1. TERMINATION OF INTERIM AGREEMENT; COMPLETE AGREEMENT;
MODIFICATION OF AGREEMENT; ASSIGNMENT AND SALE OF INTEREST.
(1) The Interim Agreement shall terminate on the Closing Date
(which termination shall be effective as of the date hereof) or such other date
agreed to by the parties effective as of the date agreed to by the parties.
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<PAGE>
(2) This Agreement constitutes the complete agreement between
the parties with respect to the subject matter hereof and may not be modified,
altered or amended, except by an agreement in writing signed by Monogram and MW.
(3) MW may not sell, assign, or transfer any of its rights,
titles, interests, remedies, duties, obligations or powers hereunder except to a
successor to substantially all of its business (including, without limitation,
such a successor that is an Affiliate of MW), and MW shall assign this Agreement
to any successor to substantially all of its business. Monogram may not sell,
assign or transfer any of its rights, titles, interests, remedies, duties,
obligations or powers hereunder, except to an affiliate (including by way of
merger of Monogram into GE Capital), or as provided in SECTION 5.11 or
subsection (4) below, provided any transfer to an Affiliate or as set forth in
such section or subsection are all subject to the limitations set forth in any
such section and subsection. Neither party shall be obligated to any such
assignee or transferee until it receives notice of the assignment or transfer.
Any assignments or transfers hereunder shall not relieve the assigning or
transferring party from its obligations under this Agreement, and shall not
relieve any guarantor of its obligations, which guarantor shall as a condition
of the effectiveness of the assignment acknowledge in writing the continuing
validity of its guaranty. The assignee or transferee of this Agreement shall
assume, by instrument reasonably acceptable to the other party to this
Agreement, the assignor's obligations hereunder.
(4) Upon a sale of the entire retail credit department of GE
Capital ("Retailer Department"), this Agreement may be assigned to the purchaser
of the Retailer Department ("Purchaser"), provided, however, that if such
Purchaser is a Competitor, or if a Competitor becomes an Affiliate of Monogram
or otherwise directly or indirectly controls Monogram or Monogram's rights or
obligations under this Agreement, MW may at any time thereafter elect to
terminate this Agreement. Furthermore, upon assignment of this Agreement to a
Purchaser, the Guaranty shall continue for the unexpired term of this Agreement
calculated as if a notice of termination was served at the time of assignment.
The Purchaser shall assume the obligations of Monogram under this Agreement, and
GE Capital shall, as a condition to the effectiveness of the assignment, confirm
the continuing validity of the Guaranty hereof, all by instruments reasonably
acceptable to MW. Monogram will not be relieved of its obligations hereunder in
the event of such an assignment. In the event GE Capital wishes to sell the
Retailer Department, it will give MW at least sixty (60) days prior written
notice and allow MW to submit an offer to purchase the Retailer Department.
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<PAGE>
(5) After assignment or transfer by Monogram, as provided in (3)
or (4) above, Transparent Servicing shall continue.
17.2. [SECTION INTENTIONALLY OMITTED.]
17.3. [SECTION INTENTIONALLY OMITTED.]
17.4. [SECTION INTENTIONALLY OMITTED.]
17.5. NO WAIVER. Either party's failure, at any time or times, to
require strict performance by the other of any provision of this Agreement shall
not waive, affect or diminish any right of such party thereafter to demand
strict compliance and performance therewith. Any suspension or waiver by either
party of a default shall not suspend, waive or affect any other default, whether
the same is prior or subsequent thereto and whether of the same or of a
different type. None of the undertakings, agreements, warranties, covenants and
representations of the parties contained in this Agreement and no MW Default or
Monogram Default pursuant to this Agreement shall be deemed to have been
suspended or waived by any party hereto, unless such suspension or waiver is by
an instrument in writing signed by such party.
17.6. REMEDIES. The parties' rights and remedies pursuant to this
Agreement shall, subject to the provisions hereof, be cumulative and
nonexclusive of any other rights and remedies which they may have pursuant to
any other agreement, by operation of law, or otherwise.
17.7. SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law; if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
17.8. PARTIES. This Agreement shall be binding upon, and inure to the
benefit of, the permitted successors and permitted assigns of each party hereto.
17.9. AUTHORIZED SIGNATURE. Until notified to the contrary by the
authorizing party, the signature upon any document or instrument delivered
pursuant hereto of a respective officer of MW or Monogram listed in EXHIBIT 17.9
hereto shall bind such party and be deemed to be the act of such party affixed
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<PAGE>
pursuant to and in accordance with resolutions duly adopted by the Board of
Directors of such party.
17.10. GOVERNING LAW. This Agreement and the obligations arising
pursuant hereto shall, in all respects, including all matters of construction,
validity, and performance, be governed by, and construed in accordance with, the
laws of the State of New York applicable to contracts made and performed in such
state and any applicable laws of the United States of America. MW and Monogram
agree to submit to personal jurisdiction and to waive any objection as to venue
of the federal or state courts in the State of New York. Service of process on
MW or Monogram in any action arising out of or relating to this Agreement shall
be effective upon receipt thereof if sent or delivered to MW or Monogram, as the
case may be, in accordance with SECTION 17.11 hereof. Nothing herein shall
preclude MW or Monogram from bringing suit or taking other legal action in any
other jurisdiction.
17.11. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by another, or whenever any of the parties desires to give or serve upon
another a communication with respect to this Agreement, each such notice,
demand, request, consent, approval, declaration, or other communication shall be
in writing and either shall be delivered in person with receipt acknowledged or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(1) If to Monogram, at
Monogram Credit Card Bank of Georgia
7840 Roswell Road
Building 100, Suite 210
Atlanta, Georgia 30350
Attn: President
with a copy to
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06904
Attn: RFS Legal Department
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<PAGE>
(2) If to MW, at
Montgomery Ward & Co., Incorporated
619 W. Chicago Avenue
Chicago, Illinois 60671
Attn: Secretary
with a copy to
Montgomery Ward & Co., Incorporated
619 W. Chicago Avenue
Chicago, Illinois 60671
Attn: Chief Financial Officer
or at such other address or to such other addressees as may be substituted or
added by notice given by the party to receive such notice as herein provided.
The giving of any notice required pursuant hereto may be waived in writing by
the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication pursuant hereto shall be
deemed to have been duly given or served on the date on which personally
delivered or three (3) Business Days after mailing.
17.12. CONFIDENTIALITY.
(1) Subject to the provisions of SECTION 5.3 of this Agreement,
each party hereto shall on and after the Conversion Date hold in confidence any
proprietary information obtained from any other party hereto in connection with
this Agreement and shall not disclose the same to any third party, except that
disclosure to an Affiliate of MW or Monogram or to Valuevision International,
Inc. is allowed. The parties' duty of confidentiality hereunder is specifically
intended to apply to the Customer List and credit file maintained in connection
with Cardholders (both of which shall be deemed proprietary information). MW
agrees that the financial terms of this Agreement are considered proprietary to
Monogram and will not be disclosed (except in the circumstances described in
subsections (b) and (c) below) to any Person if there are practical ways, after
discussion with Monogram, of avoiding such disclosure. Nothing contained herein
shall limit the right of either party to disclose any information (a) as
required by law or by judicial or administrative process or to appropriate
regulatory authorities, (b) as such information is or becomes public knowledge,
(c) to the extent that such information is disclosed to recover the Indebtedness
or amounts owing hereunder from another party hereto, (d) for legitimate
business purposes, including but not limited to purposes relating to any
securitization, participation, securities filings or in connection with
providing information to auditors, prospective purchasers and lenders (provided
that, to the extent that any party determines to disclose the Customer List in a
manner authorized by this Agreement, the disclosing party shall use best efforts
to obtain
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<PAGE>
from the party to whom the information is being disclosed a written
confidentiality agreement), and (e) subject to the provision of SECTION 5.3,
with the prior written consent of the party whose information is proprietary,
pursuant to an agreement between the Person to whom the information is being
disclosed and the party whose information is proprietary, satisfactory in form
and content to such latter party as to the confidentiality of such proprietary
information and reasonable liquidated damages (which liquidated damages for the
use of the credit file shall initially be based on SCHEDULE 5.3 annexed hereto,
as such schedule may be modified as provided in SECTION 5.3) to be paid for a
violation thereof, provided, however, that prior to disclosing any proprietary
information of another party hereto to any Person, the party making such
disclosure shall notify the appropriate party of the nature of such disclosure
and of the fact that such disclosure will be made.
(2) The parties acknowledge and agree that: (i) the Customer
List is commercially and competitively valuable; (ii) by this SECTION 17.12, the
parties are taking reasonable steps to protect legitimate interests in the
Customer List; and (iii) the restrictions on the parties under this Agreement
relating to the Customer List are reasonably necessary in order to protect
legitimate interests in the Customer List.
17.13. PAYMENTS. All payments to be made hereunder shall be made in
lawful money of the United States in immediately available federal funds to an
account designated by the other party. Except as expressly provided herein, if
any amount due hereunder is not paid when due and owing, the party failing to
make such payment agrees to pay, on demand, a charge equal to the Prime Rate on
the date due and owing, or the Business Day immediately following such date, as
it from time to time changes thereafter, [ ]* on such amount until such
amount is paid in full.
17.14. [SECTION INTENTIONALLY OMITTED.]
17.15. SECTION TITLES. The section titles, table of contents and list
of exhibits and schedules contained in this Agreement are and shall be without
substantive meaning or content of any kind whatsoever and are not a part of the
agreement between the parties hereto.
17.16. COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which shall, collectively and separately,
constitute one agreement.
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*Confidential treatment has been requested with respect to this information.
<PAGE>
17.17. DISCLOSURE. Disclosure of information on any schedule or
exhibit hereto shall be deemed to be a disclosure for all purposes of this
Agreement.
17.18. ESTOPPEL CERTIFICATES. Each party shall furnish to the other,
as requested from time to time by the other, estoppel certificates stating (or
specifying exceptions thereto) that this Agreement is in full force and effect,
that such party has no knowledge of any failure by either party to perform its
obligations hereunder, and such other matters as may be reasonably requested by
the other.
17.19. FOREIGN STORES. Accounts and Indebtedness shall not, without
the prior written approval of Monogram, include Accounts or Indebtedness arising
out of Merchandise sold in MW's stores outside of the United States of America.
17.20. [SECTION INTENTIONALLY OMITTED.]
17.21. THIRD PARTY BENEFICIARIES. No third party shall have any
rights under this Agreement except for successors and permitted assigns.
17.22. FORCE MAJEURE. Except as otherwise expressly provided herein,
except with respect to Sections 11.1(b) and 11.2(b), and except with respect to
payments to be made by either party, neither party shall be responsible for any
failure or delay in performance of its obligations under this Agreement because
of circumstances beyond its control including, but not limited to, acts of God,
flood, criminal acts, fire, riot, computer viruses, computer hackers, accident,
strikes or work stoppages for any reason, embargo, war or civil disturbances;
PROVIDED, HOWEVER, that such party took reasonable action to avoid such events
and such party acts reasonably to mitigate the effects of such events.
17.23. CLOSING. The closing of this transaction and any related
transactions involving Affiliates of Monogram shall be held on the Closing Date
in the offices of Weil, Gotshal & Manges, 767 Fifth Avenue, New York, New York
10153 or such other place or places agreed to by the parties.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed on December
20, 1996, effective as of April 1, 1996.
MONOGRAM CREDIT CARD BANK OF GEORGIA
By:
-----------------------------------
Name:
Title:
MONTGOMERY WARD & CO., INCORPORATED
By:
-----------------------------------
Name:
Title:
135
<PAGE>
GUARANTY OF BANK CREDIT CARD PROGRAM AGREEMENT
THIS GUARANTY made as of this 1st day of April, 1996, by General
Electric Capital Corporation (hereinafter referred to as "Guarantor"), in favor
of Montgomery Ward & Co., Incorporated (hereinafter referred to as "MW").
RECITALS
A. Monogram Credit Card Bank of Georgia (herein referred to as
"Monogram"), is desirous of entering into that certain Bank Credit Card Program
Agreement of even date herewith ("Agreement").
B. Guarantor owns all of the outstanding capital stock of Monogram.
C. MW has declined to enter the Agreement unless Guarantor guarantees the
obligations of Monogram under the Agreement.
NOW, THEREFORE, to induce MW to enter the Agreement, Guarantor hereby
agrees as follows:
1. UNCONDITIONAL GUARANTY. Guarantor unconditionally guarantees to MW
and the successors and assigns of MW the full and punctual payment, performance
and observance by Monogram, of all the terms, covenants, conditions and
indemnifications in the Agreement contained on Monogram's part to be kept,
performed or observed. If, at any time, default shall be made by Monogram in
the performance or observance of any of the terms, covenants, conditions or
indemnifications in the Agreement contained on Monogram's part to be kept,
performed or observed Guarantor will keep, perform and observe the same, as the
case may be, in place and stead of Monogram.
2. WAIVER OF NOTICE; NO RELEASE OF LIABILITY. Any act of MW, or the
successors or assigns of MW, consisting of a waiver of any of the terms or
conditions of the Agreement, or the giving of any consent to any matter or thing
relating to the Agreement, or the granting of any indulgences or extensions of
time to Monogram, may be done without notice to Guarantor and without releasing
the obligations of Guarantor hereunder. The obligations of Guarantor hereunder
shall not be released by MW's receipt, application or release of any security
given for the performance and observance of covenants and conditions in the
Agreement contained on Monogram's part to be performed or
1
<PAGE>
observed, nor by any modification of the Agreement. The liability of Guarantor
hereunder shall in no way be affected by (a) the release or discharge of
Monogram in any creditors, receivership, bankruptcy or other proceedings, (b)
the impairment, limitation or modification of liability of Monogram or the
estate of Monogram in bankruptcy, or of any remedy for the enforcement of
Monogram's liability under the Agreement, resulting from the operation of any
present or future provision of the Federal Bankruptcy Code or other statute or
from the decision in any court; (c) the rejection or disaffirmance of the
Agreement in any such proceedings; (d) any disability or other defense of
Monogram except as otherwise provided in the Agreement; (e) the cessation from
any cause whatsoever of the liability of Monogram except or otherwise provided
in the Agreement; or (f) the exercise by MW of any rights or remedies reserved
to MW under the Agreement, provided or permitted by law, or by reason of any
termination of the Agreement.
3. JOINDER; STATUTE OF LIMITATIONS. Guarantor agrees that it may be joined
in any action against Monogram in connection with the obligations of Monogram
under the Agreement as guaranteed by this Guaranty and recovery may be had
against Guarantor in any such action, or MW may enforce the obligations of
Guarantor hereunder without first taking any action whatsoever against Monogram
or its successors and assigns, or pursue any other remedy or apply any security
it may hold.
4. DE FACTO SUBSTITUTION. In the event this Guaranty shall be held
ineffective or unenforceable by any court of competent jurisdiction, or in the
event of any limitation of liability of Guarantor hereon other than as expressly
provided herein, then Guarantor shall be deemed to be a party under the
Agreement with the same force and effect as if Guarantor were expressly named as
a joint and several party with Monogram therein with respect to the obligations
of Monogram thereunder hereby guaranteed.
5. AMENDMENT OR ASSIGNMENT OF AGREEMENT. The provisions of the Agreement
may be changed, modified, amended or waived by agreement between MW and Monogram
at any time, or by course of conduct, without the consent of or without notice
to Guarantor, including but not limited to, any agreement to increase the
"Maximum Aggregate Cardholders' Balance" (as such quoted term is defined in the
Agreement) thereunder. This Guaranty shall guarantee the performance of the
Agreement as so changed, modified, amended or waived, including but not limited
to, any increase in the "Maximum Aggregate Cardholders' Balance". Any
assignment of the Agreement shall not affect this Guaranty and if MW disposes of
its interest in the Agreement, "MW", as used in this Guaranty, shall mean MW's
successors and assigns.
2
<PAGE>
6. DEFENSE OF MONOGRAM. Guarantor waives any defense by reason of any
legal disability of Monogram, and further waives any presentments, and notices
of acceptance of this Guaranty as well as all notices of the existence,
creation, or incurring of new or additional obligations under the Agreement.
7. NO WAIVER BY MONOGRAM. No delay on the part of MW in exercising any
right hereunder or under the Agreement shall operate as a waiver of such right
or of any other right of MW hereunder or under the Agreement, nor shall any
delay, omission or waiver on any one occasion be deemed a waiver of the same or
any other right on any other future occasion.
8. WHOLE AGREEMENT. This instrument constitutes the entire agreement
between MW and Guarantor with respect to the subject matter hereof, supersedes
all prior oral or written agreements or understandings with respect thereto and
may not be changed, modified, discharged or terminated orally or in any manner
other than by an agreement in writing signed by Guarantor and MW.
9. APPLICABLE LAW. This Guaranty shall be governed by and construed in
accordance with the laws of the State of Illinois.
10. GUARANTOR'S SUCCESSORS. Guarantor's obligations under this Guaranty
shall be binding on the successors, legal representatives and assigns of
Guarantor. Guarantor shall not be released by any assignment or delegation by
it of its obligations hereunder.
11. ATTORNEYS' FEES. If MW is required to enforce Guarantor's obligations
hereunder, Guarantor shall pay to MW all costs incurred, including without
limitation, reasonable attorneys' fees.
12. CAPTIONS. The paragraph headings appearing herein are for purposes of
identification and reference only and shall not be used in interpreting this
Guaranty.
13. INTERPRETATIONS; SEVERABILITY. It is agreed that if any provision of
this Guaranty or the application of any provision to any person or any
circumstance shall be determined to be invalid or unenforceable, such
determination shall not affect any other provisions of this Guaranty or the
application of such provision to any other person or circumstance, all of which
other provisions shall remain in full force and effect. It is the intention of
the parties hereto that if any provision of this Guaranty is capable of two
constructions, one of which would render the provision valid, the provision
shall have the meaning which renders it valid.
3
<PAGE>
14. EXTENSION AND RENEWALS. This Guaranty shall apply to the Agreement,
any extension or renewal thereof, and to any extended term following the term
granted in the Agreement, or any extension or renewal thereof, subject to the
provision of SECTION 17.1(3) of the Agreement which may limit the period of the
Guaranty in certain circumstances where Guarantor has sold the entire retail
credit department, all as more fully set forth therein.
15. NOTICES. Notices shall be given pursuant to the Guaranty in the same
manner as given in the Agreement.
16. CONFIDENTIALITY. Guarantor shall comply, and shall cause all of its
"Affiliates" (as such quoted term is defined in the Agreement) to comply, with
the confidentiality provisions contained in the Agreement which are imposed on
Monogram.
ACKNOWLEDGEMENT; ENFORCEABILITY. GUARANTOR REPRESENTS AND WARRANTS TO MW
THAT GUARANTOR HAS READ THIS GUARANTY AND UNDERSTANDS THE CONTENTS HEREOF AND
THAT THIS GUARANTY IS ENFORCEABLE AGAINST GUARANTOR IN ACCORDANCE WITH ITS
TERMS.
4
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Guaranty on December 20,
1996, effective as of April 1, 1996.
Guarantor:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
Name:
Title:
5
<PAGE>
CONFIDENTIAL
ACCOUNT PURCHASE AGREEMENT
Dated as of June 24, 1988, As
Amended, Restated and Renamed the
ACCOUNT-RELATED AGREEMENT
and
Dated as of April 1, 1996
by and between
MONTGOMERY WARD CREDIT CORPORATION
and
MONTGOMERY WARD & CO., INCORPORATED
<PAGE>
TABLE OF CONTENTS
1. DEFINED TERMS........................................................... 2
2. DEFINITIONAL MATTERS.................................................... 35
2.1. General Principles................................................. 35
3. FEES RELATING TO ACCOUNTS............................................... 35
3.1. [Section Intentionally Omitted].................................... 35
3.2. [Section Intentionally Omitted].................................... 35
3.3. Fees............................................................... 35
3.4. Ineligible MWCC Indebtedness....................................... 37
3.5. [Section Intentionally Omitted].................................... 40
3.6. Monthly Statements................................................. 40
4. DEFAULTED INDEBTEDNESS.................................................. 40
4.1. Responsibility During Fiscal Year 1997 and Thereafter.............. 40
4.2. Responsibility For Fiscal Year 1996................................ 42
4.3. When Determined; Payment........................................... 42
4.4. MW Obligation...................................................... 44
4.5. [Section Intentionally Omitted].................................... 45
4.6. Payments Related To Notes And Other Obligations.................... 45
4.7. MW Payment of Certain Amounts...................................... 47
4A. STARTER CARD ACCOUNT DEFAULTED INDEBTEDNESS............................. 48
4A.1 Responsibility.................................................... 48
4A.2 Responsibility For Fiscal Year 1996............................... 48
4A.3 When Determined; Payment.......................................... 48
5. SERVICING............................................................... 49
5.1. [Section Intentionally Omitted].................................... 49
5.2. MWCC's Responsibilities............................................ 49
5.3. MWCC's Liabilities................................................. 51
5.4. MW's Responsibilities.............................................. 51
5.5. Finance and Other Charges.......................................... 57
5.6. Use of MWCC Customer List.......................................... 70
5.7. MWCC's Records..................................................... 72
5.8. Representatives.................................................... 72
5.9. [Section Intentionally Omitted].................................... 72
5.10. Right to Contract................................................ 72
5.11. [Section Intentionally Omitted................................... 72
5.12. [Section Intentionally Omitted].................................. 72
5.13. [Section Intentionally Omitted].................................. 72
5.14. Divestiture/Store Closings....................................... 72
5.15. MW Monthly Payment Amount........................................ 74
5.16. The Licensed Marks............................................... 74
6. CONDITIONS PRECEDENT.................................................... 79
6.1. Conditions to MWCC's Obligations................................... 79
<PAGE>
6.2. Conditions to MW's Obligations..................................... 81
6.3. [Section Intentionally Omitted].................................... 81
6.4. [Section Intentionally Omitted].................................... 81
7. SECURITY AND ACCESS TO DATA............................................. 82
7.1. Security Interest.................................................. 82
7.2. Returns of Merchandise............................................. 86
7.3. Notices to MWCC.................................................... 86
7.4. Further Assurances................................................. 86
7.5. Attorney-in-Fact................................................... 86
7.6. Continued Liability................................................ 87
7.7. Other Party May Perform............................................ 87
7.8. Receipt of Payments................................................ 88
7.9. Access to Data by MWCC............................................. 88
7.10. Access to Data by MW............................................. 88
7.11. Audit of Information............................................. 89
7.12. [Section Intentionally Omitted].................................. 89
8. REPRESENTATIONS AND WARRANTIES OF MW.................................... 89
8.1. Corporate Existence................................................ 90
8.2. Executive Offices and Stores....................................... 90
8.3. Corporate Power; Authorization; Enforceable Obligations............ 91
8.4. Solvency........................................................... 91
8.5. Financials......................................................... 92
8.6. No Default......................................................... 92
8.7. [Section Intentionally Omitted].................................... 92
8.8. No Litigation...................................................... 92
8.9. Accounts........................................................... 92
8.10. [Section Intentionally Omitted].................................. 93
8.11. [Section Intentionally Omitted].................................. 93
9. REPRESENTATIONS AND WARRANTIES OF MWCC.................................. 93
9.1. Corporate Existence................................................ 93
9.2. Corporate Power; Authorization; Enforceable Obligations............ 94
9.3. Solvency........................................................... 95
10. FINANCIAL STATEMENTS AND INFORMATION.................................... 95
10.1. MW's Reports and Notices......................................... 95
10.2. GE Capital's and MWCC's Reports and Notices...................... 96
11. INDEMNIFICATION......................................................... 97
11.1. Indemnification by MW............................................ 97
11.2. Indemnification by MWCC.......................................... 98
11.3. Defense of Third Party Claims.................................... 99
11.4. Payment of Indemnified Amounts...................................100
11.5. Insurance and Mitigation.........................................100
11.6. Exceptions.......................................................100
12. AFFIRMATIVE COVENANTS OF MW.............................................101
<PAGE>
12.1. [Section Intentionally Omitted]..................................101
12.2. Compliance with Law..............................................101
13. AFFIRMATIVE COVENANTS OF MWCC...........................................101
13.1. Compliance with Law..............................................101
13.2. Securitization, Assignment and Sale Compliance...................102
13.3. Sales of Accounts and Indebtedness...............................102
13.4. Delinquent Account Purchase Agreement............................102
14. NEGATIVE COVENANTS OF MW................................................102
14.1. Liens............................................................102
15. TERM....................................................................102
15.1. Term and Termination.............................................102
15.2. Effect of Termination............................................103
15.3. Securitization/Participation.....................................112
16. EVENTS OF DEFAULT; RIGHTS AND REMEDIES..................................113
16.1. MW Defaults......................................................113
16.2. MWCC Defaults....................................................115
16.3. MWCC Remedies....................................................117
16.4. MW Remedies......................................................117
17. MISCELLANEOUS...........................................................118
17.1. Complete Agreement; Modification of Agreement;
Assignment and Sale of Interest..................................118
17.2. [Section Intentionally Omitted]..................................119
17.3. MWCC Affiliates..................................................119
17.4. [Section Intentionally Omitted]..................................120
17.5. No Waiver........................................................120
17.6. Remedies.........................................................120
17.7. Severability.....................................................120
17.8. Parties..........................................................120
17.9. Authorized Signature.............................................120
17.10. Governing Law...................................................121
17.11. Notices.........................................................121
17.12. Confidentiality.................................................122
17.13. Payments........................................................123
17.14. [Section Intentionally Omitted].................................123
17.15. Section Titles..................................................123
17.16. Counterparts....................................................124
17.17. Disclosure......................................................124
17.18. Estoppel Certificates...........................................124
17.19. [Section Intentionally Omitted].................................124
17.20. [Section Intentionally Omitted].................................124
17.21. Third Party Beneficiaries.......................................124
17.22. Force Majeure...................................................124
17.23. Marketing Committee.............................................125
17.24. Closing.........................................................125
<PAGE>
ACCOUNT PURCHASE AGREEMENT, dated as of June 24, 1988, as Amended, Restated
and Renamed as the ACCOUNT-RELATED AGREEMENT, dated as of April 1, 1996, by and
between MONTGOMERY WARD & CO., INCORPORATED ("MW"), an Illinois corporation with
its chief executive offices located at 619 West Chicago Avenue, Chicago,
Illinois 60671, and MONTGOMERY WARD CREDIT CORPORATION ("MWCC"), a Delaware
corporation with its principal place of business located at 880 Grier Drive, Las
Vegas, Nevada 89119.
W I T N E S S E T H:
WHEREAS, MW and certain Authorized Affiliates and Authorized Licensees
(both as hereinafter defined) are engaged in the business of selling Merchandise
(as hereinafter defined) and serving customers; and
WHEREAS, MW and MWCC have entered into that certain Account Purchase
Agreement, dated as of June 24, 1988, as amended prior to the date of this
amendment, restatement and renaming thereof (the "Original Account Purchase
Agreement"), pursuant to which MWCC purchased certain accounts of, and operated
a private label program in conjunction with, MW; and
WHEREAS, MW and Monogram Credit Card Bank of Georgia ("Monogram") have
entered into the Bank Program Agreement (as defined below) pursuant to which,
beginning on the Conversion Date, the program established under the Original
Account Purchase Agreement was restructured to allow Monogram to (a) open
Accounts and issue Credit Cards and (b) extend credit directly to individuals
buying Merchandise at Stores pursuant to Accounts, including Old Accounts and
Accounts arising pursuant to the Interim Agreement, without recourse to MW (all
capitalized terms as hereinafter defined); and
WHEREAS, MW and MWCC previously have executed an amended and restated
agreement, dated as of April 1, 1996 (the "Noneffective Agreement"), which
Noneffective Agreement required, as a condition to its effectiveness, that the
transactions contemplated in such Noneffective Agreement be approved by MWCC's
shareholder(s);
WHEREAS, GE Capital (as hereinafter defined), MWCC's sole shareholder, has
determined not to approve the transactions contemplated by the Noneffective
Agreement without certain modifications; and
WHEREAS, because the Noneffective Agreement shall not become effective,
both MW and MWCC desire to enter into this agreement amending, restating and
renaming the Original Account Purchase Agreement as provided in this Agreement;
and
<PAGE>
WHEREAS, upon the effectiveness of this Agreement, as of the close of MW's
business on the day prior to the Conversion Date (as hereinafter defined), MW
and MWCC shall be deemed to have terminated certain of their obligations under
the Original Account Purchase Agreement, including MW's recourse obligations
(except with respect to Non-Converted Accounts and Non-Converted Indebtedness
(both as hereinafter defined) for the remainder of Fiscal Year 1996 only); and
WHEREAS, MWCC and Monogram have entered into that certain Credit Card
Receivables Sale Agreement and that certain Delinquent Account Purchase
Agreement (both as hereinafter defined), pursuant to which Monogram from time to
time has sold, and in the future may sell, certain Accounts, Indebtedness and/or
interests in the same to MWCC under the terms of those agreements; and
WHEREAS, MW has requested GE Capital, and GE Capital has agreed, to
guaranty the obligations of MWCC hereunder and of Monogram under the Bank
Program Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. DEFINED TERMS
As used in this Agreement, capitalized terms shall have the respective
meanings set forth below:
"Account" shall mean (a) any Account as defined in the Bank Program
Agreement; (b) any Non-Converted Account; and (c) any Purchased Monogram
Account.
"Account Documentation" shall mean any and all documentation relating to
Accounts, including, without limitation, Credit Card Documentation, Charge
Transaction Data, checks or other forms of payment with respect to an Account,
credit bureau reports (to the extent not prohibited from transfer by contract
with the credit bureau to the extent such prohibition has not been waived),
adverse action notices, change of terms notices, other notices, correspondence,
memoranda, documents, stubs, instruments, certificates, agreements, invoices,
sales or shipping slips, delivery and other receipts, magnetic tapes, disks,
hard copy formats or other computer-readable data transmissions, any microfilm,
electronic or other copy of any of the foregoing, and any other written,
electronic or other records or materials of whatever form or nature, including,
without limitation, tangible and intangible information, arising from or
relating or pertaining to any of the foregoing.
2
<PAGE>
"Account-Related Agreement Guaranty" shall mean that certain Guaranty of
Account-Related Agreement, of even date herewith, the form of which is attached
as EXHIBIT A hereto.
"Accrued Conversion Expenses" shall mean, with respect to any Fiscal Year
(or part thereof), Conversion Expenses incurred during that Fiscal Year (or part
thereof), plus Conversion Expenses incurred in previous Fiscal Years beginning
in Fiscal Year 1996, to the extent such Conversion Expenses were not paid out
of, or reimbursed from, Gross Designated Incremental Revenues. Accrued
Conversion Expenses shall include interest thereon, which interest shall be
calculated on a simple basis and accrue from the Payment Date for the Fiscal
Year during which such expenses were incurred, at the Annual Commercial Paper
Rate applicable to each Annual Interest Earning Year, [ ]*, per
annum, for the period such amounts remain unpaid.
"Accrued Net Litigation Expenses" shall mean, with respect to any Fiscal
Year, Net Litigation Expenses incurred during that Fiscal Year (or part
thereof), plus Net Litigation Expenses incurred in previous Fiscal Years
beginning in Fiscal Year 1996, to the extent such Net Litigation Expenses were
not paid out of, or reimbursed from, Gross Designated Incremental Revenues.
Accrued Net Litigation Expenses shall include interest thereon, which interest
shall be calculated on a simple basis and accrue from the Payment Date for the
Fiscal Year during which such expenses were incurred, at the Annual Commercial
Paper Rate applicable to each Annual Interest Earning Year, plus [ ]*,
per annum, for the period such amounts remain unpaid.
"Accrued Ongoing Incremental Expenses" shall mean, with respect to any
Fiscal Year (or part thereof), Ongoing Incremental Expenses incurred during
that Fiscal Year (or part thereof), plus Ongoing Incremental Expenses
incurred in previous Fiscal Years beginning in Fiscal Year 1996 to the extent
such Ongoing Incremental Expenses were not paid out of, or reimbursed from,
Gross Designated Incremental Revenues. Accrued Ongoing Incremental Expenses
shall include interest thereon, which interest shall be calculated on a
simple basis and accrue from the Payment Date for the Fiscal Year during
which such expenses were incurred, at the Annual Commercial Paper Rate
applicable to each Annual Interest Earning Year, plus [ ]*, for
the period such amounts remain unpaid.
"Accrued MW Monthly Payment Amounts" shall mean, for any Fiscal Year (or
part thereof), an amount equal to (i) the sum of the MW Monthly Payment Amount
for such Fiscal Year (or part thereof), PLUS (ii) the sum of the MW Monthly
Payment Amounts for previous Fiscal Years beginning in Fiscal Year 1996 to the
extent such MW Monthly Payment Amounts were not paid out of, or reimbursed from,
Gross Designated Incremental Revenues. Accrued
*Confidential treatment has been requested with respect to this information.
3
<PAGE>
MW Monthly Payment Amounts shall include interest thereon, which interest shall
be calculated on a simple basis and accrue from the Payment Date for the Fiscal
Year during which such expenses were incurred, at the Annual Commercial Paper
Rate applicable to each Annual Interest Earning Year, plus [ ]*, per
annum, for the period such amounts remain unpaid.
"AFF Promotions" shall have the meaning assigned to such term in the Bank
Program Agreement.
"Affiliate" shall mean, with respect to any Person, each Person that
controls, is controlled by, or is under common control with, such Person,
provided, however, that (a) the term "Affiliate" shall not include any
individual, and no individuals shall be taken into account in any determinations
under this definition, and (b) neither any direct or indirect owner of equity
securities of MW, including General Electric Company and GE Capital, other than
Montgomery Ward Holding Corp. so long as it owns all of the outstanding common
equity securities of MW ("Holding"), nor any of said Person's Subsidiaries
(except that MW, Holding and their respective Subsidiaries may be considered
Affiliates of each other), shall be considered to be an Affiliate of MW based
solely on its ownership of such equity securities, nor shall MW, Holding and/or
their respective Subsidiaries be considered Affiliate(s) of any such owner
(including General Electric Company and GE Capital) or such owners' Subsidiaries
(except that MW, Holding, and their respective Subsidiaries may be considered
Affiliates of each other). For the purpose of this definition, "control" of a
Person shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract, or otherwise.
"Aggregate Cardholders' Balance" shall have the meaning assigned to it in
the Bank Program Agreement.
"Aggregate Incremental Revenue Amount" shall mean the aggregate of (i) the
amount owed by MWCC to MW pursuant to SECTION 5.5(2) hereof, (ii) the amount
owed by MWCC to MW pursuant to SECTION 5.5(3) hereof, (iii) the amount owed by
MWCC to MW pursuant to SECTION 5.5(9) hereof for that portion of Fiscal Year
1996 after the Conversion Date and for Fiscal Year 1997, and (iv) for each of
(a) that portion of Fiscal Year 1996 after the Conversion Date and (b) Fiscal
Year 1997, the MW Share of Remaining Amount, if there are such amounts for the
time periods specified in (a) and (b) (assuming all allocations in subsections
(i) through (iv) in SECTION 5.5(10)(b) have been made and funds remain), and
subject to any decreases provided for in SECTION 5.5(11)(iii)(B).
*Confidential treatment has been requested with respect to this information.
4
<PAGE>
"Aggregate Late Fee Amount" shall mean, for any Fiscal Year (or part
thereof) commencing May 1, 1996, a dollar amount equal to the difference
between: (a) the dollar amount of late fees assessed on Accounts during such
Fiscal Year (or partial Fiscal Year), minus (y) the amount of late fees on such
Accounts reversed or written off by Monogram or MWCC during such Fiscal Year (or
part thereof).
"Agreement" shall mean this Account-Related Agreement, including all
amendments, modifications, supplements, exhibits, and schedules hereto, and
shall refer to this Agreement as the same may be in effect at the time such
reference is operative.
"Annual Commercial Paper Rate" shall mean an interest rate that shall be
determined separately for each Annual Interest Earning Year. The Annual
Commercial Paper Rate for each Annual Interest Earning Year shall be the
quotient derived by dividing [ ]*, such result expressed as a
percentage and rounded to two (2) decimal places. The average daily amount
of Commercial Paper outstanding shall be calculated by adding the amount of
Commercial Paper outstanding on each day during such Fiscal Year, and
dividing by the number of days in such Fiscal Year. Where an amount as to
which the Annual Commercial Paper Rate is to be applied is paid earlier than
otherwise provided in this Agreement (including, without limitation, under
SECTION 5.5(7) hereof), or such Annual Commercial Paper Rate is to be applied
for a period of less than twelve (12) months, such Annual Commercial Paper
Rate shall be calculated using the methodology described above, based on
amounts for the time beginning on the first day of the applicable Fiscal Year
and ending on the last day of the fiscal quarter immediately preceding the
date of such payment; provided, that where an Annual Commercial Paper Rate is
to be applied for a period ending on or prior to the last day of the first
fiscal quarter of a Fiscal Year, the Annual Commercial Paper Rate shall be
the Annual Commercial Paper Rate for the immediately preceding Fiscal Year.
"Annual Interest Earning Year" shall mean a period commencing on a February
28 and continuing to and including February 27 of the next following calendar
year.
"Annual Yield Percentage" shall mean, for any Fiscal Year (or part thereof)
commencing May 1, 1996, the amount (expressed as a percentage) obtained by
dividing (a) the total amount of finance charges billed to Cardholders or billed
to MW in connection with Reduced Accounts during such period with respect
*Confidential treatment has been requested with respect to this information.
5
<PAGE>
to Indebtedness (other than Non-Converted Indebtedness, Purchased Monogram
Indebtedness and Indebtedness otherwise arising from Starter Card Accounts),
less all finance charges credited to such Accounts during such period, (other
than (i) finance charges credited during such period as the result of (x)
payments on such Accounts by Cardholders, (y) payments on said accounts by MW in
connection with Reduced Accounts, and (z) successful completion of AFF
Promotions and (ii) refunds of finance charges pursuant to SECTION 5.5(11)
hereof), by (b) the Average Monthly Billed Indebtedness for such period, such
quotient being rounded to two (2) decimal places.
"Asserted Claims" shall mean any Post-Conversion Asserted Claim(s) and/or
Pre-Conversion Asserted Claim(s).
"Authorized Affiliate" shall mean, on any date, any Person meeting the
definition of such term contained in Section 1 of the Bank Program Agreement.
"Authorized Licensee" shall mean, on any date, any Person meeting the
definition of such term contained in Section 1 of the Bank Program Agreement
"Average Late Fee Per Assessment" shall mean, for any Fiscal Year (or part
thereof) commencing May 1, 1996, a dollar amount equal to: (a) the Aggregate
Late Fee Amount for such Fiscal Year (or partial Fiscal Year), DIVIDED BY (b)
the number of times late fees were assessed on Accounts during such Fiscal Year
(or partial Fiscal Year).
"Average Monthly Billed Indebtedness" shall mean, for any Fiscal Year (or
part thereof) commencing May 1, 1996, an amount equal to: (i) the sum of
Indebtedness (other than Non-Converted Indebtedness, Purchased Monogram
Indebtedness, Indebtedness otherwise arising pursuant to Starter Card Accounts)
during such Fiscal Year, as computed (as appropriate) pursuant to Monogram's
Accounting Practices or MWCC's Accounting Practices, but in each case without
the deduction of any allowance for bad debts, billed to Cardholders on each
Billing Cycle closing date during that Fiscal Year or billed to MW during that
Fiscal Year in connection with Reduced Accounts during that Fiscal Year, DIVIDED
BY (ii) twelve (12). Notwithstanding the foregoing, if the Fiscal Year in
question is a partial Fiscal Year, "Average Monthly Billed Indebtedness" shall
mean the sum of Indebtedness (other than Non-Converted Indebtedness, Purchased
Monogram Indebtedness and Indebtedness otherwise arising pursuant to Starter
Card Accounts) during such partial Fiscal Year, as computed (as appropriate)
pursuant to Monogram's Accounting Practices or MWCC's Accounting Practices, but
in each case without deduction of any allowance for bad debts, billed to
Cardholders on each of the Billing Dates during each complete Settlement Period
within such partial Fiscal
6
<PAGE>
Year or billed to MW in connection with Reduced Accounts during such partial
Fiscal Year, divided by such number of such Settlement Periods. In the event
that the number of times an Account would be billed during an entire Fiscal Year
is other than twelve (12), the parties hereto shall agree to an appropriate
adjustment to the calculations set forth herein.
"Balance Sheet" shall have the meaning assigned to it in SECTION 8.5
hereof.
"Bank Overhead Assessment" shall mean [ ]*. For Fiscal Year 1997
and each Fiscal Year thereafter, this amount shall be adjusted by the
increase or decrease in the Consumer Price Index - All Urban Consumers - All
Items - Atlanta, Georgia (or, if such index is discontinued, such other index
of similar type mutually agreed to by the parties). In doing such
adjustments, the base year shall be Fiscal Year 1996 and calendar year
statistics which correspond to Fiscal Years may be used.
"Bank Program Agreement" shall mean that certain Interim Consumer Credit
Card Program Agreement, dated as of April 1, 1996, as Amended, Restated and
Renamed the Bank Credit Card Program Agreement, of even date herewith, between
Monogram and MW, as such agreement may be amended, restated, replaced, modified
and/or supplemented from time to time.
"Bankruptcy Code" shall mean Title 11 of the United States Code, as now
constituted or as hereafter amended, or any successor law.
"Base Composite Yield Percentage" shall mean [ ]*, as adjusted
for each Fiscal Year commencing with Fiscal Year 1996 as stated in EXHIBIT B
hereto. With respect to any partial Fiscal Year, the percentage applicable
to such Fiscal Year shall be adjusted by dividing the applicable full year
percentage by three hundred sixty-five (365) and multiplying the resulting
quotient by the number of days in such partial Fiscal Year.
"Base Starter Card Account Yield Percentage" shall mean [ ]*, as
adjusted for each Fiscal Year commencing with Fiscal Year 1996 and thereafter
as stated in EXHIBIT C hereto. With respect to any partial Fiscal Year, the
amount of the percentage applicable to such Fiscal Year shall be adjusted by
dividing the applicable full year percentage by three hundred sixty-five
(365) and multiplying the resulting quotient by the number of days in such
partial Fiscal Year.
"Base Year 1991 Yield Percentage" shall mean:
*Confidential treatment has been requested with respect to this information.
7
<PAGE>
for the State of Florida, [ ]*;
for the State of Texas [ ]*; and
for the State of Washington, [ ]*.
With respect to any partial Fiscal Year, and/or for the Fiscal Year(s) in which
one or more payments are owed by MW pursuant to the provisions of SECTION
5.5(11) hereof as to calculations done pursuant to that Section, the amount of
the percentage applicable to such Fiscal Year shall be adjusted by dividing the
applicable full year percentage by three hundred sixty-five (365) and
multiplying the resulting quotient by the number of days in such partial Fiscal
Year.
"Base Year 1995 Yield Percentage" shall mean:
for the State of Florida, [ ]*;
for the State of Texas [ ]*; and
for the State of Washington, [ ]*.
With respect to any partial Fiscal Year, and/or for the Fiscal Year(s) in which
one or more payments are owed by MW pursuant to the provisions of SECTION
5.5(11) hereof as to calculations done pursuant to that Section, the amount of
the percentage applicable to such Fiscal Year shall be adjusted by dividing the
applicable full year percentage by three hundred sixty-five (365) and
multiplying the resulting quotient by the number of days in such partial Fiscal
Year.
"Billing Cycle" shall mean the time period between regular periodic Billing
Dates for an Account.
"Billing Date" shall mean, collectively, those dates during a Settlement
Period as of which Accounts are billed.
"Billing Statement" shall mean a summary of credit and/or debit
transactions on an Account for a Billing Cycle, including, without limitation, a
descriptive statement covering purchases of Merchandise and/or a statement with
past due information.
"Business Day" shall mean any day except (i) Saturday, (ii) Sunday or (iii)
a day on which banks are required or permitted to be closed in the State of
Georgia to the extent that the bank or banks from which Monogram wires funds
under the Bank Program Agreement actually are closed on such day.
*Confidential treatment has been requested with respect to this information.
8
<PAGE>
"Cardholder" shall mean any natural person who is or may become obligated
under, with respect to, or on account of, an Account.
"Cash Price" shall have the meaning assigned to it in the Bank Program
Agreement.
"Charge Slip" shall mean evidence of a sale of Merchandise at a Store to be
charged on an Account, including, without limitation, an invoice, sales slip,
memorandum of purchase or similar document or an electronic or magnetic
transmission.
"Charge Transaction Data" shall mean Cardholder identification and
transaction information with regard to (i) each purchase of Merchandise on an
Account and (ii) each return, exchange or adjustment for Merchandise purchased
on an Account.
"Closing Date" shall mean December 23, 1996, or such later date as may be
agreed to by the parties in writing.
"Code" or "UCC" shall mean the Uniform Commercial Code (or similar personal
property security law) of the jurisdiction with respect to which such term is
used, as now constituted or hereafter amended, or any successor law.
"Commercial Paper" shall mean the short-term unsecured obligations, whether
or not discounted and/or interest-bearing, maturing in less than two hundred
seventy (270) days, issued by a bank, corporation or other entity.
"Competitor" shall mean those Persons (and their Affiliates) that own or
control the retail operations now commonly known as Sears or J.C. Penney or any
successors to such retail operations.
"Composite Recast Incremental Yield Amount" shall mean, for any Fiscal Year
(or part thereof) commencing with May 1, 1996, the Composite Recast Incremental
Yield Percentage for such period, MULTIPLIED BY the Average Monthly Billed
Indebtedness for such period.
"Composite Recast Incremental Yield Percentage" shall mean, for any Fiscal
Year (or part thereof) commencing with May 1, 1996, the positive difference, if
any, in (A) the Annual Yield Percentage for such Fiscal Year (or part thereof)
MINUS (B) the Base Composite Yield Percentage applicable to that Fiscal Year,
such positive difference being rounded to two (2) decimal places.
"Contractual Method" shall have the meaning assigned to it in the Bank
Program Agreement.
"Conversion Date" shall mean April 1, 1996.
9
<PAGE>
"Conversion Expenses" shall mean the sum of incremental costs and expenses
of MWCC, MW, Monogram and Affiliates of Monogram associated with the
implementation of 1996 increases in finance charge rates and amounts of late
fees in connection with implementation of the Bank Program Agreement, including
those costs and expenses incurred prior to the Conversion Date and including,
without limitation, legal expenses, systems programming expenses, cardholder
notification expenses, incremental staffing expenses, obsolescence costs (I.E.,
MWCC stationery, card carriers, etc.) and any operations-related
relocation/transfer expenses, all as reasonably agreed to by the parties hereto.
"Credit Agreement" shall mean (a) any Credit Card Agreement as defined in
the Bank Program Agreement; and (b) any MWCC Credit Agreement.
"Credit Application" shall mean (a) any Credit Card Application as defined
in the Bank Program Agreement; and (b) any credit card application in connection
with a Non-Converted Account and/or Purchased Monogram Account.
"Credit Card" shall mean (a) any Credit Card as defined in the Bank Program
Agreement; and (b) any MWCC Credit Card.
"Credit Card Agreement" shall have the meaning assigned to it in the Bank
Program Agreement.
"Credit Card Documentation" shall mean, with respect to Accounts, all
Credit Applications, Credit Agreements, Credit Cards, Charge Slips, Credit Slips
and Billing Statements relating to such Accounts.
"Credit Card Receivables Sale Agreement" shall mean that certain Credit
Card Receivables Sale Agreement, dated as of April 1, 1996, between Monogram and
MWCC, as such agreement may be amended, restated, replaced, modified and/or
supplemented from time to time, provided that, unless agreed to or approved by
MW, such changes shall not adversely affect MW under this Agreement or the Bank
Program Agreement.
"Credit Slip" shall mean evidence of an adjustment or credit on an Account
for a return or exchange of Merchandise purchased on such Account.
"Default Rate" shall mean the Prime Rate plus [ ]*.
"Deferred Account" shall have the meaning assigned to it in SECTION 3.3(5)
hereof.
*Confidential treatment has been requested with respect to this information.
10
<PAGE>
"Delinquent Account Purchase Agreement" shall mean that certain Delinquent
Account Purchase Agreement, dated as of April 1, 1996, between MWCC and
Monogram, as such agreement may be amended, restated, replaced, modified and/or
supplemented from time to time, provided that, unless agreed to or approved by
MW, such changes shall not adversely affect MW under this Agreement or the Bank
Program Agreement.
"Divestiture-Related Indebtedness Purchase Price" shall mean, on any
date, an amount equal to: (i) [ ]* as to Indebtedness described in
subsections (i) and (ii) of SECTION 5.14(1) to be sold to MW on such date
pursuant to such section, [ ]* (ii) [ ]* accordance with, to the
extent of Participated Monogram Indebtedness, Monogram's Accounting Practices
and, in all other respects, MWCC's Accounting Practices and (in either event)
based on the proportion of the MWCC Aggregate Cardholders' Balance of the
Indebtedness described in subsection (i) of this definition to all
Indebtedness owned by MWCC and MWCC Assignees other than Section 4 Defaulted
Indebtedness and Starter Card Account Defaulted Indebtedness.
"ERISA" shall have the meaning assigned to it in the Bank Program
Agreement.
"Existing Program" shall have the meaning assigned to it in the Bank
Program Agreement.
"Final Blended Rate" shall have the meaning assigned to it in the Bank
Program Agreement.
"Fiscal Month" shall mean, during any Fiscal Year, each month as defined by
Monogram on its fiscal calendar for that Fiscal Year.
"Fiscal Year" shall mean a fiscal year the dates of which are specified by
Monogram, provided each Fiscal Year must end on December 31 or within seven (7)
days before or after December 31 of each year.
"Fiscal Year 1996 Interest Rate" shall mean an interest rate equal to
the sum of (i) the product, rounded to two (2) decimal places and expressed
as a percentage, of (x) [ ]* for each Fiscal Month commencing with the
Fiscal Month of January 1996 through and including the Fiscal Month of
November 1996, and (y) a fraction the numerator of which is [ ]* and
the denominator of which is [ ]*, PLUS (ii) [ ]*.
*Confidential treatment has been requested with respect to this information.
11
<PAGE>
"GAAP" shall mean generally accepted accounting principles in the United
States of America as from time to time in effect.
"GE Capital" shall mean General Electric Capital Corporation.
"Governmental Authority" means the United States, any State, or any other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
in each case whether national, State or local.
"Gross Designated Incremental Revenues" shall mean, for any Fiscal Year (or
part thereof), the sum of the Composite Recast Incremental Yield Amount, Starter
Card Account Incremental Yield Amount and Remaining Late Fee Amount, each for
such Fiscal Year (or part thereof).
"Gross Recoveries" shall have the meaning assigned to it in the definition
of "Section 4 Net Defaulted Indebtedness" in SECTION 1 hereof.
"Guaranties" shall mean Exhibit A to this Agreement and Exhibit E of the
Bank Program Agreement.
"Holding" shall have the meaning assigned to it in the definition of
"Affiliate" in SECTION 1 hereof.
"Incremental State Income Tax" shall mean, for each Fiscal Year (or part
thereof), the product of (i) the dollar amount of Monogram's income before taxes
relating to the Program, MULTIPLIED BY (ii) the positive difference (if any)
between Monogram's actual effective state income tax rate and MWCC's actual
effective state income tax rate, both as determined for such Fiscal Year (or
part thereof) under applicable state law.
"Incremental Yield Amount" shall mean, for any Fiscal Year (or part
thereof) commencing May 1, 1996, the sum of the following amounts:
(a) the Incremental Yield Percentage for the State of Florida for such
period, multiplied by the Average Monthly Billed Indebtedness for the
State of Florida for such period; PLUS
(b) the Incremental Yield Percentage for the State of Texas for such
period, multiplied by the Average Monthly Billed Indebtedness for the
State of Texas for such period; PLUS
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(c) for Fiscal Years 1996 and 1997 only, the Incremental Yield Percentage
for the State of Washington for such period, multiplied by the Average
Monthly Billed Indebtedness for the State of Washington for such
period.
"Incremental Yield Percentage" shall mean, as to each of the States of
Florida and Texas for any Fiscal Year (or part thereof) commencing May 1, 1996
in which there is an Annual Yield Percentage for such State which exceeds the
Base Year 1991 Yield Percentage for such State, and, as to the State of
Washington for Fiscal Year 1996 and Fiscal Year 1997 or parts thereof if the
Annual Yield Percentage for the State of Washington exceeds the Base Year 1991
Yield Percentage for the State of Washington, the positive difference, if any,
in (A) the Base Year 1995 Yield Percentage for such State, MINUS (B) the Base
Year 1991 Yield Percentage for such State, such positive difference being
rounded to two (2) decimal places.
"Indebtedness" shall mean, at any time, (a) any Indebtedness as defined in
the Bank Program Agreement; (b) Non-Converted Indebtedness; and (c) Purchased
Monogram Indebtedness.
"Indemnified 1996 Defaulted Indebtedness" shall have the meaning assigned
to it in SCHEDULE 4.2 hereto.
"Indemnified 1996 Net Defaulted Indebtedness" shall have the meaning
assigned to it in SCHEDULE 4.2 hereto.
"Indemnified 1996 Starter Card Defaulted Indebtedness" shall have the
meaning assigned to it in SCHEDULE 4.2 hereto.
"Indemnified 1996 Starter Card Net Defaulted Indebtedness" shall have the
meaning assigned to it in SCHEDULE 4.2 hereto.
"Ineligible Indebtedness" shall have the meaning assigned to it in the Bank
Program Agreement.
"Ineligible MWCC Indebtedness" shall mean Non-Converted Indebtedness and/or
Purchased Monogram Indebtedness that MW is required to purchase from MWCC
pursuant to SECTION 3.4 hereof.
"Infringements" shall have the meaning assigned to it in SECTION 5.16(6)
hereof.
"Initial Term" shall have the meaning assigned to it in SECTION 15.1
hereof.
"In-Store Payments" shall have the meaning assigned to it in the Bank
Program Agreement.
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"Interest Earning Month" shall mean each Fiscal Month commencing with
January 1997.
"Interim Agreement" shall mean that certain Interim Credit Card Program
Agreement, dated as of April 1, 1996, between Monogram and MW and any
amendments, modifications and/or supplementations thereto prior to the date
hereof.
"Letter Agreement" shall have the meaning assigned to it in SECTION 17.1(1)
hereof.
"Licensed Marks" shall mean the trademarks, trade names, service marks,
logos and other proprietary designations of MW listed on SCHEDULE 5.16 hereto,
which Schedule (as amended by MW from time to time) at all times shall contain
all trademarks, trade names, service marks, logos and other proprietary
designations of MW and Authorized Affiliates used in connection with its retail
operations.
"License Term" shall have the meaning assigned to it in SECTION 5.16(5)
hereof.
"Lien" shall mean any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest
(including, without limitation, any interest of a buyer of accounts or chattel
paper that is subject to Article 9 of the Code), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any lease or title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of, or agreement to file, any financing
statement pursuant to the Code).
"Marginal Card Account" shall mean (a) any Marginal Card Account as defined
in the Bank Program Agreement; and (b) any MWCC Marginal Card Account.
"Marketing Agreement" shall mean any agreement(s) between the Signature
Companies and MW and/or Affiliates of MW relating to (among other things) the
use by the Signature Companies of customer lists, names and trademarks of MW
and/or its Affiliates in connection with the Signature Companies' sales and
operations, as such agreement(s) may be amended, restated, modified and/or
supplemented from time to time, but only to the extent the initial such
agreement is entered into in connection with the purchase or other acquisition
of the Signature Companies by an Affiliate of MWCC.
"Marketing Committee" shall mean the committee referred to in SECTION
5.16(1) of the Bank Program Agreement.
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<PAGE>
"Maximum Aggregate Cardholders' Balance" shall have the meaning assigned to
it in the Bank Program Agreement.
"Merchandise" shall mean goods and services including, without limitation,
accessories, installation, delivery services, automotive services, repair
services, service contracts, warranties, insurance and club fees, as well as any
other items which Monogram and/or MWCC (as appropriate) from time to time agrees
may be sold on Accounts, for personal, family or household use. Merchandise
shall include items that are new or used at the time of sale, including
clearance items and items that are returned or repossessed and restored to the
inventory and subsequently offered for resale.
"Money Cost Balance" shall have the meaning assigned to it in the Bank
Program Agreement.
"Monogram" shall have the meaning assigned to it in the RECITALS hereto.
"Monogram's Accounting Practices" shall mean the general accounting
practices followed by Monogram on a consistent basis with respect to the manner
in which it conducts its business, which practices shall be in accordance with
GAAP, including, without limitation, Monogram's practices for accruing charges
and calculating receivables.
"Monthly Commercial Paper Rate" shall mean an interest rate that shall
be determined separately for each Interest Earning Month. The Monthly
Commercial Paper Rate for each Interest Earning Month shall be the quotient
derived by dividing [ ]*, such result expressed as a percentage and
rounded to two (2) decimal places. The average daily amount of Commercial
Paper outstanding shall be calculated by adding the amount of Commercial
Paper outstanding on each day during such Measuring Month, and dividing by
the number of days in such Measuring Month. Where a Seller Note, Seller
Recourse Note, MW 1996 Note or MW Continuation Note is paid prior to the time
due or an amount as to which the Monthly Commercial Paper Rate is to be
applied is paid earlier than otherwise provided in this Agreement (including,
without limitation, under SECTION 5.5(7) hereof), and such Monthly Commercial
Paper Rate is to be applied for a period of less than one Fiscal Month, such
Monthly Commercial Paper Rate shall be determined as though the date of
payment were the last day of the Interest Earning Month and the Measuring
Month is the full immediately preceding Fiscal Month.
*Confidential treatment has been requested with respect to this information.
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"Monthly Payment Obligation" shall mean, for each Fiscal Month during any
Fiscal Year, the dollar amount calculated in accordance with SCHEDULE 1 for such
Fiscal Year, as adjusted quarterly in accordance with SCHEDULE 1, provided that,
for Fiscal Year 1997, the Monthly Payment Obligation shall be as set forth on
SCHEDULE 2, as adjusted quarterly in accordance with SCHEDULE 2.
"Monthly Payment Percentage" shall mean, for any Fiscal Year, [ ]*,
as such percentage may be adjusted from time to time upon agreement of the
parties to reflect amounts of sales tax MW would have recovered or been
entitled to offset against amounts owed to applicable states in respect of
written-off indebtedness under the terms of the Original Account Purchase
Agreement if it had been in effect for such Fiscal Year.
"Monthly Payment Period" shall mean the period commencing on the first day
of Fiscal Year 1997 through and including the last day of the Fiscal Year in
which (i) there no longer are amounts due in respect of the Seller Notes, Seller
Recourse Notes, MW 1996 Note and/or MW Continuation Note, and (ii) application
of the Section 4 Contractual Method requires that Indebtedness is considered
Section 4 Defaulted Indebtedness in the Billing Cycle following the Billing
Cycle in which the Cardholder obligated in connection therewith would be
considered past due for thirty (30) days or more on five required minimum
payments.
"MW" shall have the meaning assigned to it in the INTRODUCTORY PARAGRAPH
hereof.
"MW Continuation Note" shall have the meaning assigned to it in SECTION
4.6(4) hereof.
"MW Default" shall have the meaning assigned to it in SECTION 16.1 hereof.
"MW Designee" shall have the meaning assigned to it in the Bank Program
Agreement.
"MW Monthly Payment Amount" shall have the meaning assigned to it in
SECTION 5.15 hereof.
"MW 1996 Note" shall have the meaning assigned to it in SCHEDULE 4.2
hereto.
"MW Pre-Conversion Refund Amount" shall have the meaning set forth in
SECTION 5.5(11)(iii)(A) hereof.
"MW Share of Late Fees" shall mean, for Fiscal Year 1996 commencing May 1,
1996 and each Fiscal Year or partial Fiscal Year thereafter:
*Confidential treatment has been requested with respect to this information.
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(a) if the Average Late Fee Per Assessment for such Fiscal Year (or
partial Fiscal Year) is [ ]* or more, a dollar amount equal
to (i) [ ]*, MULTIPLIED BY (ii) the number of times that
Accounts are one or more payments past due at the time of their
Billing Dates during such Fiscal Year (or partial Fiscal Year)
multiplied by (iii) [ ]*; or
(b) if the Average Late Fee Per Assessment for such Fiscal Year (or
partial Fiscal Year) is less than [ ]*, a dollar amount
equal to (i) [ ]*, MULTIPLIED BY (ii) the Aggregate Late
Fee Amount.
"MW Share of Incremental Yield Amount" shall have the meaning assigned to
it in SECTION 5.5(9) hereof.
"MW Share of Remaining Amount" shall have the meaning assigned to it in
SECTION 5.5(10) hereof.
"MWCC" shall have the meaning assigned to it in the INTRODUCTORY PARAGRAPH
hereof.
"MWCC Account Documentation" shall mean any and all documentation relating
to Non-Converted Accounts and/or Purchased Monogram Accounts owned by MWCC or
under the control of MWCC.
"MWCC's Accounting Practices" shall mean the general accounting practices
followed by MWCC on a consistent basis with respect to the manner in which it
conducts its business, which practices shall be in accordance with GAAP,
including, without limitation, MWCC's practices for calculating receivables,
except that, notwithstanding any policies or procedures under GAAP or of MWCC
with respect to the accounting and reporting of finance and other charges,
Indebtedness shall include all finance and other charges (i) billed to
Cardholders with respect to AFF Promotions where such finance and other charges
are subject to credit if the Cardholder makes all payments under the terms of
such AFF Promotions and (ii) accruing and/or billed on delinquent Accounts after
the point (currently 90 days) at which MWCC no longer accrues such fees and
charges under GAAP for financial reporting purposes. These accounting
principles include use of the Section 4 Contractual Method.
"MWCC Aggregate Cardholders' Balance" shall mean, at any time, the
aggregate of all Indebtedness owned by MWCC and MWCC Assignee exclusive of
Section 4 Defaulted Indebtedness and Starter Card Account Defaulted Indebtedness
(it being understood that the proviso contained in subsection (g) of those
definitions shall not be applicable for purposes of this calculation).
*Confidential treatment has been requested with respect to this information.
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<PAGE>
"MWCC Assignee" shall mean any direct or indirect assignee or secured party
of, or purchases from, MWCC of or with respect to Non-Converted Accounts,
Non-Converted Indebtedness, Purchased Monogram Accounts, Purchased Monogram
Indebtedness and/or Participated Monogram Indebtedness, provided that "MWCC
Assignees" in no event shall include: (1) MW or an MW Designee (as defined in
the Bank Program Agreement) and (2) and Person who has purchased written-off
Accounts and/or Indebtedness.
"MWCC Billing Statement" shall mean a summary of credit and/or debit
transactions on a Non-Converted Account or Purchased Monogram Account for a
Billing Cycle, including, without limitation, a descriptive statement covering
purchases of Merchandise and/or a statement with past due information.
"MWCC Cardholder" shall mean any natural person who is or may become
obligated under, with respect to, or on account of, a Non-Converted Account or a
Purchased Monogram Account.
"MWCC Cash Price" shall have the meaning assigned to it in SECTION
5.4(5)(iii) hereof.
"MWCC Credit Card" shall mean a credit card issued to MWCC Cardholders
bearing the words "Montgomery Ward" and/or other Licensed Mark(s).
"MWCC Credit Agreement" shall mean (i) a credit card agreement entered into
by MW and an MWCC Cardholder (or, in the State of Washington, a lender credit
card agreement entered into by MWCC and a MWCC Cardholder), which agreement
governs the use of a Non-Converted Account and (other than a lender credit card
agreement) has been assigned to MWCC, or (ii) a credit card agreement between
Monogram and a Cardholder and assigned to MWCC, which agreement governed the use
of a Purchased Monogram Account, in either case together with any amendments,
modifications, restatements, replacements or supplements which now or hereafter
may be made to such MWCC Credit Agreement.
"MWCC Customer List" shall mean any identification (whether in hard copy,
magnetic tape or other format) of (i) MWCC Cardholders and (ii) applicants for
Accounts (as defined in the Original Account Purchase Agreement) under the
Original Account Purchase Agreement (both categories of Persons in their
capacities as credit customers or potential credit customers with respect to
purchases from Stores and/or any Person from whom purchases could be made under
the Original Account Purchase Agreement), on the Conversion Date or any date(s)
thereafter, including, without limitation, any list identifying the name,
address, telephone number and social security number of any such Person, alone
or together with any other information that MWCC has in its files with respect
to such MWCC Cardholder in
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<PAGE>
connection with the Program. For the avoidance of doubt, it is acknowledged and
agreed that the MWCC Customer List shall not include any such identifications of
Cardholders obligated in respect of Participated Monogram Indebtedness. For
purposes of this definition, the MWCC Customer List shall include any
identification(s) of MWCC Cardholders or applicants for Non-Converted Accounts
or Purchased Monogram Accounts provided to MW by MWCC or Monogram and maintained
by MW, whether or not MWCC has maintained such identification(s).
"MWCC Default" shall have the meaning assigned to it in SECTION 16.2
hereof.
"MWCC Delivery Date" shall have the meaning assigned to it in SECTION
5.4(5)(ii) hereof.
"MWCC In-Store Payment" shall mean any payment on a Non-Converted Account
or Purchased Monogram Account made by a MWCC Cardholder (or any other Person
acting on behalf of a MWCC Cardholder) at a Store.
"MWCC Marginal Card Account" shall mean, on any date any Non-Converted
Account and/or Purchased Monogram Account, with respect to which the MWCC
Cardholder, at the time of establishment thereof, did not meet the credit
requirements for a standard credit account, with respect to establishing the
Account, but exceeded the credit requirements for Starter Card Accounts.
"MWCC Net Receivable Balance" shall mean, for the day in question, the
amount by which (a) the aggregate of Non-Converted Indebtedness, Purchased
Monogram Indebtedness and Participated Monogram Indebtedness, excluding portions
of all of the foregoing constituting Section 4 Defaulted Indebtedness and/or
Starter Card Account Defaulted Indebtedness as of the opening of business on
such day (it being understood that the proviso contained in subsection (g) of
those definitions shall not be applicable for purposes of this calculation), as
computed pursuant to MWCC's Accounting Practices, exceeds (b) the amount of any
allowance for bad debt on the books of MWCC or MWCC Assignees with respect to
such Indebtedness, as of the opening of business on such day, computed, to the
extent of Participated Monogram Indebtedness, pursuant to Monogram's Accounting
Practices and, in all other respects, MWCC's Accounting Practices.
"MWCC Payment Reserve Account" shall have the meaning assigned to such term
in SECTION 7.1A(2)(i) hereof.
"MWCC Payment Reserve Amount" shall have the meaning assigned to such term
in SECTION 7.1A(1) hereof.
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<PAGE>
"MWCC Pre-Conversion Payment Date" shall have the meaning set forth in
SECTION 5.5(11)(iii)(a) hereof.
"MWCC Share of Late Fees" shall mean, for Fiscal Year 1996 commencing May
1, 1996 and each Fiscal Year or partial Fiscal Year thereafter:
(a) if the Average Late Fee Per Assessment for such Fiscal Year (or
partial Fiscal Year) is [ ]* or more, a dollar amount equal
to (i) [ ]*, MULTIPLIED BY (ii) the number of times that
Accounts are one or more payments past due at the time of their
Billing Dates during such Fiscal Year (or partial Fiscal Year)
multiplied by (iii) [ ]*; or
(b) if the Average Late Fee Per Assessment for such Fiscal Year (or
partial Fiscal Year) is less than [ ]*, a dollar amount
equal to (i) [ ]*, MULTIPLIED BY (ii) the Aggregate Late
Fee Amount.
"MWCC Signature License" shall mean an agreement between MWCC and the
Signature Companies in substantially the form attached as EXHIBIT D hereto,
which Exhibit may be amended only with MW's consent.
"MWCC Starter Card Account" shall mean, on any date, any Non-Converted
Account and/or Purchased Monogram Account with respect to which the MWCC
Cardholder, at the time of establishment thereof, did not meet the credit
requirements for standard credit accounts or Marginal Card Accounts with respect
to establishing the Account.
"Net Amount" shall have the meaning set forth in SECTION 5.5(18) hereof.
"Net Designated Incremental Revenues" shall mean, for any Fiscal Year (or
part thereof), the difference, if positive, between (a) the Gross Designated
Incremental Revenues, LESS (b) the sum of the following amounts: (i) Accrued
Conversion Expenses, if any; (ii) Accrued Ongoing Incremental Expenses, if any;
(iii) Accrued MW Monthly Payment Amounts, if any; and (iv) Accrued Net
Litigation Expenses, if any.
"Net Litigation Expenses" shall mean, for any Fiscal Year (or part thereof)
an amount equal to the sum of judgments, settlements, costs, payments, refunds
and expenses, including attorneys' fees, incurred by MWCC, Monogram and/or MW
(or any of their respective Affiliates) relating to any Post-Conversion Asserted
Claim(s), whether or not such amounts were incurred in connection with a lawsuit
and whether incurred before or after litigation, provided such amounts shall not
include those wholly
*Confidential treatment has been requested with respect to this information.
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<PAGE>
due to Monogram's negligence in connection with the manner in which finance
charges or late fee amounts were increased. For purposes of this Agreement,
MWCC shall be deemed to have borne amounts borne by Monogram relating to a
Post-Conversion Asserted Claim.
"Net 1996 Starter Card Account Loss Amount" shall mean an amount equal to
the positive difference, if any, between: (i) the amounts specified in Sections
B, D and F of SCHEDULE 4.2 hereto and (ii) Sections B and D of SCHEDULE 5.5(15)
hereto.
"New Indebtedness" shall mean any indebtedness arising on an Account after
the Conversion Date.
"New Mark" shall have the meaning assigned to such term in SECTION
5.16(1)(c) hereof.
"Non-Converted Accounts" shall mean any account, account receivable, other
receivable, indebtedness, contract right, chose in action, general intangible,
chattel paper, instrument, document, note, or obligation and all proceeds of the
foregoing to the extent purchased and/or established by MWCC prior to the
Conversion Date and owned by MWCC and not sold to GE Capital on the Conversion
Date, wherever located, arising out of the sale of Merchandise to any MWCC
Cardholder pursuant to a credit agreement or lender credit card agreement, under
the Original Account Purchase Agreement including, without limitation, (a) all
of MWCC Account Documentation evidencing the same, the receivables therefrom and
the proceeds thereof, (b) all rights of MW in any Merchandise which is security
or collateral for such Non-Converted Accounts, and (c) all guarantees, claims,
security interests, or other security held by or granted to MW to secure payment
by any Person with respect thereto. Notwithstanding the foregoing,
"Non-Converted Accounts" shall not include those generated pursuant to layaway
plans. Except as otherwise provided herein, reference in this Agreement to
Non-Converted Accounts shall include (i) all Non-Converted Accounts, portions
thereof and participations therein then owned or held by any MWCC Assignees,
and (ii) written-off Non-Converted Accounts.
"Non-Converted Indebtedness" shall mean, at any time, the outstanding
obligation incurred by an MWCC Cardholder under a Non-Converted Account
including, without limitation, any charges for Merchandise (which includes
insurance financed pursuant to an Account), sales tax, finance charges and any
other charges in respect of an Account, whether accrued or billed, inclusive of
finance charges and other charges subject to possible reversal due to unexpired
AFF Promotions, as all such charges are determined pursuant to MWCC's Accounting
Practices. Except as otherwise expressly provided in this Agreement, reference
to Non-Converted Indebtedness shall include Section 4 Defaulted
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<PAGE>
Indebtedness and Starter Card Account Defaulted Indebtedness attributable to
Non-Converted Accounts.
"Note Repayment of Principal Amount" shall mean, for Fiscal Year 1996 and
each Fiscal Month commencing with the Fiscal Month of January 1997 through and
including the Fiscal Month of December 2002, to the extent that there is an
outstanding balance on any of the Seller Notes, Seller Recourse Notes, MW 1996
Note or MW Continuation Note during such Fiscal Year, the following amount as a
reduction of principal:
for Fiscal Year 1996 the positive difference, if
any between (i) [ ]*,
LESS (ii) Net 1996 Starter
Card Account Loss Amount;
for each Fiscal Month
of Fiscal Year 1997 [ ]*;
for each Fiscal Month
of Fiscal Year 1998 [ ]*;
for each Fiscal Month
of Fiscal Year 1999 [ ]*;
for each Fiscal Month
of Fiscal Year 2000 [ ]*;
for each Fiscal Month
of Fiscal Year 2001 [ ]*;
for each Fiscal Month
of Fiscal Year 2002 [ ]*.
"Obligations" shall mean, on any day, any and all liabilities or
obligations owing by MW to MWCC or any of MWCC's Affiliates pursuant to this
Agreement or the Bank Program Agreement, including those obligations incurred
prior to the date hereof. The term includes, without limitation, any fee,
charge, expense, attorney's fee or other sum chargeable to MW pursuant to this
Agreement or the Bank Program Agreement.
"Offset Amount" shall have the meaning set forth in SECTION 4.6(2) hereof.
"Old Account" shall mean any account arising prior to the Conversion Date
under the Original Account Purchase Agreement, the terms of which were governed
by either (i) a credit agreement between a consumer and MW and assigned to MWCC
or (ii) an agreement between a consumer and MWCC with respect to the State
*Confidential treatment has been requested with respect to this information.
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<PAGE>
of Washington, both if and to the extent Monogram acquires such account and
converts it to an Account.
"Old Indebtedness" shall mean any indebtedness arising on an Old Account
prior to the Conversion Date.
"Ongoing Incremental Expenses" shall mean, for any Fiscal Year (or part
thereof), the sum of (i) any costs incurred by Monogram or its Affiliates for
government-mandated insurance necessitated by the Program, (ii) any costs
incurred by MW or its Affiliates at Monogram's request to comply with Section
106 of the Bank Holding Company Act, 12 U.S.C. Section 371c, (iii) the Bank
Overhead Assessment, (iv) Incremental State Income Tax and (v) [ ]* for
incremental staffing expenses of Monogram and/or its Affiliates. For Fiscal
Year 1997 and each Fiscal Year thereafter, the amount specified in SUBSECTION
(v) shall be adjusted by the increase or decrease in the Consumer Price Index.
All Urban Consumers - All Items - Chicago, Illinois (or, if such index is
discontinued, such other index of similar type mutually agreed to by the
parties). In doing such adjustments, the base year shall be Fiscal Year 1996
and calendar year statistics which correspond to Fiscal Years may be used.
"Original Account Purchase Agreement" shall have the meaning assigned to it
in the RECITALS hereof.
"Participated Monogram Indebtedness" shall mean Indebtedness as to which
MWCC has purchased an interest under the Credit Card Receivables Sale Agreement.
"Payment Date" shall have the meaning set forth in SECTION 4.3(2) hereof.
"Permitted Businesses" shall have the meaning assigned to such term in
SECTION 5.16(2) hereof.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Post-Conversion Asserted Claims" shall have the meaning assigned to it in
SECTION 5.5(11)(i)(y) hereof.
"Pre-Conversion Asserted Claims" shall have the meaning assigned to it in
SECTION 5.5(11)(i)(x) hereof.
"Prime Rate" shall mean, on any day, [ ]*
*Confidential treatment has been requested with respect to this information.
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<PAGE>
[ ]* (or, if such publication or index is discontinued, such other
publication or index of similar type mutually agreed to by MW and MWCC),
regardless of whether such rate is ever applied.
"Program" shall mean (a) the Program as defined in the Bank Program
Agreement and (b) the program established by this Agreement, including all
aspects of the customized credit plan specified in this Agreement.
"Provisions" shall have the meaning assigned to it in SECTION 15.2(1)
hereof.
"Purchased Monogram Account" shall mean any Account (as defined in the Bank
Program Agreement), including any Indebtedness thereon, purchased by MWCC from
Monogram under the Delinquent Account Purchase Agreement. Except as otherwise
expressly provided herein, reference in this Agreement to Purchased Monogram
Accounts shall include (i) all Purchased Monogram Accounts, portions thereof and
participations therein then owned or held by any MWCC Assignees; and (ii)
written-off Purchased Monogram Accounts. For the avoidance of doubt, it is
acknowledged and agreed that Purchased Monogram Accounts shall not include those
written-off accounts and/or indebtedness sold to third parties.
"Purchased Monogram Indebtedness" shall mean, at any time, the outstanding
obligation incurred by an MWCC Cardholder under a Purchased Monogram Account,
whether such obligation was incurred before or after MWCC purchased such
Indebtedness, including, without limitation, any charges for Merchandise (which
includes insurance financed pursuant to an Account), sales tax, finance charges
and any other charges in respect of an Account, whether accrued or billed,
inclusive of finance charges and other charges subject to possible reversal due
to unexpired AFF Promotions, as all such charges are determined pursuant to
MWCC's Accounting Practices. Except as otherwise expressly provided, reference
in this Agreement to Purchased Monogram Indebtedness shall include Section 4
Defaulted Indebtedness and Starter Card Account Defaulted Indebtedness
attributable to Purchased Monogram Accounts.
"Purchaser" shall have the meaning assigned to it in SECTION 17.1(3)
hereof.
"Recoveries" shall have the meaning assigned to it in SECTION 5.4(7)
hereof.
"Reduced Accounts" shall have the meaning assigned to it in SECTION 1 of
the Bank Program Agreement.
*Confidential treatment has been requested with respect to this information.
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<PAGE>
"Remade MWCC Representations and Warranties" shall have the meaning
assigned to it in SECTION 9 hereof.
"Remade MW Representations and Warranties" shall have the meaning assigned
to it in SECTION 8 hereof.
"Remaining Amounts" shall have the meaning assigned to it in Section
5.5(10).
"Remaining Late Fee Amount" shall mean, for any Fiscal Year (or part
thereof), a dollar amount equal to: (i) the Aggregate Late Fee Amount for such
Fiscal Year (or part thereof), LESS (ii) the sum of the MW Share of Late Fees
and the MWCC Share of Late Fees for such Fiscal Year (or part thereof).
"Response Date" shall have the meaning assigned to it in the Bank Program
Agreement.
"Retailer Department" shall have the meaning assigned to it in SECTION
17.1(3) hereof.
"Section 4 Average Indebtedness" shall mean, for any Fiscal Year (or part
thereof) commencing with Fiscal Year 1997, Indebtedness (other than SECTION 4
Defaulted Indebtedness and Indebtedness arising pursuant to Starter Card
Accounts, but including Indebtedness arising pursuant to Marginal Card
Accounts), as computed (as appropriate) pursuant to Monogram's Accounting
Practices modified as though Monogram used the Section 4 Contractual Method in
such practices or MWCC's Accounting Practices, but in either case without
deduction of an allowance for bad debts, on the last day of each of the twelve
(12) Settlement Periods which occur during the Fiscal Year in question, divided
by twelve (12). If the Fiscal Year in question is a partial Fiscal Year, the
calculation of Section 4 Average Indebtedness shall be computed based on the
number of Settlement Periods within the Fiscal Year or such other manner agreed
to by the parties.
"Section 4 Contractual Method" shall mean the method of calculating Section
4 Defaulted Indebtedness whereby all Indebtedness (other than Indebtedness
arising pursuant to Starter Card Accounts but including Indebtedness arising
pursuant to Marginal Card Accounts) shall be considered Section 4 Defaulted
Indebtedness in the Billing Cycle following the Billing Cycle in which the
Cardholder obligated in connection therewith would be considered past due for
thirty (30) days or more on:
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<PAGE>
Commencing:
in 1996 and thereafter until the
earlier of (i) the date on which
there no longer is a balance
outstanding relating to the Seller
Notes, Seller Recourse Notes, MW
1996 Note and/or the MW
Continuation Note, or (ii) a date
specified by MWCC in writing to
MW at least 90 days prior thereto
(the "Implementation Date"), which
Implementation Date shall not be
earlier than December 1, 1997 (the
earlier of (i) and (ii) being
referred to as the "Rollback
Commencement Date")
12 required minimum payments,
Rollback Commencement Date
11 required minimum payments,
Rollback Commencement Date
+ twelve (12) months
9 required minimum payments,
Rollback Commencement Date
+ twenty-four (24) months
7 required minimum payments,
Rollback Commencement Date
+ thirty-six (36) months
5 required minimum payments,
all in accordance with Monogram's policies and practices as of the Conversion
Date but modified as though Monogram used the above stated minimum payment
write-off requirements in its policies and practices including, without
limitation, policies and practices with respect to extensions, recycles, partial
payments (which shall require Cardholders to pay a minimum of 90% of the
required periodic payment specified in their Credit Agreements to avoid further
aging) and other adjustments. For the avoidance of doubt, by way of example:
For a Cardholder who first is BILLED on the fifteenth of month one, the related
payment is DUE on the fifteenth of month two. If a payment is not made by the
fifteenth of month three, such payment is considered past due for thirty (30)
days or more on one minimum payment. In summary, there is a two-month timing
difference between the time an Account is billed and when it is considered one
month past due.
26
<PAGE>
"Section 4 Defaulted Indebtedness" shall mean any Indebtedness excluding
Indebtedness arising pursuant to Starter Card Accounts (a) where MWCC and/or an
Affiliate of MWCC has received official notice that the Cardholder in respect of
such Indebtedness has filed a petition for relief under the Bankruptcy Code,
made a general assignment for the benefit of creditors, had filed against it any
petition or other application for relief under the Bankruptcy Code, or has
suffered a receiver or trustee to be appointed for all or a significant portion
of its assets, and MWCC and/or an Affiliate of MWCC has concluded that the
relevant Indebtedness should be written off; PROVIDED, that, for purposes of
this Agreement, the total amount of Indebtedness in respect to which MWCC and/or
an Affiliate of MWCC has received such official notice and not written off under
this subsection (a) shall, as of the end of each Fiscal Month, (i) be no less
than the amount of Indebtedness as to which MWCC and/or an Affiliate of MWCC has
received such official notice during such Fiscal Month, and (ii) not exceed the
amount of Indebtedness as to which MWCC and/or an Affiliate of MWCC has received
such official notice during such Fiscal Month and the immediately preceding
Fiscal Month (it being understood that, for purposes of the first Fiscal Month
after the Conversion Date, the latter reference shall mean the amount of
Indebtedness as to which MWCC and/or an Affiliate of MWCC has received such
official notice during the immediately preceding Fiscal Month), (b) where MWCC
and/or an Affiliate of MWCC has received reliable notice that the Cardholder has
died and the earlier occurs of (i) the receipt of information that there are no
assets in the estate or that there has been a judicial determination that there
are no assets in the estate, or (ii) ninety (90) days have elapsed since MWCC
and/or an Affiliate or MWCC received such notification of death, (c) where the
Cardholder has asserted that the Indebtedness was fraudulently incurred and the
claim of fraud is not frivolous, (d) where Merchandise has been repossessed and
the Cash Price or MWCC Cash Price of such Merchandise is a substantial portion
of the Indebtedness outstanding on the Account immediately prior to the time of
repossession, (e) where a settlement is reached with a Cardholder as to the
total amount owing in connection with the Account and such amount has been paid,
to the extent of such unpaid amount, (f) where verification is obtained that the
Cardholder is confined to a jail, nursing home or similar institution, (g) where
the Indebtedness is deemed by MWCC and/or an Affiliate of MWCC to be
uncollectible due to the fact that the Account of which it is a part has been
chronically past due and delinquent (provided no additional Indebtedness shall
become Section 4 Defaulted Indebtedness pursuant to this subsection (g) during
any Fiscal Year once the sum of Section 4 Defaulted Indebtedness and Starter
Card Account Defaulted Indebtedness pursuant to subsections (g) as applicable in
each such definition during such Fiscal Year (prorated for partial Fiscal Years)
reaches twenty-three hundredths percent (.23%) of the sum of
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<PAGE>
Section 4 Average Indebtedness and Starter Card Account Average Indebtedness for
the prior Fiscal Year), or (h) where any Indebtedness in respect of an Account
becomes Section 4 Defaulted Indebtedness based on the Section 4 Contractual
Method. Notwithstanding the foregoing, in no event shall Section 4 Defaulted
Indebtedness include (a) Indebtedness written off prior to the Conversion Date
or (b) Indebtedness that is Section 4 Defaulted Indebtedness due to the fraud of
MWCC and/or an Affiliate of MWCC or their respective employees, agents or
representatives. Section 4 Defaulted Indebtedness shall be deemed to be such
after the first event set forth above which qualifies it as such occurs;
PROVIDED, that with respect to subsections (b)-(g) above, Section 4 Defaulted
Indebtedness shall be deemed to be such within a reasonable time, not to exceed
one hundred twenty (120) days, after the first event set forth above which
qualifies it as such occurs. For the avoidance of doubt, it is understood and
agreed that (1) all references in this Agreement to Section 4 Defaulted
Indebtedness includes all such Indebtedness owned or held by MWCC or Monogram,
(2) notwithstanding any policies or procedures with respect to the financial
reporting of finance charges, late fees, insufficient fund fees and other
charges and fees assessed to a Cardholder, Section 4 Defaulted Indebtedness
shall include all such charges and fees billed to a Cardholder with respect to
Indebtedness which are unpaid prior to such Indebtedness becoming Section 4
Defaulted Indebtedness and (3) references to an Affiliate of MWCC shall mean
only such Affiliates or parts thereof who participate in the Program, it being
expressly understood that nothing in this sentence shall be deemed to give
Monogram and/or MWCC a right to assess any charge and/or fee on an Account in
any State that is not currently imposed in that State (or in an amount greater
than that currently imposed), other than in accordance with the terms of,
respectively, the Bank Program Agreement or this Agreement. It is understood
and agreed that Indebtedness arising pursuant to Starter Card Accounts shall not
be considered Section 4 Defaulted Indebtedness and instead shall be subject to
the provisions of SECTION 4A hereof.
"Section 4 Net Aggregate Defaulted Indebtedness Amount" shall mean, prior
to the application of the Offset Amount pursuant to SECTION 4.6(2) hereof, the
aggregate of (i) the Eighteen Million Dollar ($18,000,000) Seller Note given by
MW to MWCC with respect to Fiscal Year 1991 as provided in Section 4.4(1) of the
Original Account Purchase Agreement (excluding any interest paid or payable
thereon), (ii) the Seller Notes for 1992 and 1993 (excluding any interest paid
or payable thereon), (iii) the Seller Recourse Notes for 1994 and 1995
(excluding any interest paid or payable thereon), (iv) the MW 1996 Note
(excluding any interest paid or payable thereon), and (v) MW's share of Section
4 Net Defaulted Indebtedness for Fiscal Year 1997 (after application of SECTION
5.5(10)(b)(ii) AND (iii).
28
<PAGE>
"Section 4 Net Defaulted Indebtedness" shall mean, for any Fiscal Year (or
part thereof) after Fiscal Year 1996: (a) the amount of Section 4 Defaulted
Indebtedness first becoming such for the Fiscal Year in question, LESS (b) the
gross amount (without deduction for attorneys' fees or other collection costs)
of cash recoveries relating to Accounts other than Starter Card Accounts,
whether such Accounts were written off prior to or after the Conversion Date
("Gross Recoveries") received during the Fiscal Year in question under SECTION
5.4(5) hereof or otherwise in respect of Section 4 Defaulted Indebtedness
(regardless of when such Section 4 Defaulted Indebtedness occurred), which Gross
Recoveries shall include payments made (1) by MW on Section 4 Defaulted
Indebtedness pursuant to SECTION 5.4(5) hereof or pursuant to SECTION 5.4(5) of
the Bank Program Agreement, (2) as proceeds of credit insurance, and (3) by MW
in respect of Ineligible Indebtedness or Ineligible MWCC Indebtedness (other
than Ineligible Indebtedness or Ineligible MWCC Indebtedness arising in
connection with Starter Card Accounts) which was Section 4 Defaulted
Indebtedness previously included in the calculations pursuant to SECTION 4.1 or
SCHEDULE 4.2 and LESS (c) any amounts received by MWCC from the Signature
Companies in respect of their obligation to reimburse MWCC and/or Monogram for
incremental losses incurred thereby as a result of continued assessment of
credit insurance charges on certain Indebtedness pursuant to that certain letter
agreement between the Signature Companies and MWCC, dated as of even date
herewith.
"Section 4 1996 Net Defaulted Indebtedness" shall have the meaning assigned
to it in SCHEDULE 4.2 hereto.
"Seller Notes" shall mean those certain notes in the amounts of Eighteen
Million Dollars ($18,000,000) (for 1991), Sixty Three Million, Six Hundred and
Twenty Thousand Dollars ($63,620,000) (for 1992) and Twenty Five Million, Five
Hundred and Seven Thousand Dollars ($25,507,000) (for 1993) provided to MWCC by
MW pursuant to Sections 4.4(1) and 4.4(2) of the Original Account Purchase
Agreement.
"Seller Recourse Notes" shall mean those certain notes in the amounts of
Fifty Three Million, Six Hundred and Fifty Two Thousand Dollars ($53,652,000)
(for 1994) and Sixty Six Million, Seven Hundred and Twelve Thousand Dollars
($66,712,000) (for 1995) provided to MWCC by MW pursuant to Section 4.5(2) of
the Original Account Purchase Agreement.
"Settlement Period" shall mean a Fiscal Month. Each Fiscal Year shall
contain twelve (12) Settlement Periods.
"Signature Companies" shall mean those companies owned by MW prior to the
Conversion Date and operating as part of the group of companies known as
Signature, whether or not the word
29
<PAGE>
Signature is used in the names of such companies as well as any successors
thereto or assignees thereof.
"Solvent" shall mean, when used with respect to any Person, that (a) the
present fair salable value of such Person's assets as a going concern is in
excess of the total amount of its liabilities as would be reflected on a balance
sheet for a going concern determined in accordance with GAAP, and (b) such
Person is presently generally able to pay its debts as they become due,
excluding any debts that are subject to a bona fide dispute. The phrase
"present fair salable value" of a Person's assets is intended to mean that value
which can be obtained if the assets are sold within a reasonable time in
arm's-length transactions in an existing and not theoretical market.
"Starter Card Account" shall mean (a) any Starter Card Account as defined
in the Bank Program Agreement and (b) any MWCC Starter Card Account.
"Starter Card Account Annual Yield Percentage" shall mean, for any Fiscal
Year (or part thereof) commencing May 1, 1996, the amount (expressed as a
percentage) obtained by dividing (a) the total amount of finance charges billed
to Cardholders or billed to MW in connection with Reduced Accounts during such
period with respect to Indebtedness arising from Starter Card Accounts (other
than Indebtedness in respect of Non-Converted Accounts and/or Purchased Monogram
Accounts), LESS all finance charges credited to such Accounts during such period
(other than (i) finance charges credited during such period as the result of (x)
payments on such Accounts by Cardholders, (y) payments on such Accounts by MW in
connection with Reduced Accounts and (z) successful completion of AFF Promotions
and (ii) refunds of finance charges pursuant to SECTION 5.5(11) hereof), by (b)
the Starter Card Account Average Monthly Billed Indebtedness for such period,
such quotient being rounded to two (2) decimal places.
"Starter Card Account Average Indebtedness" shall mean, for any Fiscal Year
(or part thereof) commencing with Fiscal Year 1997, Indebtedness arising
pursuant to Starter Card Accounts owned by Monogram and/or MWCC (other than
Starter Card Account Defaulted Indebtedness), as computed (as appropriate)
pursuant to Monogram's Accounting Practices or MWCC's Accounting Practices, but
in either case without deduction of an allowance for bad debts, on the last day
of each of the twelve (12) Settlement Periods which occur during the Fiscal Year
in question, divided by twelve (12). If the Fiscal Year in question is a
partial Fiscal Year, the calculation of Starter Card Account Average
Indebtedness shall be computed based on the number of Settlement Periods within
the Fiscal Year or such other manner agreed to by the parties.
30
<PAGE>
"Starter Card Account Average Monthly Billed Indebtedness" shall mean, for
any Fiscal Year (or part thereof), an amount equal to: (i) the sum of
Indebtedness arising pursuant to Starter Card Accounts (other than Indebtedness
arising pursuant to Non-Converted Accounts and Purchased Monogram Accounts)
during such Fiscal Year, as computed (as appropriate) pursuant to Monogram's
Accounting Practices or MWCC's Accounting Practices, but in each case without
the deduction of any allowance for bad debts, billed to Cardholders on each
Billing Cycle closing date during that Fiscal Year or billed to MW during that
Fiscal Year in connection with Reduced Accounts, DIVIDED BY (ii) twelve (12).
Notwithstanding the foregoing, if the Fiscal Year in question is a partial
Fiscal Year, "Starter Card Account Average Monthly Billed Indebtedness" shall
mean the sum of Indebtedness arising pursuant to Starter Card Accounts (other
than Indebtedness arising pursuant to Non-Converted Accounts and Purchased
Monogram Accounts) during such partial Fiscal Year, as computed (as appropriate)
pursuant to Monogram's Accounting Practices or MWCC's Accounting Practices, but
in each case without deduction of any allowance for bad debts, billed to
Cardholders on each of the Billing Dates during each complete Settlement Period
within such partial Fiscal Year or billed to MW in connection with Reduced
Accounts, divided by such number of Settlement Periods within the Fiscal Year.
In the event that the number of times a Starter Card Account owned by Monogram
and/or MWCC is billed during a Fiscal Year is more than twelve (12), the parties
hereto shall agree to an appropriate adjustment to the calculations set forth
herein.
"Starter Card Account Defaulted Indebtedness" shall mean any Indebtedness
arising pursuant to a Starter Card Account which, if it did not arise pursuant
to a Starter Card Account, would meet the definition of Section 4 Defaulted
Indebtedness, provided that with respect to Subsection (g) for each Fiscal Year,
the sum of Section 4 Defaulted Indebtedness and Starter Card Account Defaulted
Indebtedness shall be limited to twenty-three hundredths percent (.23%) of the
sum of Section 4 Average Indebtedness and Starter Card Account Average
Indebtedness for the prior Fiscal Year.
"Starter Card Account Gross Recoveries" shall have the meaning assigned to
it in the definition of "Starter Card Account Net Defaulted Indebtedness" in
SECTION 1 hereof.
"Starter Card Account Incremental Yield Amount" shall mean, for any Fiscal
Year (or part thereof) commencing May 1, 1996, the Starter Card Account
Incremental Yield Percentage for such period, MULTIPLIED BY the Starter Card
Account Average Monthly Billed Indebtedness for such period.
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<PAGE>
"Starter Card Account Incremental Yield Percentage" shall mean, for any
Fiscal Year (or part thereof) commencing May 1, 1996, the positive difference,
if any, in (A) the Starter Card Account Annual Yield Percentage for such Fiscal
Year (or part thereof), MINUS (B) the Base Starter Card Account Yield
Percentage, such positive difference being rounded to two (2) decimal places.
"Starter Card Account Net Defaulted Indebtedness" shall mean, for any
Fiscal Year (or part thereof) after Fiscal Year 1996: (a) the amount of Starter
Card Account Defaulted Indebtedness first becoming Starter Card Account
Defaulted Indebtedness during the Fiscal Year in question, less (b) the gross
amount (without deduction for attorneys' fees or other collection costs) of cash
recoveries ("Starter Card Account Gross Recoveries") received relating to
Starter Card Accounts during the Fiscal Year in question under SECTION 5.4(5) or
otherwise in respect of Starter Card Account Defaulted Indebtedness (regardless
of when such Starter Card Account Defaulted Indebtedness occurred), which
Starter Card Account Gross Recoveries would include payments made (1) by MW on
Starter Card Account Defaulted Indebtedness pursuant to SECTION 5.4(5) hereof or
pursuant to SECTION 5.4(5) of the Bank Program Agreement, and (2) as proceeds of
credit insurance with respect to Starter Card Accounts, and (3) by MW in respect
of Ineligible Indebtedness or Ineligible MWCC Indebtedness arising in connection
with Starter Card Accounts which was Starter Card Account Defaulted Indebtedness
previously included in the calculations pursuant to SECTION 4A or SCHEDULE 4.2,
and less (c) with respect to Starter Card Accounts, any amounts received by MWCC
from the Signature Companies in respect of their obligation to reimburse MWCC
for incremental losses incurred thereby as a result of continued assessment of
credit insurance charges on certain Indebtedness pursuant to that certain letter
agreement between the Signature Companies and MWCC of even date herewith.
"Starter Card Account 1996 Net Defaulted Indebtedness" shall have the
meaning assigned to it in SCHEDULE 4.2 hereto.
"State" shall mean a State of the United States of America or the District
of Columbia.
"Stock" shall mean all shares, options, interests, participations or other
equivalents (regardless of how designated) of or in a corporation or other
entity, whether voting or nonvoting, including, without limitation, common stock
preferred stock, or warrants or options for any of the foregoing.
"Stores" shall mean retail establishments and other means to conduct retail
businesses (E.G., mail order or home television
32
<PAGE>
shopping) operated by MW, Authorized Affiliates or Authorized Licensees.
"Subsidiary" shall mean, with respect to any Person, any corporation of
which an aggregate of more than fifty percent (50%) of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly,
owned by such Person and/or one or more Subsidiaries of such Person.
"Termination Date" shall have the meaning assigned to it in the Bank
Program Agreement.
"Transparent Servicing" shall have the meaning assigned to it in SECTION
5.2(1)(i) hereof.
"Triggering Signature Acquisition" shall have the meaning assigned to it in
the Bank Program Agreement.
"Triggering Year" shall have the meaning assigned to such term in SECTION
5.5(7) hereof.
2. DEFINITIONAL MATTERS
2.1. GENERAL PRINCIPLES. Any accounting term used herein shall have,
unless otherwise specifically provided herein, the meaning customarily given in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with
GAAP. That certain terms or computations are explicitly modified by the phrase
"in accordance with GAAP" shall in no way be construed to limit the foregoing.
All other undefined terms contained herein shall, unless the context indicates
otherwise, have the meanings provided for by the Code in the State of Illinois
to the extent the same are used or defined therein. The words "herein",
"hereof", "hereunder", and other words of similar import refer to this Agreement
as a whole, including the exhibits and schedules hereto, as the same may from
time to time be amended or supplemented, and not to any particular section,
subsection, or clause contained in this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine, or neuter gender shall include the masculine, the feminine, and the
neuter.
3. FEES RELATING TO ACCOUNTS
3.1. [SECTION INTENTIONALLY OMITTED].
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<PAGE>
3.2. [SECTION INTENTIONALLY OMITTED].
3.3. FEES.
(1) [SECTION INTENTIONALLY OMITTED].
(2) [SECTION INTENTIONALLY OMITTED].
(3) [SECTION INTENTIONALLY OMITTED].
(4) [SECTION INTENTIONALLY OMITTED].
(5) Except as provided hereafter, to the extent that the Final
Blended Rate for a Settlement Period (calculated as set forth in Section 3.3
of the Bank Program Agreement) exceeds [ ]* per annum, MW may request
that MWCC pay to Monogram, on MW's behalf, that portion of the support fee
resulting from such excess and due to Monogram from MW under SECTION 3.3 of
the Bank Program Agreement and MWCC shall do so. Any amount so paid by MWCC
shall be added by MWCC to a deferred support fee liability account (the
"Deferred Account"). The outstanding balance of the amounts originally added
to the Deferred Account (but not interest accumulated thereon) shall earn
interest, calculated monthly for each Settlement Period, at the Prime Rate in
effect on the last Business Day of the preceding Settlement Period, plus
[ ]*, I.E., interest shall be determined on a simple, not compounded
basis. Such interest charges shall be added to the Deferred Account, and any
payments to reduce the Deferred Account shall be applied first to the
interest amounts thereof and then to the principal portion. Notwithstanding
the foregoing, MWCC shall not pay Monogram on behalf of MW during any period
during which the amount then outstanding under the Deferred Account equals or
exceeds [ ]*. MW shall pay the balance, if any, in the Deferred
Account as follows:
(i) For any Settlement Period for which any Final Blended
Rate is less than [ ]* per annum, MW shall pay
the amount by which (A) [ ]* of the Money Cost
Balance for such Settlement Period, exceeds (B) the
support fee payment, if any, required under
Section 3.3(4) of the Bank Program Agreement for such
Settlement Period. Such calculation shall be prorated
if the Bank Program Agreement is in effect during only
a portion of such Settlement Period.
*Confidential treatment has been requested with respect to this information.
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<PAGE>
(ii) If such payments are not sufficient to liquidate the
Deferred Account prior to any primary public offering
of equity securities of MW or its parent, the net
proceeds to MW or its parent of such primary public
offering shall be applied against the then balance of
the Deferred Account. Upon the earlier of (A) fifteen
(15) years after April 1, 1996, and (B) expiration or
prior termination of this Agreement, including without
limitation termination as a result of a MW Default, the
total amount of the Deferred Account shall be paid in
full at such time and MWCC no longer shall make
payments to Monogram on MW's behalf relating to Section
3.3 of the Bank Program Agreement. For the purposes of
this subsection (ii), the sale or other issuance by MW
or its parent of stock to employees of MW or its
Affiliates, pursuant to a stock option plan or
otherwise, shall not be deemed a "public offering of
equity securities", regardless of whether or not a
registration statement is required to be filed
registering the stock to be issued in connection
therewith.
(iii) MW may pay the balance in the Deferred Account at any
time, and from time to time, without penalty.
(6) [SECTION INTENTIONALLY OMITTED.]
3.4. INELIGIBLE MWCC INDEBTEDNESS. When any Purchased Monogram
Indebtedness and/or Non-Converted Indebtedness becomes Ineligible MWCC
Indebtedness and MW has not made and shall not be obligated to make payment
to Monogram in connection with Monogram's chargeback thereof, MWCC shall have
the right, subject to the terms hereof, during the term and after the
expiration of this Agreement as provided in SECTION 15.2 hereof to require MW
to purchase such Ineligible MWCC Indebtedness from MWCC for [ ]*.
Until such time as MWCC, in its sole discretion, exercises its right to
require MW to purchase Ineligible MWCC Indebtedness, MWCC shall use its best
efforts to collect such Ineligible MWCC Indebtedness from the relevant
Cardholder to the extent such Ineligible MWCC Indebtedness is the valid
obligation of the Cardholder. The purchase price for such Ineligible MWCC
Indebtedness shall be paid directly by MW to MWCC or, at MWCC's option,
offset by MWCC against amounts then owed by MWCC to MW (provided that MW may
dispute amounts so offset). Upon any such purchase, MWCC hereby
*Confidential treatment has been requested with respect to this information.
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<PAGE>
assigns MW all of its right, title and interest in and to such Ineligible MWCC
Indebtedness, free and clear of any and all Liens created by Monogram and/or
MWCC, but without any other warranty, and any ownership interest of Monogram
and/or MWCC in such Ineligible MWCC Indebtedness shall be terminated. After MW
has purchased such Ineligible MWCC Indebtedness (a) MWCC's obligation with
respect to the service of such Ineligible MWCC Indebtedness, as set forth in
SECTION 5.2 hereof, shall be terminated, (b) all payments in respect of such
Ineligible MWCC Indebtedness received by MWCC shall be promptly forwarded to MW,
and (c) upon MW's request, MWCC shall deliver to MW all available Account
Documentation received by MWCC with respect to such Ineligible MWCC
Indebtedness, provided if MW is unable to enforce or collect any Ineligible MWCC
Indebtedness due to MWCC's failure to deliver such Account Documentation that it
previously received, MWCC shall purchase such Ineligible MWCC Indebtedness from
MW.
The following items qualify to the extent set forth herein for chargeback
as Ineligible MWCC Indebtedness in respect of Purchased Monogram Indebtedness
and Non-Converted Indebtedness: (a) unidentifiable media, (b) unauthorized
charges, (c) failure to obtain proper identification, (d) merchandise
adjustments, and (e) missing media. It is the responsibility of MWCC to provide
MW with the following information, if available, with respect to all chargebacks
by MWCC hereunder: account name, account number, address, Merchandise
description, Store at which the sale was made, amount and reason for chargeback.
Following are guidelines for the issuing of chargebacks which must be complied
with.
(1) UNIDENTIFIABLE MEDIA. Unidentifiable media is media that does
not have a valid account number, or media with an account number that is
illegibly imprinted or written in. MWCC will directly request the media from
the Store at which the sale was made. The Store at which the sale was made is
responsible for providing a legible copy of the media with correct account
number to MWCC within ten (10) days after notice to such Store. MWCC has the
right to chargeback to MW if (a) the Store has not responded to the request for
media before expiration of the ten (10) day period, and (b) MWCC after
reasonable efforts is unable to identify the Purchased Monogram Indebtedness or
Non-Converted Indebtedness represented by the media with a valid account number.
Notwithstanding the foregoing, all chargebacks by MWCC for unidentifiable media
must occur within sixty (60) days after the retail sale date to the buyer. MW
has sixty (60) days after the date of the chargeback to complete additional
research and, if successful, reverse the chargeback, whereupon such Ineligible
MWCC Indebtedness shall become Purchased Monogram Indebtedness or Non-Converted
Indebtedness with respect to which MWCC shall make payment to MW.
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<PAGE>
(2) UNAUTHORIZED CHARGES. An unauthorized charge is a sale on a
Purchased Monogram Account or Non-Converted Account that has been abstracted
without approval from (respectively) Monogram or MWCC. (These charges will lack
an approval code from the P.O.S. system, have an invalid authorization code,
lack an approval code from the credit center, or lack an approval code for
amounts over the floor limit when floor limits are in effect. It is understood
that charges that are equal to or less than the floor limit when it is in effect
will be deemed authorized.) MWCC may immediately chargeback to MW unauthorized
charges on Purchased Monogram Accounts or Non-Converted Accounts that are made
on a stolen plate or a fraudulent account, provided that MW and, if not operated
by MW or the Signature Companies, the Store at which the sale was made have been
notified of the unauthorized charges within thirty (30) days after receipt by
Monogram or MWCC of a complaint from a Cardholder. In addition, MWCC may
chargeback to MW other unauthorized charges to a Purchased Monogram Account or
Non-Converted Account that is or becomes delinquent, provided that MW and, if
not operated by MW or the Signature Companies, the Store at which the sale was
made have been notified of the unauthorized charges within thirty (30) days
after discovery by Monogram or MWCC of the unauthorized charges.
(3) FAILURE TO OBTAIN PROPER IDENTIFICATION. Failure to obtain
proper identification refers to all credit purchases made by a customer shopping
without a Credit Card, MWCC Credit Card or a priority credit pass where a Store
fails to require (to the extent permitted by law) the customer to identify
himself with a valid permanent driver's license for his state of residence or a
state-issued identification card. Tickets or temporary licenses are not
acceptable. The name, address and signature on the driver's license must
correspond with the name, address and signature on the relevant Charge Slip or
other invoice. If the customer does not have a valid driver's license, the
credit center supervisor on duty will instruct the salesperson to ask for other
appropriate identification. In any instance where positive identification is
required, the document used for identification must be noted on the Charge Slip
or other invoice. If in the process of investigating a customer dispute it is
determined that the Store at which the sale was made failed to obtain proper
identification in the manner required pursuant to these provisions and a
fraudulent charge resulted, MWCC may chargeback to MW. Notwithstanding the
foregoing, in no event may MWCC chargeback to MW any items described in this
subsection later than sixty (60) days after Monogram or MWCC discovers the
failure.
(4) MERCHANDISE ADJUSTMENTS. Requests received by MWCC from
Cardholders for Merchandise adjustments will be promptly communicated directly
to the Store at which the sale was made. Merchandise adjustment requests that
are not frivolous and
37
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that are not resolved by MW within eighteen (18) days after notification to MW
and, if not operated by the Signature Companies or MW, the Store at which the
sale was made may be charged back by MWCC to MW. Notwithstanding the foregoing,
in no event may MWCC chargeback to MW any adjustments described in this
subsection later than thirty (30) days after receipt of the request for
adjustment from the Cardholder.
(5) MISSING MEDIA. Requests received by MWCC from Cardholders for
supporting sales media will be promptly communicated by MWCC directly to the
issuing location. MW is responsible for providing MWCC with the requested media
within ten (10) days of receipt of the request. Purchased Monogram Indebtedness
or Non-Converted Indebtedness represented by media not provided within such ten
(10) day period may be charged back by MWCC to MW. MW has thirty (30) days
after the chargeback to locate the media and reverse the chargeback, whereupon
such Ineligible MWCC Indebtedness shall become Purchased Monogram Indebtedness
or Non-Converted Indebtedness to be purchased by MWCC. Notwithstanding the
foregoing, in no event may MWCC chargeback to MW any items described in this
subsection later than thirty (30) days after the receipt of the request for
adjustment from the Cardholder.
3.5. [SECTION INTENTIONALLY OMITTED].
3.6. MONTHLY STATEMENTS. Except as otherwise expressly provided in respect
of amounts owed for Fiscal Year 1996, MWCC shall provide to MW a monthly
statement, as applicable, showing sufficient detail as reasonably requested by
MW of the calculations for the immediately preceding Settlement Period of the
fees set forth in SECTION 3 hereof and the transactions with respect to the MWCC
Payment Reserve Account. Subject to SECTION 5.5(18) hereof, amounts owed to
MWCC shall be paid directly by MW to MWCC within thirty (30) days after receipt
of notice of the amounts claimed to be due.
4. DEFAULTED INDEBTEDNESS
4.1. RESPONSIBILITY DURING FISCAL YEAR 1997 AND THEREAFTER. MWCC, Monogram
and MW shall share responsibility for Section 4 Net Defaulted Indebtedness
arising during Fiscal Year 1997 and each Fiscal Year thereafter during the term
of this Agreement (except as provided in SECTION 15.2 hereof), including without
limitation, Section 4 Net Defaulted Indebtedness arising pursuant to Old
Indebtedness, as provided below:
(1) MWCC and/or Monogram shall bear [ ]* of the yearly total
of Section 4 Net Defaulted Indebtedness from [ ]* through [ ]*
of Section 4 Average Indebtedness.
*Confidential treatment has been requested with respect to this information.
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(2) MW shall bear [ ]* of the yearly total of Section 4 Net
Defaulted Indebtedness over [ ]* through [ ]* of Section 4
Average Indebtedness; PROVIDED, HOWEVER, that if amounts of Net Designated
Incremental Revenues for that Fiscal Year, to the extent available, are
applied to reduce amounts otherwise to be borne by MW pursuant to this
subsection (as and to the extent provided in SECTION 5.5(10)(b) hereof), the
amounts so applied shall be subtracted from the amount of Section 4 Net
Defaulted Indebtedness in the [ ]* through [ ]* band and MW
shall bear the remaining Section 4 Net Defaulted Indebtedness in this band,
if any.
(3) MWCC and/or Monogram shall bear [ ]* and MW shall bear
[ ]* of the yearly total of Section 4 Net Defaulted Indebtedness over
[ ]* and up to and including [ ]* of Section 4 Average
Indebtedness; PROVIDED, HOWEVER, that if amounts of Net Designated
Incremental Revenues for that Fiscal Year, to the extent available, are
applied to reduce amounts otherwise to be borne by each party pursuant to
this subsection (as and to the extent provided in SECTION 5.5(10)(b) hereof),
the amounts so applied shall be subtracted from the amount of Section 4 Net
Defaulted Indebtedness in the [ ]* through [ ]* band to be paid
by MWCC and/or Monogram, on the one hand, and MW on the other hand, in this
band, if any; and PROVIDED, FURTHER, commencing for Fiscal Year 2004, prior
to applying the previous proviso with respect to the application of the
amount specified in SECTION 5.5(10(b), the amounts specified under SECTION
5.5(9)(2) hereof shall be applied and MWCC and/or Monogram on the one hand
and MW on the other hand shall each bear their remaining shares of Section 4
Net Defaulted Indebtedness after application, if any, of amounts specified
under Sections 5.5(9)(2) and SECTION 5.5(10)(b) hereof. An example of this
calculation is set forth in SCHEDULE 4.1(3).
(4) MWCC and/or Monogram shall bear [ ]* of the yearly total
of Section 4 Net Defaulted Indebtedness in excess of [ ]* of Section 4
Average Indebtedness; PROVIDED, HOWEVER, that if amounts of Net Designated
Incremental Revenues for that Fiscal Year, to the extent available, are
applied to reduce amounts otherwise to be borne by MWCC and/or Monogram
pursuant to this subsection, (as and to the extent provided in SECTION
5.5(10)(b) hereof), the amounts so applied shall be subtracted from the
amount of Section 4 Net Defaulted Indebtedness in excess of [ ]* and
MWCC and/or Monogram shall bear the remaining Section 4 Net Defaulted
Indebtedness in this band, if any; PROVIDED, HOWEVER, commencing for Fiscal
Year 2004, prior to applying the previous proviso with respect to the
application of the amount specified in SECTION 5.5(10)(b), the amounts
specified under SECTION 5.5(9)(2) hereof shall be applied.
*Confidential treatment has been requested with respect to this information.
39
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(5) For the avoidance of doubt, the parties hereby acknowledge that,
in applying the provisions hereof: (a) the same Indebtedness may not become
Section 4 Net Defaulted Indebtedness more than one time, and (b) any
Indebtedness relating to sales by the Signature Companies that meets the
definition of Section 4 Net Defaulted Indebtedness shall be included within that
definition, whether or not subject to an agreement between (i) the Signature
Companies and (ii) MWCC and/or Monogram (unless otherwise provided in that
agreement).
(6) [SECTION INTENTIONALLY OMITTED].
(7) For the avoidance of doubt, the parties hereby acknowledge that
MWCC and MW shall share responsibility for Net Defaulted Indebtedness as defined
and specified in the Original Account Purchase Agreement for Fiscal Years
through and including Fiscal Year 1995 and, to the extent such amounts with
respect to Fiscal Years 1992 through 1995 are part of the Section 4 Net
Aggregate Defaulted Indebtedness Amount, such amount will be paid to MWCC in the
manner specified in SECTION 4.6 hereof notwithstanding anything to the contrary
in the Original Account Purchase Agreement.
4.2. RESPONSIBILITY FOR FISCAL YEAR 1996. For Fiscal Year 1996, MWCC
and/or Monogram and MW shall share responsibility for Section 4 Net Defaulted
Indebtedness and certain other defaulted indebtedness as set forth on SCHEDULE
4.2 hereto.
4.3. WHEN DETERMINED; PAYMENT.
(1) A State-by-State report of the amount of Section 4 Net Defaulted
Indebtedness for each Fiscal Year during the term of this Agreement shall be
provided by MWCC to MW in writing no later than February 28th of the next Fiscal
Year, provided, that for Fiscal Year 1996, MWCC shall provide MW monthly with a
State-by-State report of the total amount of Indemnified 1996 Net Defaulted
Indebtedness, Indemnified 1996 Starter Card Net Defaulted Indebtedness, Section
4 1996 Net Defaulted Indebtedness and Starter Card Account 1996 Net Defaulted
Indebtedness and defaulted indebtedness for the period from January 1, 1996
through the Conversion Date (as calculated under the Original Account Purchase
Agreement). An estimate of the total amount of Section 4 Net Defaulted
Indebtedness and Section 4 Average Indebtedness for each Fiscal Year shall be
provided by MWCC to MW in writing no later than the last day of MW's fiscal year
coinciding with such Fiscal Year, provided, that for Fiscal Year 1996, MWCC
shall provide MW with an estimate of the total amount of Indemnified 1996 Net
Defaulted Indebtedness, Indemnified 1996 Starter Card Net Defaulted
Indebtedness, Section 4 1996 Net Defaulted Indebtedness and Starter Card Account
1996 Net Defaulted Indebtedness and defaulted indebtedness for the period
40
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from January 1, 1996 through the Conversion Date (as calculated under the
Original Account Purchase Agreement), as well as the Total Average Indebtedness,
Total Starter Card Accounts Average Indebtedness and average indebtedness for
the period from January 1, 1996 through the Conversion Date (as calculated under
the Original Account Purchase Agreement). In addition, upon request of MW which
may be made once for each Fiscal Year, MWCC shall provide a list by specific
Account of each Account comprising the Section 4 Net Defaulted Indebtedness for
such Fiscal Year by the January 31st after the close of each Fiscal Year,
provided, that, for Fiscal Year 1996, at MW's request made once as to that year,
MWCC shall provide by January 31, 1997 a list by specific Account of each
Account comprising Indemnified 1996 Net Defaulted Indebtedness, Indemnified 1996
Starter Card Net Defaulted Indebtedness, Section 4 1996 Net Defaulted
Indebtedness and Starter Card Account 1996 Net Defaulted Indebtedness and
defaulted indebtedness for the period from January 1, 1996 through the
Conversion Date (as calculated under the Original Account Purchase Agreement).
The amount of Section 4 Net Defaulted Indebtedness and Section 4 Average
Indebtedness shall be calculated by MWCC not later than January 31 following the
end of the Fiscal Year in question (and the amounts described on SCHEDULE 4.2
shall be calculated no later than January 31, 1997). In connection with each
such report and such statement, MWCC shall provide, as reasonably requested by
MW, information to MW to assist MW in estimating the amount of Section 4 Net
Defaulted Indebtedness (or, for Fiscal Year 1996, the amount of Indemnified 1996
Net Defaulted Indebtedness, Indemnified 1996 Starter Card Net Defaulted
Indebtedness, Section 4 1996 Net Defaulted Indebtedness and Starter Card Account
1996 Net Defaulted Indebtedness and defaulted indebtedness for the period from
January 1, 1996 through the Conversion Date (as calculated under the Original
Account Purchase Agreement) constituting finance charges, insurance charges and
other credit charges; provided, that it is understood that MWCC, its Affiliates,
the employees, officers, directors, shareholders, partners, attorneys and agents
of MWCC and its Affiliates, and all of the respective heirs, legal
representatives, successors and permitted assigns of the foregoing shall have no
liability to MW arising in connection with such information, and MW shall
protect, indemnify, and hold harmless MWCC, its Affiliates, the employees,
officers, directors, shareholders, partners, attorneys and agents of MWCC and
its Affiliates, and all of the respective heirs, legal representatives,
successors and permitted assigns of the foregoing against any and all
liabilities, costs and expenses (including reasonable attorneys' fees and
expenses), judgments, damages, claims, demands, offsets, defenses,
counterclaims, actions, or proceedings, by whomsoever asserted, including,
without limitation, Cardholders with respect to Accounts, and any Person who
prosecutes or defends any actions or proceedings, whether as representative of
or on behalf of a class or
41
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interested group or otherwise, arising out of, connected with, or resulting from
MWCC's provision of such information to MW and/or MW's use thereof in accordance
with the provisions of SECTION 11 hereof.
(2) Except as otherwise provided, any payment due to MWCC from MW
under Section 4 shall be paid by MW, subject to the provisions of SECTION 4.4
and, for Fiscal Year 1996 only, SCHEDULE 4.2 hereto, on the next following
February 28 after the delivery of a statement ("Payment Date"). If the final
Fiscal Year to which this SECTION 4 applies is a partial Fiscal Year, the
calculations hereunder shall not be done for the entire Fiscal Year in
question but shall be done for the short stub year utilizing a calculation of
Section 4 Average Indebtedness and Section 4 Net Defaulted Indebtedness only
for the stub period, and the percentages used in SECTION 4.1 hereof other
than [ ]* and [ ]* shall be prorated based on the number of days
in the stub period divided by three hundred sixty-five (365).
4.4. MW OBLIGATION. Notwithstanding the foregoing, with respect to
obligations of the parties hereto under this SECTION 4 and SCHEDULE 4.2 for
Fiscal Year 1996 and Fiscal Year 1997:
(1) [SECTION INTENTIONALLY OMITTED].
(2) In the event that MW owes any amounts to MWCC for Fiscal Year
1996 as calculated under SCHEDULE 4.2 hereto, MW may give MWCC the MW 1996
Note. The MW 1996 Note shall be due on February 28, 1998 and shall bear
interest from February 28, 1997, at the Monthly Commercial Paper Rate
applicable to each Interest Earning Month, plus [ ]*, for the period
such note remains unpaid prior to maturity. Accrued interest for each Fiscal
Month that such MW 1996 Note is outstanding shall be due on the last day of
such Fiscal Month.
(3) Except as otherwise permitted in SECTION 4.6, on February 28,
1998, MW shall pay to MWCC the Section 4 Net Aggregate Defaulted Indebtedness
Amount, less (i) any amounts, exclusive of interest, previously paid on the
Seller Notes, Seller Recourse Notes and MW 1996 Note (the face amounts of the
Seller Notes and Seller Recourse Notes are included in such definition), and
(ii) the amounts that would be allocated to MW's share of defaulted
indebtedness, less starter card defaulted indebtedness if SECTION 5.5(10)(b)(ii)
AND (iii) had applied to reduce such defaulted indebtedness during Fiscal Year
1996.
(4) Any provisions contained in the Seller Notes and Seller Recourse
Notes notwithstanding, for the period commencing with the Interest Earning Month
of January 1997, such Seller Notes and Seller Recourse Notes shall bear interest
at the
*Confidential treatment has been requested with respect to this information.
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Monthly Commercial Paper Rate applicable to each Interest Earning Month, plus
[ ]*, for each month any such note remains unpaid prior to maturity.
Accrued interest for each Fiscal Month that such Seller Notes and Seller
Recourse Notes are outstanding shall be paid by MW on the last day of each
Interest Earning Month, except that the interest accrued in respect of Seller
Notes and Seller Recourse Notes commencing on December 24, 1996 through and
including January 31, 1997, shall be paid by MW on January 31, 1997. Such
payments shall be made by MWCC debiting the MWCC Payment Reserve Account as
provided in SECTION 7.1A hereof. MW authorizes MWCC to attach a rider to
each Seller Note and Seller Recourse Note stating that the interest terms
thereof have been amended as provided in this subsection, which rider MW
shall acknowledge in writing at MWCC's request.
4.5. [Section Intentionally Omitted.]
4.6. PAYMENTS RELATED TO NOTES AND OTHER OBLIGATIONS.
(1) Except as otherwise permitted in SECTION 4.6(4) below, in the
event a payment (whether principal or interest) is not made under one or more of
the Seller Notes, Seller Recourse Notes, MW 1996 Note, MW Continuation Note or
as otherwise required under SECTIONS 4A, 4.3(2), 4.4(3) AND 4.7 or SCHEDULE 4.2
when due, whether before or after maturity, each such Seller Note, Seller
Recourse Note, MW 1996 Note, MW Continuation Note or other unpaid amount shall
bear interest at the Default Rate, and the aggregate principal amount of each
such Seller Note, Seller Recourse Note, MW 1996 Note, MW Continuation Note or
other unpaid amount shall be deemed to be increased monthly by an amount equal
to the unpaid interest thereon.
(2) With respect to amounts to be paid by MW pursuant to SECTION
4.4(3) hereof, MW shall be entitled to an offset in an amount equal to the
Offset Amount. The "Offset Amount" shall be defined as [ ]* (i)
increased by the excess of (a) the Aggregate Incremental Revenue Amount over
(b) [ ]* or (ii) decreased by the excess of (a) [ ]* over (b) the
Aggregate Incremental Revenue Amount. MW shall not be entitled under this
SECTION 4.6(2) to any payment from MWCC if the Offset Amount is greater than
the amount to be paid by MW to MWCC pursuant to SECTION 4.4(3) hereof, but
may be entitled to a payment by MWCC if the condition set forth in SECTION
5.5(4) has been met. An example of payments pursuant to this SECTION 4.6(2)
is attached as SCHEDULE 4.6(2) hereto.
(3) Notwithstanding the foregoing provisions of SECTION 4.4(3)
hereof, to the extent the aggregate outstanding
*Confidential treatment has been requested with respect to this information.
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<PAGE>
principal amount of the sum of Seller Notes, Seller Recourse Notes and the MW
1996 Note with respect to any, some or all of Fiscal Years 1991, 1992, 1993,
1994, 1995, and 1996, less the Aggregate Incremental Revenue Amount and less
the deduction provided for in SECTION 4.4(3)(ii), would exceed [ ]*, MW
shall pay such excess to MWCC in cash on the Payment Date with respect to any
such applicable Fiscal Year, and the amount of the MW 1996 Note which would
otherwise be required to be given with respect to the Fiscal Year shall be
reduced by such amount paid in cash.
(4) In lieu of paying some or all amounts due on February 28, 1998,
as provided in SECTION 4.4(3) hereof and subject to the offset in SECTION
4.6(2), MW may give, if this Agreement is in effect, MWCC a note (such note
being referred to hereinafter as the "MW Continuation Note"), for up to some
or all of the amount due but not paid by MW to MWCC in cash, provided, in no
event shall the amount of such MW Continuation Note exceed [ ]*. Upon
MWCC's receipt of such note and/or cash, in the amount to be paid in SECTION
4.4(3) hereof, subject to the offset in SECTION 4.6(2) hereof, all Seller
Notes, Seller Recourse Notes and the MW 1996 Note shall be cancelled. Such
MW Continuation Note, as reduced periodically by payments thereon, including
those provided for in SECTIONS 4.7(2), 5.5(9) and 5.5(10) hereof, plus
accrued but unpaid interest, shall be due in full on February 28, 2003, and
shall be in the form attached as SCHEDULE 4.6(4) hereto. The outstanding
balance of the MW Continuation Note shall bear interest from February 28,
1998, at the Monthly Commercial Paper Rate applicable to each Interest
Earning Month, plus [ ]*, for the period such note remains unpaid prior
to maturity. Accrued interest for each Interest Earning Month that such MW
Continuation Note is outstanding shall be paid on the last day of each
Interest Earning Month.
4.7. MW PAYMENT OF CERTAIN AMOUNTS.
(1) On December 23, 1996, MW shall pay to MWCC an amount equal to
the difference between (i) the sum of (a) [ ]*, PLUS (b)
notwithstanding any provisions of Seller Notes and Seller Recourse Notes to
the contrary, accrued interest from and including February 29, 1996 through
and including December 23, 1996 in respect of Seller Notes and Seller
Recourse Notes and computed at the Fiscal Year 1996 Interest Rate, PLUS (c)
interest from and including October 3, 1995 through and including December
23, 1996 on the sum specified in the Letter Agreement, LESS (ii) the sum of
(a) the net amount directed to be paid to MWCC in Section 5.5(5) of the Bank
Program Agreement, PLUS (b) accrued interest from and including February 29,
1996 through and including December 23, 1996 owed by MWCC in respect of
amounts specified in SECTIONS
*Confidential treatment has been requested with respect to this information.
44
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5.5(2) AND 5.5(3), calculated as provided in SECTION 5.5(7) to the extent
applicable to amounts owing prior to December 23, 1996 and computed at the
Fiscal Year 1996 Interest Rate, PLUS (c) the amount specified in SECTION
5.5(19)(ii) hereof, PLUS (d) the amount specified in SECTION 5.15(a) AND (b)
hereof, PLUS (d) any amounts owed to MW under that certain letter, dated March
29, 1996, from Daniel W. Porter to Bernard F. Brennan. On February 28, 1997,
MWCC shall allocate on its books the [ ]* amount specified in subsection
(1)(i)(a) of this subsection between the Net 1996 Starter Card Account Loss
Amount and Note Repayment of Principal Amount for Fiscal Year 1996 in accordance
with the definition of Note Repayment of Principal Amount and the other
provisions of this Agreement. The December 23, 1996 payment provided for in
this SECTION 4.7(1), when made, shall satisfy (i) MW's interest obligation in
respect of Seller Notes and Seller Recourse Notes for Fiscal Year 1996 through
December 23, 1996, and (ii) MW's obligation, if any, to make a principal payment
in respect of Seller Notes and Seller Recourse Notes for Fiscal Year 1996.
(2) Commencing with the end of the Fiscal Month of January, 1997 and
the last day of each Fiscal Month thereafter until (i) there is no outstanding
balance on the MW Continuation Note or (ii) the last day of the Fiscal Month of
December, 2002, MW shall pay to MWCC the Note Repayment of Principal Amount for
such Fiscal Month, which payments shall be applied to the applicable notes.
During such period as the MWCC Payment Reserve Account is in effect, such
payment shall be made by MWCC debiting the MWCC Payment Reserve Account as
provided in SECTION 7.1A hereof.
4A. STARTER CARD ACCOUNT DEFAULTED INDEBTEDNESS
4A.1 RESPONSIBILITY. MWCC, Monogram and MW shall share responsibility for
Starter Card Account Net Defaulted Indebtedness arising during Fiscal Year 1997
and each Fiscal Year thereafter during the term of this Agreement (except as
provided in SECTION 15.2) as follows:
(1) The percentage of writeoffs of Indebtedness on Accounts other
than Starter Card Accounts for any Fiscal Year (or part thereof), shall be
determined by dividing Section 4 Average Indebtedness for that Fiscal Year into
the Section 4 Net Defaulted Indebtedness for that Fiscal Year. The percentage
of writeoffs of Indebtedness on Starter Card Accounts, for any Fiscal Year (or
part thereof), shall be determined by dividing Starter Card Account Average
Indebtedness for that Fiscal Year into the Starter Card Account Net Defaulted
Indebtedness for that Fiscal Year.
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(2) If, in any Fiscal Year, [ ]*
(3) If, in any Fiscal Year, the percentage of writeoffs of
Indebtedness on Starter Card Accounts [ ]*, MW shall bear [ ]* of
the following amount: (a) the difference between the [ ]*, each for
that Fiscal Year, MULTIPLIED BY Starter Card Account Average Indebtedness for
that Fiscal Year.
4A.2 RESPONSIBILITY FOR FISCAL YEAR 1996. For Fiscal Year 1996, MWCC
and/or Monogram and MW shall share responsibility for certain losses and
defaulted indebtedness relating to Starter Card Accounts as set forth in
SCHEDULE 4.2 hereto.
4A.3 WHEN DETERMINED; PAYMENT. MWCC and/or Monogram shall calculate the
amounts referred to in SECTION 4A.1 above for each Fiscal Year in the calendar
month immediately following the last day of each Fiscal Year. In the event that
MW is required to make any payment under SECTION 4A.1(3) for any Fiscal Year,
said amount shall be paid within thirty (30) days after MW is notified of the
result of the calculations performed by MWCC pursuant to this subsection.
During such period as the MWCC Payment Reserve Account is in effect, such
payment shall be made by MWCC debiting the MWCC Payment Reserve Account as
provided in SECTION 7.1A hereof.
5. SERVICING
5.1. [SECTION INTENTIONALLY OMITTED].
5.2. MWCC'S RESPONSIBILITIES. During the term of this Agreement, MWCC
shall operate (except as may otherwise be explicitly provided herein) credit
operations and facilities relating to Non-Converted Accounts and Purchased
Monogram Accounts at its sole cost and expense and in a high quality, ethical
manner, in such a way as not to disparage or embarrass MW or its name, and,
without limiting the generality of the foregoing, with a level of service to
both MWCC Cardholders and MW with respect to such Accounts and Indebtedness that
is not less than the level of service provided by MWCC to similarly situated
Persons and MW prior to the Conversion Date (it being understood that the
collection of such Accounts and Indebtedness in accordance with applicable debt
collections laws, the sending of adverse action letters, and the legally
required or MW
*Confidential treatment has been requested with respect to this information.
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<PAGE>
approved (both the substance and the language) changes of terms on such Accounts
and Indebtedness to the extent approved by MW pursuant to SECTION 5.2(7) do not
disparage or embarrass MW or its name). MWCC's responsibilities with respect to
such Accounts and Indebtedness shall include, without limitation, the following,
all of which shall be performed by or on behalf of MWCC at its sole cost and
expense:
(1) In connection with its establishment and servicing of
Non-Converted Accounts and Purchased Monogram Accounts other than Section 4
Defaulted Indebtedness, MWCC shall:
(i) in performing its duties under this Agreement which require
contact with MWCC Cardholders, make the involvement of MWCC,
its Affiliates or any other Person acting on MWCC's behalf
transparent to MWCC Cardholders to the extent that MWCC
reasonably determines that it may properly do so
("Transparent Servicing");
(ii) [Section intentionally omitted].
(iii) [Section intentionally omitted].
(iv) [Section intentionally omitted].
(v) promptly prepare and mail MWCC Billing Statements to MWCC
Cardholders in respect of such Accounts and Indebtedness,
receive and promptly post payments, and prepare billing and
collection forms and such other forms as are required to
carry out MWCC's responsibilities pursuant to this Agreement
(it being understood and agreed that no finance or other
charges, except charges for credit insurance, will accrue on
or be posted to, Non-Converted Accounts or Purchased
Monogram Accounts).
(vi) [Section intentionally omitted].
(2) MWCC shall take reasonable efforts to collect, or cause to be
collected, the Non-Converted Indebtedness and Purchased Monogram Indebtedness,
including (for the avoidance of doubt) any such Indebtedness written-off by MWCC
and, for Fiscal Year 1996 and earlier years, Section 4 Defaulted Indebtedness
purchased or to be purchased by MW pursuant to SECTION 4.5 of the Original
Account Purchase Agreement or Indemnified 1996 Defaulted Indebtedness or
Indemnified 1996 Starter Card Defaulted Indebtedness purchased or to be
purchased pursuant to SCHEDULE 4.2 hereto, and in connection therewith, MWCC
shall conduct, or
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cause to be conducted, collection activities in such a manner and use, or cause
to be used, such technology as is consistent with the consumer credit collection
industry.
(3) MWCC shall use its best efforts to design systems to achieve,
employ qualified personnel to meet, and otherwise satisfy on average the
following standards for credit customer service:
(i) adjustment requests shall be handled within one
hundred-fifty (150) seconds of the customer's initial
telephone contact;
(ii) to the extent practicable, remittances received by MWCC
shall be processed on the same day;
(iii) MWCC Billing Statements shall be mailed within four (4) days
after the Billing Date;
(iv) credit balances, if any, shall be mailed within three (3)
days of a customer's request;
(4) [SECTION INTENTIONALLY OMITTED.]
(5) [SECTION INTENTIONALLY OMITTED.]
(6) MWCC shall promptly advise MW of any complaint or inquiry made by
a Cardholder obligated in respect of a Non-Converted Account or a Purchased
Monogram Account concerning Merchandise or the service, promotion or delivery
thereof if MWCC determines such complaint or inquiry is material. MWCC shall
promptly advise MW of any governmental investigation or governmental legal
action concerning MWCC's responsibilities under this Agreement.
(7) MWCC shall provide MW with change-in-term notices prior to
mailing such notices, which notices MW shall have the right to review and
approve, but such approval shall not be unreasonably withheld or delayed; it
being understood that approval is not required for legally required language and
further understood that an inadvertent failure to comply with this provision
shall not give rise to a breach of contract by MWCC unless such failure has a
material adverse effect on MW.
5.3. MWCC'S LIABILITIES. MWCC may furnish credit information concerning
creditworthiness with respect to any Cardholder to any credit bureau, credit
interchange or any other Person to whom such information may lawfully be sent
for credit evaluation or collection purposes, it being understood that MWCC
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<PAGE>
shall in no event transfer lists of Cardholders for promotional or other use
except (a) as specified in SECTION 5.6 hereof and/or (b) for the determination
of creditworthiness and to perform merge-purge functions against a list of
prospective Cardholders in connection with such determination, and (except as
specified in SECTION 5.6 hereof) any such Person to whom information is so
provided must execute an agreement providing for confidentiality (including
reasonable liquidated damage provisions, which provisions shall initially be
based on SCHEDULE 5.3 annexed hereto, which schedule shall be reviewed, and if
necessary revised, at each fifth (5th) year anniversary of the date hereof) in
which such Person agrees it will not use, or permit any other Person to obtain
or use, such information for any use (including promotion) except the
determination of creditworthiness, provided any such agreement with a credit
bureau need not provide for liquidated damages. Upon request of MW, MWCC shall
seed its list of Cardholders with such names and addresses as MW may reasonably
request.
5.4. MW'S RESPONSIBILITIES.
(1) During the term of this Agreement, MW, at its expense, shall (i)
perform, (ii) cause each Authorized Affiliate to perform and (iii) use its best
efforts to cause each Authorized Licensee to perform, the following in-store
activities:
(i) Preparing changes of address for MWCC Cardholders taking
requests for adjustments from such Cardholders and promptly
forwarding all such information as designated by MWCC.
(ii) Assisting MWCC Cardholders in communicating with MWCC
through toll-free telephone number facilities maintained in
the Stores operated by MW, which shall include providing and
maintaining existing types of telecommunication equipment
(but not the toll-free number) in the Stores at their
expense. Such number may be the same as provided by
Monogram pursuant to the Bank Program Agreement.
(iii) Except as otherwise directed by MWCC in accordance with
SECTION 7.8 hereof or as otherwise agreed to by MW and MWCC,
accepting, during the term of this Agreement, MWCC In-Store
Payments at Stores designated by MW (if any Stores are so
designated), processing such payments, providing receipts to
or for such MWCC Cardholders relating to
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such payments (it being understood that upon request of MWCC
said receipts shall indicate that such payments are accepted
as a convenience for such MWCC Cardholders by MW as agent
for the MWCC Cardholder and are not deemed to be paid until
received by MWCC) and transferring said payments to MWCC as
provided herein. The foregoing acceptance of payments will
initially be processed in the following manner, all of which
may be revised by mutual agreement of the parties from time
to time: Stores will each Business Day gather all MWCC
In-Store Payments made that Business Day (including MWCC
In-Store Payments made at unmanned areas designated by
Stores as areas where such payments can be made (I.E.,
lockboxes)). Cash and checks which represent payments on
Accounts owned by MWCC may be commingled with normal Store
receipts, delivered and deposited into MW's local bank
account according to current practices, and thereafter
concentrated daily on each Business Day into MW's bank
accounts. Any checks returned by a bank ("returned items")
will automatically be presented for a second deposit.
Checks which are returned by the depository bank to MW or
any Store will be batched by MW or the Store and mailed to
MW's accounting office. MW's accounting office will
maintain a log of the number of returned items and forward
those checks each Business Day to MWCC. MW will report the
number of MWCC In-Store Payments deposited and the dollar
amount of all such payments to MWCC each Business Day.
Unless the amounts of MWCC In-Store Payments are applied by
MWCC to reduce amounts payable by MWCC to MW, MW will wire
transfer immediately available federal funds to MWCC on the
Business Day following the deposit in its concentration
account the amount of MWCC In-Store Payments so deposited,
reduced by the sum of the amount of returned items and the
bank fees for returned items. Payments shall not be deemed
to be made to MWCC or credited to Accounts until they either
are delivered to MWCC or applied by MWCC to reduce amounts
payable by MWCC to MW. MW shall promptly furnish to MWCC
any documentation relating to MWCC In-Store Payments and
bank fees for returned items as from time to time may be
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requested by MWCC. Notwithstanding the foregoing, it is
understood and agreed that MW shall not solicit MWCC
Cardholders (or other Persons acting on behalf of MWCC
Cardholders) to make MWCC In-Store Payments. It is
acknowledged and agreed that each of MW, Authorized
Affiliates and Authorized Licensees shall have no right,
title or interest in any MWCC In-Store Payments and shall
take possession of such payments solely as agent on behalf
of MWCC Cardholders for transfer to MWCC.
(iv) Continuing to offer assistance to customers requesting
assistance resolving credit related problems.
(2) MW shall keep (and shall cause Authorized Affiliates and use its
best efforts to cause Authorized Licensees to keep), at no expense to MWCC,
Charge Slips, Credit Slips and/or copies thereof relating to Non-Converted
Accounts or Purchased Monogram Accounts for seven (7) years (two (2) years at
Stores and five (5) subsequent years in a central storage location), any or all
of which shall be provided to MWCC or its designee at MWCC's request.
(3) [Section intentionally omitted].
(4) [Section intentionally omitted].
(5) In no event shall MW be required to repossess or (except to the
extent explicitly provided for below) dispose of Merchandise in connection with
the collection of Non-Converted Indebtedness or Purchased Monogram Indebtedness
(including, without limitation, that in respect of Starter Card Accounts or
Marginal Card Accounts). Upon request, MW shall pay (or shall cause the
appropriate Authorized Affiliate or Authorized Licensee to pay) MWCC for
Merchandise which is tangible personal property which gave rise to Non-Converted
Indebtedness or Purchased Monogram Indebtedness, and which was obtained by or at
the direction of MWCC and not at the expense of MW, provided such Merchandise
shall be limited to those sold in connection with Accounts which are three (3)
or more months past due or where the MWCC Cardholder has filed a petition for
relief under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors. Such payment shall be applied to reduce the Indebtedness in
question or shall be deemed to be a Recovery if such Indebtedness was (i)
Indemnified 1996 Net Defaulted Indebtedness, (ii) Indemnified 1996 Starter Card
Net Defaulted Indebtedness or (iii) Section 4 Net Defaulted Indebtedness
purchased by MW under the Original Account Purchase Agreement (as
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defined therein). MWCC shall, at its sole expense, deliver such Merchandise to
locations as from time to time specified by MW. MWCC shall, at its sole
expense, deliver such Merchandise to locations as from time to time specified by
MW.
(i) Upon the MWCC Delivery Date (as defined below), MWCC shall
assign, with any required documentation, title to such
Merchandise, free and clear of all Liens, to MW, the
Authorized Affiliate or the Authorized Licensee (as
indicated by MW) unless the Indebtedness was previously
purchased by MW, and MW shall (or shall cause the
appropriate Authorized Affiliate or Authorized Licensee to)
make the required payment to MWCC within thirty (30) days
after the MWCC Delivery Date.
(ii) Merchandise shall be paid for as follows:
MWCC
Delivery Date Payment Due MWCC
------------- ----------------------
(Months After Sale) (% of MWCC Cash Price)
0-30 months [ ]*
31 months or more [ ]*
The "MWCC Delivery Date" is the date the Merchandise is
delivered to MW after repossession or retaking.
(iii) For the purposes of this Agreement, "MWCC Cash Price" shall
mean the cash price to Cardholders of such Merchandise when
sold to the Cardholder, including tax and transportation
charges on the original purchase, but excluding any service
contracts. Monogram and/or MWCC shall be responsible for
any taxes imposed on the sale by MWCC to MW or Authorized
Affiliates or Authorized Licensees under this paragraph.
(iv) If the balance of the entire Indebtedness in respect of the
Account is less than the payment due Monogram or its
Affiliate as described in (ii) above, such balance rather
than such payment amount, shall be paid by MW or the
Authorized Affiliate or Authorized Licensee.
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(v) MW, Authorized Affiliates and Authorized Licensees shall
have no obligation to accept such Merchandise if the amount
to be paid to MWCC in (ii) of this subsection, plus any
amount paid to Monogram under SECTION 5.4(5) of the Bank
Program Agreement during the preceding twelve (12)
settlement periods is equal to or exceeds [ ]*
of credit sales (net of returns and adjustments) on
Accounts during the preceding twelve (12) Settlement
Periods, provided that during the first twelve
Settlement Periods after the date of this Agreement credit
sales (net of returns and adjustments) under the Interim
Agreement and Original Account Purchase Agreement may be
used for measurement purposes.
(vi) Upon request, MW shall, and shall cause its Authorized
Affiliates and use best efforts to cause its Authorized
Licensees, as applicable, to inform MWCC of the price
obtained for such Merchandise and the cost, if any, of
storage and sale.
(vii) Upon request MW may, if it elects, assist in repossessing or
retaking Merchandise. In such event, MWCC shall pay MW
[ ]* if the Merchandise is picked up from the
MWCC Cardholder and shipped as directed by MWCC and
[ ]* if the Merchandise is delivered to a Store
and shipped as directed by MWCC.
In repossessing Merchandise, MWCC agrees to abide by, and cause others acting
for it to abide by, all applicable laws and regulations and to act in a
reasonable and ethical manner. All provisions of this SECTION 5.4(5) will at
the request of MW or MWCC be reviewed, and revised to the extent agreed, on each
two (2) year anniversary of the date hereof.
(6) MW shall promptly advise MWCC of any governmental investigation
or governmental legal action (a) concerning MW's responsibilities under this
Agreement, or (b) which reasonably may affect MWCC, the Program and/or the
Accounts and Indebtedness.
(7) MW hereby grants to MWCC the exclusive right to collect any
Indebtedness purchased by MW under Section 4.5 of the Original Account Purchase
Agreement or SCHEDULE 4.2 hereto. Any funds collected from or with respect to
Cardholders with respect
*Confidential treatment has been requested with respect to this information.
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to such Indebtedness, without deduction for attorneys fees or other collection
costs, shall be deemed "Recoveries". MW shall be obligated to pay any funds it
directly receives with respect to Recoveries to MWCC. Recoveries shall be
accounted for as specified in SCHEDULE 4.2 hereto and after the term of this
Agreement shall be kept by MWCC and MWCC shall continue to have the right to
collect with respect to such Indebtedness and keep Recoveries.
5.5. FINANCE AND OTHER CHARGES.
(1) Monogram shall be entitled to all finance and other charges on
Accounts and Indebtedness owned by Monogram. MWCC shall be entitled to all
finance and other charges on Non-Converted Accounts and Purchased Monogram
Accounts. MW shall receive no benefit from revenue from finance charge
assessments against Cardholders on Indebtedness owned by Monogram and/or MWCC,
but MW shall receive from MWCC the benefits otherwise provided for in this
SECTION 5.5 hereof during the term of this Agreement or as may otherwise be
provided in SECTION 15.2 hereof. It is understood and agreed that,
notwithstanding any provisions to the contrary contained herein or in the Bank
Program Agreement, no finance and/or other charges, except charges for credit
insurance, should be assessed on or posted to Purchased Monogram Accounts or
Non-Converted Accounts. If charges for credit insurance are assessed on or
posted to Non-Converted Accounts or Purchased Monogram Accounts and the amounts
thereof are paid to the Signature Companies, the Signature Companies shall
reimburse MWCC for such amounts if not paid by the date such Non-Converted
Accounts or Purchased Monogram Accounts are written off by MWCC under MWCC's
Accounting Practices in conformity with the letter agreement between the
Signature Companies and MWCC of even date herewith.
(2) With respect to each of the Fiscal Years 1992, 1993, 1994 and
1995 with respect to the States of Florida, Texas and Washington, MWCC shall
owe MW, on February 28, 1998 (I) [ ]* of (II) the amount calculated
under Section 5.5(5)(II) of the Original Account Purchase Agreement;
PROVIDED, HOWEVER, that in the event there still is a balance owed by MW in
respect of the Seller Notes, Seller Recourse Notes or MW 1996 Note, the
amount owed to MW under this subsection shall be applied against said notes
before determining the amount of the MW Continuation Note (or, if MW
determines to make a cash payment, the amount of such cash payment). The
amounts to be applied to the Seller Notes and/or Seller Recourse Notes for
Fiscal Years 1992, 1993, 1994 and 1995 were (subject to certain off-sets in
1994 and 1995) calculated pursuant to the Original Account Purchase Agreement
and are set forth on SCHEDULE 5.5(2) hereto.
*Confidential treatment has been requested with respect to this information.
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(3) On February 28, 1998, MWCC shall pay to MW an amount equal to
the sum of: (i) (a) incremental late fees with respect to the increase in
late fees in October 1995 owed to MW for Fiscal Year 1995 and (b) for Fiscal
Year 1996 prior to May 1, 1996 incremental late fees with respect to the
increase in late fees in February 1995 and October 1995, (ii) incremental
revenues owed to MW relating to increased finance charges in specified states
for Fiscal Year 1996 prior to May 1, 1996, and (iii) the [ ]* owed to
MW with respect to contemplated nominal finance charge rate increases for
Fiscal Year 1995; PROVIDED, HOWEVER, that in the event there still is a
balance owed by MW in respect of the Seller Notes, Seller Recourse Notes or
MW 1996 Note, said amount shall be applied against said notes before
determining the amount of the MW Continuation Note (or, if MW determines to
make a cash payment, the amount of such cash payment). Such amount to be
applied to the Seller Notes, Seller Recourse Notes and/or MW 1996 Note for
Fiscal Year 1995 and Fiscal Year 1996 prior to May 1, 1996 shall be
calculated pursuant to the Original Account Purchase Agreement.
(4) If the Aggregate Incremental Revenue Amount exceeds the Section 4
Net Aggregate Defaulted Indebtedness Amount (after deducting the amounts
provided for in SECTION 4.4(3)), MWCC shall pay such excess to MW on February
28, 1998. Except with respect to the provisions of SECTION 5.5(7), MW shall not
otherwise be entitled to any payments or credits from MWCC with respect to the
Aggregate Incremental Revenue Amount. MW shall not be entitled to any payments
or credits from MWCC with respect to the Aggregate Participation in Finance
Charge Amount (as specified in the Original Account Purchase Agreement), since
such applicable year's Aggregate Participation in Finance Charge Amount was
netted in determining the Seller Recourse Notes for 1994 and 1995.
(5) [Section Intentionally Omitted.]
(6) With respect to Fiscal Year 1996 commencing May 1, 1996, MWCC
shall calculate, on or before February 28 of Fiscal Year 1997 (or, if this
Agreement terminates during 1996, within two (2) months after termination), the
following amounts, if any:
(a) the Incremental Yield Amount for Fiscal Year 1996;
(b) Gross Designated Incremental Revenues for Fiscal Year 1996;
and
(c) MW's Share of Late Fees for Fiscal Year 1996.
*Confidential treatment has been requested with respect to this information.
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<PAGE>
(7) Amounts specified or calculated under SECTIONS 5.5(2), 5.5(3),
and 5.5(9) hereto for one or more of Fiscal Years 1992, 1993, 1994, 1995 and
1996, and the MW Share of Remaining Amount for Fiscal Year 1996 (each such
specified year being referred to as a "Triggering Year") shall bear interest
from the February 28 following the Trigger Year (E.G., amounts for Fiscal
Year 1992 shall bear interest from February 28, 1993) at the Annual
Commercial Paper Rate applicable to each Annual Interest Earning Year,
[ ]* per annum, for the period such amount remains unpaid prior to the
date when due, provided that for the period from December 24, 1996 through
February 28, 1998, interest shall be calculated each calendar month at the
Monthly Commercial Paper Rate applicable to each Interest Earning Month,
[ ]*, for the period such amount remains unpaid prior to the date when
due. Notwithstanding the foregoing, the principal amount on which interest
shall accrue shall be decreased on the occurrence of any MWCC Pre-Conversion
Payment Date by an amount equal to the amount of any MW Pre-Conversion Refund
Amount arising in connection with such MWCC Pre-Conversion Payment Date.
Accrued interest through February 28, 1996 has been paid by MWCC and accrued
interest shall be paid by MWCC on December 23, 1996 pursuant to Section
4.7(1)(ii)(b) for the period from February 28, 1996 through December 23,
1996. On January 31, 1997, MWCC shall pay accrued interest from December 24,
1996 through January 31, 1997. Thereafter through February 28, 1998, MWCC
shall pay accrued interest on the last day of each Interest Earning Month.
(8) With respect to Fiscal Year 1997 and each Fiscal Year thereafter,
MWCC shall calculate, on or before February 28 of the following Fiscal Year (or,
if this Agreement terminates in any such Fiscal Year, within two (2) months
after termination), the following amounts, if any:
(a) the Incremental Yield Amount for the Fiscal Year in
question;
(b) the Gross Designated Incremental Revenues for the Fiscal
Year in question; and
(c) MW's Share of Late Fees for the Fiscal Year in question.
(9) On February 28, 1998 and each February 28 thereafter (or, if
this Agreement terminates, within two (2) months after termination), MWCC
shall pay to MW (i) [ ]* of the Incremental Yield Amount for the
immediately preceding Fiscal Year or partial Fiscal Year (the "MW Share of
Incremental Yield Amount") and (ii) the MW Share of Late Fees for the
immediately preceding Fiscal Year or partial Fiscal Year; PROVIDED, HOWEVER,
that on February 28, 1998, MWCC shall
*Confidential treatment has been requested with respect to this information.
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<PAGE>
calculate such sums for that portion of Fiscal Year 1996 commencing with May
1, 1996 in the same manner specified in the preceding portion of this
subsection and full Fiscal Year 1997 and pay such sums by applying such sums
to the Seller Notes, Seller Recourse Notes and MW 1996 Note before
determining the amount of the MW Continuation Note (or, if MW determines to
make a cash payment, the amount of such cash payment); and PROVIDED FURTHER
that (1) in the event that there still is a balance owed by MW in respect of
the MW Continuation Note in any Fiscal Year beginning with Fiscal Year 1998,
the MW Share of Incremental Yield Amount and the MW Share of Late Fees
instead shall be applied against said balance until such time that said
balance has been paid in full and (2) commencing Fiscal Year 2004, in the
event that Section 4 Net Defaulted Indebtedness is over [ ]* of Section
4 Average Indebtedness (before applying any amounts under Section
5.5(10)(b)), the amount owed to MW for any such Fiscal Year shall be reduced
by an amount equal to the sum of (x) [ ]* of the amount by which
Section 4 Net Defaulted Indebtedness exceeds [ ]* of Section 4 Average
Indebtedness but is less than or equal to [ ]* of Section 4 Average
Indebtedness, PLUS (y) the amount by which Section 4 Net Defaulted
Indebtedness exceeds [ ]* of Section 4 Average Indebtedness (it being
understood that the amount of any such reduction shall not exceed amounts
otherwise to be received by MW under this SECTION 5.5(9) during the relevant
Fiscal Year). In respect of a partial Fiscal Year, the calculation of
Section 4 Average Indebtedness and Section 4 Net Defaulted Indebtedness shall
be only for the partial Fiscal Year, and the [ ]* and the [ ]*
referred to in Section 5.5(9)(2) above shall be prorated based on the number
of days in the partial Fiscal Years, divided by three hundred sixty-five
(365).
(10) On February 28, 1998 and each February 28 thereafter (or, if this
Agreement terminates, within two (2) months after termination), MWCC shall:
(a) determine the Net Designated Incremental Revenues for the
immediately preceding Fiscal Year by deducting amounts from Gross Designated
Incremental Revenues and reimbursing the parties in the following manner
(provided that, on February 28, 1998, MWCC shall determine such sum by making
such deductions and reimbursements for Fiscal Year 1996 commencing May 1, 1996,
and full Fiscal Year 1997):
(i) in the event that Gross Designated Incremental Revenues
equal or exceed the sum of Accrued Conversion Expenses,
Accrued Ongoing Incremental Expenses, Accrued MW
Monthly Payment Amounts and Accrued Net Litigation
Expenses, such expenses shall be deducted and
*Confidential treatment has been requested with respect to this information.
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reimbursed to the appropriate party and the Net
Designated Incremental Revenues shall be applied as set
forth in (b) below;
(ii) in the event that Gross Designated Incremental Revenues
are less than the sum of Accrued Conversion Expenses,
Accrued Ongoing Incremental Expenses, Accrued MW
Monthly Payment Amounts and Accrued Net Litigation
Expenses, such expenses shall be deducted and
reimbursed, to the extent possible, in the following
order to the extent available: (1) MWCC and MW each
shall receive reimbursement for Accrued Conversion
Expenses, if any, in proportion to the amount each of
MWCC and MW is owed on such date (I.E., if MWCC is then
owed 85% of outstanding Accrued Conversion Expenses, it
would receive 85% of any application under this
subsection); (2) MWCC and MW each shall receive
reimbursement for Accrued Ongoing Incremental Expenses,
if any, in proportion to the amount each of MWCC and MW
is owed on such date (I.E., if MWCC is then owed 65%
of, outstanding Accrued Ongoing Incremental Expenses,
it would receive 65% of any application under this
subsection); (3) MWCC shall receive reimbursement for
Accrued MW Monthly Payment Amounts, if any; and (4)
MWCC and MW each shall receive reimbursement for
Accrued Net Litigation Expenses, if any, in proportion
to the amount each of MWCC and MW is owed on such date
(I.E., if MWCC is then owed 85% of outstanding Accrued
Net Litigation Expenses, it would receive 85% of any
application under this subsection);
(b) allocate and apply such Net Designated Incremental Revenues
for the immediately preceding Fiscal Year in the following order (provided that,
on February 28, 1998, MWCC
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shall allocate and apply such sum for the entire Fiscal Year 1996(1) and full
Fiscal Year 1997 in the following order):
(i) to amounts for which MWCC and/or Monogram is
responsible under SECTION 4.1(4) for said Fiscal Year,
if any (it being understood that any amounts not
covered by said application shall be borne entirely by
MWCC and/or Monogram after application, if any, of
amounts specified under SECTION 5.5(9)(2) hereof);
(ii) pro rata to amounts for which MWCC and/or Monogram, on
the one hand, and MW, on the other hand, are
responsible under SECTION 4.1(3) for said Fiscal Year,
if any, after application, if any, of amounts specified
under SECTION 5.5(9)(2) hereof);
(iii) to amounts for which MW is responsible under SECTION
4.1(2) for said Fiscal Year, if any (it being
understood that any amounts not covered by said
allocation shall be borne entirely by MW); and
(iv) to the outstanding balance of the MW Continuation Note,
if any, after deduction of any other amounts to be
applied to such MW Continuation Note under this
Agreement for such Fiscal Year.
In the event that, if for any Fiscal Year, any amounts remain after the
aforestated application of Net Designated Incremental Revenues (the
"Remaining Amounts"), MWCC shall pay to MW on February 28 of the following
year an amount equal to the product of (x) the Remaining Amounts, MULTIPLIED
BY (y) [ ]* ("MW Share of Remaining Amount"). Any Remaining Amounts
other than the MW Share of Remaining Amount shall be retained by and be the
property of MWCC.
- - - -----------------------
1. In applying this subsection (b), adjustments will be made such that the Net
Designated Incremental Revenues during Fiscal Year 1996 shall be applied to
reduce defaulted indebtedness during that entire year, other than Starter Card
defaulted indebtedness.
*Confidential treatment has been requested with respect to this information.
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(11)(i) In the event that any legal proceeding shall be
instituted, or any claim or demand shall be made by any Person asserting that
(x) one or more increases in nominal finance charge rates on accounts made by
MWCC pursuant to the Fifth Amendment to the Original Account Purchase Agreement,
dated May 23, 1992 (including the increase in October of 1995), or the manner in
which such increases were applied to accounts thereunder are not in compliance
with applicable law (each a "Pre-Conversion Asserted Claim"), or (y) (i) any
increase(s) by Monogram and/or MWCC in nominal finance charge rates or late fee
amounts on Accounts (including Old Accounts) from the nominal finance charge
rates or the late fee amounts in effect immediately prior to the Conversion Date
and (ii) late fee increases by MWCC in October, 1995 or the manner in which
either such increases were applied by Monogram to Accounts (including Old
Accounts) are not in compliance with applicable law (each a "Post-Conversion
Asserted Claim"), Monogram and/or MWCC shall, at its own expense, by counsel of
its choice, defend against, negotiate, settle, and/or otherwise deal with, such
Asserted Claims. MW shall promptly notify Monogram and MWCC in writing of any
Asserted Claims of which it has knowledge. MWCC agrees to protect, indemnify,
and hold harmless MW, its Affiliates, the employees, officers, directors,
shareholders, partners, attorneys and agents of MW and its Affiliates, and all
of the respective heirs, legal representatives, successors and permitted assigns
of the foregoing against any and all liabilities, costs and expenses (including
reasonable attorneys' fees and expenses), judgments, damages, claims, demands,
offsets, defenses, counterclaims, actions, or proceedings, by whomsoever
asserted, including, without limitation, Cardholders with respect to Accounts,
and any Person who prosecutes or defends any actions or proceedings, whether as
representative of or on behalf of a class or interested group or otherwise,
arising out of, connected with, or resulting from, such Asserted Claims;
PROVIDED, that MWCC's obligations to so protect, indemnify and hold harmless
shall be decreased by the amount of MW Pre-Conversion Refund Amounts payable by
or allocable to MW pursuant to this SECTION 5.5(11); and PROVIDED, FURTHER, that
in no event shall MWCC's obligation to so protect, indemnify and/or hold
harmless include consequential damages to MW arising out of, connected with, or
resulting from, such Asserted Claims. Consequential damages shall include, but
not be limited to, damages to MW's reputation, lost sales and expenses resulting
from time spent dealing with the Asserted Claims. Nothing in this SECTION
5.5(11)(i) shall be deemed to prevent MW from retaining counsel of its choice,
at its own expense, in order to monitor proceedings taking place in connection
with Asserted Claims. MWCC shall keep MW advised as to the status of the matter
after such notification or if such Asserted Claim has otherwise come to the
attention of MWCC's legal department. The parties hereto shall cooperate fully
with the defense, negotiation and/or settlement of such Asserted
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Claim. It is understood that, for purposes of the rest of this subsection (11),
reference to actions by "Monogram and/or MWCC" shall be deemed to be references
to MWCC, to the extent the Asserted Claim at issue is described in subsection
(x) above, and to Monogram, to the extent the Asserted Claim at issue is
described in subsection (y) above.
(ii (a) Monogram and/or MWCC shall have the sole right to
determine the advisability of and to implement any refunds, other payments,
decreases in nominal finance charge rates and late fee amounts, and/or other
corrective action with respect to Accounts for claims under subsection (i)
PROVIDED, that Monogram and/or MWCC shall exercise such right only if Monogram
and/or MWCC reasonably believes such action is necessary or advisable to cause
nominal finance charge rates or late fee amounts to comply with applicable law
or to settle, avoid, minimize or mitigate any actual or potential Asserted
Claim. Monogram and/or MWCC shall also have the sole right to determine the
advisability of and to implement settlements, irrespective of whether litigation
has been instituted, and/or appeals with respect to Asserted Claims.
(b) Prior to the implementation of any such refund, other
payment, decrease, settlement, corrective action and/or decision not to
appeal (and consequently to pay any judgment) with respect to which the
actual and potential financial cost to MW pursuant to this SECTION 5.5(11) is
reasonably calculated by Monogram and/or MWCC to exceed [ ]*, Monogram
and/or MWCC shall consult with, at MW's option, the Marketing Committee or
the Board of Directors of MW (or successor thereof), which applicable body
shall meet with MWCC regarding such matter on an emergency basis; PROVIDED,
that such meeting shall be scheduled at such time so as to not potentially
jeopardize the benefit which Monogram and/or MWCC wishes to gain by
implementing the action Monogram and/or MWCC has decided to take. At such
meeting, Monogram and/or MWCC shall inform MW of (I) the estimated financial
impact of such refund, other payment, decrease, settlement, corrective action
and/or decision not to appeal on MW, (II) the factors, options and reasons
Monogram and/or MWCC considered (including the estimated financial impact on
MW), and (III) the identity of the attorneys whose advice Monogram and/or
MWCC relied upon in reaching its conclusions. Monogram and/or MWCC shall
cooperate with MW in order that MW may receive advice on the matter from such
attorneys.
(c) After the meeting described in SECTION 5.5(11)(ii)(b) above,
MW shall have a reasonable period of time, based on the circumstances, to
consider and propose to Monogram and/or MWCC for its/their consideration options
other than the action that Monogram and/or MWCC has decided to take; PROVIDED,
*Confidential treatment has been requested with respect to this information.
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that such period shall be limited to a period of time which would not
potentially jeopardize the benefit which Monogram and/or MWCC wishes to gain by
implementing the action which Monogram and/or MWCC has decided to take.
(iii)(a) In the event that MWCC takes any action pursuant to the
provisions of Section 5.5(11)(i) and/or (ii) above, and as a result refunds,
pays amounts or incurs expenses with respect to a State as to a Pre-Conversion
Asserted Claim (other than refunds, payments or expenses wholly due to MWCC's
negligence in connection with the manner in which any such increases were
implemented), MW shall, subject to the terms of this SECTION 5.5(11), be
allocated a portion ("MW Pre-Conversion Refund Amount") of such amounts equal to
any such amounts paid or refunded by MWCC, multiplied by:
(x) the sum of amounts calculated under Sections 5.5(2),
5.5(3)(ii), and 5.5(9)(i) for such State, for all or part of the
Fiscal Years prior to the time when such refund or payment is
paid by MWCC ("MWCC Pre-Conversion Payment Date"),(2) divided by
(y) the sum of (i) [ ]* for the State of Texas,
[ ]*, [ ]* for the State of Florida, and
[ ]*, [ ]* for the State of Washington, PLUS
(ii) for each Fiscal Year commencing with that portion of Fiscal
Year 1996 aFter May 1, 1996, the Incremental Yield Amount for
such State for all or part of such Fiscal Years prior to the MWCC
Pre-Conversion Payment Date.
(b) With respect to MW Pre-Conversion Refund Amounts as to which
an MWCC Pre-Conversion Payment Date occurs on or prior to February 28, 1998,
MWCC shall decrease the Aggregate
- - - ---------------------
2. With respect to Fiscal Years beginning in Fiscal Year 2004, in computing
amounts for a particular State in respect of Section 5.5(9)(i) under
subsection (x) above, and Section 5.5(11)(d) below, the amount to be
subtracted pursuant to Section 5.5(9)(2) shall be (i) the total amount
subtracted pursuant to Section 5.5(9)(2) for such Fiscal Year, multiplied by
(ii) a fraction, the numerator of which is [ ]* of the Incremental
Yield Amount for the State in question for the Fiscal Year in question, and
the denominator of which is [ ]* of the Incremental Yield Amount for
all States for the Fiscal Year in question.
*Confidential treatment has been requested with respect to this information.
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Incremental Revenue Amount by an amount equal to the MW Pre-Conversion Refund
Amounts in question, and the interest owed by MWCC pursuant to SECTION 5.5(7)
hereof shall be adjusted at such time as provided in such Section, and upon such
decreases in the Aggregate Incremental Revenue Amount, MW shall be deemed to
have satisfied such MW Pre-Conversion Refund Amounts to the extent subtracted
from the Aggregate Incremental Revenue Amount. With respect to MW
Pre-Conversion Refund Amounts as to which a MWCC Pre-Conversion Payment Date
occurs thereafter, MW shall pay to MWCC such MW Pre-Conversion Refund Amounts;
PROVIDED, that in the event that MWCC owes any amounts to MW at the time of such
MWCC Pre-Conversion Payment Date pursuant to SECTIONS 5.5(2), (3)(ii) AND/OR
(9)(i) hereof, MWCC shall reduce the amount so owed by the amounts of the MW
Pre-Conversion Refund Amounts in question, and to the extent MW Pre-Conversion
Refund Amounts are owed to MWCC in excess of such unpaid amounts, MW shall pay
such additional MW Pre-Conversion Refund Amounts to MWCC in cash; PROVIDED,
FURTHER, that to the extent MW does not pay any one or more MW Pre-Conversion
Refund Amounts, MWCC may deduct amounts equal to such unpaid MW Pre-Conversion
Refund Amounts from amounts due to MW pursuant to SECTIONS 5.5(2), (3)(ii)
AND/OR (9)(i) hereof; and PROVIDED, FURTHER, that with respect to the Fiscal
Year in which the MWCC Pre-Conversion Payment Date occurs, the MW Pre-Conversion
Refund Amount for the expired portion of such Fiscal Year shall be deducted from
amounts owing from MWCC to MW pursuant to SECTIONS 5.5(2), (3)(ii) AND/OR (9)(i)
hereof, as applicable, for such Fiscal Year. Wherever there is a reference in
this subsection to MW Pre-Conversion Refund Amounts such reference will mean
such amount subject to the limit on MW's liability therefor as provided in
Section 5.5(11)(iii)(d).
(c) In the event and to the extent that payments to be made by MW
or deductions to be taken from the Aggregate Incremental Revenue Amount pursuant
to this SECTION 5.5(11) are in connection with Accounts constituting Section 4
Net Defaulted Indebtedness or Starter Card Account Net Defaulted Indebtedness,
appropriate adjustments, if any, shall be made to the calculation of such
payments and deductions such that MW shall not be required to pay or incur
liability in connection with such amounts twice.
(d) In no event shall MW's liability under this Section 5.5(11)
for a State with respect to which an increase was made in respect of
Pre-Conversion Asserted Claims exceed the aggregate amounts owed, paid or
payable for such Fiscal Years or a portion thereof occurring prior to the MWCC
Pre-Conversion Payment Date in question for such State by MWCC to MW pursuant to
Sections 5.5(2), (3)(ii) and/or (9)(i), less the amount of all prior MW
Pre-Conversion Refund Amounts for such State.
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(e) Notwithstanding any other provision of this SECTION 5.5(11),
MW agrees to protect, indemnify, and hold harmless Monogram, MWCC and their
Affiliates, the employees, officers, directors, shareholders, partners,
attorneys and agents of Monogram, MWCC and their Affiliates, and all of the
respective heirs, legal representatives, successors and permitted assigns of the
foregoing against any and all liabilities, costs and expenses (including
reasonable attorneys' fees and expenses), judgments, damages, claims, demands,
offsets, defenses, counterclaims, actions, or proceedings, by whomsoever
asserted, including, without limitation, Cardholders with respect to Accounts,
and any Person who prosecutes or defends any actions or proceedings, whether as
representative of or on behalf of a class or interested group or otherwise,
arising out of, connected with, or resulting from, a claim relating to increases
in late fees made by MWCC in February of 1995; PROVIDED, that in no event shall
MW's obligation to so protect, indemnify and/or hold harmless include
consequential damages to MWCC arising out of, connected with, or resulting from,
such claims. Consequential damages shall include, but not be limited to,
damages to MWCC's reputation, lost sales and expenses resulting from time spent
dealing with the Asserted Claims. Nothing in this subsection shall be deemed to
prevent MWCC from retaining counsel of its choice, at its own expense, in order
to monitor proceedings taking place in connection with such claims. MW shall
keep MWCC advised as to the status of the matter after such notification or if
such claims have otherwise come to the attention of MWCC's legal department.
The parties hereto shall cooperate fully with the defense, negotiation and/or
settlement of such claim. The procedure relating to this indemnification shall
be similar to those set forth in Section 5.5(11)(ii) taking into account the
fact that MW is the indemnitor.
(iv) In the event that Monogram takes any action pursuant to
the provisions of SECTION 5.5(11)(i) AND/OR (ii) above, and as a result refunds,
pays amounts or incurs expenses with respect to a Post-Conversion Asserted
Claim, MWCC shall be reimbursed for amounts paid in respect of Post-Conversion
Asserted Claims as provided in SECTION 5.5(10)(a).
(v) [SECTION INTENTIONALLY OMITTED].
(vi) [SECTION INTENTIONALLY OMITTED].
(vii) [SECTION INTENTIONALLY OMITTED].
(viii) [SECTION INTENTIONALLY OMITTED].
(ix) The provisions of this SECTION 5.5(11) shall survive the
expiration or prior termination of this Agreement
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with respect to all Pre-Conversion Asserted Claims that may be filed after
termination.
(12) [SECTION INTENTIONALLY OMITTED].
(13) In the event a payment is not made of any amount due pursuant to
SECTIONS 5.5(2), (3), (4), (7), (9), (10) and/or (11) hereof when due, such
amount shall bear annual interest at the Default Rate, and the aggregate
principal amount shall be deemed to be increased monthly by an amount equal to
the unpaid interest.
(14) An example of payments pursuant to this SECTION 5.5(1) through
5.5(13) is attached as SCHEDULE 5.5(14) hereto.
(15) MWCC shall owe MW on February 28, 1998 for Fiscal Year 1996 the
amounts specified on SCHEDULE 5.5(15) hereto. The amounts owed by MWCC under
SCHEDULE 5.5(15) will be satisfied by applying such amount in determining the
amount of the MW 1996 Note pursuant to SCHEDULE 4.2 hereto.
(16) [Section intentionally omitted.]
(17) [Section intentionally omitted.]
(18) Notwithstanding anything otherwise provided in this Agreement,
all obligations due one party by another on the same day shall be netted or
otherwise offset against each other, provided however that such netting is not
intended to affect the accrual of interest with respect to obligations of the
parties hereto. After giving effect to such netting or offset calculation, the
resulting net amount (the "Net Amount") shall be paid by the party responsible
therefor when due. The parties expressly understand, acknowledge and agree that
neither party hereto shall be obligated at any point in time (whether on a
Payment Date, upon an acceleration or any other date on which a payment is due)
to make any payment in respect of any such Sections until a netting or offset
calculation as described above is given effect such that only the Net Amount
shall be due and payable.
(19) (i) MWCC and MW each shall pay its own Conversion Expenses when
incurred, provided that, if this Agreement terminates and MW exercises its
options under Section 15.2(2)(i)(A) or (B) of the Bank Program Agreement, the
parties shall share equally the total amount of Accrued Conversion Expenses not
deducted from positive amounts of Gross Designated Incremental Revenues prior to
termination by making appropriate payments to each other. (ii) MWCC shall pay
MW, on December 23, 1996, the amount of Conversion Expenses incurred by MW on or
before December 23, 1996 by netting such amount from obligations
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owed by MW in accordance with SECTION 4.7 hereof. (iii) On January 31, 1997,
MWCC shall pay to MW the amount of Conversion Expenses incurred by MW from
December 24, 1996 through and including December 31, 1996. It is understood and
agreed that, for purposes of this Agreement, MWCC shall be deemed to have borne
(a) its Conversion Expenses, (b) the Conversion Expenses borne by Monogram
and/or its servicer, (c) any amounts paid to MW on December 23, 1996 as
specified in this subsection in accordance with SECTION 4.7 hereof, and (d) any
amounts paid to MW on January 31, 1997 under this subsection.
(20) (i) MWCC and MW each shall pay its own Ongoing Incremental
Expenses when incurred, provided that, if this Agreement terminates and MW
exercises its rights under Section 15.2(2)(i)(A) or (B) of the Bank Program
Agreement, the parties shall share equally the total amount of Accrued Ongoing
Incremental Expenses not deducted from positive amounts of Gross Designated
Incremental Revenues prior to termination by making appropriate payments to each
other. (ii) MWCC shall pay MW on February 28, 1997 the Ongoing Incremental
Expenses incurred by MW in Fiscal Year 1996. It is understood and agreed that,
for purposes of this Agreement, MWCC shall be deemed to have borne (i) its
Ongoing Incremental Expenses, (ii) the Ongoing Incremental Expenses borne by
Monogram and/or its servicer, and (iii) any amounts paid to MW on February 28,
1997 as specified in this subsection.
(21) MW shall pay to MWCC upon termination of this Agreement the
Accrued MW Monthly Payment Amounts to the extent not deducted from positive
amounts of Gross Designated Incremental Revenues for the Fiscal Year in which
termination occurred or prior Fiscal Years.
(22) Unless expressly provided to the contrary herein, the provisions
of this Section 5.5 shall apply only during the term of this Agreement.
5.6. USE OF MWCC CUSTOMER LIST.
(1) MW acknowledges and agrees that MWCC is the sole and
exclusive owner of the MWCC Customer List. MWCC hereby grants to MW for the
term of this Agreement an exclusive and royalty-free license to use (or
sublicense or assign the right to use) the MWCC Customer List for all purposes,
including, for advertisement, solicitations or other marketing efforts,
regardless of the manner or media through which the marketing effort is made,
and regardless of whether the product or service has previously been marketed by
MW, except that MWCC shall have the exclusive right (even as to MW) to use the
MWCC Customer List: (i) to operate the Program in accordance with this
Agreement and any related agreement entered into by MW and MWCC
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or an Affiliate of MWCC; (ii) to exercise its rights to use the MWCC Customer
List upon termination of this Agreement to the extent specifically provided in
this Agreement; and (iii) upon the occurrence of a Triggering Signature
Acquisition and thereafter, to grant to the Signature Companies the exclusive
rights specified in the MWCC Signature License during the term of the MWCC
Signature License. In connection with MW's exercise of the rights granted under
the preceding sentence, MW shall:
(a) fulfill its obligations under SECTION 17.12 hereof;
(b) sell (or cause the sales of) credit insurance on
Accounts to the extent legally permissible and
customary in the retail industry;
(c) with respect to credit insurance and any other
insurance marketed by MW or its designee(s) and charged
on or offered in connection with Accounts, ensure that
(i) any insurer selected by MW and/or its designee
after the Conversion Date is reasonably acceptable to
MWCC with regard to service and financial soundness (it
being understood that the Signature Companies shall be
presumed to be reasonably acceptable to MWCC at all
time such companies are Affiliates of MW or MWCC), (ii)
any fees for servicing paid to MWCC in connection with
insurance are reasonably acceptable to MWCC, and (iii)
any changes in the type of credit insurance products
offered after the Conversion Date are reasonably
acceptable to MWCC (except that widely sold credit
insurance products shall be deemed acceptable to MWCC);
and
(d) not use, or allow any other Person to use, the MWCC
Customer List directly or indirectly to provide any
consumer or commercial financing programs for the
retail sale of goods and/or services at Stores
(including credit, debit or charge card programs),
whether operated in-house by MW or in connection with
an outside Person, provided that, subject to the MWCC
Signature License and Monogram's rights under
SECTION 5.13 of the Bank Program Agreement, (i) MW may
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use that portion of the MWCC Customer List comprising
Persons who applied for Accounts and were rejected to
provide any closed end consumer or commercial financing
programs for the retail sale of goods and/or services
at Stores; and (ii) MW may use the MWCC Customer List
in connection with the Existing Programs defined and
described in SECTION 5.13(2)(b) AND (c) of the Bank
Program Agreement and, with the consent of MWCC or its
Affiliate (as appropriate), SECTION 5.13(2)(a) of the
Bank Program Agreement.
(2) [Section intentionally omitted.]
(3) MWCC shall provide the MWCC Customer List to MW hereunder in
the same manner, and to the same extent, as lists of cardholders were provided
to MW by MWCC prior to the Conversion Date.
(4) MWCC shall enforce its rights under the MWCC Signature
License at all times such license is in effect.
5.7. MWCC'S RECORDS. As part of Monogram's servicing activities, MWCC and
its assignees may store MWCC Account Documentation on microfilm or other media
and MWCC and its assignees may, in the normal course of its business, destroy
MWCC Account Documentation once such MWCC Account Documentation has been
microfilmed or otherwise recorded.
5.8. REPRESENTATIVES. During the term of this Agreement, senior management
officers of MW shall have the right to make inspections of credit facilities
used by MWCC to service Non-Converted Accounts and/or Purchased Monogram
Accounts during normal business hours with reasonable advance notice to MWCC.
5.9. [SECTION INTENTIONALLY OMITTED].
5.10. RIGHT TO CONTRACT. In addition to the rights of assignment as set
forth in SECTION 17.1, and subject to the limitations set forth in SECTION 17.1,
MWCC may delegate its obligations under this SECTION 5 to any Affiliate of MWCC,
provided (a) such delegation shall in no way release or affect the liability and
obligation of MWCC and the guarantor to perform MWCC's obligations under this
Agreement, (b) such delegation preserves Transparent Servicing to the public,
and (c) the delegatee shall assume MWCC's obligations under this Agreement so
delegated, and shall be jointly and severally liable with MWCC for such
obligations, which assumption shall occur automatically
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upon such delegation. Notwithstanding the foregoing, in no event shall MWCC
delegate any of its obligations under this Agreement to, or permit such
obligations to be performed by, a Competitor, except to the extent permitted by
SECTION 15.2(6) or 17.1(3).
5.11. [SECTION INTENTIONALLY OMITTED].
5.12. [SECTION INTENTIONALLY OMITTED].
5.13. [SECTION INTENTIONALLY OMITTED].
5.14. DIVESTITURE/STORE CLOSINGS.
(1) Without limiting the generality of Section 17.1(2), it is
agreed that in the event that Monogram exercises its rights under SECTION
5.14(3)(iii) of the Bank Program Agreement and requires MW to purchase certain
Accounts and related Indebtedness thereunder (but does not terminate the Bank
Program Agreement), MW (or its designee) simultaneously shall purchase from
MWCC, and MWCC shall sell, (i) any Participated Monogram Indebtedness related to
such Accounts, (ii) Non-Converted Accounts, Non-Converted Indebtedness,
Purchased Monogram Accounts, and Purchased Monogram Indebtedness that would have
qualified as Divestiture-Related Accounts and Indebtedness thereon to be so
purchased if they were owned by Monogram (as defined in and determined with
respect to geographic limitations and use at retail Store locations in
accordance with the Bank Program Agreement and as though Monogram followed
MWCC's Accounting Practices), and (iii) subject to the MWCC Signature License,
such portion of the MWCC Customer List relating to the Accounts and Indebtedness
so purchased, all for the Divesture-Related Indebtedness Purchase Price.
(2) If the Bank Program Agreement terminates pursuant to SECTION
5.14(3)(iii) thereof because the Aggregate Cardholders' Balance is less than
$250,000,000, this Agreement shall terminate simultaneously and, if MW purchases
certain Accounts and Indebtedness from Monogram pursuant to Section 5.14(3)(iii)
of the Bank Program Agreement, MW simultaneously shall purchase from MWCC: (x)
all Accounts and Indebtedness that MW would be required to purchase under
SUBSECTION (1) above in connection with said divestiture for the
Divestiture-Related Indebtedness Purchase Price, (y) subject to all rights
granted to the Signature Companies under the MWCC Signature License, the MWCC
Customer List, and (z) all other Accounts and Indebtedness owned by MWCC or MWCC
Assignees on such date for the MWCC Net Receivable Balance therefor. Upon
purchase under this subsection, MW or its designee shall thereupon own all
Accounts and Indebtedness so purchased and, subject to all rights of the
Signature Companies under the MWCC Signature License, the MWCC Customer List and
MW shall have the rights it would have under
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SECTION 15.2(2)(ii) (which rights shall be exercised in accordance with
procedures reasonably agreed to by the parties).
(3) Any transfer under subsections (1) or (2) above shall occur
subject to the rights set forth in the first sentence of the last paragraph of
SECTION 15.2(2)(i).
(4) It is agreed that in the event that Monogram exercises its
rights to issue replacement and/or substitute credit cards pursuant to SECTION
5.14(3)(iii) or SECTION 5.14(4)(ii) of the Bank Program Agreement to Cardholders
obligated in respect of Participated Monogram Indebtedness, such Indebtedness
shall become indebtedness on the accounts accessed by such replacement and/or
substitute credit cards and no longer shall constitute Indebtedness hereunder.
5.15. MW MONTHLY PAYMENT AMOUNT. On the last day of each Fiscal Month
during the term of this Agreement, MWCC shall pay to MW, for the preceding
Fiscal Month, an amount equal to the product of (i) the Monthly Payment
Percentage, MULTIPLIED BY (ii) the amount of Indebtedness on Accounts (other
than Non-Converted Accounts) that, for Fiscal 1996 only, become Section 4 1996
Net Defaulted Indebtedness and Starter Card Account 1996 Net Defaulted
Indebtedness and, for Fiscal Year 1997 and thereafter, Section 4 Net Defaulted
Indebtedness and Starter Card Account Net Defaulted Indebtedness during the
preceding Fiscal Month (each such amount being referred to as the "MW Monthly
Payment Amount"); provided, however, that, on December 23, 1996, MWCC shall pay
MW (a) the MW Monthly Payment Amounts for the period from the effective date of
this Agreement through and including the last date of the Fiscal Month of
November 1996, and (b) an estimate of the Monthly Payment Amount for the Fiscal
Month of December 1996. The payments specified in the preceding proviso shall
be made by MWCC on December 23, 1996 by netting such amounts from obligations
owed by MW in accordance with SECTION 4.7 hereof. With respect to the estimated
amount for the Fiscal Month of December 1996, the actual amount shall be
calculated in January 1997 and any adjusting payment shall be made on January
31, 1997.
5.16. THE LICENSED MARKS.
(1) GRANT. During the License Term (as defined in subsection (5)
below):
(a) MW hereby grants to MWCC, and MWCC accepts, the
non-exclusive, non-royalty bearing right and license to use the Licensed
Marks in the United States of America and elsewhere as provided in this
Agreement, upon the terms and conditions hereinafter set forth. Such
license includes the rights to sublicense, subcontract and/or assign to the
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extent provided herein and/or with MW's prior written consent.
(b) MW hereby reaffirms its grant to MWCC of the right to use
Montgomery Ward Credit Corporation as its corporate name provided MWCC
engages solely in the Permitted Businesses.
(c) If MW adopts a trademark, trade name, service mark, logo or
other proprietary mark which is used by MW or an Authorized Affiliate in
connection with the operation of, or retail sales at, Stores but which is
not listed on SCHEDULE 5.16 hereto (a "New Mark") and MWCC requests that
such New Mark be added to SCHEDULE 5.16 and licensed hereunder, MW shall
not unreasonably fail to do so, and such New Mark shall be added to
SCHEDULE 5.16 by amendment of this Agreement.
(2) PERMITTED USES. MWCC and its permitted sublicensees,
subcontractors and assignees may use the Licensed Marks solely in connection
with the creation, establishment, marketing and administration of, and the
provision of services related to, the Program, Accounts and/or Indebtedness, all
as provided herein and, to the extent MWCC has rights therein in connection with
the Program, including with respect to both Old Indebtedness and New
Indebtedness (collectively, the "Permitted Businesses"). The Permitted
Businesses shall include, without limitation, the solicitation of Cardholders
and potential Cardholders, acceptance of Credit Applications, the issuance and
reissuance of Credit Cards, the provision of accounting services to Cardholders,
the provision of Billing Statements and other correspondence relating to
Accounts to Cardholders, the extension of credit to Cardholders, and the
advertisement and/or promotion of the Program.
(3) RESTRICTIONS AND QUALITY CONTROLS. MWCC's right to use the
Licensed Marks shall be subject to the following conditions and restrictions:
(a) All displays of the Licensed Marks shall conform to
standards set by MW from time to time for its own displays of the Licensed
Marks. MW shall have the unilateral right, at its sole discretion, to
amend SCHEDULE 5.16 by substituting a modified logo if such modified logo
is adopted by MW for all or a substantial portion of its own business. If
this occurs, MW shall have the right to require MWCC to substitute the
amended logo form for the prior logo form effective on a date at least 180
days after the date MW notifies MWCC of the change, provided that MWCC's
out-of-pocket costs shall be borne as agreed by the parties.
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(b) MWCC shall include all notices and legends with respect to
the Licensed Marks as are or may be required by applicable federal, state
and local trademark laws which may be reasonably requested by MW.
(c) MWCC shall at no time adopt or use, without MW's prior
written consent, any variation of the Licensed Marks or any word or mark
similar to or likely to be confused with the Licensed Marks.
(d) To the extent that MWCC and its permitted sublicensees,
subcontractors and assigns are permitted to originate their own advertising
and promotional materials hereunder, and if any of them do so, the
originator shall prior to first publication of each such piece submit same
to MW for approval as to form of Licensed Mark usage. Such approval shall
not be unreasonably withheld and shall be deemed to have been given unless
written notice of disapproval shall be given by MW to MWCC within thirty
(30) business days of receipt of such submission.
(e) MWCC shall conduct the Permitted Businesses in accordance
with this Agreement. MW shall have inspection rights, and compliance
deficiencies shall be remedied, as provided herein.
(f) MWCC shall conduct the Permitted Businesses in a dignified
manner, consistent with and enhancing the general reputation of the
Licensed Marks and MW, and in accordance with good trademark practice.
(g) MWCC shall not do anything or commit any act which might
materially prejudice or adversely affect the validity of the Licensed Marks
or MW's ownership thereof (it being understood that the collection of
Accounts in accordance with applicable debt collection laws, the sending of
adverse action letters, and the legally required or MW approved (both
substance and the language) changing of terms of Accounts do not prejudice
or adversely affect the validity of the Licensed Marks or MW's ownership
thereof).
(h) MWCC shall, during the term of this Agreement and after
termination hereof, execute such documents as MW may request from time to
time to ensure that all right, title and interest in and to the Licensed
Marks reside in MW.
(i) Notwithstanding any other provision in this Agreement to the
contrary, MWCC shall not be required to obtain MW's approval of billing and
collection forms, notices, letters, telephone routines, or other communica-
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tions in which the only use of the Licensed Marks is the use thereof in
text to identify the Program and/or the Credit Card, to identify the names
of Stores that accept Credit Cards, and/or to describe transactions
financed under the Credit Cards, provided that MWCC in no event shall use
the Licensed Marks in a manner which adversely affects the goodwill
associated with the Licensed Marks (it again being understood that
communications in accordance with applicable debt collection laws, adverse
action letters, and the legally required (both substance and the language)
or MW approved changes in the terms of Accounts do not adversely affect
goodwill).
(j) Except as otherwise provided herein, once materials bearing
the Licensed Marks have been approved (or deemed approved) by MW, MWCC may
use its existing stock of such materials, except that MW may require that
MWCC cease use of such existing stock if MW pays for the replacement
thereof.
(4) OWNERSHIP. MWCC hereby acknowledges MW's exclusive right, title
and interest in and to the Licensed Marks and MW's exclusive right to use and
license the use of the Licensed Marks. Any and all goodwill arising from use of
the Licensed Marks under this Agreement shall inure solely to the benefit of MW.
MWCC agrees not to claim any title to the Licensed Marks or any right to use the
Licensed Marks except as permitted by this Agreement. In particular, MWCC
agrees that it will not assert that any failure of MW to set standards for, or
police MWCC's use of, the Licensed Marks results in an abandonment of MW's
rights in the Licensed Marks. MWCC shall not directly or indirectly question,
attack, contest or, in any other manner, impugn the validity of the Licensed
Marks or MW's rights in and to the Licensed Marks, or the license herein
granted, including, without limitation thereto, in any action in which
enforcement of any provision of this Agreement is sought; nor shall MWCC
willingly become a party adverse to MW in litigation in which a third party is
contesting the validity of the Licensed Marks or MW's rights in and to the
Licensed Marks.
(5) LICENSE TERM. (a) The license granted in this Section 5.16
shall terminate upon the later of (i) the termination of this Agreement, or (ii)
the date on which, after deducting the portion thereof that is Section 4
Defaulted Indebtedness or Starter Card Account Defaulted Indebtedness, the
aggregate of Non-Converted Indebtedness, Purchased Monogram Indebtedness and
Participated Monogram Indebtedness is zero (the time from the date hereof to the
later such date being referred to as the "License Term"). Upon expiration of
the License Term, (a) all rights of MWCC with respect to the Licensed Marks
shall terminate and revert to MW, (b) MWCC shall immediately
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discontinue use of the Licensed Marks and (c) MWCC shall promptly commence and
diligently pursue such actions as may be necessary to delete "Montgomery Ward"
from its name. The foregoing notwithstanding, it is understood that in no event
shall the termination of this Agreement affect the rights of MWCC (or any
authorized purchaser of Accounts and/or Indebtedness) to utilize the Licensed
Marks in connection with the collection of Indebtedness.
(6) INFRINGEMENT. (a) MWCC shall notify MW promptly of any
infringements, imitations or unauthorized use of the Licensed Marks by any
credit provider(s) (collectively, "Infringements") of which MWCC becomes aware.
MW shall take such steps as it deems reasonable in the circumstances to abate
such Infringements. Except as provided below, MW shall have the sole right, at
its expense, to bring any action on account of any infringements, and MWCC shall
cooperate with MW as MW may request (and at MW's expense), in connection with
any such action reasonably brought by MW. MW may settle infringements at its
sole discretion (but shall use best efforts not to settle in a manner that
conflicts with MWCC's rights hereunder, and may retain any and all resulting
damages and/or other compensation paid by the infringer(s). If MW does not
undertake appropriate steps to abate an Infringement within ninety (90) calendar
days after notice thereof from MWCC, MWCC may prosecute the same, at its
expense, provided that no settlement shall be made without the prior written
approval of MW. MWCC shall advise MW periodically of the status of such action
and promptly of any material developments. MW reserves the right to participate
at any time in such proceedings. In the event that any damage, settlement
and/or compensation are paid in connection with any such action brought by MWCC,
MWCC shall first retain an amount reimbursing its expenses, any remaining amount
shall be divided equally between MW and MWCC.
(b) MW shall have the sole right, at its expense, to defend and
settle any action that may be commenced against MW or MWCC alleging that use of
the Licensed Marks infringe any rights of others. In such event, MWCC shall, at
the reasonable direction of MW, promptly discontinue its use of the Licensed
Marks alleged to infringe rights of others. If MW does not give notice to MWCC
of its intent to defend or settle such action against MWCC or affecting MWCC's
use of the Licensed Marks within ninety (90) calendar days after notice thereof
from MWCC, MWCC may defend the same, at its expense, provided that no settlement
shall be made without the prior written approval of MW. MWCC shall advise MW
periodically of the status of such action and promptly of any material
developments. MW reserves the right to participate at any time in such
proceedings. It is understood that nothing in this Section 5.16(6)(b) is
intended to limit or
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otherwise modify MW's indemnification obligation under SECTION 5.16(7)(a)
hereof.
(7) INDEMNIFICATION. In addition to and without limiting any
indemnifications specified under Section 11 hereof:
(a) MW, at its expense, shall defend and indemnify and save and
hold harmless MWCC, MWCC's Assignees and Affiliates, the employees,
officers, directors, shareholders, partners, attorneys and agents of MWCC
and MWCC's Assignees and Affiliates, and all of the respective heirs, legal
representatives, successors and permitted assigns of the foregoing from and
against any and all liabilities, claims, causes of action, suits, damages
and expenses, including reasonable attorneys' fees and expenses, which
MWCC, MWCC's Assignees or Affiliates or each of the above described Persons
becomes liable for, or may incur or be compelled to pay by reason of claims
that MWCC's, MWCC's Assignees or Affiliates' or each of the above described
Persons' use of the Licensed Marks in accordance with this Agreement
violates any rights of the claimant except claims subject to subsection (b)
below or Section 11.2 hereof.
(b) MWCC, at its expense, shall defend and indemnify and save
and hold harmless MW, MW's Affiliates and Authorized Licensees, the
employees, officers, directors, shareholders, partners, attorneys and
agents of MW and MW's Affiliates, and all of the respective heirs, legal
representatives, successors and permitted assigns of the foregoing from and
against any and all liabilities, claims, causes of action, suits, damages
and expenses, including reasonable attorneys' fees and expenses, which such
Persons become liable for, or may incur or be compelled to pay by reason of
claims arising from any use of the Licensed Marks, whether by MWCC or its
permitted subcontractors and sublicensees, except claims subject to
subsection (a) above or SECTION 11.1 hereof.
(8) MATERIAL FURNISHED BY MW. MW shall cooperate with MWCC in
furnishing art work, photographs, drawings, samples, graphics requirements and
other such materials relating to the Licensed Marks which may reasonably be
requested by MWCC, the cost of which shall be borne as agreed by the parties.
6. CONDITIONS PRECEDENT
6.1. CONDITIONS TO MWCC'S OBLIGATIONS. Notwithstanding any other provision
of this Agreement, MWCC shall have no obligation or liability hereunder unless
and until MWCC shall have waived or received (which MWCC shall acknowledge in
writing to MW if so
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waived or received), in form and substance reasonably satisfactory to MWCC, on
or before the Closing Date:
(1) [SECTION INTENTIONALLY OMITTED].
(2) [SECTION INTENTIONALLY OMITTED].
(3) A favorable opinion of counsel to MW, dated as of the Closing
Date, substantially in the form annexed hereto as SCHEDULE 6.1(3).
(4) Resolutions of MW's Board of Directors, certified by the
secretary or assistant secretary of MW, dated as of the Closing Date, to be duly
adopted and in full force and effect, authorizing (i) the execution, delivery
and performance of this Agreement and all documents executed and to be executed
pursuant hereto, and (ii) specific officers to execute and deliver this
Agreement and all other related documents and instruments.
(5) [SECTION INTENTIONALLY OMITTED].
(6) [SECTION INTENTIONALLY OMITTED].
(7) [SECTION INTENTIONALLY OMITTED].
(8) [SECTION INTENTIONALLY OMITTED].
(9) Certificate of the secretary or assistant secretary of MW, dated
as of the Closing Date, as to incumbency and signatures of the officers of MW,
together with evidence of the incumbency of such secretary or assistant
secretary.
(10) [SECTION INTENTIONALLY OMITTED].
(11) [SECTION INTENTIONALLY OMITTED].
(12) Evidence that the Bank Program Agreement has been executed by MW
and is, or upon the effectiveness of this Agreement will be, effective.
(13) Evidence that (i) the letter agreement specified in Section
5.5(1) between the Signature Companies and MWCC relating to certain charges in
respect of credit insurance and (ii) the letter agreement among the Signature
Companies, MW, MWCC and Monogram relating to certain of their respective
obligations to each other, both have been fully executed.
6.2. CONDITIONS TO MW'S OBLIGATIONS. Notwithstanding any other provision
of this Agreement, MW shall have no obligation or liability hereunder unless and
until MW shall have waived or received (which MW shall acknowledge in writing to
MWCC if so
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waived or received), in form and substance reasonably satisfactory to MWCC, on
or before the Closing Date:
(1) A favorable opinion of counsel to MWCC and GE Capital opining as
to MWCC and GE Capital, dated as of the Closing Date, substantially in the form
annexed as Schedule 6.2(1).
(2) [SECTION INTENTIONALLY OMITTED].
(3) Resolution of MWCC's Board of Directors, certified by the
secretary or assistant secretary of MWCC, dated as of the Closing Date, to be
duly adopted and in full force and effect, authorizing (i) the execution,
delivery and performance of this Agreement and all documents executed and to be
executed pursuant hereto, and (ii) specific officers to execute and deliver this
Agreement and all other related documents and instruments.
(4) Resolutions generally authorizing the execution, delivery and
performance of guaranties, as contained in minutes certified by an attesting
secretary of GE Capital, and evidence that the Person executing and delivering
the Account-Related Agreement Guaranty on behalf of GE Capital is authorized to
do so.
(5) Certificates of the secretary or assistant secretary of MWCC and
GE Capital, respectively, dated as of the Closing Date, as to the incumbency and
signatures of the officers of MWCC and GE Capital, together with evidence of the
incumbency of such secretary or assistant secretary.
(6) Evidence that the letter agreement among the Signature Companies,
MW, MWCC and Monogram relating to certain of their respective obligations to
each other has been fully executed.
6.3. [SECTION INTENTIONALLY OMITTED].
6.4. [SECTION INTENTIONALLY OMITTED].
7. SECURITY AND ACCESS TO DATA
7.1. SECURITY INTEREST.
(1) The parties hereto intend and agree that MW shall have no right,
title or interest in or to Accounts, Indebtedness and/or Account Documentation
(for the avoidance of doubt, whether owned by MWCC or any of its Affiliates)
and/or any of the proceeds of any of the foregoing, except for those Accounts,
Indebtedness and Account Documentation, if any, specified in SECTION 7.1(2)
hereof. Against the possibility that, despite
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such agreement and intentions of the parties, MW is found to have some right,
title or interest in or to Accounts, Indebtedness or Account Documentation or
any of the proceeds of any of the foregoing except to the extent specified in
SECTION 7.1(2) hereof, and to provide MWCC with further assurance, secure MWCC's
rights under the Program (including any right to collect Accounts and
Indebtedness hereunder), and secure payment and/or performance of all of MW's
Obligations, MW hereby grants, and continues, to MWCC a present and continuing
security interest (subject to no other Liens caused by or arising from the acts
or omissions, whether direct or indirect, of MW, its Affiliates and/or
Authorized Licensees) in and to the following property or interests in property
of MW, whether now existing or hereafter created or acquired: (a) all Accounts
and Indebtedness; (b) all Account Documentation; and (c) all proceeds of any of
the foregoing.
(2) To secure MWCC's rights under the Program (including any right to
collect and keep and have paid over to it, Recoveries on (a) accounts owned by
MW in connection with Section 4.5 of the Original Account Purchase Agreement,
(b) Indemnified 1996 Net Defaulted Indebtedness and (c) Indemnified 1996 Starter
Card Net Defaulted Indebtedness), and secure payment and/or performance of all
of MW's Obligations, MW hereby grants, and continues, to MWCC a present and
continuing security interest (subject to no other Liens caused by or arising
from the acts or omissions, whether direct or indirect, of MW, its Affiliates
and/or Authorized Licensees) in and to the following property or interests in
property of MW, whether now existing or hereafter created or acquired: (a) all
accounts owned by MW in connection with Section 4.5 of the Original Account
Purchase Agreement, (b) all Indemnified 1996 Net Defaulted Indebtedness, (c) all
Indemnified 1996 Starter Card Net Defaulted Indebtedness, (d) all Account
Documentation (including as defined under the Original Account Purchase
Agreement) relating to the foregoing; and (e) all proceeds of any of the
foregoing.
(3) The parties hereto intend and agree that MW shall have no title
to, or ownership of, deposits, credit balances and/or reserves on the books of
MWCC, Monogram or their respective Affiliates relative to the Program, this
Agreement or the Bank Program Agreement (whether such reserves are held by such
Person on its own behalf or for the benefit of an Affiliate) and/or any of the
proceeds of any of the foregoing, except such right and interest in or to any of
the foregoing as expressly provided herein or in the Bank Program Agreement.
Against the possibility that, despite such agreement and intentions of the
parties, MW is found to have an ownership interest in or to such deposits,
credit balances and/or reserves or any of the proceeds of any of the foregoing,
and to provide MWCC with further assurance, secure MWCC's rights against MW and
its Affiliates
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under the Program (including any right to collect Accounts and Indebtedness
hereunder), and secure payment and/or performance of all of MW's Obligations, MW
hereby grants, and continues, to MWCC a present and continuing security interest
(subject to no other Liens caused by or arising from the acts or omissions,
whether direct or indirect, of MW, its Affiliates and/or Authorized Licensees)
in and to the following property or interests in property of MW, whether now
existing or hereafter created or acquired: (a) all deposits, credit balances
and/or reserves on the books of MWCC, Monogram or any of their respective
Affiliates relative to the Program, this Agreement or the Bank Program Agreement
(whether such reserves are held by such Person on its own behalf or for the
benefit of an Affiliate) including, without limitation, the Credit Promotions
Account, Liquidation Account and Protection Account (all as defined in the Bank
Program Agreement), the MWCC Payment Reserve Account described in SECTION
7.1A(2) hereof and any amounts held by Monogram for transmission to MWCC; and
(b) all proceeds of any of the foregoing.
(4) The parties hereto intend and agree that MW shall have no right,
title or interest in or to returned and/or repossessed Merchandise, to the
extent such Merchandise was purchased on an Account and MWCC, Monogram, MWCC
Assignees and/or Assignees (as defined in the Bank Program Agreement) have not
been paid by MW with respect thereto and/or any of the proceeds of any of the
foregoing. Against the possibility that, despite such agreement and intentions
of the parties, MW is found to have some right, title or interest in or to such
returned and/or repossessed Merchandise or any of the proceeds of any of the
foregoing, and to provide MWCC with further assurance, secure MWCC's rights
under the Program (including any right to collect Accounts and Indebtedness
hereunder), and secure payment and/or performance of all of MW's Obligations, MW
hereby grants, and continues, to MWCC a present and continuing security interest
(subject to no other Liens caused by or arising from the acts or omissions,
whether direct or indirect, of MW, its Affiliates and/or Authorized Licensees)
in and to the following property or interests in property of MW, whether now
existing or hereafter created or acquired: (a) returned and/or repossessed
Merchandise, to the extent such Merchandise was purchased on an Account and
MWCC, Monogram, MWCC Assignees and/or Assignees (as defined in the Bank Program
Agreement) have not been paid by MW with respect thereto; and (b) all proceeds
of any of the foregoing.
(5) MW agrees to cooperate fully with MWCC in order to give effect to
the security interest granted in this SECTION 7.1 including, without limitation,
the filing of UCC-1s or comparable statements in order to perfect and continue
such security interest, notifying MWCC as to its knowledge of any Liens or
purported Liens held or asserted by Persons other than MWCC or
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its Affiliates and the obtaining of such releases and agreements from its
creditors as MWCC may require in its sole discretion.
7.1A MONTHLY PAYMENT OBLIGATION; MWCC PAYMENT RESERVE ACCOUNT.
(1) On the last Thursday of the Fiscal Month of January 1997 and the
last Thursday of each Fiscal Month thereafter during the Monthly Payment Period,
MW shall pay to MWCC in cash the amount of the Monthly Payment Obligation. Such
amount when paid shall be the property of MWCC and applied by MWCC to any
amounts then due and owing to MWCC from MW and any remainder (the "MWCC Payment
Reserve Amount") shall be credited to the MWCC Payment Reserve Account as
provided in SECTION 7.1A(2) below.
(2) (i) With respect to each Fiscal Year during the Monthly Payment
Period, MWCC monthly shall credit to a non-segregated reserve account
established for each Fiscal Year by MWCC on its books (collectively, the "MWCC
Payment Reserve Account"): (a) the MWCC Payment Reserve Amount specified in
SECTION 7.1A(1) and (b) amounts paid MWCC by Monogram under Section 3.8 of the
Bank Program Agreement in that Fiscal Year.
(ii) Any contrary provision of this Agreement notwithstanding, at
all times during the Monthly Payment Period, (a) the amounts of all payments due
to MW from MWCC under Sections 5.5(7) and 5.15 shall be credited to the MWCC
Payment Reserve Account on the payment due date rather than paid to MW in cash,
and (b) MW shall have no obligations to make in cash (x) any payments due to
MWCC from MW under Sections 4.7(2) or 4A.3, and (y) any interest when due on
Seller Notes, Seller Recourse Notes, the MW 1996 Note and/or the MW Continuation
Note and, instead, the amounts of such payments described in this subsection
(ii) shall be debited to the MWCC Payment Reserve Account on the payment due
dates, which debiting may reduce the balance of the MWCC Payment Reserve Account
to a debit balance. In the event a debit balance exists, amounts that would
otherwise be credited to the MWCC Payment Reserve Account shall be applied to
the unpaid Obligation that would have been paid out of the MWCC Payment Reserve
Account so as to satisfy the unpaid Obligation and any remaining amount shall be
credited to the MWCC Payment Reserve Account, except that if there is a debit
balance on February 28th of any year with respect to such reserve for the
previous Fiscal Year, that amount shall be paid as specified below.
(iii) On December 31, 1997, MWCC shall debit the MWCC Payment
Reserve Account with respect to Fiscal Year 1997 for any unpaid portion of the
Three Million Dollars ($3,000,000) payable to MWCC pursuant to the Letter
Agreement.
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(iv) On February 28, 1998 and each February 28th thereafter if
there is a balance in the MWCC Payment Reserve Account for the preceding Fiscal
Year, MWCC shall calculate the balance in the MWCC Payment Reserve Account for
the preceding Fiscal Year (or partial Fiscal Year). If said balance is a credit
balance, MWCC on that date shall pay an amount equal to such balance to MW,
debiting the MWCC Payment Reserve Account for that Fiscal Year for the amount so
paid. If said balance is a debit balance, MW on that date shall pay an amount
equal to such balance to MWCC for application to the unpaid Obligation of MW for
that Fiscal Year. Such calculation and payment shall not affect the MWCC
Payment Reserve Account for the then-current Fiscal Year. The foregoing
notwithstanding, it is acknowledged and agreed that, if this Agreement
terminates prior to the expiration of the Monthly Payment Period, MWCC shall
calculate the balance(s) in such MWCC Payment Reserve Account(s) within sixty
(60) days after the effective date of termination. If said balance(s) is a
credit balance(s), MWCC on that date shall pay an amount equal to such
balance(s) to MW, debiting the MWCC Payment Reserve Account(s), as appropriate,
for the amount so paid; PROVIDED that (a) if this Agreement terminates during
the Monthly Payment Period other than as a result of an MW Event of Default or
an MWCC Event of Default and MW does not both (i) exercise its right to purchase
all of the Accounts and Indebtedness and consummate such purchase in accordance
with this Agreement and (ii) satisfy all Obligations accrued through the
effective date of termination, MWCC shall have no obligation to pay such
amount(s) to MW until the later of (x) satisfaction by MW of all Obligations
accrued through the effective date of termination and (y) the date 180 days
after the effective date of termination; and (b) if this Agreement terminates
during the Monthly Payment Period as a result of an MW Event of Default, MWCC
shall have no obligation to pay such amount(s) to MW until all Obligations and
contingent Obligations owed by MW to MWCC and/or its Affiliates have been
satisfied (except that if, on the date two (2) years after the effective date of
termination, there are no accrued Obligations MWCC shall pay such credit
balance(s) to MW on such date and, if there are accrued Obligations, MWCC shall
pay such credit balances to MW on the date upon which they are satisfied). If
said balance(s) is a debit balance(s), MW on that date shall pay an amount equal
to such balance(s) to MWCC for application to the unpaid Obligation of MW. It
is further acknowledged and agreed, for the avoidance of doubt, that, upon any
termination of this Agreement prior to expiration of the Monthly Payment Period,
MWCC may debit the MWCC Payment Reserve Account for the amount (or any portion
of the amount) of any unpaid Obligation of MW and, upon such debiting, said
Obligation shall be deemed satisfied to the extent of the amount debited and any
remaining unpaid amount of such Obligation shall be paid by MW in cash).
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(v) MW shall have no ownership interest in or to the MWCC
Payment Reserve Account and, except as provided in SECTION 7.1A(2)(iv), MW shall
have no right or interest in or to the MWCC Payment Reserve Account. MW shall
not receive any interest or profit on or in respect of the balances of the MWCC
Payment Reserve Account.
7.2. RETURNS OF MERCHANDISE. MW shall, and shall cause its Authorized
Affiliates and Authorized Licensees to, notify MWCC, as soon as reasonably
practical (and with sufficient detail to credit the applicable amounts), of all
credits granted to Cardholders with respect to returned Merchandise that gave
rise to Non-Converted Indebtedness and Purchased Monogram Indebtedness. MW will
pay (or will cause the appropriate Authorized Affiliate or Authorized Licensee
to pay) the amount of such credit to MWCC within thirty (30) days after the
issuance of such credit.
7.3. NOTICES TO MWCC. MW shall (and shall (i) cause Authorized Affiliates
to and (ii) use best efforts to cause Authorized Licensees to) use best efforts
to promptly furnish to, or inform MWCC of, all material information known to any
of them relating to the collectability of Non-Converted Indebtedness and
Purchased Monogram Indebtedness, any changes of address of Cardholders obligated
in respect of Non-Converted Indebtedness and Purchased Monogram Indebtedness,
and notices of filings under the Bankruptcy Code with respect to such
Cardholders.
7.4. FURTHER ASSURANCES. In addition to the undertakings specifically
provided for in this Agreement, MW and MWCC shall each do all other things and
sign and deliver all other documents and instruments reasonably requested by the
other to perfect, protect, maintain and help enforce the Lien of MWCC and the
priority of such Lien, and all other rights granted pursuant to this Agreement.
Such acts shall include, without limitation, the filing of financing statements,
amendments, and termination statements under the Code relating to such Accounts
and Indebtedness; and the delivery of any MWCC Account Documentation (including,
without limitation, computer tapes) the physical possession of which MWCC
requires in connection with the ownership, collection and enforcement of
thereof. If MW fails to do so within ten (10) Business Days after request, MW
irrevocably authorizes MWCC to execute alone any financing statement or any
other document or instrument which may be required to perfect or protect the
Lien granted to MWCC pursuant to this Agreement, and authorizes MWCC to sign
MW's name on the same.
7.5. ATTORNEY-IN-FACT. MW appoints (and shall (i) cause each Authorized
Affiliate to appoint and (ii) use best efforts to cause Authorized Licensees to
appoint) MWCC or MWCC's designee as its attorney-in-fact to (a) endorse MW's
name on any checks,
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notes, acceptances, money orders, drafts, or other forms of payment of or
security for any Account or Indebtedness owned by MWCC, (b) to sign its name(s)
on any notices to any Cardholder in connection with the collection of
Indebtedness, (c) to send requests for verification of any Account or
Indebtedness to Cardholders, (d) to sue Cardholders for the collection of
Indebtedness and (e) to do all things necessary to carry out or enforce the
obligations of Cardholders and to preserve MWCC's Lien in and to Accounts and
Indebtedness. This power, being coupled with an interest, is irrevocable until
there shall no longer be any Indebtedness owned by MWCC or Accounts and
Indebtedness purchased by MW pursuant to Section 4.5 of the Original Account
Purchase Agreement or SCHEDULE 4.2 hereto with respect to which MWCC is entitled
to Recoveries. MWCC (or its designee) shall, in exercising such power of
attorney-in-fact, comply with all governmental laws, rules and regulations, act
so as not to injure or adversely affect MW's business or reputation (it being
understood that the collection of Accounts in accordance with applicable debt
collection laws, the sending of adverse action letters, and the legally required
or MW approved changes of Account terms do not injure or adversely affect such
businesses or reputations), and be responsible for all obligations and
liabilities arising out of the actions so taken. MWCC may appoint GE Capital
and/or its Affiliates to carry out in MW's name the tasks in this Section.
7.6. CONTINUED LIABILITY. Anything herein to the contrary notwithstanding,
(a) MW, its Authorized Affiliates and Authorized Licensees shall remain liable
under any contracts and agreements with any Cardholder that relate to the
Merchandise sold (as opposed to the Credit Agreement, Account, or Indebtedness),
and to the extent set forth therein to perform all of their duties and
obligations pursuant thereto to the same extent as if this Agreement and the
Bank Program Agreement had not been executed; (b) the exercise by MWCC of any
rights pursuant to this Agreement shall not release MW or its Authorized
Affiliates or Authorized Licensees from any of such duties or obligations under
the contracts and agreements; and (c) except to the extent specifically set
forth herein, MWCC shall not have any obligation or liability with respect to
any Merchandise by reason of this Agreement or the Bank Program Agreement nor
shall MWCC be obligated to perform any of the obligations or duties of MW
pursuant to this Agreement.
7.7. OTHER PARTY MAY PERFORM. If either MW or MWCC fails to perform any of
its duties or obligations contained herein and such failure has remained
unremedied for a period of fifteen (15) days after notice to it from the other
party, or if such failure is not reasonably susceptible of being cured within
such fifteen (15) day period, if it fails to commence to cure such failure
within such fifteen (15) day period and diligently proceed to
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cure thereafter, the other party may itself perform, or cause performance of,
such duties or obligations, and the reasonably incurred expenses of the
performing party incurred in connection therewith shall be payable by the other
party on demand.
7.8. RECEIPT OF PAYMENTS. The primary and exclusive right to effect
collection of Indebtedness shall be vested in MWCC and its Affiliates and they
may, at any time, in their sole discretion, subject to the proviso below, notify
Cardholders to make payments directly to them in accordance with their
instructions, provided that MWCC shall permit during the term of this Agreement
Cardholders to make In-Store Payments at all times prior to the earliest of (a)
occurrence of a MW Default, (b) such time as MWCC has a reasonable basis for
believing a MW Default is likely to occur or (c) MWCC reasonably concludes that
continued acceptance of In-Store Payments raises concerns regarding Monogram's
safety and soundness or other legal concerns.
7.9. ACCESS TO DATA BY MWCC. In addition to the other rights set forth in
this Agreement, MWCC (by any of its officers, employees, designees and/or
agents) shall have the right, during normal business hours, in such a manner as
to minimize interference with MW's normal business operations, to examine,
audit, inspect and make extracts from all of the data, records, files, and books
of account including, without limitation, non-financial information under the
control of MW relating to Purchased Monogram Accounts, Non-Converted Accounts,
MWCC Cardholders, Purchased Monogram Indebtedness and Non-Converted
Indebtedness; and MW shall use its best efforts to facilitate MWCC's exercise of
such right, including the assignment of such personnel of MW for the assistance
of MWCC as MWCC shall reasonably request. MW shall deliver any document or
instrument necessary for MWCC to obtain such information from any Person
maintaining records for MW. Except as otherwise specifically provided in this
Agreement, the party reviewing or copying such information shall do so at its
own expense.
7.10. ACCESS TO DATA BY MW. In addition to the other rights set forth in
this Agreement (e.g., MW's rights pursuant to SECTION 5.7 hereof), MW (by any of
its officers, employees, designees, and/or agents) shall have the right, during
normal business hours, in such a manner as to minimize interference with MWCC's
normal business operations, to examine, audit, inspect, copy and make extracts
from all of the data, records, files and books of account under the control of
MWCC relating to Purchased Monogram Accounts, Non-Converted Accounts, MWCC
Cardholders, Purchased Monogram Indebtedness and Non-Converted Indebtedness; and
MWCC shall use its best efforts to facilitate MW's exercise of such rights,
including the assignment of such personnel of MWCC for the assistance of MW as
MW shall reasonably request. MWCC shall deliver any document or instrument
necessary for MW to
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obtain such information from any Person maintaining records for MWCC. Except as
otherwise specifically provided in this Agreement (e.g., MW's access to
information pursuant to SECTION 5.7 at no expense to MW), the party reviewing or
copying such information shall do so at its own expense.
7.11. AUDIT OF INFORMATION. MW's and MWCC's right to audit information as
provided in SECTIONS 7.9 and 7.10 hereof shall include the right to audit
information necessary to determine if payments, credits, calculations or
allocations made by either of them pursuant to this Agreement were accurate. If
a party does not object in writing to the other party respecting any calculation
or with respect to the amount of any payment, credit or allocation made under
such sections within twenty-four (24) months after the date of such payment,
credit, calculation or allocation, the calculation or the amount of such
payment, credit or allocation shall be final. Each party shall maintain for a
period of at least three (3) years, or any longer period as provided herein or
during which an item is being contested, information reasonably sufficient for
the other to perform such audits.
7.12. [SECTION INTENTIONALLY OMITTED].
8. REPRESENTATIONS AND WARRANTIES OF MW
MW makes the following representations and warranties to MWCC as set
forth below in this SECTION 8 as of the date hereof. Each and all of such
representations and warranties shall survive the execution and delivery of
this Agreement as long as a claim may be made, except for those set forth in
SECTION 8.5, which shall only survive to the extent MWCC gives MW written
notice of any misrepresentation or breach of warranty (specifying in
reasonable detail the basis thereof) on or before fifteen (15) months after
the date hereof. Each and all of such representations and warranties which
are set forth in SECTIONS 8.1(a), 8.1(b), 8.1(c), 8.1(d), 8.2(b), 8.2(c),
8.2(d), 8.4, 8.6, and 8.9 shall be deemed to be restated and remade ("Remade
MW Representations and Warranties") on each date during the term of this
Agreement on which MWCC is required to fulfill its obligations hereunder,
including, but not limited to, payments under SECTION 4.8 hereof.
Notwithstanding anything to the contrary contained in this Agreement, except
for the representations and warranties set forth in SECTION 8.9, in no event
shall MW be liable (by way of indemnification or otherwise) for any
misrepresentation or breach of warranty, to be read without limitation as to
materiality for the purposes of this sentence, until the aggregate amount
recoverable under this Agreement on account thereof exceeds [ ]*, and
then only to the extent of the excess of such
*Confidential treatment has been requested with respect to this information.
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aggregate amount recoverable over [ ]*.
8.1. CORPORATE EXISTENCE. MW (a) is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Illinois, or such
other state in which it may be incorporated, (b) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification, except where failure to be so qualified will not have a material
adverse effect on the business, operations, property, or financial condition of
MW, the Accounts or the Indebtedness (such Accounts and Indebtedness taken as a
whole), MWCC's Lien in and to the Accounts and Indebtedness (such Accounts and
Indebtedness taken as a whole), or the priority of such Lien, (c) has the
requisite corporate power and authority to own, pledge, mortgage, or otherwise
encumber and operate its properties, to lease the properties it operates under
lease, and to conduct its business as now, heretofore, and proposed to be
conducted, (d) has all material licenses, permits, consents, or approvals from
or by, and has made all necessary filings with, and has given all necessary
notices to, all governmental authorities having jurisdiction, to the extent
required for such ownership, operation, and conduct, except where failure to
obtain such licenses, permits, consents, or approvals, or to make such filings
or give such notices, does not have a material adverse effect on the business,
operations, property, or financial condition of MW, or the Accounts or
Indebtedness (such Accounts and Indebtedness taken as a whole), and (e) is in
compliance with its certificate of incorporation and by-laws.
8.2. EXECUTIVE OFFICES AND STORES. (a) The chief executive office of MW is
at 619 West Chicago Avenue, Chicago, Illinois 60671, (b) the chief executive
office of MW will during the term of this Agreement be located at such location
or at such other location as MW shall, from time to time, specify upon at least
forty-five (45) days prior written notice to MWCC, (c) all records relating to
Accounts and Indebtedness maintained by MW are maintained at Stores, or at such
other locations as are set forth on SCHEDULE 8.2 annexed hereto, as such
schedule may be amended by MW from time to time upon forty-five (45) days prior
written notice to MWCC, and (d) SCHEDULE 8.2 contains a complete and correct
listing of the addresses of all Stores operated by MW and/or an Authorized
Affiliate, as such schedule may be amended by MW from time to time at least
sixty (60) days prior to the commencement, or ten (10) days prior to a
termination, of a retail store's operations.
8.3. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
execution, delivery, and performance of this
*Confidential treatment has been requested with respect to this information.
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Agreement by MW and all instruments and documents to be executed by MW on the
date hereof pursuant to this Agreement, and the creation of all Liens to be
granted by MW as provided for herein: (a) are within MW's power; (b) have been
duly authorized by all necessary or proper corporate action, including the
consent of shareholders where required; (c) are not in contravention of any
provision of MW's certificate of incorporation or by-laws; (d) will not violate
any law or regulation applicable to MW or any order or decree applicable to MW
of any court or governmental instrumentality; (e) except as set forth on
SCHEDULE 8.3 annexed hereto, will not conflict with or result in the breach or
termination of, constitute a default under, or accelerate any performance
required by, any indenture, mortgage, deed of trust, lease, agreement, or other
instrument to which MW is a party or by which MW or any of its property is
bound, which conflicts, breaches, or defaults, either individually, or in the
aggregate will have a material adverse effect on the business, operations,
property, or financial condition of MW, the Accounts and Indebtedness (such
Accounts and Indebtedness taken as a whole), MWCC's Lien in and to the Accounts
and Indebtedness (such Accounts and Indebtedness taken as a whole), or the
priority of such Lien; and (f) do not require any filing (other than the filings
contemplated hereby) or registration by MW with, or the consent or approval of,
any governmental body, agency, authority, or any other Person which has not been
made or obtained previously where such failure to file, register or obtain
consent or approval either individually, or in the aggregate, will have a
material adverse effect on the business, operations, property or financial
condition of MW, the Accounts and Indebtedness (such Accounts and Indebtedness
taken as a whole), MWCC's Lien in and to the Accounts and Indebtedness (such
Accounts and Indebtedness taken as a whole), or the priority of such Lien. This
Agreement has been duly executed and delivered by MW and constitutes the legal,
valid, and binding obligation of MW, enforceable against MW in accordance with
its terms except as such enforcement may be limited by applicable bankruptcy,
moratorium, reorganization, or other laws or legal principles affecting the
rights of creditors generally or by general principles of equity (whether or not
a proceeding is brought in a court of law or equity).
8.4. SOLVENCY. MW is Solvent.
8.5. FINANCIALS. The consolidated balance sheet of MW as of December 30,
1995 (the "Balance Sheet"), and the related statements of income, shareholders'
equity, and changes in financial position for the fiscal year then ended,
certified by Arthur Andersen & Company, independent public accountants, were
prepared in accordance with GAAP applied on a consistent basis (except as
disclosed therein), and present fairly the consolidated financial position of MW
as at such date and the
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results of its operations and changes in financial position for the fiscal year
then ended.
8.6. NO DEFAULT. MW is not in default pursuant to or in respect of any
contract, agreement, lease, or other instrument to which it is a party, nor has
MW received any notice of default pursuant to any such contract, agreement,
lease, or other instrument, in either case where such default would have a
material adverse effect on the business, operations, property, or financial
condition of MW, the Accounts and Indebtedness (such Accounts and Indebtedness
taken as a whole), MWCC's Lien in and to any Accounts and Indebtedness (such
Accounts and Indebtedness taken as a whole), or the priority of such Lien. No
MW Default or event which, with the giving of notice, the lapse of time, or
both, would be a MW Default, has occurred and is continuing.
8.7. [SECTION INTENTIONALLY OMITTED].
8.8. NO LITIGATION. Except as set forth on SCHEDULE 8.8 annexed hereto
(which schedule specifies those claims involving consumer credit), no action,
claim, or proceeding not covered by insurance which reasonably may be
expected to result in a liability of MW in an amount excess of, for each such
action, claim or liability [ ]*, is now pending or, to the knowledge of
MW, threatened against MW, at law, in equity, or otherwise, before any court,
board, commission, agency, or instrumentality of any federal, state, or local
government or of any agency or subdivision thereof or before any arbitrator
or panel of arbitrators, nor to the knowledge of MW does a state of facts
exist which might give rise to any such proceedings. None of such matters
set forth on SCHEDULE 8.8 questions the validity of this Agreement or any
action taken or to be taken pursuant hereto or any of the conditions
precedent thereto.
8.9. ACCOUNTS. With respect to each item of Indebtedness on a
Non-Converted Account or Purchased Monogram Account and each item of
Participated Monogram Indebtedness (and, to the extent applicable, each Account
pursuant to which such Indebtedness is incurred) at the time MWCC obtains its
interest: (a) MW has not created or purported to create Liens with respect
thereto in favor of any Person other than MWCC or an Affiliate of MWCC; (b)
arises or arose in connection with a bona fide sale and delivery of Merchandise
by MW, Affiliates of MW or licensees, or the predecessors of any of the
foregoing, to a Cardholder; and (c) is for a liquidated amount as stated in the
MWCC Account Documentation relating thereto, subject to returns, allowances and
other adjustments in the ordinary course of business.
8.10. [SECTION INTENTIONALLY OMITTED].
*Confidential treatment has been requested with respect to this information.
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8.11. [SECTION INTENTIONALLY OMITTED].
9. REPRESENTATIONS AND WARRANTIES OF MWCC
MWCC makes the following representations and warranties to MW as set
forth below in this SECTION 9 as of the date hereof. Each and all of such
representations and warranties shall survive the execution and delivery of
this Agreement as long as a claim may be made. Each and all of such
representations and warranties which are set forth in SECTIONS 9.1(A),
9.1(B), 9.1 (LAST SENTENCE) and 9.3 shall be deemed to be restated and remade
("Remade MWCC Representations and Warranties"), on each date during the term
of this Agreement on which MWCC is required to fulfill its obligations
hereunder. Notwithstanding anything to the contrary contained in this
Agreement, in no event shall MWCC be liable (by way of indemnification or
otherwise) for any misrepresentation or breach of warranty, to be read
without limitations as to materiality for purposes of this sentence, until
the aggregate amount recoverable under this Agreement on account thereof
exceeds [ ]*, and then only to the extent of the excess of such
aggregate amount recoverable over [ ]*.
9.1. CORPORATE EXISTENCE. MWCC and GE Capital (a) are corporations duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and New York, respectively, or such other state in which they may be
incorporated, (b) have the requisite corporate power and authority to own,
pledge, mortgage, or otherwise encumber and operate their properties, to lease
the properties they operate under lease, and to conduct their business as now,
heretofore, and proposed to be conducted, and (c) are in compliance with their
certificates of incorporation and by-laws. MWCC and GE Capital have all material
licenses, permits, consents, or approvals from or by, and have made all
necessary filings with, and have given all necessary notices to, all
governmental authorities having jurisdiction, to the extent required for such
ownership, operation, and conduct, except where failure to obtain such licenses,
permits, consents, or approvals, or to make such filings or give such notices,
does not have a material adverse effect on its business, operations, property,
or financial condition.
9.2. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
execution, delivery, and performance of this Agreement and the Guaranties by
MWCC and GE Capital, respectively, and all instruments and documents to be
executed by MWCC and GE Capital on the date hereof pursuant to this Agreement
(a) are within their respective powers; (b) have been duly authorized by all
necessary or proper corporate action, including the consent of shareholders
where required; (c) are not in
*Confidential treatment has been requested with respect to this information.
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contravention of any provision of their respective certificates of incorporation
or by-laws; (d) will not violate any law or regulation applicable to either of
them or any order or decree against MWCC or GE Capital (including any order or
decree applicable to MWCC solely as a Subsidiary of GE Capital) of any court or
governmental instrumentality; (e) except as set forth on SCHEDULE 9.2 annexed
hereto, will not conflict with or result in the breach or termination of,
constitute a default under, or accelerate any performance required by, any
indenture, mortgage, deed of trust, lease, agreement, or other instrument to
which MWCC or GE Capital is a party or by which MWCC or GE Capital or any of
their property are bound, which conflicts, breaches, or defaults, either
individually, or in the aggregate, will have a material adverse effect on MWCC's
or GE Capital's business, operations, property, or financial condition; and (f)
do not require any filing or registration by MWCC or GE Capital with or the
consent or approval of any governmental body, agency, authority, or, as to
consents and approvals needed by MWCC or GE Capital, any other Person which has
not been made or obtained previously where such failure to file, register or
obtain consent or approval either individually, or in the aggregate, will have a
material adverse effect on GE Capital's or MWCC's businesses, operations,
property or financial condition, the Accounts and Indebtedness, as applicable
(such Accounts and Indebtedness taken as a whole), MWCC's Lien in and to the
Accounts and Indebtedness (such Accounts and Indebtedness taken as a whole), or
the priority of such Lien. Upon approval of the transactions contemplated
hereby by the shareholder(s) of MWCC, this Agreement and the Guaranties have
been duly executed and delivered by MWCC and GE Capital, respectively, and
constitute their legal, valid, and binding obligation, enforceable against them
in accordance with their terms; except as such enforcement may be limited by
applicable bankruptcy, moratorium, reorganization, or other laws or legal
principles affecting the rights of creditors generally or by general principles
of equity (whether or not a proceeding is brought in a court of law or equity).
9.3. SOLVENCY. GE Capital is Solvent.
10. FINANCIAL STATEMENTS AND INFORMATION
10.1. MW'S REPORTS AND NOTICES. Until the end of the term of this
Agreement, MW shall deliver to MWCC:
(1) Within sixty (60) days after the end of each fiscal quarter of MW
(except the last), MW's unaudited consolidated balance sheets as of the close of
such quarter and the related statements of income, shareholder's equity, and
changes in cash flow for such fiscal quarter, accompanied by the certification
on behalf of MW by MW's chief executive or operating officer or chief financial
officer that such financial
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statements were prepared in accordance with GAAP applied on a consistent basis
(except as disclosed therein), and present fairly the consolidated financial
position of MW as of the end of such fiscal quarter and the results of its
operations and changes in cash flow, subject to non-recurring and year-end
adjustments, provided the foregoing financial statements are read in the context
of the audited financial statements for the preceding fiscal year, and any notes
thereto, and that, except as noted therein, to the actual knowledge of such
officer of MW there are no MW Defaults or events which, with the passage of time
or giving of notice or both, would constitute a MW Default.
(2) Within one-hundred twenty (120) days after the close of each
fiscal year, a copy of the consolidated annual financial statements of MW,
consisting of a consolidated balance sheet and related statements of income,
shareholder's equity, and changes in cash flow, all prepared in accordance with
GAAP on a consistent basis (except as disclosed therein), certified by the
independent public accountants regularly retained by MW, and accompanied by a
certification on behalf of MW by MW's chief executive or operating officer or
chief financial officer that, except as noted therein, to the actual knowledge
of such officer, there are no MW Defaults or events which, with the passage of
time or giving of notice or both, would constitute a MW Default.
(3) Such other information respecting the Accounts and Indebtedness or
MW's business or financial condition with respect to such Accounts and
Indebtedness, as MWCC may, from time to time, reasonably request.
10.2. GE CAPITAL'S AND MWCC'S REPORTS AND NOTICES. Until the end of the
term of this Agreement, MWCC shall deliver to MW:
(1) Within sixty (60) days after the end of each fiscal quarter of GE
Capital (except the last), GE Capital's unaudited consolidated balance sheets as
of the close of such quarter and the related statements of income, shareholder's
equity, and changes in cash flow for such fiscal quarter, accompanied by the
certification on behalf of GE Capital by GE Capital's chief executive or
operating officer or chief financial officer that such financial statements were
prepared in accordance with GAAP applied on a consistent basis (except as
disclosed therein), and present fairly the consolidated financial position of GE
Capital as of the end of such fiscal quarter and the results of its operations
and changes in cash flow, subject to non-recurring and year end adjustments,
provided the foregoing financial statements are read in the context of the
audited financial statements for the preceding fiscal year, and any notes
thereto. MWCC shall from time to time upon request of the Marketing Committee
provide to the Marketing Committee financial information in a form which will be
sufficient for it to
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reasonably ascertain the income, expense and profitability of the operations
that relate solely to the transactions that are the subject of the Program,
which information shall be kept confidential by members of the Marketing
Committee who shall not disclose such information to any Person other than (a)
the then current chief executive officer of MW, (b) when necessary for the
purpose of performing any analysis requested by the Marketing Committee or the
chief executive officer of MW, the then director of credit-services for MW, it
being understood that such chief executive officer and director of credit
services also shall keep such information confidential, and (c) to the extent
necessary in connection with any dispute between the parties, provided, however,
that any disclosure to Persons not connected with the dispute shall be subject
to any appropriate confidentiality order.
(2) Within one-hundred twenty (120) days after the close of each
Fiscal Year, a copy of the consolidated annual financial statements of GE
Capital, consisting of a consolidated balance sheet and related statements of
income, shareholder's equity and changes in cash flow, all prepared in
accordance with GAAP applied on a consistent basis (except as disclosed
therein), certified by the independent public accountants regularly retained by
GE Capital.
11. INDEMNIFICATION
11.1. INDEMNIFICATION BY MW. MW agrees to protect, indemnify, and hold
harmless MWCC, its Affiliates, the employees, officers, directors, shareholders,
partners, attorneys and agents of MWCC and its Affiliates, and all of the
respective heirs, legal representatives, successors and permitted assigns of the
foregoing against any and all liabilities, costs, and expenses (including
reasonable attorneys' fees and expenses), judgments, damages, claims, demands,
offsets, defenses, counterclaims, actions, or proceedings, by whomsoever
asserted, including, without limitation, Cardholders with respect to Accounts
(including Non-Converted Accounts) and any Person who prosecutes or defends any
actions or proceedings, whether as representative of or on behalf of a class or
interested group or otherwise, arising out of, connected with, or resulting from
(a) any breach by MW of any of its covenants, representations, or warranties
contained in this Agreement or the Bank Program Agreement, (b) any changes or
failure (unless such failure is a result of a circumstance beyond MW's
reasonable control) in computer systems or programs provided, or caused to be
provided, by MW that have an adverse impact on MWCC's ability to obtain and
utilize the services, information and data to be provided by MW to MWCC pursuant
to this Agreement, which adverse impact is not remedied within ten (10) days
after the occurrence thereof if it materially adversely affects MWCC's business,
or within thirty
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(30) days in all other events, provided MWCC promptly advises MW of such matter
after becoming aware thereof (it being understood that this indemnity shall not
apply to periods prior to the expiration of the applicable cure period), (c) any
product liability claim arising out of the use by any Person of any Merchandise
the purchase of which was financed by an Account, (d) any misrepresentation by
employees of MW, an Affiliate of MW or an Authorized Licensee relating to credit
terms, (e) failure of MW, any Affiliate of MW or any Authorized Licensee to have
all material licenses, permits, consents, or approvals from or by, and make all
necessary filings with, and give all necessary notices to, all governmental
authorities having jurisdiction, to the extent required for the ownership or
operation of its properties, the conduct of its business, or the creation of
Accounts or Indebtedness, (f) an assertion, demand, claim, suit, counterclaim or
other proceeding by a Person other than an indemnified party that an Account or
Accounts is or are unlawful or otherwise actionable because the balance thereon
does not decrease at least partially each month because the sum of the insurance
premiums and finance charges posted to the Account or Accounts is in excess of
the minimum monthly payment, provided that MW's indemnification obligation shall
not apply to any assertion, demand, claim, suit, counterclaim or other
proceeding to the extent arising from, and based solely upon, new sale activity
(renewals shall not be deemed for this purpose to be new sales if they occur
within sixty (60) days after MW or an Affiliate thereof no longer owns all or
substantially all of the Stock or assets of the Signature Companies) occurring
on any date on which MW does not directly own all or substantially all of the
Stock or assets of the Signature Companies, (g) the reporting of credit losses
and/or sales taxes to federal, state or local governments or governmental units
and payments made or due to or from MW to such governments or governmental units
involving, relating to, or based in whole or in part on credit losses and/or
sales taxes, or (h) any act or failure to act by a Person involved in selling or
facilitating the sale of Merchandise on Accounts (including Old Accounts),
including such Persons as Valuevision International, Inc., to the extent such
act or failure to act arises out of, occurs, is connected with, or results from
a sale or attempt to sell Merchandise on an Account (including an Old Account)
or a solicitation or application for an Account, including failure of such a
Person (i) to act in accordance with instructions given by Monogram and/or MWCC
to the extent permitted or contemplated by this Agreement and/or the Bank
Program Agreement or (ii) to perform MW's obligations under this Agreement
and/or the Bank Program Agreement, provided, however, MW shall have no liability
under this subpart (i), if the act or failure to act is the result of failure by
Monogram and/or MWCC to comply with this Agreement and/or the Bank Program
Agreement, respectively.
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11.2. INDEMNIFICATION BY MWCC. MWCC agrees to protect, indemnify, and hold
harmless MW, its Affiliates, the employees, officers, directors, shareholders,
partners, attorneys and agents of MW and its Affiliates, and all of the
respective heirs, legal representatives, successors and permitted assigns of the
foregoing against any and all liabilities, costs, and expenses (including
reasonable attorneys' fees and expenses), judgments, damages, claims, demands,
offsets, defenses, counterclaims, actions, or proceedings, by whomsoever
asserted, including, without limitation, Cardholders with respect to Accounts,
and any Person who prosecutes or defends any actions or proceedings, whether as
representative of or on behalf of a class or interested group or otherwise,
arising out of, connected with, or resulting from (a) any breach by MWCC of any
of its covenants, representations, or warranties contained in this Agreement,
(b) any changes or failure (unless such failure is a result of a circumstance
beyond MWCC's reasonable control) in computer systems or programs provided, or
caused to be provided, by MWCC that have an adverse impact on MW's ability to
obtain and utilize the services, information and data to be provided by MWCC to
MW pursuant to this Agreement, which adverse impact is not remedied within ten
(10) days after the occurrence thereof if it materially adversely affects MW's
business, or within thirty (30) days in all other events, provided MW promptly
advises MWCC of such matter after becoming aware thereof (it being understood
that this indemnity shall not apply to periods prior to the expiration of the
applicable cure period), (c) any claim asserted as a result of the exercise of
the power-of-attorney granted to MWCC herein or any collection efforts by, or at
the direction of, MWCC, including the repossession of Merchandise, (d) any
misrepresentation by employees of MWCC or its Affiliates relating to credit
terms, or (e) failure of MWCC to have all material licenses, permits, consents
or approvals from or by, and make all necessary filings with, and give all
necessary notices to, all governmental authorities having jurisdiction, to the
extent required for the ownership or operation of its properties, or the conduct
of its business or the ownership or servicing of Accounts or Indebtedness.
11.3. DEFENSE OF THIRD PARTY CLAIMS. In the event that any legal
proceeding shall be instituted, or that any claim or demand shall be asserted by
any Person in respect of which one party hereto is entitled to receive payment
from the other party hereto pursuant to SECTIONS 11.1 and 11.2, the party
seeking indemnification shall promptly cause written notice of the assertion of
any claim of which it has knowledge which is covered by this indemnity to be
forwarded to the other party, which other party shall, to the extent of its
indemnification, and at its own expense, by counsel of its choice, which must be
reasonably satisfactory to the party seeking indemnification, defend the party
seeking indemnification against, and negotiate, settle, or
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otherwise deal with any proceeding, claim, or demand which is related to any
matter indemnified against by the indemnifying party hereunder; provided,
however, that no settlement shall be made without the prior written consent of
the party seeking indemnification, which consent shall not be unreasonably
withheld; and provided further that the indemnifying party shall keep the party
seeking indemnification advised as to the status of the matter. The party
seeking indemnification may participate in any such proceeding with counsel of
its choice at its expense. If the party seeking indemnification refuses to
approve a proposed settlement that is acceptable to the claimant, the
indemnifying party may, at its option, deposit the proposed settlement with the
party seeking indemnification and thereupon be relieved of any further indemnity
obligation in connection with such claim, including, but not limited to,
attorneys' fees and expenses thereafter incurred. If upon the resolution of any
such claim or proceeding which is the subject of the aggregate dollar
limitations on claims set forth in SECTIONS 8 and 9 the aggregate amount of
claims and related expenses which are subject to such limitation for which the
indemnifying party is then liable is less than its limitation, any reasonable
attorneys' fees and expenses incurred by the indemnifying party in defending
against such claim shall within thirty (30) days after demand be paid by the
indemnified party to the indemnifying party. The parties hereto agree to
cooperate fully with the defense, negotiation, or settlement of any such legal
proceeding, claim or demand, but without expense to the party seeking
indemnification.
11.4. PAYMENT OF INDEMNIFIED AMOUNTS. After any final judgment or award
shall have been rendered by a court, arbitration board or administrative agency
of competent jurisdiction, and the expiration of the time in which to appeal
therefrom, or a settlement shall have been consummated, or the parties shall
have arrived at a mutually binding agreement with respect to each separate
matter indemnified hereunder, the party seeking indemnification shall forward to
the other party notice of any sums due and owing by the other party with respect
to such matter and such other party shall be required to pay all of the sums so
owing to the party seeking indemnification by check (or at the option of the
recipient by wire transfer constituting immediately available federal funds)
within thirty (30) days after the date of such notice.
11.5. INSURANCE AND MITIGATION. The indemnified party shall use its best
efforts to minimize the indemnifying party's obligation to indemnify by
recovering, to the maximum extent possible without incurring any material
expense, reimbursement from insurance carriers under effective insurance
policies covering such liability. An indemnified party shall not be able to
recover from an indemnifying party hereunder for any damages to the extent that
the indemnified party shall have recovered
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under its insurance. The indemnifications provided for in this Agreement shall
be net of tax benefits, if any. The indemnified party shall, at all times, use
its reasonable efforts to minimize the indemnity obligation of the indemnifying
party through remedial action which it has reason to know may minimize such
obligations, provided that the indemnifying party shall have first agreed to
reimburse the indemnified party for its cost, if any, in taking such remedial
action.
11.6. EXCEPTIONS. Notwithstanding the foregoing provisions of SECTIONS
11.1, 11.2 AND 11.3 hereof or anything otherwise provided in the Bank Program
Agreement, the obligations of the parties hereto or Monogram with respect to
claims arising in connection with Asserted Claims shall be governed by the
provisions of SECTION 5.5(11) hereof, and the provisions of this SECTION 11
shall not apply thereto.
12. AFFIRMATIVE COVENANTS OF MW
MW covenants and agrees that, unless MWCC shall consent in writing, from
and after the Conversion Date until the end of the term of this Agreement:
12.1. [SECTION INTENTIONALLY OMITTED].
12.2. COMPLIANCE WITH LAW. MW's own actions and the actions of its
Affiliates and Authorized Licensees in connection with Accounts, and the actions
of Persons on MW's behalf (or failures to act where any of the foregoing has a
duty to act under this Agreement) shall comply with all federal, state, and
local laws, statutes, ordinances, rules, regulations, orders and rulings,
including, without limitation, court and Federal Trade Commission orders, ERISA,
those regarding the collection, payment and deposit of employees' income,
unemployment, and social security taxes, and those relating to environmental
matters. MW shall not be responsible for noncompliance pursuant to this SECTION
12.2 when noncompliance is a result of MWCC's failure to comply with any such
matters, to the extent MWCC is required by this Agreement to so comply.
13. AFFIRMATIVE COVENANTS OF MWCC.
MWCC covenants and agrees that, unless MW shall consent in writing, from
and after the Conversion Date until the end of the term of this Agreement:
13.1. COMPLIANCE WITH LAW. MWCC's own actions and the actions of Persons
on its behalf (or failures to act where any of the foregoing has a duty to act
under this Agreement), shall comply with all federal, state, and local laws,
statutes, ordinances, rules, regulations, orders and rulings, including,
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without limitation, court orders and orders of the Federal Trade Commission,
ERISA, those regarding the collection, payment and deposit of employees' income,
unemployment and social security taxes, and those relating to environmental
matters. MWCC shall not be responsible for noncompliance pursuant to this
SECTION 13.1 where noncompliance is a result of MW's failure to comply with any
such matters, to the extent MWCC is required by this Agreement to so comply.
13.2. SECURITIZATION, ASSIGNMENT AND SALE COMPLIANCE. MWCC shall comply
with the terms of all agreements relating to the securitization, assignment or
sale of Accounts.
13.3. SALES OF ACCOUNTS AND INDEBTEDNESS. In the event that MWCC sells
Non-Converted Accounts, Non-Converted Indebtedness, Purchased Monogram Accounts
or Purchased Monogram Indebtedness under circumstances where neither MWCC nor a
servicer designated by MWCC or its Affiliates provides servicing therefor once
sold, MWCC shall ensure such purchasers shall agree to (i) comply with
applicable laws and (ii) indemnify MWCC and MW, for damages resulting from any
failure to do so.
13.4. DELINQUENT ACCOUNT PURCHASE AGREEMENT. MWCC shall ensure that the
Delinquent Account Purchase Agreement remains in full force and effect until
January 1, 2000, or such earlier date upon which the Section 4 Contractual
Method and the Contractual Method require that delinquent accounts be written
off during the Billing Cycle in which the Cardholder obligated in connection
therewith would be considered past due for thirty (30) days or more on 5
required payments (as determined in accordance with the examples in those
definitions).
14. NEGATIVE COVENANTS OF MW
14.1. LIENS. MW shall not (except as provided herein) intentionally cause
a Lien to be placed against any items with respect to which MWCC has been
granted a security interest hereunder.
15. TERM
15.1. TERM AND TERMINATION.
(1) Except as otherwise provided herein, the term of this
Agreement shall commence on the date hereof and shall continue (unless
terminated pursuant to another provision of this SECTION 15.1) until December
31, 2011 (the "Initial Term") and from year to year thereafter, unless
terminated by either party hereto effective on the last day of the Initial Term
or any December 31 thereafter upon giving written notice to the other of the
election to terminate effective on the last day of the
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Initial Term or any December 31 thereafter, which notice in either event shall
be given not less than ten (10) years prior to the effective date of
termination.
(2) [SECTION INTENTIONALLY OMITTED].
(3) The term of this Agreement may also terminate at the
election of the non-defaulting party in the event of a MW Default or MWCC
Default as set forth in SECTION 16.
(4) The term of this Agreement may also terminate at the
election of MW as set forth in SECTION 17.1(3).
(5) The term of this Agreement may also terminate at the
election of either party in the event that the Bank Program Agreement terminates
other than as a result of the occurrence of an event of default thereunder.
(6) The term of this Agreement may also terminate as provided in
SECTION 5.14(2) hereof.
(7) This Agreement shall automatically terminate if any of the
conditions to closing set forth in Article 6 shall not have been satisfied or
waived by the appropriate party on or prior to the Closing Date.
15.2. EFFECT OF TERMINATION.
(1) No termination (regardless of cause or procedure) of this
Agreement shall in any way affect or impair the powers, obligations, duties,
rights, indemnities, liabilities, undertakings, covenants, warranties and/or
representations (individually and collectively "Provisions") of MW or MWCC with
respect to times and/or events occurring prior to such termination, including
the obligation to make payments in respect of obligations (including
indemnification obligations) arising prior to the termination date. No
Provision with respect to times and/or events occurring after termination shall
survive termination, except (i) those set forth in the previous sentence or
otherwise stated in this Agreement to survive termination, (ii) those Provisions
contained in SECTIONS 4.6(1), 5.2(6), 5.4(2), 5.4(6), 5.5(13), 5.6 (to the
extent consistent with any express provisions of this Section 15), 5.16 (to the
extent provided therein), 7.4, 7.6, 7.7, 11, 15.2, 17.11, 17.12, 17.13, 17.21,
17.22 and, unless MW or MW Designee has purchased all Accounts and Indebtedness,
to the extent they relate to Accounts and Indebtedness owned or held by MWCC
and/or MWCC Assignees, 3.4 (for twelve months after the effective date of
termination), 5.4(1)(i), 5.4(5) (for twelve months after the effective date of
termination), 5.4(7), 7.1, 7.2, 7.3, 7.5, 7.8, and 14.1, shall also survive
subject to any express limitations on such survival
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set forth in this Agreement (together with those Provisions stated to survive in
(i) above, the "Surviving Provisions"), (iii) any other Provision that should
reasonably survive to accomplish a reasonable separation of the parties, taking
into account the pattern of the Surviving Provisions and the Provisions that are
expressly stated not to survive; provided that the burden of proof in the event
of dispute as to whether a Provision other than a Surviving Provision survives
is on the party contending for survival, and (iv) MW and MWCC shall be liable
for any damages suffered by the other in the event of a termination due to a MW
Default or MWCC Default, respectively. Except as specifically provided herein
to the contrary, upon such termination (i) MWCC shall continue to own Accounts
and Indebtedness which it owned prior to such termination and (ii) provided that
MW or MW Designee has purchased all Non-Converted Accounts and Purchased
Monogram Accounts, MW shall, subject to the rights granted to the Signature
Companies under the MWCC Signature License, be given full ownership of and all
rights to the MWCC Customer List. In the event of termination, during but
before the end of a Fiscal Year, any payment due with respect to a part of a
Fiscal Year shall be made sixty (60) days after termination.
(2) With regard to a termination of this Agreement pursuant to
SECTIONS 15.1(1) or, if not appropriately governed by other sections of this
SECTION 15.2, 15.1(5):
(i) MW (or, in the case of (A) below, a third party
designated by MW) may at MW's option:
(A) purchase (or authorize a third party to
purchase), as of the opening of business on the
date of termination and subject to the restriction
contained in SECTION 15.3 below, (x) all existing
Non-Converted Accounts, Non-Converted
Indebtedness, Purchased Monogram Accounts,
Purchased Monogram Indebtedness and Participated
Monogram Indebtedness, and (y) subject to all
rights granted to the Signature Companies under
the MWCC Signature License, the MWCC Customer
List, all for a price equal to the MWCC Net
Receivable Balance on the opening of business on
such date, in which case the provisions of (ii)
below shall apply, and MW (or such third party)
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shall thereupon own all such Accounts,
Indebtedness and, subject to all rights granted to
the Signature Companies under the MWCC Signature
License, the MWCC Customer List, or
(B) not purchase existing Non-Converted Accounts,
Non-Converted Indebtedness, Purchased Monogram
Accounts, Purchased Monogram Indebtedness and
Participated Monogram Indebtedness but, subject to
all rights granted to the Signature Companies
under the MWCC Signature License and the rights
granted to MWCC in the provisions of subsection
(iv) below, have the exclusive right (without any
fee being payable to MWCC and with all revenue and
income derived therefrom belonging to MW) to use
(or sublicense or assign the right to use) the
MWCC Customer List for all purposes, including for
advertisement, solicitations or other marketing
efforts, regardless of the manner or media through
which the marketing effort is made, and regardless
of whether the product or service has previously
been marketed by MW, provided that for a period
ending four (4) years after the effective date of
termination, MW shall not use, or allow any other
Person to use, the MWCC Customer List directly or
indirectly to provide any consumer or commercial
financing programs for the retail sale of goods
and/or services at Stores (including credit, debit
or charge card programs), whether operated
in-house by MW or in connection with an outside
Person, provided that, subject to all rights
granted to the Signature Companies under the MWCC
Signature License: (i) MW may use that portion of
the MWCC Customer List comprising Persons who
applied for Accounts and were
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rejected by MWCC to provide any closed end
consumer or commercial financing programs for the
retail sale of goods and/or services at Stores;
and (ii) MW may use the MWCC Customer List in
connection with the Existing Programs described in
SECTION 5.13(2)(b) AND (c) of the Bank Program
Agreement and, with the consent of MWCC or its
Affiliate (as appropriate), the Existing Program
described in SECTION 5.13(2)(a) of the Bank
Program Agreement. If option (B) is chosen, the
provisions of (iv) below shall apply.
The transfer of ownership to MW of Non-Converted
Accounts, Non-Converted Indebtedness, Purchased
Monogram Accounts, Purchased Monogram Indebtedness and
Participated Monogram Indebtedness under option (A)
shall include the right to receive all such Accounts
and Indebtedness and the MWCC Account Documentation
related thereto free and clear of all Liens created or
caused by MWCC and/or its Affiliates, and MWCC and/or
its Affiliates shall execute, and cooperate in the
filing by MW of all Code statements and other documents
needed to so transfer the Accounts and Indebtedness to
MW. MW shall notify MWCC of the option it has chosen
pursuant to this SECTION 15.2(2)(i) not later than
twenty-four (24) months prior to the effective date of
termination or, if this Agreement is terminated
pursuant to Section 15.1(5), not later than such lesser
time as reasonable and fair to both parties under the
circumstances. The foregoing notwithstanding, it is
understood and agreed that MW shall select hereunder
the option corresponding to that selected by MW under
Section 15.2(2) of the Bank Program Agreement (I.E., if
MW selects option A under Section 15.2(2)(i) of the
Bank Program Agreement, it shall select option A
hereunder (and vice versa) and if MW
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selects option C under Section 15.2(2)(i) of the Bank
Program Agreement, it shall select option B hereunder
(and vice versa)).
(ii) If MW chooses option (A) above, to the extent MWCC
maintains, or causes to be maintained, equipment,
facilities and/or employees substantially dedicated to
servicing Non-Converted Accounts and/or Purchased
Monogram Accounts prior to the effective date of
termination, upon the effective date of termination,
MWCC shall offer to MW (and MW shall purchase) such
equipment, [ ]*; assign, or if not
assignable, sublease, such facilities (to the extent
MWCC's leases to such facilities are assignable or
permit subleasing, and MWCC shall in negotiating such
leases use its best efforts to obtain assignable
leases) [ ]*; and employ such personnel on
terms comparable to the terms under which they
were employed. In the event MW purchases such
equipment, leases such facilities and/or
employs such personnel, MWCC shall concurrently
therewith license (on a royalty-free basis) to MW, for
its exclusive internal use, the software necessary for
MW to service the Non-Converted Accounts and Purchased
Monogram Accounts in a manner similar to that in which
Monogram serviced such Accounts and Indebtedness prior
to the effective date of termination. MW shall pay all
costs associated with converting such software to MW's
system, including the reasonable costs of MWCC's
assistance in such conversion, and shall incur all
further costs of maintaining such software. MW shall
also be so entitled to such license if such equipment,
facilities and/or personnel are not substantially
*Confidential treatment has been requested with respect to this information.
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dedicated to servicing Non-Converted Accounts and
Purchased Monogram Accounts prior to the effective date
of termination. Such software is confidential trade
secret information that is proprietary to MWCC, and MW
shall not disclose such software to any other Person or
in any other instance (except those listed in SECTION
17.12(1)(a) with prior notice thereof and SECTION
17.12(1)(e), provided the consent pursuant to such
SECTION 17.12(1)(e) will not be unreasonably withheld
with regard to a consultant who shall execute a
confidentiality agreement reasonably acceptable to
MWCC). In addition, MWCC shall use its best efforts to
cooperate with and assist any Person designated by MW
to service Accounts and Indebtedness in a manner
similar to MWCC's servicing of Accounts and
Indebtedness, and MW shall pay MWCC's reasonable
out-of-pocket costs incurred in such cooperation.
(iii) In the event of a termination governed by Section
15.2(2)(iii) of the Bank Program Agreement, the
following shall apply:
(a) Anything in SECTIONS 4, 4A AND 5.5 of this
Agreement to the contrary notwithstanding, during
the period that said Section 15.2(2)(iii) of the
Bank Program Agreement is operative, MW shall have
no obligation to pay any amounts accruing pursuant
to SECTION 4 AND 4A of this Agreement and MWCC
shall have no obligation to pay amounts accruing
pursuant to SECTION 5.5 of this Agreement.
(b) Upon the effective date of termination, MW shall
have the same obligation to purchase (and MWCC
shall have the same obligation to sell) such
equipment, lease such facilities, and employ such
personnel, and the same right to obtain a
royalty-free license, as
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is set forth in SECTION 15.2(2)(ii) of this
Agreement.
(c) At such time as MW may purchase Accounts and
Indebtedness pursuant to Section 15.2(2)(iii) of
the Bank Program Agreement, MW shall at such time
also purchase all then existing Non-Converted
Accounts, Non-Converted Indebtedness, Purchased
Monogram Accounts, Purchased Monogram
Indebtedness, Participated Monogram Indebtedness
and, subject to the rights granted to the
Signature Companies under the MWCC Signature
License, the MWCC Customer List, for a price equal
to [ ]*.
(iv) If MW chooses option (B) above, MW shall have no rights
in the Accounts and Indebtedness owned by MWCC after
the effective date of termination, except to the extent
set forth in (B) above. In addition: (i) MWCC shall
have the right (in addition to and retaining all other
rights it may have under the terms of the Agreement or
applicable law) to (x) liquidate the remaining Accounts
owned by MWCC in any lawful manner which may be
expeditious or economically advantageous to MWCC,
including by issuing (or authorizing an Affiliate of
MWCC to issue) to MWCC Cardholders a replacement or
substitute widely-accepted general purpose credit card,
whether or not co-branded (provided that in no event
shall such replacement or substitute card bear on its
face a trademark, service mark or name of a retail
competitor of MW or an Authorized Affiliate) and
marketing (or authorizing the issuer to market) to the
holders of such replacement and/or substitute cards in
manners consistent with the practices with respect to
such replacement or substitute cards, and (y) use the
*Confidential treatment has been requested with respect to this information.
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Licensed Marks in accordance with the terms of this
Agreement to communicate with MWCC Cardholders in
connection with its collection efforts; and (ii) MW
shall be obligated to (x) fulfill its obligations under
Section 3.4 for a period of twelve (12) months after
termination, provided that the aggregate of such
purchases shall not exceed the amount of such purchases
for the twelve (12) months immediately prior to
termination and (y) cooperate with MWCC in order to
effectuate an orderly liquidation, including by
accepting (at MWCC's request) for a period four (4)
years after the effective date of termination any
permitted replacement or substitute credit cards issued
by MWCC (or an Affiliate of MWCC).
(3) In the event of a termination governed by Section 15.2(3) of
the Bank Program Agreement the following shall apply:
(i) If MW chooses option (A) or (B) in Section 15.2(2)(i)
of the Bank Program Agreement, then at the time, if
any, that MW purchases Accounts and Indebtedness
pursuant to Section 15.2(3) of the Bank Program
Agreement, MW shall at such time also purchase all then
existing Non-Converted Accounts, Non-Converted
Indebtedness, Purchased Monogram Accounts, Purchased
Monogram Indebtedness, Participated Monogram
Indebtedness and, subject to the rights granted to the
Signature Companies under the MWCC Signature License,
the MWCC Customer List, for a price equal to
[ ]*. In addition, at such time MW shall
have the same obligation to purchase (and
MWCC shall have the same obligation to sell) such
equipment, lease such facilities, and employ such
personnel, and the same right to obtain a royalty-free
license , as is set forth in SECTION 15.2(2)(ii) of
this Agreement.
*Confidential treatment has been requested with respect to this information.
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(ii) If MW chooses option (C) in Section 15.2(i) of the Bank
Program Agreement the provisions of SECTION 15.2(2)(iv)
of this Agreement shall apply. In addition, MW's
obligations under SECTION 3.4 of this Agreement shall
continue for a period of twelve months after
termination, provided the aggregate of such purchases
shall not exceed the amount of such purchases for the
twelve months immediately prior to termination.
(4) In the event of circumstances governed by Section 15.2(4)
of the Bank Program Agreement, if MW purchases Credit Card Agreements and
Accounts and Indebtedness relating thereto pursuant to Section 15.2(4) of the
Bank Program Agreement, Participated Monogram Indebtedness relating to the
Accounts so purchased shall be sold by MWCC to MW at the same time the
Accounts as to which such Participated Monogram Indebtedness relates is sold
by Monogram to MW such that the amount of Aggregate Cardholders' Balance is
at all times no less than eighty percent (80%) of Maximum Aggregate
Cardholders' Balance. The price to be paid by MW to MWCC in respect of such
Participated Monogram Indebtedness shall equal [ ]*. Such Indebtedness
shall be transferred to MW free and clear of all Liens created or caused by
MWCC and/or its Affiliates in the same manner that Indebtedness is
transferred by Monogram to MW pursuant to the Bank Program Agreement in such
instance. For the avoidance of doubt, it is acknowledged and agreed that MW
shall pay to Monogram under the Bank Program Agreement 100% of the
unamortized portion of the reasonable marketing costs incurred by Monogram
and/or MWCC in initially obtaining and opening Accounts bearing such
Indebtedness.
(5) Upon a termination of this Agreement by MW pursuant to
SECTION 15.1(3) due to an MWCC Default, MW may, if it so elects, choose among
the options described in SECTION 15.2(2)(i) of the Bank Program Agreement in
which case the other provisions of SECTION 15.2(2) which correspond to the
option selected shall apply. The exercise of the rights set forth in this
SECTION 15.2(5) by MW shall in no way limit its right to exercise any other
rights or remedies available to it at law or in equity as a result of such MWCC
Default.
(6) If MW desires to elect to terminate this Agreement pursuant
to SECTION 15.1(4), MW may, if it so elects, treat such termination in the same
manner as provided in Section 15.2(3) of the Bank Program Agreement, exercise
any of its rights as stated therein, and the "Response Date" as used therein,
shall be the date that MW elects to terminate the Agreement pursuant to
*Confidential treatment has been requested with respect to this information.
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SECTION 17.1(3), which termination shall be effective on the date that is twelve
(12) months after the Response Date (i.e., the Termination Date described in
Section 15.2(3) of the Bank Program Agreement) if MW elects option (A) or (B)
under Section 15.2(2)(i) of the Bank Program Agreement. If MW does not elect to
exercise such rights pursuant to Section 15.2(3) of the Bank Program Agreement,
MWCC shall cause all services provided by MWCC hereunder to be provided by and
under the control of a Person other than a Competitor, except that mainframe
computer services, if any, may be provided through a Competitor if MWCC obtains
a confidentiality agreement from the Competitor satisfactory to MW.
(7) If this Agreement terminates pursuant to SECTION 15.1(7),
such termination shall be without liability by one party to the other party.
15.3. SECURITIZATION/PARTICIPATION. MWCC shall have the right, to the
extent of its interest therein, to securitize, participate or otherwise finance
or refinance Accounts, Indebtedness and/or any legal or beneficial interest
therein, including (without prejudice to the generality of the foregoing) the
right to vest in any Person through which MWCC elects to securitize,
participate, finance or refinance the Accounts and Indebtedness as aforesaid
such rights and obligations in connection with the administration of the
Accounts and Indebtedness as shall be customarily vested in such Persons for
such purposes or as MWCC and/or MWCC Assignees shall reasonably require or deem
necessary for the purpose of effecting the aforesaid securitization,
participation, financing or refinancing. The parties also recognize that
certain provisions in SECTION 15.2 require MWCC to sell Accounts and/or service
facilities to MW. SECTION 15.2 is to be read so as to be in harmony with the
rights of and obligations to third parties in connection with financings
described in the first sentence hereof. Notwithstanding any of the foregoing,
MWCC shall maintain MW in substantially the same financial position as though
MW's rights under or as a result of SECTION 15.2 were not affected by any
securitization, participation, financing or refinancing recognizing the
obligation of the parties to minimize any adverse effect on MW.
16. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
16.1. MW DEFAULTS. The occurrence of any one or more of the following
events (regardless of the reason therefor) shall constitute a "MW Default"
hereunder:
(1) MW shall fail to make any payment of any amount in excess of
[ ]* in the aggregate when due and payable or declared due and payable
under this Agreement, and the same shall remain unremedied for a period of
ten (10) Business Days after MWCC shall have made written demand therefor,
*Confidential treatment has been requested with respect to this information.
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or such longer period as may be required to resolve any good faith dispute as to
whether any such amount is owed hereunder.
(2) MW shall fail or neglect to perform any of the covenants
contained in SECTION 12.2 of this Agreement (provided that such failure or
neglect shall occur on a repeated and sustained basis with a conscious disregard
of MW's obligations with respect thereto, and relate to laws and regulations
governing Credit Agreements, Accounts and Indebtedness owned by MWCC), and such
failure or neglect shall remain unremedied for a period of thirty (30) days
after notice thereof by MWCC to MW, or if such failure or neglect is not
reasonably susceptible of being cured within such thirty (30) day period, if MW
fails to commence to cure such failure or neglect during such thirty (30) day
period and diligently proceed to cure thereafter.
(3) Any representation or warranty made by MW to MWCC pursuant to
SECTIONS 8.1(a), 8.1(c), 8.2(a), 8.3(a), 8.3(b), 8.3(c), 8.3(f), 8.3 (last
sentence), 8.4, or 8.5 of this Agreement shall not be true and correct in any
material respect as of the date when made or, if applicable, restated and
remade, and MW fails within thirty (30) days after notice thereof by MWCC to MW,
to correct the underlying basis which causes the representation or warranty to
be untrue, provided that in the case of SECTION 8.4, the thirty (30) day cure
period shall not apply.
(4) (a) Any material portion of the Accounts or Indebtedness then
owned by MWCC and/or MWCC Assignees shall be attached, seized, levied upon or
subjected to a writ by a creditor of MW and such action is not being contested
by or on behalf of MW in good faith, which contest shall include providing such
security as may be reasonably necessary to protect MWCC, or (b) any material
portion of the Accounts or Indebtedness then owned by MWCC and/or MWCC Assignees
shall come within the possession of any receiver, trustee, custodian, or
assignee for the benefit of creditors of MW and such action is not being
contested by or on behalf of MW in good faith, which contest shall include
providing such security as may be reasonably necessary to protect MWCC.
(5) MW shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors, or
any proceeding shall be instituted by or against MW seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
custodian, receiver, trustee or other similar official for it or for any
substantial
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part of its property and, in the case of any such proceedings instituted against
MW (but not instituted by it), either such proceedings shall remain undismissed
or unstayed for a period of sixty (60) days or any such adjudication or relief
sought occurs; or MW shall take any corporate action to authorize any of the
actions set forth in this subsection.
(6) [Section Intentionally Omitted].
(7) [Section Intentionally Omitted].
(8) MW assigns the Agreement in a manner not permitted by SECTION
17.1.
(9) In connection with any of MW's indebtedness on money borrowed,
either (a) the holder or holders of such indebtedness shall accelerate all of
the outstanding balance thereof and the amount accelerated shall be greater
than or equal to [ ]*, or (b) any scheduled payments of principal or
interest in an aggregate amount in excess of [ ]* shall remain unpaid
for a period longer than one hundred twenty (120) days beyond the date due.
(10) MW shall fail to make any payment of principal of, or interest on
or any amount owing in respect of, any one or more Seller Notes, Seller Recourse
Notes, the MW 1996 Note or the MW Continuation Note and/or MW's obligations
pursuant to SECTIONS 4A.2, 4.3, 4.4(3), 4.6(3), 5.4(7) AND/OR 5.5(11) hereof,
when due and payable or declared due and payable, and the same shall remain
unremedied for a period of ten (10) Business Days after MWCC shall have made
written demand therefor, or, subject to the provisions of SECTION 7.11 hereof,
such longer period as may be required to resolve any good faith dispute with
respect to MW's obligations pursuant to SECTIONS 4A.2, 4.3, 4.4(3), 4.6(3),
5.4(7) AND/OR 5.5(11), as to whether any such amount is owed hereunder.
(11) MW shall have committed an MW Default under the Bank Program
Agreement (as defined in the Bank Program Agreement).
16.2. MWCC DEFAULTS. The occurrence of any one or more of the following
events (regardless of the reason therefor) shall constitute a "MWCC Default"
hereunder:
(1) [SECTION INTENTIONALLY OMITTED].
(2) MWCC shall fail to make any payment of any amount in excess of
[ ]* in the aggregate when due and payable or
declared due and payable under this
*Confidential treatment has been requested with respect to this information.
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Agreement, and the same shall remain unremedied for a period of ten (10)
Business Days after MW shall have made written demand therefor, or such longer
period as may be required to resolve any good faith dispute as to whether any
such amount is owed hereunder.
(3) MWCC shall fail or neglect to perform any of the covenants
contained in SECTION 13.1 of this Agreement (provided that such failure or
neglect shall occur on a repeated and sustained basis with a conscious disregard
of MWCC's obligations with respect thereto and relate to laws and regulations
governing Accounts and/or Indebtedness owned by MWCC), and such failure or
neglect shall remain unremedied for a period of thirty (30) days after notice
thereof by MW to MWCC, or if such failure or neglect is not reasonably
susceptible of being cured within such thirty (30) day period, if MWCC fails to
commence to cure such failure, neglect or refusal during such thirty (30) day
period and diligently proceed to cure thereafter.
(4) Any representation or warranty made by MWCC pursuant to SECTIONS
9.1(a), 9.1(b), 9.2(a), 9.2(b), 9.2(c), 9.2(f), 9.2 (LAST SENTENCE), or 9.3 of
this Agreement shall not be true and correct in any material respect as of the
date when made or reaffirmed, and MWCC fails within thirty (30) days after
notice thereof by MW to MWCC, to correct the underlying basis which causes the
representation or warranty to be untrue, provided that in the case of SECTION
9.3, the thirty (30) day cure period shall not apply.
(5) (a) Any material portion of the Accounts or Indebtedness then
owned by MWCC or MWCC Assignees shall be attached, seized, levied upon or
subjected to a writ by a creditor of MWCC and such action is not being contested
by or on behalf of MWCC in good faith, which contest shall include providing
such security as may be reasonably necessary to protect MW, or (b) any material
portion of the Accounts or Indebtedness then owned by MWCC or MWCC Assignees
shall come within the possession of any receiver, trustee, custodian, or
assignee for the benefit of creditors of MWCC and such action is not being
contested by or on behalf of MWCC in good faith, which contest shall include
providing such security as may be reasonably necessary to protect MW.
(6) Either MWCC or GE Capital shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against MWCC or GE
Capital seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors,
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or seeking the entry of an order for relief or the appointment of a custodian,
receiver, trustee or other similar official for it or for any substantial part
of its property and, in the case of any such proceedings instituted against MWCC
or GE Capital (but not instituted by them), either such proceedings shall remain
undismissed or unstayed for a period of sixty (60) days or any such adjudication
or relief sought occurs; or MWCC or GE Capital shall take any corporate action
to authorize any of the actions set forth in this subsection.
(7) [Section Intentionally Omitted].
(8) [Section Intentionally Omitted].
(9) MWCC assigns this Agreement in a manner not permitted by SECTIONS
17.1 or 17.3.
(10) MWCC shall fail to make any payment of any amount, including
interest, owing in respect of SECTION 5.5 hereof when due and payable or
declared due and payable, and the same shall remain unremedied for a period of
ten (10) Business Days after MW shall have made written demand therefor, or,
subject to the provisions of SECTION 7.11 hereof, such longer period as may be
required to resolve any good faith dispute with respect to MWCC's obligations
pursuant to SECTION 5.5 as to whether any such amount is owed hereunder.
(11) A party other than MW shall have committed a Monogram Default
under the Bank Program Agreement (as defined in the Bank Program Agreement).
16.3. MWCC REMEDIES. If any MW Default shall have occurred and be
continuing:
(1) MWCC, in its discretion, upon written notice to MW, may terminate
this Agreement.
(2) In addition to (1) above, MWCC may exercise any other rights or
remedies available to it at law or in equity, subject to the terms of this
Agreement.
(3) MWCC may, without notice, declare Seller Notes, Seller Recourse
Notes, the MW 1996 Note, the MW Continuation Note and/or MW's obligations under
SECTION 4 and SECTIONS 5.4(7) and 5.5(11) hereof to be forthwith due and
payable, whereupon such Seller Notes, Seller Recourse Notes, MW 1996 Note, MW
Continuation Note and/or obligations shall become due and payable, without
presentment, demand, protest, or further notice of any kind, all of which are
expressly waived by MW, in which case MWCC shall have the right, at any time and
from time to time thereafter, in its discretion, without notice thereof to MW,
to
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enforce payment of the Seller Notes, Seller Recourse Notes, the MW 1996 Note,
the MW Continuation Note and/or such obligations.
16.4. MW REMEDIES. If any MWCC Default shall have occurred and be
continuing:
(1) MW, in its discretion, upon written notice to MWCC, may terminate
this Agreement.
(2) In addition to (1) above, MW may exercise any other rights or
remedies available to it at law or in equity, subject to the terms of this
Agreement.
(3) MW may declare any amounts under SECTION 5.5 hereof to be
forthwith due and payable, whereupon such amounts shall become due and payable,
in which case MW shall have the right, at any time and from time to time
thereafter, in its discretion, without notice thereof to MWCC, to enforce
payment of such amounts.
17. MISCELLANEOUS
17.1. COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT; ASSIGNMENT AND SALE OF
INTEREST.
(1) This Agreement constitutes the complete agreement between the
parties with respect to the subject matter hereof and may not be modified,
altered or amended, except by an agreement in writing signed by MWCC and MW.
The foregoing notwithstanding, it is acknowledged and agreed that (i) all
rights, obligations and liabilities of the parties with respect to events which
occur prior to the effective date of this Agreement under the Original Account
Purchase Agreement, including letters from MWCC to John Workman dated June 1,
1995 and July 5, 1995, the letter by and among Signature Financial/Marketing,
Inc., MWCC and MW, dated June 24, 1988 (including the amendments to that letter
dated September 14, 1988, May 23, 1992, June 16, 1994 and as of January 1,
1994), and the prior Service Mark License Agreement, in all cases to the extent
not expressly subsumed under this Agreement, and (ii) the obligations of MW
under that certain letter agreement between the parties dated as of August 2,
1995 (the "Letter Agreement") solely with respect to the payment by MW to MWCC
of the costs of the card reissuance program specified in that letter agreement,
shall survive execution of this Agreement and be governed by (as appropriate)
the Original Account Purchase Agreement, such letters, the Service Mark License
Agreement or the Letter Agreement.
(2) MW may not sell, assign, or transfer any of its rights, titles,
interests, remedies, duties, obligations or powers hereunder except to a
successor to substantially all of
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its business (including, without limitation, such a successor that is an
Affiliate of MW), and MW shall assign this Agreement to any successor to
substantially all of its business. MWCC may not sell, assign or transfer any of
its rights, titles, interests, remedies, duties, obligations or powers
hereunder, except to an Affiliate (including by way of merger of MWCC into GE
Capital), or as provided in SECTION 5.10 or subsection (3) below, provided any
transfer to an Affiliate or as set forth in such section or subsection are all
subject to the limitations set forth in any such section and subsection.
Neither party shall be obligated to any such assignee or transferee until it
receives notice of the assignment or transfer. Any assignments or transfers
hereunder shall not relieve the assigning or transferring party from its
obligations under this Agreement, and shall not relieve any guarantor of its
obligations, which guarantor shall as a condition of the effectiveness of the
assignment acknowledge in writing the continuing validity of its guaranty. The
assignee or transferee of this Agreement shall assume, by instrument reasonably
acceptable to the other party to this Agreement, the assignor's obligations
hereunder.
(3) Upon a sale of the entire retail credit department of GE Capital
("Retailer Department"), this Agreement may be assigned to the purchaser of the
Retailer Department ("Purchaser"), provided, however, that if such Purchaser is
a Competitor, or if a Competitor becomes an Affiliate of MWCC or otherwise
directly or indirectly controls MWCC or MWCC's rights or obligations under this
Agreement, MW may at any time thereafter elect to terminate this Agreement.
Furthermore, upon assignment of this Agreement to a Purchaser, the
Account-Related Agreement Guaranty shall continue for the unexpired term of this
Agreement calculated as if a notice of termination was served at the time of
assignment. The Purchaser shall assume the obligations of MWCC under this
Agreement, and GE Capital shall, as a condition to the effectiveness of the
assignment, confirm the continuing validity of its guaranty hereof, all by
instruments reasonably acceptable to MW. MWCC will not be relieved of its
obligations hereunder in the event of such an assignment. In the event GE
Capital wishes to sell the Retailer Department, it will give MW at least sixty
(60) days prior written notice and allow MW to submit an offer to purchase the
Retailer Department.
(4) After assignment or transfer by MWCC, as provided in (2) or (3)
above, Transparent Servicing shall continue.
17.2. [SECTION INTENTIONALLY OMITTED].
17.3. MWCC AFFILIATES. At the request of MWCC, MW shall, provided MWCC
pays all costs arising therefrom, enter into one or more agreements with a bank,
financial institution, industrial
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bank or similar institution selected by MWCC, which bank or institution shall be
an Affiliate of MWCC, in replacement of, or in addition to, this Agreement,
provided any such action is approved by the Marketing Committee. Such new
agreements referred to in the first sentence of this SECTION 17.3, and this
Agreement as so modified, shall be guaranteed by GE Capital in the same form and
manner that GE Capital has guaranteed this Agreement, and such new agreements
and any required modifications of this Agreement shall be satisfactory in all
respects to MW.
17.4. [SECTION INTENTIONALLY OMITTED].
17.5. NO WAIVER. Either party's failure, at any time or times, to require
strict performance by the other of any provision of this Agreement shall not
waive, affect or diminish any right of such party thereafter to demand strict
compliance and performance therewith. Any suspension or waiver by either party
of a default shall not suspend, waive or affect any other default, whether the
same is prior or subsequent thereto and whether of the same or of a different
type. None of the undertakings, agreements, warranties, covenants and
representations of the parties contained in this Agreement and no MW Default or
MWCC Default pursuant to this Agreement shall be deemed to have been suspended
or waived by any party hereto, unless such suspension or waiver is by an
instrument in writing signed by such party.
17.6. REMEDIES. The parties' rights and remedies pursuant to this
Agreement shall, subject to the provisions hereof, be cumulative and
nonexclusive of any other rights and remedies which they may have pursuant to
any other agreement, by operation of law, or otherwise.
17.7. SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law; if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
17.8. PARTIES. This Agreement shall be binding upon, and inure to the
benefit of, the permitted successors and permitted assigns of each party hereto.
17.9. AUTHORIZED SIGNATURE. Until notified to the contrary by the
authorizing party, the signature upon any document or instrument delivered
pursuant hereto of a respective officer of MW or MWCC listed in SCHEDULE 17.9
hereto shall bind such party and be deemed to be the act of such party affixed
pursuant to and
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in accordance with resolutions duly adopted by the Board of Directors of such
party.
17.10. GOVERNING LAW. This Agreement and the obligations arising pursuant
hereto shall, in all respects, including all matters of construction, validity,
and performance, be governed by, and construed in accordance with, the laws of
the State of New York applicable to contracts made and performed in such state
and any applicable laws of the United States of America. MW and MWCC agree to
submit to personal jurisdiction and to waive any objection as to venue of the
federal or state courts in the State of New York. Service of process on MW or
MWCC in any action arising out of or relating to this Agreement shall be
effective upon receipt thereof if sent or delivered to MW or MWCC, as the case
may be, in accordance with SECTION 17.11 hereof. Nothing herein shall preclude
MW or MWCC from bringing suit or taking other legal action in any other
jurisdiction.
17.11. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by another, or whenever any of the parties desires to give or serve upon
another a communication with respect to this Agreement, each such notice,
demand, request, consent, approval, declaration, or other communication shall be
in writing and either shall be delivered in person with receipt acknowledged or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(1) If to MWCC, at
Montgomery Ward Credit Corporation
880 Grier Drive
Las Vegas, Nevada 89119
Attn: President
with a copy to
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06904
Attn: Vice President and General
Manager, Retailer
Financial Services
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(2) If to MW, at
Montgomery Ward & Co., Incorporated
619 W. Chicago Avenue
Chicago, Illinois 60671
Attn: Secretary
with a copy to
Montgomery Ward & Co., Incorporated
619 W. Chicago Avenue
Chicago, Illinois 60671
Attn: Chief Financial Officer
or at such other address or to such other addressees as may be substituted or
added by notice given by the party to receive such notice as herein provided.
The giving of any notice required pursuant hereto may be waived in writing by
the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication pursuant hereto shall be
deemed to have been duly given or served on the date on which personally
delivered or three (3) Business Days after mailing.
17.12. CONFIDENTIALITY.
(1) Subject to the provisions of SECTION 5.3 of this Agreement, each
party hereto shall hold in confidence any proprietary information obtained from
any other party hereto in connection with this Agreement and shall not disclose
the same to any third party, except that disclosure to an Affiliate of MW or
MWCC or to Valuevision International Inc. is allowed. The parties' duty of
confidentiality contained hereunder is specifically intended to apply to the
MWCC Customer List and any credit file maintained in connection with MWCC
Cardholders (both of which shall be deemed proprietary information). MW agrees
that the financial terms of this Agreement are considered proprietary to MWCC
and will not be disclosed (except in the circumstances described in subsections
(b) and (c) below) to any Person if there are practical ways, after discussion
with MWCC, of avoiding such disclosure. Nothing contained herein shall limit
the right of either party to disclose any information (a) as required by law or
by judicial or administrative process or to appropriate regulatory authorities,
(b) as such information is or becomes public knowledge, (c) to the extent that
such information is disclosed to recover the Indebtedness or amounts owing
hereunder from another party hereto, (d) for legitimate business purposes,
including but not limited to purposes relating to any securitization, securities
filings or in connection with providing information to auditors, prospective
purchasers and lenders (provided that, to the extent that any party determines
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to disclose the MWCC Customer List in a manner authorized by this Agreement, the
disclosing party shall use best efforts to obtain from the party to whom the
information is being disclosed a written confidentiality agreement), and (e)
subject to the provisions of SECTION 5.3 with the prior written consent of the
party whose information is proprietary, pursuant to an agreement between the
Person to whom the information is being disclosed and the party whose
information is proprietary, satisfactory in form and content to such latter
party as to the confidentiality of such proprietary information and reasonable
liquidated damages (which liquidated damages for the use of the credit file
shall initially be based on SCHEDULE 5.3 annexed hereto as such Schedule may be
modified as provided in SECTION 5.3) to be paid for a violation thereof,
provided, however, that prior to disclosing any proprietary information of
another party hereto to any Person, the party making such disclosure shall
notify the appropriate party of the nature of such disclosure and of the fact
that such disclosure will be made.
(2) The parties acknowledge and agree that: (i) the MWCC Customer
List is commercially and competitively valuable; (ii) by this SECTION 17.12, the
parties are taking reasonable steps to protect legitimate interests in the MW
Customer List; and (iii) the restrictions on the parties under this Agreement
relating to the MWCC Customer List are reasonably necessary in order to protect
legitimate interests in the MWCC Customer List.
17.13. PAYMENTS. All payments to be made hereunder shall be made in
lawful money of the United States in immediately available federal funds to
an account designated by the other party. Except as expressly provided
herein, if any amount due hereunder is not paid when due and owing, the party
failing to make such payment agrees to pay, on demand, a charge equal to the
Prime Rate on the date due and owing, or the Business Day immediately
following such date, as it from time to time changes thereafter, plus
[ ]* on such amount until such amount is paid in full.
17.14. [SECTION INTENTIONALLY OMITTED].
17.15. SECTION TITLES. The section titles, table of contents and list of
exhibits and schedules contained in this Agreement are and shall be without
substantive meaning or content of any kind whatsoever and are not a part of the
agreement between the parties hereto.
17.16. COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which shall, collectively and separately,
constitute one agreement.
*Confidential treatment has been requested with respect to this information.
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17.17. DISCLOSURE. Disclosure of information on any schedule or exhibit
hereto shall be deemed to be a disclosure for all purposes of this Agreement.
17.18. ESTOPPEL CERTIFICATES. Each party shall furnish to the other, as
requested from time to time by the other, estoppel certificates stating (or
specifying exceptions thereto) that this Agreement is in full force and effect,
that such party has no knowledge of any failure by either party to perform its
obligations hereunder, and such other matters as may be reasonably requested by
the other.
17.19. [SECTION INTENTIONALLY OMITTED].
17.20. [SECTION INTENTIONALLY OMITTED].
17.21. THIRD PARTY BENEFICIARIES. No third party shall have any rights
under this Agreement except for Monogram, and successors and permitted assigns
of the parties hereto.
17.22. FORCE MAJEURE. Except as otherwise expressly provided herein, and
except with respect to Sections 11.1(b) and 11.2(b) and payments to be made by
either party, neither party shall be responsible for any failure or delay in
performance of its obligations under this Agreement because of circumstances
beyond its control including, but not limited to, acts of God, flood, criminal
acts, fire, riot, computer viruses, computer hackers, accident, strikes or work
stoppages for any reason, embargo, war or civil disturbances; PROVIDED, HOWEVER,
that such party took reasonable action to avoid such events and such party acts
reasonably to mitigate the effects of such events.
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17.23. MARKETING COMMITTEE. During the term of this Agreement, the parties
hereto acknowledge and agree that, if and to the extent that (i) this Agreement
provides for consultation with, or approval from, the Marketing Committee, (ii)
there are changes over time to the Program which could have an adverse
competitive, economic or other impact on MW, the Marketing Committee shall be
consulted with, or its approval shall be obtained, in accordance with the
standards and procedures set forth in the Bank Program Agreement (including,
without limitation, those providing for binding arbitration in the event of a
Marketing Committee deadlock). Notwithstanding any other provision of this
Agreement or the Bank Program Agreement to the contrary, each of MWCC and MW may
take any actions without prior Marketing Committee approval that MWCC or MW, as
the case may be, believes in good faith, after consultation with counsel and
reasonable notice to the other party, are required by law or by demand of any
Governmental Authority.
17.24. CLOSING. The closing of this transaction and any related
transactions involving Affiliates of MWCC shall be held on the Closing Date in
the offices of Weil, Gotshal & Manges, 767 Fifth Avenue, New York, New York
10153 or such other place or places agreed to by the parties.
IN WITNESS WHEREOF, this Agreement has been duly executed on December ___,
1996, effective as of April 1, 1996.
MONTGOMERY WARD & CO., INCORPORATED
By:
----------------------------------------------
MONTGOMERY WARD CREDIT CORPORATION
By:
----------------------------------------------
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EXHIBIT A
GUARANTY OF ACCOUNT-RELATED AGREEMENT
THIS GUARANTY made as of this 1st day of April, 1996, by General Electric
Capital Corporation (hereinafter referred to as "Guarantor"), in favor of
Montgomery Ward & Co., Incorporated (hereinafter referred to as "MW").
RECITALS
A. Montgomery Ward Credit Corporation (herein referred to as "MWCC"), is
desirous of entering into that certain Account-Related Agreement of even date
herewith between MWCC and MW ("Agreement").
B. Guarantor owns all of the outstanding capital stock of MWCC and has
requested that MW enter into the Agreement.
C. MW has declined to enter the Agreement unless Guarantor guarantees the
obligations of MWCC under the Agreement.
NOW, THEREFORE, to induce MW to enter the Agreement, Guarantor hereby
agrees as follows:
1. UNCONDITIONAL GUARANTY. Guarantor unconditionally guarantees to MW
and the successors and assigns of MW the full and punctual payment, performance
and observance by MWCC, of all the terms, covenants, conditions and
indemnifications in the Agreement contained on MWCC's part to be kept, performed
or observed. If, at any time, default shall be made by MWCC in the performance
or observance of any of the terms, covenants, conditions or indemnifications in
the Agreement contained on MWCC's part to be kept, performed or observed
Guarantor will keep, perform and observe the same, as the case may be, in place
and stead of MWCC.
2. WAIVER OF NOTICE; NO RELEASE OF LIABILITY. Any act of MW, or the
successors or assigns of MW, consisting of a waiver of any of the terms or
conditions of the Agreement, or the giving of any consent to any matter or thing
relating to the Agreement, or the granting of any indulgences or extensions of
time to MWCC, may be done without notice to Guarantor and without releasing the
obligations of Guarantor hereunder. The obligations of Guarantor hereunder
shall not be released by MW's receipt, application or release of any security
given for the performance and observance of covenants and conditions in the
Agreement contained on MWCC's part to be performed or observed, nor by any
modification of the Agreement. The liability of Guarantor hereunder shall in no
way
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be affected by (a) the release or discharge of MWCC in any creditors,
receivership, bankruptcy or other proceedings, (b) the impairment, limitation or
modification of liability of MWCC or the estate of MWCC in bankruptcy, or of any
remedy for the enforcement of MWCC's liability under the Agreement, resulting
from the operation of any present or future provision of the Federal Bankruptcy
Code or other statute or from the decision in any court; (c) the rejection or
disaffirmance of the Agreement in any such proceedings; (d) any disability or
other defense of MWCC except as otherwise provided in the Agreement; (e) the
cessation from any cause whatsoever of the liability of MWCC except or otherwise
provided in the Agreement; or (f) the exercise by MW of any rights or remedies
reserved to MW under the Agreement, provided or permitted by law, or by reason
of any termination of the Agreement.
3. JOINDER; STATUTE OF LIMITATIONS. Guarantor agrees that it may be
joined in any action against MWCC in connection with the obligations of MWCC
under the Agreement as guaranteed by this Guaranty and recovery may be had
against Guarantor in any such action, or MW may enforce the obligations of
Guarantor hereunder without first taking any action whatsoever against MWCC or
its successors and assigns, or pursue any other remedy or apply any security it
may hold.
4. DE FACTO SUBSTITUTION. In the event this Guaranty shall be held
ineffective or unenforceable by any court of competent jurisdiction, or in the
event of any limitation of liability of Guarantor hereon other than as expressly
provided herein, then Guarantor shall be deemed to be a party under the
Agreement with the same force and effect as if Guarantor were expressly named as
a joint and several party with MWCC therein with respect to the obligations of
MWCC thereunder hereby guaranteed.
5. AMENDMENT OR ASSIGNMENT OF AGREEMENT. The provisions of the Agreement
may be changed, modified, amended or waived by agreement between MW and MWCC at
any time, or by course of conduct, without the consent of or without notice to
Guarantor, including but not limited to, any agreement to increase the "Maximum
Aggregate Cardholders' Balance" (as such quoted term is defined in the Bank
Program Agreement) thereunder. This Guaranty shall guarantee the performance of
the Agreement as so changed, modified, amended or waived, including but not
limited to, any increase in the "Maximum Aggregate Cardholders' Balance". Any
assignment of the Agreement shall not affect this Guaranty and if MW disposes of
its interest in the Agreement, "MW", as used in this Guaranty, shall mean MW's
successors and assigns.
6. DEFENSE OF MWCC. Guarantor waives any defense by reason of any legal
disability of MWCC, and further waives any
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presentments, and notices of acceptance of this Guaranty as well as all notices
of the existence, creation, or incurring of new or additional obligations under
the Agreement.
7. NO WAIVER BY MWCC. No delay on the part of MW in exercising any right
hereunder or under the Agreement shall operate as a waiver of such right or of
any other right of MW hereunder or under the Agreement, nor shall any delay,
omission or waiver on any one occasion be deemed a waiver of the same or any
other right on any other future occasion.
8. WHOLE AGREEMENT. This instrument constitutes the entire agreement
between MW and Guarantor with respect to the subject matter hereof, supersedes
all prior oral or written agreements or understandings with respect thereto and
may not be changed, modified, discharged or terminated orally or in any manner
other than by an agreement in writing signed by Guarantor and MW.
9. APPLICABLE LAW. This Guaranty shall be governed by and construed in
accordance with the laws of the State of New York.
10. GUARANTOR'S SUCCESSORS. Guarantor's obligations under this Guaranty
shall be binding on the successors, legal representatives and assigns of
Guarantor. Guarantor shall not be released by any assignment or delegation by
it of its obligations hereunder.
11. ATTORNEYS' FEES. If MW is required to enforce Guarantor's obligations
hereunder, Guarantor shall pay to MW all costs incurred, including without
limitation, reasonable attorneys' fees.
12. CAPTIONS. The paragraph headings appearing herein are for purposes of
identification and reference only and shall not be used in interpreting this
Guaranty.
13. INTERPRETATIONS; SEVERABILITY. It is agreed that if any provision of
this Guaranty or the application of any provision to any person or any
circumstance shall be determined to be invalid or unenforceable, such
determination shall not affect any other provisions of this Guaranty or the
application of such provision to any other person or circumstance, all of which
other provisions shall remain in full force and effect. It is the intention of
the parties hereto that if any provision of this Guaranty is capable of two
constructions, one of which would render the provision valid, the provision
shall have the meaning which renders it valid.
14. EXTENSION AND RENEWALS. This Guaranty shall apply to the Agreement,
any extension or renewal thereof, and to any
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extended term following the term granted in the Agreement, or any extension or
renewal thereof, subject to the provision of SECTION 17.1(3) of the Agreement
which may limit the period of the Guaranty in certain circumstances where
Guarantor has sold the entire retail credit department, all as more fully set
forth therein.
15. NOTICES. Notices shall be given pursuant to the Guaranty in the same
manner as given in the Agreement.
16. CONFIDENTIALITY. Guarantor shall comply, and shall cause all of its
"Affiliates" (as such quoted term is defined in the Agreement) to comply, with
the confidentiality provisions contained in the Agreement which are imposed on
MWCC.
17. COMPLIANCE. Guarantor hereby additionally agrees to comply with the
last sentence of SECTION 3.1(4) and the last sentence of SECTION 17.12 of the
Agreement.
ACKNOWLEDGEMENT; ENFORCEABILITY. GUARANTOR REPRESENTS AND WARRANTS TO MW
THAT GUARANTOR HAS READ THIS GUARANTY AND UNDERSTANDS THE CONTENTS HEREOF AND
THAT THIS GUARANTY IS ENFORCEABLE AGAINST GUARANTOR IN ACCORDANCE WITH ITS
TERMS.
4
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Guaranty on December 20,
1996, effective as of April 1, 1996.
Guarantor:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
Name:
Title:
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As of 4/1/96
Monogram Credit Card Bank of Georgia
7840 Roswell Road
Atlanta, Georgia 30350
Gentlemen:
Reference is made to the letter by and among Signature
Financial/Marketing, Inc. ("Signature"), Montgomery Ward Credit Corporation
("MWCC") and Montgomery Ward & Co., Incorporated ("MW"), dated June 24, 1988 to
which is attached an outline relating to a proposed Signature-MWCC Servicing
Agreement (the "Outline"), and the amendments to that letter dated
(respectively) September 14, 1988, May 23, 1992, June 16, 1994 and as of January
1, 1994 (collectively, the "Amendments").
WHEREAS, MWCC heretofore provided revolving credit accessed by a
credit card to persons ("Cardholders") in order to make purchases from MW and
certain of MW's affiliates and licensees, including Signature; and
WHEREAS, MWCC furnishes certain services to Signature as specified in
the Outline, in return for which Signature pays MWCC certain fees; and
WHEREAS, Monogram Credit Card Bank of Georgia ("Monogram") has entered
into a Bank Credit Card Program Agreement with MW, dated as of April 1, 1996, as
amended, restated, modified, supplemented or replaced ("Bank Credit Card Program
Agreement") pursuant to which Monogram shall be providing revolving credit
advances to Cardholders accessed by a credit card in order to allow such
Cardholders to make purchases from MW and certain of its affiliates and
licensees, including Signature; and
WHEREAS, MWCC, Monogram and Signature recognize and desire that the
services previously provided by MWCC for Signature should now be provided by
Monogram, and that payment for such services be made by Signature to Monogram;
NOW, THEREFORE, in consideration of these premises, the parties hereto
covenant and agree as follows:
1. Monogram shall, as of April 1, 1997, provide to Signature the
same services that were being provided by MWCC and Monogram shall continue to do
so until the Bank Credit Card Program Agreement terminates. Monogram may provide
such services through a designee.
<PAGE>
2. Signature shall, as of April 1, 1996, pay to Monogram the fees it
has been paying MWCC as specified in the Outline, as modified by amendment,
dated May 23, 1992, and Signature shall continue to do so until the Bank Credit
Card Program Agreement terminates.
3. Paragraph 3 in the Third Amendment to Exhibits A & B, dated as of
January 1, 1994, entitled "Payment Regarding Finance Charges" ("Paragraph 3"),
is void and shall have no force or effect. For the avoidance of doubt, it is
understood and agreed that no payments under Paragraph 3 (including with respect
to all time periods prior to the date hereof) shall be owed to Signature at any
time.
4. This letter replaces the letter by and among Signature, MWCC, and
MW, dated June 24, 1988, the Outline and the Amendments, all of which shall be
of no further force or effect.
Dated: December 20, 1996
Very truly yours,
SIGNATURE FINANCIAL/
MARKETING, INC.
By:
--------------------------------
Acknowledge and Agreed To:
MONTGOMERY WARD CREDIT CORPORATION
By:
--------------------------------------
MONOGRAM CREDIT CARD BANK OF GEORGIA
By:
--------------------------------------
MONTGOMERY WARD & CO., INCORPORATED
By:
--------------------------------------
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As of 4/1/96
Montgomery Ward Credit Corporation
880 Grier Drive
Las Vegas, Nevada 89119
Gentlemen:
Reference is made to the Account-Related Agreement by and between
Montgomery Ward Credit Corporation ("MWCC") and Montgomery Ward & Co.,
Incorporated ("MW"), dated as of April 1, 1996 (the "Account-Related
Agreement").
Signature Financial/Marketing, Inc. ("Signature"), shall reimburse
MWCC for amounts of continued assessments on Accounts with respect to fees,
premiums and charges of Signature where (i) such accounts are past due for
thirty (30) days or more on five (5) minimum payments at the time of assessment
and (ii) where MWCC writes-off such Accounts. Accounts are those defined in the
Account-Related Agreement.
Signature shall make such reimbursement payment within ten days after
MWCC bills Signature for such amounts.
With respect to such reimbursements payments for the period April 1,
1996 through December 31, 1996, MWCC shall bill Signature in January 1997 for
such period and Signature shall make such payment on or before January 31, 1997.
Dated: December 20, 1996
Very truly yours,
SIGNATURE FINANCIAL/
MARKETING, INC.
By:________________________
Acknowledge and Agreed To:
MONTGOMERY WARD CREDIT CORPORATION
By:______________________________
<PAGE>
September 17, 1996
Monogram Credit Card Bank of Georgia
7840 Roswell Road
Atlanta, GA 30350
Attention: Colin Shave
Montgomery Ward Credit Corporation
880 Grier Drive
Las Vegas, NV 89119
Attention: Greg Pittman
Gentlemen:
In connection with the execution by Montgomery Ward & Co., Incorporated
("MW") of the Bank Program Agreement and the Account Related Agreement, both
dated as of April 1, 1996 (collectively the "Agreements"), we have had numerous
discussions with your representatives concerning the calculation of and the data
provided for that calculation with respect to "skip free promotions". We have
agreed that these issues require further analysis and review to determine the
appropriateness and fairness of the calculation. When this review is completed
it may require the further modification of the Agreements.
Very truly yours,
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ John Workman
------------------------------------
Accepted and Agreed To:
MONOGRAM CREDIT CARD BANK OF GEORGIA
By: /s/
-----------------------------
MONTGOMERY WARD CREDIT CORPORATION
By: /s/ Gregory W. Pittman
-----------------------------
<PAGE>
[LETTERHEAD]
August 2, 1995
Mr. John L. Workman
Executive Vice President and Chief Financial Officer
Montgomery Ward Corporate Offices
535 W. Chicago Ave. - 8C
Chicago, IL 60671
Dear John:
As you will recall, one item discussed at our 2/28 Credit Marketing status
meeting was the launch of the new card reissuance program and the approach to
be followed in funding the marketing cost. We estimate that the cost of
reissuing 2.6MM cards will be approximately [ ]*. It is our
understanding that the launch costs will be billed to Montgomery Ward when
incurred and that such cost will be recovered over time as a result of
changing the Chairman's Club APR from a fixed rate of 16.9% (or such lesser
APR as may be in effect) to a 21.9% fixed rate where allowed. We agreed that
the abovementioned increase in the Chairman's Club APR be deferred until 1996
with notification on or about 1/1/96 and an effective date of 3/1/96, subject
to applicable change in terms notice requirement.
The incremental Chairman's Club finance charge income from the higher fixed
APR will be credited [ ]* to Montgomery Ward until the launch cost is
fully recovered. We propose that the incremental finance charge income be
shared on a [ ]* basis following the complete repayment of the
reissuance cost. Consistent with the terms of the 5th amendment to the
Account Purchase Agreement, Montgomery Ward's [ ]* share of incremental
APRs will be incorporated into the revenue sharing "pool" and be applied
against the current note due and payable by Montgomery Ward on 2/28/98 after
the reissuance note has been fully repaid.
Subject to your agreement, the following terms are suggested for this program:
Timing: Reissuance of the cards in early August. Implement new
Chairman's APR effective 3/1/96 (subject to applicable law).
APR: The APR will be fixed at 21.9% except in those states where the
maximum rate is lower. The lower fixed rates will continue to
apply to old balances with the higher APRs applying only to new
purchases.
Incremental
Revenue: [ ]* payable to Montgomery Ward until reissuance cost
is repaid. Share [ ]* thereafter with Montgomery Ward
share being applied against the loss sharing note.
* Confidential treatment has been requested with respect to this information.
<PAGE>
John L. Workman
August 2, 1995
Page 2
In order to provide the initial funding necessary to cover the reissuance
cost, GE Capital is prepared to provide a loan of [ ]* with quarterly
payments due from Montgomery Ward based upon the incremental finance charge
income generated by the higher Chairman's Club APR and interest due. Any
balance remaining at 12/31/97 will be due and payable at that time. Interest
will be charged at [ ]* on a quarterly basis. Interest only will be due
on the loan until the Chairman's Club APR is increased on or about 3/1/96.
Quarterly payments against the loan balance will be equal to the incremental
APR revenues plus interest after 3/1/96. If Montgomery Ward fails to
increase the Chairman's Club APR on 3/1/96, the total loan balance will be
due and payable at that time.
It is our understanding that this agreement relates to cardholders who have been
approved for Montgomery Ward cards only and excludes those cardholders approved
for a Electric Avenue and More or Lechmere card. Please sign below if you agree
with these terms or let's discuss any required modifications.
Sincerely,
/s/ Gail Lanik Approval: /s/ John Workman
Gail Lanik --------------------------------
John L. Workman
cc: Ricky Davis
Al LeFevre
Steve Currey
Gene McCaffery
* Confidential treatment has been requested with respect to this information.
<PAGE>
INTERIM
CONSUMER CREDIT CARD PROGRAM AGREEMENT
This Consumer Credit Card Program Agreement (hereinafter the "Agreement")
is made as of the 13th day of March, 1996 by and between Monogram Credit Card
Bank of Georgia, a Georgia banking corporation with its principal place of
business at 7840 Roswell Road, Atlanta, Georgia 30350 and Lechmere Inc. a
Massachusetts corporation with its principal place of business and chief
executive office at 275 Wildwood, Woburn, Massachusetts 01801 ("Retailer").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Bank (as hereinafter defined) has established programs to extend
customized revolving credit to qualified customers for the purchase of Goods and
Services (as hereinafter defined) from various merchants for personal, family or
household purposes;
WHEREAS, Retailer through its Retailer Locations (as hereinafter defined)
is engaged, among other activities, in the retail sale of consumer Goods and
Services and desires to create an interim customized revolving credit card
program, as more particularly set forth herein;
WHEREAS, Retailer has requested that Bank extend credit to qualified
customers of Retailer for the purchase of such Goods and Services at Retailer
Locations;
WHEREAS, Bank has agreed to provide Retailer with such a program for credit
extension at Retailer Locations as set forth herein, initially for Accounts that
have been created pursuant to the terms of this Agreement and, after GE Capital
purchases certain accounts and indebtedness from Hurley State Bank relating to
Retailer, all Accounts and Indebtedness including those purchased from Hurley
State Bank;
WHEREAS, the parties intend to replace this Agreement as soon as
practicable by the Long Term Agreement; and
NOW, THEREFORE, in consideration of the terms, conditions and mutual
covenants contained herein, and for good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged, Bank and Retailer agree as
follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"ACCOUNT" means and includes the following: (i) any open-end revolving
Credit Card Agreement, whether now existing or hereafter created between a
Cardholder and Bank under the Program, pursuant to which such Cardholder may
finance Purchases on credit pursuant to the terms of such Credit Card Agreement,
together with any modifications or amendments which now or hereafter may be made
to such Credit Card Agreement, which Account is owned by Bank, and which Account
is to be used for personal, family or household purposes, as well as Old
Accounts (ii) any and all Account Documentation; (iii) all of the accounts,
accounts receivable, Indebtedness, other receivables, contract rights, choses in
action, general intangibles, chattel paper, instruments, documents and notes,
Program Documents and contract rights related to, comprising, securing or
evidencing the obligation, or the receivables therefrom and all proceeds of all
of the foregoing, (iv) any and all rights as to any goods or other property
which is represented thereby or is security or collateral therefor; (v) all
guarantees, claims, security interests, or other security held by or granted to
Bank to secure payment by any Person with respect thereto; (vi) proceeds
relating to Insurance Programs; and (vii) any and all other rights, remedies,
benefits, interests and titles, both legal and equitable, to which Bank may now
or at anytime hereafter be entitled in respect of the foregoing.
"ACCOUNT DOCUMENTATION" means with respect to an Account, any and all
documentation relating to an Account, including without limitation, Program
Documents, Credit Cards, Credit Card Applications, Credit Card Agreements,
Charge Transaction Data, Charge Slips, Credit Slips, checks and stubs, credit
bureau reports, adverse action information, change of terms notices,
correspondence, memoranda, documents, instruments, certificates, agreements and
invoices, including any and all amendments or modifications thereto, however
stored or kept, and any other written information relating to an Account.
"ACTIVE ACCOUNT" means any Account other than an Account that has been
written off in accordance with Bank's write-off
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policies, which at any time during a Billing Period has a debit or credit
balance.
"AFFILIATE" shall mean, with respect to any Person, each Person that
controls, is controlled by or is under common control with such Person. For the
purpose of this definition, "control" of a Person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of its
management or policies, whether through the ownership of voting securities, by
contract or otherwise. "Affiliate" shall not include any individual, and no
individuals shall be taken into account in any determinations under this
definition, and (b) neither General Electric Company, nor any of its
subsidiaries, shall be considered an Affiliate of Retailer.
"BANK" means Monogram Credit Card Bank of Georgia and its permitted
successors, transferees and assigns.
"BILLING DATE" means the last day of a Billing Period as of which Accounts
are billed by Bank.
"BILLING PERIOD" means the elapsed time between Billing Dates of Bank,
usually between 28 and 32 days.
"BUSINESS DAY" means any day, except Saturday, Sunday, or a day on which
banks are required or permitted to be closed in Georgia.
"CARDHOLDER" means any natural Person with a mailing address in, or who
resides in, the United States and who has entered into a Credit Card Agreement
with Bank or who is or may become obligated under or with respect to an Account,
for the purpose of purchasing Goods and/or Services from Retailer or its
Licensee for personal, family or household purposes on credit pursuant to an
Account.
"CARDHOLDER LIST" has the meaning given to it in Section 3.06 hereof.
"CHARGE SLIP" means a sales receipt, register receipt tape or other invoice
or documentation, in each case evidencing a Purchase that (i) is to be charged
to a Cardholder's Account and to be advanced by Bank to Retailer on behalf of
such Cardholder or (ii) was charged on an Old Account.
"CHARGE TRANSACTION DATA" means Account/Cardholder identification and
transaction information with regard to each Purchase by Cardholders on credit
and each return of a Purchase
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<PAGE>
for credit to the Account/Cardholder, which data will be transmitted by Retailer
to Bank in accordance with the applicable Operating Procedures.
"CREDIT CARD" or "CARD" means the plastic card issued and owned by Bank
under the Program exclusively for use with the Program which evidences a
Cardholder's right to make Purchases under the Program.
"CREDIT CARD AGREEMENT" means the open-end revolving credit agreement
between Bank and each Cardholder pursuant to which such Cardholder may make
Purchases, on credit provided by Bank, together with any modifications or
amendments which may be made to such agreement.
"CREDIT CARD APPLICATION" means Bank's credit application which must be
completed by applicants who wish to become Cardholders and submitted to Bank in
Georgia for review and approval by Bank.
"CREDIT PROMOTION ACCOUNT" shall have the meaning assigned to such term in
Section 2.03(c).
"CREDIT SLIP" means a sales credit receipt evidencing a return or exchange
of Goods or a credit on an Account, including an Old Account, as an adjustment
for Services rendered or not rendered by Retailer or a Licensee to a Cardholder.
"DEFAULT" means any event the occurrence of which, with the passage of time
or the giving of notice or both, would constitute an Event of Default.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in Section
10.01 hereof.
"FINAL LIQUIDATION DATE" shall mean the date on which Bank no longer owns
any Active Accounts that have a balance outstanding.
"FLOOR RELEASE" means the maximum amount of credit for any single credit
transaction authorized by Bank whereby Retailer may release Goods and/or
Services to Cardholders without securing prior approval by Bank as set forth in
the Operating Procedures.
"GOODS AND/OR SERVICES", separately or cumulatively, means all merchandise
and services which may be purchased by Cardholder from Retailer or a Licensee.
Goods and Services shall include
4
<PAGE>
Insurance Programs and Value-Added Programs to the extent purchased on an
Account.
"INDEBTEDNESS" means any and all amounts owing from time to time with
respect to an Account (including an Old Account), including, without limitation,
any unpaid balances, finance charges, late fees, charges relating to Insurance
Programs and Value-Added Programs and any other charges with respect to an
Account, whether billed or unbilled.
"IN-STORE PAYMENTS" means any payment on an Account made by a Cardholder
(or any person acting on behalf of a Cardholder) at a Retailer Location in
accordance with Section 3.07.
"INSURANCE PROGRAM" means any program which may be offered through Bank
pursuant to Section 3.04 under which Bank or any insurance company or other
third party makes available insurance coverage to Cardholders.
"LICENSEE" means any Person who pursuant to an agreement with Retailer, is
permitted from time to time by Retailer to make credit sales of Goods and/or
Services to Cardholders pursuant to or utilizing Credit Card Agreements.
"LOSSES" has the meaning given to it in Section 12.01 hereof.
"LONG TERM AGREEMENT" means an agreement between the parties hereto which
replaces this agreement and has among other provisions loss sharing and
promotional funding provisions.
"NET CREDIT VOLUME" means, with respect to any period, an amount equal to
the aggregate amount of Purchases on Accounts for such period (as reflected in
Charge Transaction Data) less the sum of (x) the aggregate amount of Credit
Slips for such period (as reflected in Charge Transaction Data) and (y) the
aggregate amount of chargebacks for such period not otherwise reflected in such
Credit Slips.
"NEW RETAILER" means any Person engaged in the operation of retail
appliance and/or electronics stores, together with any other Person directly or
indirectly controlled by such Person and any franchisees of such Person using
such Person's name, logo, trademarks and service marks or similar proprietary
designations claimed, owned or used by such Person.
5
<PAGE>
"OLD ACCOUNTS" means all revolving charge accounts established by Hurley
State Bank with respect to Retailer that are acquired directly or indirectly by
Bank.
"OPERATING PROCEDURES" means the instructions and procedures to be followed
by Retailer in connection with the Program, as such instructions and procedures
may be amended from time to time.
"PERSON" means and includes any individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or any department
or agency thereof.
"POS NETWORK" means the electronic communication system between Retailer
and Bank to facilitate the operation of the Program.
"PROGRAM" means the credit card program established by Bank pursuant to
this Agreement and made available to qualified customers of Retailer and
Licensees to make Purchases. The term "Program" includes the extension of
credit by Bank to Cardholders, billings, collections, accounting between the
parties, and all aspects of the customized revolving credit plan contemplated
herein.
"PROGRAM DOCUMENTS" has the meaning given to it in Section 3.01 hereof.
"PURCHASE(S)" means the purchase by a Cardholder of any of the Goods
and/or Services, including those which may be purchased from Retailer or
Licensees at the Retailer Locations.
"RETAILER LOCATION(S)" means retail stores within the continental United
States and other means to conduct retail business that are owned or operated by
Retailer or its Licensees at which Purchases may be made by Cardholders from
Retailer or Licensees.
"RETAILER NAMES" has the meaning given to it in Section 14.07 hereof.
"SOLVENT" as to a Person, means (a) the present fair salable value of such
Person's assets is in excess of the total amount of its liabilities, (b) such
Person is presently able generally to pay its debts as they become due, and (c)
such Person does not have unreasonably small capital to carry on such Person's
business as theretofore operated and all business in which such Person is about
to engage. The phrase "present fair salable
6
<PAGE>
value" of a Person's assets is intended to mean that value which can be obtained
if the assets are sold within a reasonable time in arm's-length transactions in
an existing and not theoretical market.
"TRANSACTION DAY" means any day, whether or not a Business Day, on which
Goods and/or Services are sold by Retailer or Licensees.
"UCC" means the Uniform Commercial Code of the jurisdiction with respect to
which such term is used, as in effect from time to time.
"UNCONTESTED AMOUNT" means an amount owed by Bank to Retailer or by
Retailer to Bank, as the case may be, pursuant to the terms of this Agreement
and with respect to which written notice disputing such amount has not been
delivered by Bank to Retailer or by Retailer to Bank, as the case may be.
"VALUE-ADDED PROGRAM" means any products or services which may, subject to
mutual approval of Bank and Retailer, be offered by or through Bank to
Cardholders pursuant to Section 3.05 that enhance the features of the Program
and/or Account including, without limiting the foregoing, credit card protection
plans, legal services, auto clubs and extended warranties; provided, however,
that the term shall not be deemed to include credit insurance or any offerings
falling within the definition of "Insurance Program".
SECTION 1.02 MISCELLANEOUS. As used herein, (i) all references to the
plural number shall include the singular number (and vice versa); (ii) all
references to the masculine gender shall include the feminine gender (and vice
versa) and (iii) all references to "herein," "hereof," "hereunder,"
"hereinbelow," "hereinabove" or like words shall refer to this Agreement as a
whole and not to any particular section, subsection or clause contained in this
Agreement. All other undefined terms contained herein shall, unless the context
indicates otherwise, have the meanings provided for by the UCC of the State of
Georgia to the extent the same are used or defined therein.
ARTICLE II
ESTABLISHMENT OF PROGRAM
SECTION 2.01 COMMENCEMENT OF PROGRAM; MERCHANT TO HONOR CREDIT CARD.
7
<PAGE>
(a) Pursuant to the terms and conditions of this Agreement, Retailer and
Bank hereby establish the Program for the purpose of making open-end credit
available (up to such credit limits as Bank may from time to time establish and
modify) to qualified customers of Retailer for Purchases from Retailer
Locations. Prior to the time Bank obtains accounts and indebtedness, directly
or indirectly, from Hurley State Bank relating to Retailer, the Program shall be
limited to establishing Accounts for Persons who request Bank to open an
Account. After such time, Bank will also make credit available with respect to
Old Accounts unless this Agreement has been replaced by the Long Term Agreement.
(b) With respect to each applicant under the Program who qualifies for
credit under the standards established solely by Bank, Bank will open an
Account, issue to such qualified applicant a Credit Card, activate such
applicant's Credit Card in accordance with the Operating Procedures and grant
credit to such applicant for any Purchases from Retailer Locations in accordance
with credit limits. The terms and conditions upon which a Cardholder may use
the Credit Card and upon which Bank may extend credit to a Cardholder shall be
governed by the Credit Card Agreement between the Cardholder and Bank.
(c) Retailer will participate in the Program and honor any valid Credit
Card issued by Bank for Purchase(s) (including taxes) at each Retailer Location.
Only the cash selling price of Goods and Services sold or rendered by Retailer
shall be charged to Accounts. Sales and services to commercial enterprises
shall not be charged to Accounts. Retailer shall permit customers with Accounts
to charge Goods and Services to their Accounts, subject to and in accordance
with the Operating Procedures.
SECTION 2.02 BANK TO EXTEND CREDIT.
Subject to (i) the terms of this Agreement, (ii) the credit limits
applicable to each Account and (iii) the terms and conditions in the Credit Card
Agreement, Bank shall extend credit to Cardholders in amounts set forth as the
total for any Purchase(s) reflected in Charge Transaction Data received and
accepted by Bank.
SECTION 2.03 PROMOTION OF PROGRAM.
(a) During the term of this Agreement, Retailer will actively promote the
Program. Retailer shall include Program information and/or actual Credit Card
Applications and Credit Card Agreements in their general and specialized
brochures
8
<PAGE>
advertising when deemed appropriate by Retailer management. Retailer shall make
available at the Retailer Locations Credit Card Applications and Credit Card
Agreements to be used in connection with the Program in such manner as mutually
agreed by Retailer and Bank. Any press releases, advertisements, publicity or
other materials which promote the Program, including the Program Documents,
shall not be publicly distributed or disseminated without the prior consent of
Retailer and Bank; provided, however, that (i) Bank shall not be required to
obtain Retailer's consent for any portion of a document containing disclosures
or other information which in Bank's judgment is required by or appropriate to
comply with, any applicable law, rule or regulation; and (ii) Retailer shall not
be required to obtain Bank's consent for any materials regarding the Program
that are limited to statements or other representations (either oral, written or
visual) that the Card may be used for Purchases.
(b) From time to time Bank shall make available to Retailer, to
encourage Account acquisition and usage, certain credit-based promotions to
include, without limiting the foregoing, (i) 90 Day Skip Free Promotions,
with respect to which Retailer will pay Bank monthly the amount of
[ ]*. Such estimated amounts will be reconciled upon completion of
each credit promotion. No credit promotion of a type other than specified
above may be run unless agreed to in writing by the parties hereto.
(c) Bank shall establish on its books an account known as the "Credit
Promotions Account." This Credit Promotions Account shall be non-interest
bearing, shall not represent segregated funds and may be commingled by Bank with
other funds. The Credit Promotions Account shall be maintained as follows:
(i) On the date hereof, Retailer shall pay Bank an amount equal to
what Bank reasonably estimates to be the anticipated [ ]*
that Retailer will owe Bank under this SECTION 2.03(B) during the term
of this Agreement (the "Anticipated Credit Promotion Amount"). The
amount of such payment shall be credited to the Credit Promotions Account.
If Bank debits the Credit Promotions Account (as specified in the first
sentence of
*Confidential treatment has been requested with respect to this information.
9
<PAGE>
subparagraph (ii) below), Retailer shall immediately pay Bank such amount
and such amount when paid shall be credited to the Credit Promotions
Account.
(ii) Bank will debit the Credit Promotions Account where Retailer
fails to pay Bank when due the amount Retailer has been billed by Bank with
respect to credit promotions.
(iii) After termination of this Agreement and at such time Retailer no
longer is obligated to make payments with respect to credit promotions
hereunder, Bank shall debit the Credit Promotions Account for the balance
thereof and pay such amount to Retailer.
ARTICLE III
ADMINISTRATION OF PROGRAM
SECTION 3.01 PREPARATION OF DOCUMENTS.
(a) Subject to the provisions of Section 2.03, Bank and Retailer shall
cooperate and assist each other in the preparation of all documents to be used
in connection with the Program. Bank shall provide Retailer with the form and
content of Credit Card Applications, Credit Card Agreements, Credit Cards,
credit card mailers and such other documents as are requested by Retailer,
required by law or pursuant to the Operating Procedures (hereinafter
collectively, the "Program Documents"). Bank shall establish the nature and
quantities of any such documents.
(b) Bank shall be responsible for the direct costs of billing statements,
Credit Cards (including costs of embossing and distributing Credit Cards) and a
host-to-host computer link between Bank and Retailer. All Program Documents,
Credit Cards and other forms shall clearly disclose that Bank is the creditor.
No Program Documents shall be printed or utilized on a widespread or general
basis unless Bank and Retailer have expressly approved the form and content of
such documents in writing; provided, however, that if any such changes to the
documents are required by law, rule or regulation, then Bank shall not be
required to obtain Retailer's approval for any such change.
(c) Retailer shall be solely responsible for all other costs and expenses
of Program Documents, including, without limitation, Credit Card Applications,
credit advertising, in-
10
<PAGE>
store point-of-purchase promotional materials and credit marketing expenses
related to the promotion of the Program.
SECTION 3.02 ACCOUNT ADMINISTRATION; CREDIT CRITERIA.
(a) Bank, in its sole discretion, shall determine the creditworthiness of
individual applicants under the Program, the range of credit limits to be made
available to individual Cardholders, whether to suspend or terminate credit
privileges of any Cardholder, the credit criteria to be used in evaluating
applicants in connection with the Program, and shall establish all of the terms
and conditions of the Credit Card Agreement and the terms and conditions under
which credit is extended to Cardholders and may modify all such terms and
conditions from time to time in its sole discretion.
(b) The rejection for credit of any applicant under the Program, or any
number of applicants, shall not give rise to any claim, liability, demand,
offset, defense, counterclaim or other right or action by Retailer against Bank
or its Affiliates, and Retailer hereby waives and releases any such claim that
it may have against Bank or its Affiliates.
SECTION 3.03 OWNERSHIP OF ACCOUNTS. Bank shall be the sole and exclusive owner
of all Accounts, Account Documentation, Cardholder data, Charge Transaction
Data, Charge Slips, Credit Slips and receipts or evidences of payment or
purchases by Cardholder and other Program Documents, and shall be entitled to
receive all payments made by Cardholders on Accounts, and Retailer acknowledges
and agrees that it has no right, title or interest in any of the foregoing and
no right to any payments made by Cardholders on Accounts or any proceeds in
respect of the Accounts. All collection procedures shall be under the sole
control and discretion of Bank and may be modified from time to time by Bank,
provided that Bank will provide Retailer notice prior to implementation of
material modifications to its collection procedures.
SECTION 3.04 INSURANCE SOLICITATION OF ACCOUNTS. Bank, or its agents, may
solicit Cardholders for Insurance Programs with the written agreement of
Retailer. In the absence of such agreement, Retailer or its designee may
solicit Cardholder for Insurance Programs.
SECTION 3.05 VALUE-ADDED SOLICITATION OF ACCOUNTS. Bank, or its agents, may,
with Retailer's prior written consent, solicit Cardholders for Value-Added
Programs. Unless otherwise requested in writing by Retailer, such solicitation
shall in no way state
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<PAGE>
or infer that such Value-Added Programs are offered or endorsed by Retailer in
any manner. In the absence of such consent, Retailer or its designee may
solicit Cardholders for Value-Added Programs.
SECTION 3.06 USE OF CARDHOLDER LIST. Although Retailer acknowledges and agrees
that Bank is the sole owner of all lists of applicants, Cardholders, Cardholder
names and addresses, and all credit information, including that for approved and
declined applicants (hereafter the "Cardholder List"), Bank expressly agrees
that both during the term of this Agreement or thereafter, Bank will not sell,
rent or use such Cardholder List except in connection with its administration
and operation of the Program as provided in this Agreement; provided, however,
that upon the termination of this Agreement however caused, then Bank shall be
entitled to use the Cardholder List as provided in Section 11.05. Bank agrees
that during the term of this Agreement Retailer may utilize the Cardholder List
at no charge for promotion of this Program or of Goods and Services; provided,
however, that until the Final Liquidation Date in no event shall Retailer or its
Affiliates be entitled to use such Cardholder List to solicit Cardholders with
respect to any other debit, credit or charge programs that are in competition
with Bank or its Affiliates.
SECTION 3.07 IN-STORE PAYMENTS. Retailer shall not advertise or otherwise
promote that Cardholders (or other Persons acting on behalf of Cardholders) may
make In-Store Payments. Without derogating the restriction in the preceding
sentence, if any In-Store Payment is made, Retailer shall give the person making
such In-Store Payment a receipt for such payment, but payments shall not be
deemed to be made to Bank until funds are either delivered to Bank or the
payments are applied by Bank to reduce amounts payable by Bank to Retailer.
Retailer shall transmit In-Store Payment information to Bank. In-Store Payments
shall be credited to the Account of the relevant Cardholder as of the date of
actual receipt by Bank. In-Store Payments received by Retailer shall reduce the
amounts payable by Bank to Retailer. In the event that In-Store Payments
received by Retailer exceed amounts so payable by Bank to Retailer at the time
Retailer informs Bank of such In-Store Payments, Retailer shall be required to
transmit such excess In-Store Payments to Bank within three (3) Business Days of
the day received. Retailer shall notify Bank of any In-Store Payments within
twenty-four (24) hours of receipt thereof by providing such information in a
computer-readable medium. Retailer shall cease to accept In-Store Payments upon
notice from Bank which notice may be given (a) upon the occurrence of an Event
of Default caused by Retailer or (b) such time as Bank has
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<PAGE>
a reasonable basis for believing an Event of Default caused by Retailer is
likely.
ARTICLE IV
OPERATING PROCEDURES
SECTION 4.01 GENERAL. Retailer shall follow all applicable Operating
Procedures relative to the Program including, but not limited to, distributing
Credit Card Applications, seeking authorizations for Accounts, handling credit
transactions with Cardholders and transmitting Charge Transaction Data. The
Operating Procedures may be amended from time to time by Bank. Bank shall
provide Retailer with prior Notice of material modifications to the Operating
Procedures. The parties recognize and agree that from time to time
modifications and improvements will be made in hardware, software, and data
communications facilities that may, in Bank's discretion, result in changes in
the Operating Procedures.
SECTION 4.02 NEW CARDHOLDER ACCOUNT ESTABLISHMENT PROCEDURES.
(a) All Credit Card Applications will be reviewed by Bank for approval and
credit line assignment.
(b) Bank will forward Credit Cards for approved Accounts and activate such
Credit Cards.
(c) Retailer will not submit any corporate accounts or any accounts for
other than personal, family or household purposes under this Agreement;
provided, however, that any breach or violation of this paragraph shall not
constitute a breach of this Agreement which could give rise to an Event of
Default pursuant to Article X, but instead shall give rise to a chargeback
pursuant to Article VII.
SECTION 4.03 PURCHASE AUTHORIZATION PROCEDURES. Retailer agrees that all
purchase authorizations shall be conducted in accordance with the Operating
Procedures.
ARTICLE V
SETTLEMENTS; SERVICE FEES AND ADJUSTMENTS
SECTION 5.01 SETTLEMENT PROCEDURES.
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(a) All Charge Transaction Data will be electronically transmitted to Bank
using the POS Network. Retailer, or an agent of Retailer, will retain copies of
all Charge Slips.
(b) Upon receipt, verification and processing of Charge Transaction Data
by Bank, Bank will remit to Retailer an amount equal to [ ]* for the
Transaction Day(s) for which such remittance is being made less any amounts
required or permitted to be deducted from remittances pursuant to the terms
of this Agreement. Bank will transfer funds to a bank designated in writing
by Retailer via wire transfer. If Charge Transaction Data is received by
Bank's processing center before 11:00 AM Eastern Time on a Business Day, Bank
will initiate such wire transfer on the following Business Day. In the event
that the Charge Transaction Data is received after 11:00 AM Eastern Time,
then Bank will initiate such transfer on the second following Business Day.
(c) Retailer authorizes Bank to microfilm (or copy using any other
reasonable method) all documentation within the definition of Account and
Program Documents and destroy all such original Account Documentation in the
ordinary course of business as Bank may see fit, and in accordance with
applicable laws.
(d) In connection with the settlement procedures outlined above, the
parties agree that all settlements made hereunder shall be net of any and all
other adjustments contemplated by this Agreement, including but not limited to
credits, other adjustments and chargebacks pursuant to the Agreement. Bank
shall have the right to set off any amounts due to it pursuant to this Agreement
against any amounts to be transmitted to Retailer hereunder. Bank agrees that
in reference to the settlement procedures outlined herein it will, on at least a
monthly basis, provide Retailer with a statement detailing the amount, if any,
of adjustments, credits, chargebacks or other amounts set off against amounts
due to Retailer.
SECTION 5.02 OTHER ADJUSTMENTS. Any costs or expenditures by the parties to
this Agreement other than as explicitly set forth herein shall be at the sole
expense of the party incurring such costs or other expenditures and shall not
entitle that party to seek reimbursement of such costs or other expenditures
from the other party to this Agreement. Accordingly, subject to the
reimbursement provisions of this Agreement, if any, each of the parties alone
shall be liable for the payment of all sums due third parties retained by such
party in performing its obligations hereunder.
*Confidential treatment has been requested with respect to this information.
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SECTION 5.03 PAYMENT TO BANK. Bank will invoice Retailer monthly for all
appropriate expenses payable by Retailer pursuant to this Agreement including,
without limitation, expenses payable by Retailer pursuant to Section 5.02, and
Retailer agrees to pay Bank within 15 days of the date of receipt of such
invoice. In lieu of such invoicing, Bank may upon reasonable notice reduce
remittances made pursuant to Section 5.01 by the amount of such expenses.
ARTICLE VI
CREDIT TERMS; LOSSES ON ACCOUNTS; SECURITY
SECTION 6.01 CREDIT TERMS. Bank shall have the sole right to establish the
rate, annual fees, late fees and all other terms and conditions relating to the
Accounts, and to amend or modify such rate, fees and/or terms from time to time.
The initial terms and conditions relating to the Accounts will be a variable
finance charge equal to the prime rate plus 13.15% with a 21.9% minimum (except
in the so-called opt-out states) and the payment term will be 1/40th per month
with a $10 minimum (except for "big ticket" items the payment term will be
1/50th per month with a $10 minimum). Bank shall give Retailer prior notice of
any changes in such terms and conditions.
SECTION 6.02 LOSSES ON ACCOUNTS. Under this Agreement, which is an interim
agreement, all losses on Accounts shall be solely borne [ ]*.
SECTION 6.03 GRANT OF SECURITY INTEREST; PRECAUTIONARY FILING. The parties
hereto agree that the transactions contemplated herein shall constitute a
program for the extension of consumer credit and service to customers of
Retailer. Both (i) against the possibility that it is determined that Article 9
of the UCC applies or may apply to the transactions contemplated hereby, and
(ii) to secure payment of and performance by Retailer of any and all
indebtedness, liabilities or obligations, now existing on hereafter arising
whatsoever of Retailer to Bank, however arising, pursuant to this Agreement,
including indebtedness, liabilities and obligations that may be deemed to exist
in the event of the applicability of Article 9 of the UCC to, and any
recharacterization of, any transactions contemplated hereby, Retailer hereby
grants to Bank a first priority continuing security interest in and to all of
Retailer's right, title and interest now owned or existing or hereafter acquired
or arising
*Confidential treatment has been requested with respect to this information.
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in, to and under the following property (in each case, existing at any time,
past, present or future) together with the proceeds thereof: (A) all Accounts,
Indebtedness and Program Documents; (B) all deposits, credit balances and
reserves on Bank's books relative to any Accounts, including, but not limited to
the Credit Promotions Account and (C) all proceeds of the foregoing. All
creditors of Retailer seeking to obtain a security interest in any of the
foregoing collateral shall be required to subordinate their security interests
to the security interest of Bank in the foregoing collateral as a condition
precedent to obtaining any such security interest. Retailer agrees to cooperate
fully with Bank as Bank may reasonably request in order to give effect to the
security interest granted by this Section 6.03, including, without limitation,
the filing of UCC-l or comparable statements in order to perfect such security
interest. For filing purposes, Retailer agrees to provide Bank with not less
than 30 days prior written notice of any change in location of its executive
offices or principal place of business or any change of its corporate name and,
notwithstanding the foregoing, no such change shall be effected before Retailer
shall have supplied Bank signed copies of all filings and actions as Bank may
reasonably determine to be necessary or appropriate to preserve and maintain at
all times the perfection and priority of the security interests granted or
purported to be granted to Bank hereunder.
ARTICLE VII
CHARGEBACK
SECTION 7.01 BANK'S RIGHT TO CHARGEBACK. Bank shall have the right, at its
option, to chargeback to Retailer [ ]* if with respect to such Charge
Slip or Credit Slip, or the underlying transaction, including those in
connection with an Old Account, under the following circumstances: (a)
unidentifiable media, (b) unauthorized charges, (c) failure to obtain proper
identification, (d) adjustments, (e) missing media and/or (f) Old Account
chargebacks. It is the responsibility of Bank to provide Retailer with the
following information, if available, with respect to all chargebacks:
account name, account number, address, Merchandise description, issuing
Retailer Location, amount, and reason for chargeback. Following are
guidelines for the issuing of chargebacks which must be complied with.
1. UNIDENTIFIABLE MEDIA. Unidentifiable media is media that
does not have a valid account number, or media with
*Confidential treatment has been requested with respect to this information.
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an account number that is illegibly imprinted or written in. Bank will directly
request the media from the issuing Retailer Location. The issuing Retailer
Location is responsible for providing a legible copy of the media with correct
account number to Bank within ten (10) days of notice to the issuing Retailer
Location. Bank has the right to chargeback to Retailer if (a) the Retailer
Location has not responded to the request for media before expiration of the ten
(10) day period, and (b) Bank after reasonable efforts is unable to identify the
Indebtedness represented by the media with a valid account number.
Notwithstanding the foregoing, all chargebacks by Bank for unidentifiable media
must occur within sixty (60) days of the sale date. Retailer has sixty (60)
days after the date of the chargeback to complete additional research and, if
successful, reverse the chargeback whereupon such Indebtedness shall again
become Indebtedness with respect to which Bank shall make payment to Retailer.
2. UNAUTHORIZED CHARGES. An unauthorized charge is a sale that
has been abstracted without Bank approval. (These charges will lack an approval
code from the P.O.S. system, have an invalid authorization code, lack an
approval code from the credit center, or lack an approval code for amounts over
the floor limit when floor limits are in effect. It is understood that charges
that are equal to or less than the floor limit when it is in effect will be
deemed authorized). Bank and Retailer shall work closely to continue the charge
authorization control mechanisms in place in Retailer Locations and to develop
new mechanisms to minimize violations of the authorization system. Bank may
immediately chargeback to Retailer unauthorized charges that are made on a
stolen plate or a fraudulent account, provided that Bank has notified Retailer
of the unauthorized charges within thirty (30) days of its receipt of a
complaint from a Cardholder. In addition, Bank may chargeback to Retailer other
unauthorized charges to an Account that is or becomes delinquent (based on the
methodology for determining defaulted indebtedness then in effect), provided
that Bank has notified Retailer of the unauthorized charges within thirty (30)
days of Bank's discovery of the unauthorized charges.
3. FAILURE TO OBTAIN PROPER IDENTIFICATION. Subject to
applicable law, failure to obtain proper identification refers to all credit
purchases made by a customer shopping without a Credit Card or a priority credit
pass where a Retailer Location fails to require the customer to identify himself
with a valid permanent driver's license or other state issued identification for
his state of residence. Tickets or temporary licenses are not acceptable. The
name, address, and
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signature on the driver's license must correspond with the name, address, and
signature on the Charge Slip. If the customer does not have a valid driver's
license or other state issued identification, the credit center supervisor on
duty will instruct the salesperson to ask for other appropriate identification.
In any instance where positive identification is required, the document used for
identification must be noted on the Charge Slip. If in the process of
investigating a customer dispute it is determined that the issuing Retailer
Location failed to obtain proper identification in the manner required pursuant
to these provisions and a fraudulent charge resulted, Bank may chargeback to
Retailer. Notwithstanding the foregoing, in no event may Bank chargeback to
Retailer any items described in this subsection later than sixty (60) days after
Bank discovers the failure.
4. ADJUSTMENTS. Requests received by Bank from customers for
adjustments will be promptly communicated by Bank directly to the issuing
Retailer Location. Such adjustment requests that are not frivolous and that are
not resolved by Retailer within eighteen (18) days of notification to Retailer
may be charged back by Bank to Retailer. Notwithstanding the foregoing, in no
event may Bank chargeback to Retailer any adjustments described in this
subsection later than thirty (30) days after receipt of the request for
adjustment from the customer.
5. MISSING MEDIA. Requests received by Bank from customers for
supporting sales media will be promptly communicated by Bank directly to the
issuing Retailer Location. Retailer is responsible for providing Bank with the
requested media within ten (10) days of receipt of the request. Indebtedness
represented by media not provided within such ten (10) day period may be charged
back by Bank to Retailer. Retailer has thirty (30) days after the chargeback to
locate the media and reverse the chargeback whereupon such Indebtedness shall
again become Indebtedness to be paid by Bank. Notwithstanding the foregoing, in
no event may Bank chargeback to Retailer any items described in this subsection
later than thirty (30) days after the receipt of the request for adjustment from
the customer.
6. OLD ACCOUNT CHARGEBACKS. To the extent not already covered
in items 1 through 5, requests received by Bank from customers for credits or
adjustments relating to the period prior to Bank's ownership of the Old Accounts
which Bank reasonably believes relate to Retailer's handling of the transactions
giving rise to the Charge Slips or Credit Slips at
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issue, including requests for credits/adjustments relating to Goods and/or
Services or the information furnished by Retailer with respect to a credit
promotion.
SECTION 7.02 LIMITATION OF CHARGEBACK. In its reasonable discretion Bank
may compromise and settle any claim made by any Cardholder if such claim may
give Bank a right to chargeback in accordance with Section 7.01 up to
[ ]*, of any Charge Slip or Credit Slip. In the event of any such
compromise or settlement, Bank shall obtain Retailer's prior written approval
to adjust the Cardholder's Account and Bank's right to chargeback shall be
limited to the actual amount so compromised.
SECTION 7.03 EXERCISE OF CHARGEBACK. If Bank exercises its right of
chargeback in accordance with this Agreement, Bank shall set off amounts
charged back against any sums due Retailer under this Agreement or, if
chargebacks exceed sums due Retailer, Bank may demand payment from Retailer
for the full amount of such excess. If [ ]*, Bank shall assign,
without recourse, all right to payment for such Charge Slip or portion
thereof to Retailer upon the request of Retailer.
ARTICLE VIII
WARRANTIES AND COVENANTS OF RETAILER
SECTION 8.01 ACCOUNT COVENANTS. Retailer covenants to do the following during
the term of this Agreement with respect to each transaction involving an Account
or the Program:
(a) Retailer shall respond to, and cooperate with, Bank promptly in
connection with the resolution of disputes with Cardholders;
(b) Retailer shall maintain a policy for the exchange and return of Goods
and adjustments for Services rendered or not rendered that is in accordance with
all applicable laws and shall promptly deliver a Credit Slip to the Cardholder
and include credit for such return or adjustment in the Charge Transaction Data
in accordance with the Operating Procedures in the event the return/exchange has
been authorized in accordance with Retailer's policies;
*Confidential treatment has been requested with respect to this information.
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(c) Retailer shall not seek or obtain any special agreement or condition
from, nor discriminate in any way against, Cardholders with respect to the terms
of any transaction.
SECTION 8.02 GENERAL REPRESENTATIONS AND WARRANTIES. To induce Bank to
establish and administer this Program, all as herein provided for, Retailer
makes the following representations and warranties to Bank, each and all of
which shall survive the execution and delivery of this Agreement, and each and
all of which shall be deemed to be restated and remade on each day on which any
Account is opened or Charge Transaction Data is submitted to Bank or any action
is taken with respect to the Program:
(a) Existence. Retailer (i) is duly organized, validly existing, and in
good standing under the laws of the Commonwealth of Massachusetts, (ii) is duly
qualified and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business require such
qualification; (iii) has the requisite power and authority and the legal right
to own and operate its properties, to lease the properties it operates under
lease, and to conduct its business as now conducted and hereafter contemplated
to be conducted; (iv) has all necessary licenses, permits, consents, or
approvals from or by, has made all necessary notices to all governmental
authorities having jurisdiction, to the extent required for such current
ownership and operation or as proposed to be conducted; and (v) is in compliance
with its organizational documents.
(b) Power, Authorization; Enforceable Obligation. The execution,
delivery, and performance of this Agreement and all instruments and documents to
be delivered by Retailer hereunder: (i) are within its corporate power; (ii) has
been duly authorized by all necessary or proper or corporate action; (iii) does
not and will not contravene any provisions of its organizational documents; (iv)
will not violate any law or regulation or any order or decree of any court or
governmental instrumentality; (v) will not conflict with or result in the breach
of, or constitute a default under any indenture, mortgage, deed of trust, lease,
agreement, or other instrument to which it is a party or by which it or any of
its assets or property are bound, including without limitation, any arrangement
which Retailer has with Hurley State Bank which arrangement has been modified as
set forth in Section 8.02(i); and (vi) do not require any filing or registration
with or the consent or approval of any governmental body, agency, authority, or
any other Person which has not been made or obtained previously. This Agreement
has been duly executed and delivered by each Retailer, and constitutes a legal,
valid, and
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binding obligation of such Retailer, enforceable against such entity in
accordance with its terms.
(c) Solvency. Retailer is Solvent.
(d) No Violations. Retailer is not in default with respect to any
material contract, agreement, or other instrument to which it is a party nor has
it received any notice of default under any such material contract, agreement,
lease or other instrument.
(e) No Burdensome Restrictions. No contract, lease agreement, or other
instrument to which Retailer is a party or by which Retailer is bound, and no
provision of applicable law or governmental regulation, materially and adversely
affects or may so affect the business, operation, prospects, property, or
financial or other condition of Retailer.
(f) Information Correct. All information furnished by the Retailer to
Bank for purposes of or in connection with this Agreement or any information
hereafter furnished by the Retailer to Bank, is true and correct to the best of
Retailer's knowledge in all material respects and, to the best of Retailer's
knowledge, no such information omits to state a material fact necessary to make
the information so furnished not misleading. There is no fact known to the
Retailer which the Retailer has not disclosed to Bank which could materially and
adversely affect the financial condition, business, property, or prospects of
the Retailer.
(g) No Default. No Event of Default or Default with respect to Retailer
has occurred and is continuing.
(h) Name and Address. The chief executive office and principal place of
business of Retailer is set forth on page 1 of this Agreement, but will be moved
to Chicago, Illinois within one month of the date of this Agreement. Lechmere
Inc. is the only name under which Retailer conducts business.
(i) Consent of Hurley State Bank. Retailer has obtained the consent of
Hurley State Bank to enter into this Agreement with Bank and to establish
Accounts relating to Retailer pursuant to the Program, and Hurley State Bank has
waived all rights it has to object to this Program. Such consent is attached
hereto.
SECTION 8.03 ADDITIONAL AFFIRMATIVE COVENANTS OF RETAILER. Until the later of
(i) the date on which this Agreement terminates and (ii) the Final Liquidation
Date, Retailer will, unless Bank shall otherwise consent in writing:
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(a) If Retailer is subject to the reporting requirements of Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, as amended (i) as soon as
reasonably available and in any event within 90 days after the close of its
fiscal year, submit to Bank an audited annual report of Retailer's annual
earnings, including its audited consolidating balance sheets, income statements
and statement of cash flows and changes in financial position and (ii) promptly
after the filing thereof, submit to Bank copies of all proxy statements, and all
reports on Forms 10-K, 10-Q, and 8-K filed with the Securities and Exchange
Commission by Retailer;
(b) If Retailer is not subject to the reporting requirements of Section 13
or Section 15(d) of the Securities Exchange Act of 1934, as amended (i) as soon
as reasonably available and in any event within 90 days after the close of its
fiscal year, submit to Bank an audited annual report of Retailer's annual
earnings, including its audited consolidating balance sheets, income statements
and statement of cash flows and changes in financial position and (ii) as soon
as reasonably available and in any event within 45 days after the close of each
of its fiscal quarters, submit to Bank an unaudited quarterly report of
Retailer's earnings, including its consolidating balance sheets, income
statements and statement of cash flows and changes in financial position,
accompanied by the certification on behalf of Retailer by Retailer's chief
financial officer that such financial statements were prepared in accordance
with generally accepted accounting principles applied on a consistent basis and
present fairly the financial position of Retailer as of the end of such fiscal
quarter and the results of its operations;
(c) Comply in all material respects with all laws with respect to
Retailer, its business, and properties.
(d) Promptly upon receipt, deliver to Bank copies of any communications
relating to an Account from a Cardholder, or any governmental or regulatory
authority.
(e) Permit Bank, during normal business hours and upon reasonable notice,
to visit the offices of Retailer from time to time, and shall permit Bank from
time to time to discuss the Program with Retailer and their officers and
employees and to examine the books and records of Retailer relating to the
Program or have the same examined by Bank's attorneys and/or accountants. In
connection therewith, Retailer agrees, subject to applicable privacy and other
laws, to make data regarding the Program available to Bank, and in connection
therewith to permit Bank to make copies of such documentation.
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(f) Retailer shall take all reasonable measures as conveyed by Bank to
comply with the provisions of 12 USC Section 1972(1)(B).
SECTION 8.04 ADDITIONAL NEGATIVE COVENANTS OF RETAILER. Until the later of (i)
the date on which this Agreement terminates, and (ii) the Final Liquidation
Date, Retailer will not, unless Bank shall otherwise consent in writing:
(a) Except with respect to Retailer's existing arrangement with Hurley
State Bank, promote any other presently existing program for open-end or closed-
end consumer accounts more favorably than the Program or engage in any selection
process with respect to accounts that could be adverse to Bank.
(b) Except with respect to Retailer's existing arrangement with Hurley
State Bank, advertise, promote, sponsor, solicit, permit solicitation of, or
make available to customers of Retailer or otherwise provide at any Retailer
Location any credit program, credit facility, credit card program, charge
program or debit or secured card program or facility which is similar in purpose
or effect to this Program (whether open-end, closed-end, private label or third
party), other than (i) credit provided in connection with the Program hereunder,
(ii) credit provided by generally accepted multi-purpose credit or charge cards
such as American Express, Mastercard, Visa and the Discover card or by any
generally accepted multi-purpose debit or secured cards (provided that none of
the cards referred to in this clause (ii) may be "co-branded", "sponsored" or
"co-sponsored" with Retailer and provided the Retailer Names or any variations
thereof do not appear on such cards), (iii) credit provided on a closed end
basis where Bank has previously rejected extending credit to the applicant under
this Program and (iv) any credit provided through a credit card bearing the name
Montgomery Ward or Electric Ave & More.
ARTICLE IX
WARRANTIES AND COVENANTS OF BANK
SECTION 9.01 REPRESENTATIONS AND WARRANTIES OF BANK. To induce Retailer to
enter into this Agreement and participate in the Program, all as herein provided
for, Bank makes the following representations and warranties to Retailer, each
and all of which shall survive the execution and delivery of this Agreement, and
each and all of which shall be deemed to be restated and remade on each day on
which Accounts are opened and Charge Transaction Data submitted or any action
taken with respect to the Program:
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(a) Corporate Existence. Bank (i) is a banking corporation duly
organized, validly existing, and in good standing under the laws of the State of
Georgia; (ii) has the requisite corporate power and authority and the legal
right to own, pledge, mortgage, and operate its properties, to lease the
properties it operates under lease, and to conduct its business as now conducted
and hereafter contemplated to be conducted; and (iii) is in compliance with its
articles of incorporation and bylaws.
(b) Corporate Power, Authorization; Enforceable Obligations. The
execution, delivery, and performance of this Agreement and all instruments and
documents to be delivered by Bank hereunder: (i) are within Bank's corporate
power; (ii) have been duly authorized by all necessary or proper corporate
action; (iii) do not and will not contravene any provision of Bank's certificate
of incorporation or bylaws; (iv) will not violate any law or regulation or an
order or decree of any court or governmental instrumentality to which Bank is
subject; (v) will not conflict with or result in the breach of, or constitute a
default under, any indenture, mortgage, deed of trust, lease agreement, or other
instrument to which Bank is a party or by which Bank or any of its property is
bound; and (vi) do not require any filing or registration by Bank with or the
consent or approval of any governmental body, agency, authority, or any other
Person which has not been made or obtained previously. This Agreement has been
duly executed and delivered by Bank, and constitutes the legal, valid, and
binding obligation of Bank, enforceable against Bank in accordance with its
terms.
(c) Solvency. Bank is Solvent.
(d) No Default. No Event of Default or Default with respect to Bank has
occurred and is continuing.
SECTION 9.02 AFFIRMATIVE COVENANT OF BANK. Promptly upon receipt, deliver to
Retailer copies of any communications relating to any material investigation by
any governmental or regulatory authority with respect to the Program.
ARTICLE X
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
SECTION 10.01 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder:
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(a) Either party shall fail to pay the other any Uncontested Amount when
due and payable and the same shall remain unpaid for a period of three (3) days
after the other party shall have made written demand therefor.
(b) Either party shall fail or neglect to perform, keep, or observe any
term provision, condition, or covenant contained in this Agreement that is
required to be performed, kept, or observed by it, and the same shall remain
uncured for a period of thirty (30) days after the other party shall have given
written notice thereof.
(c) Any representation, warranty or statement, made or delivered by either
party or any of its respective officers shall not be true and correct in any
material respect as of the date when made or reaffirmed and such failure to be
true and correct has a material adverse effect on its ability to perform its
obligations hereunder.
(d) Either Bank or Retailer (i) shall no longer be Solvent; (ii) shall
generally not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally; (iii) shall make a general assignment
for the benefit of its creditors; or (iv) any proceeding shall be instituted by
or against it seeking to adjudicate it a bankrupt or insolvent or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency, or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property, and, in the
case of any proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of 30 days, or
any of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or any substantial part of its
property) shall occur; or either party shall take any corporate action to
authorize any of the actions set forth above in this paragraph (d).
(e) Retailer shall be in default under any loan agreement, indenture or
other instrument relating to any indebtedness for borrowed money in excess of
[ ]*, and such default gives any party, either with or without notice
and without giving effect to any extension of any grace period, the right to
accelerate such indebtedness.
*Confidential treatment has been requested with respect to this information.
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(f) Final judgment or judgments for the payment of money in excess of
[ ]* in the aggregate shall be rendered against any Retailer and the same
shall not be either (i) covered by insurance or the insurer shall not have
accepted liability therefor or (ii) vacated, stayed, bonded, paid, or discharged
prior to expiration of the applicable appeal period.
(g) A material adverse change has occurred in the operations, financial
condition, business or prospects of Retailer which Bank has determined, in good
faith, has impaired or is reasonably likely to impair, the ongoing operation or
continued viability of the Program; in each case, as determined by Bank, in its
sole discretion.
(h) Accounts, Indebtedness, Charge Slips or proceeds thereof in an
aggregate amount of [ ]* or more shall be (or shall purportedly be)
(i) attached, seized, levied upon or subject to a writ by a creditor of
Retailer, or shall come within the possession of any receiver, trustee,
custodian, or assignee for the benefit of creditors of Retailer or (ii) subject
to any lien or right of any third party directly or indirectly arising by,
through or on account of Retailer or any creditor thereof.
SECTION 10.02 REMEDIES.
(a) If any Event of Default shall have occurred and be continuing, all of
the defaulting party's payment obligations hereunder shall, in the non-
defaulting party's sole discretion, be deemed immediately due and payable.
(b) If any Event of Default shall have occurred and be continuing, the
non-defaulting party shall have any and all rights and remedies under this
Agreement. In addition, the Bank, if not the defaulting party, may discontinue
originating or offering Accounts, accepting Charge Slips, or otherwise extending
credit, and may declare this Agreement terminated.
ARTICLE XI
TERM/TERMINATION
SECTION 11.01 TERM. This Agreement shall continue in full force and effect
until and including the earlier of August 31, 1996 or until a Long Term
Agreement is executed.
SECTION 11.02 TERMINATION.
*Confidential treatment has been requested with respect to this information.
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(a) Retailer shall have the right to terminate this Agreement upon thirty
(30) days written notice if an Event of Default shall occur with respect to
Bank.
(b) Bank shall have the right to terminate this Agreement upon thirty (30)
days written notice if an Event of Default shall occur with respect to Retailer.
(c) Notwithstanding anything to the contrary contained in this Agreement,
Bank may engage Retailer in the good faith renegotiation of this Agreement if
usury rates of the State of Georgia change, or if laws regulating Bank's rate
structure change, or if federal or state regulation or authority preempts the
exportation of Bank's rate structure, which in Bank's reasonable judgment could
have a material adverse effect on Bank or its prospects, operations, or
condition or its ability to perform the transactions contemplated hereby. In
the event of a renegotiation pursuant to this Section 11.02(c), if new terms
acceptable to the parties are not agreed upon in writing within 30 days after
the date renegotiations begin, this Agreement shall be deemed terminated as of
the earlier of (i) the [50]th day after such renegotiation begins, or (ii) the
date Bank is required to initiate changes to the Program to comply with
applicable law.
SECTION 11.03 PURCHASE OF ACCOUNTS BY RETAILER PRIOR TO THE TERMINATION DATE.
Retailer shall have the option, exercisable as provided below, to purchase or to
arrange for the purchase of the portfolio of Accounts under the following terms
and conditions:
(a) In the event of a termination of this Agreement pursuant to Sections
11.01, 11.02(a), 11.02(c) or 11.04, Retailer shall have the right to purchase
or to arrange for the purchase of the portfolio of Active Accounts,
(including the Cardholder List) at a repurchase price equal to [ ]*
payable in immediately available funds. Retailer shall exercise such right by
giving written notice to Bank within 30 days of the date of the notice of
termination of the Agreement, which notice shall specify a date for the
repurchase which date shall be not more than 90 days after the date of the
notice, and shall thereafter complete such purchase on such date, or such
other date as may be agreed to by Retailer and Bank. If Retailer fails to
exercise such option (by failing to deliver the notice required by this
Section 11.03(a)) then the option shall expire.
(b) In the event of a termination of this Agreement pursuant to
Section 11.02(b), Retailer shall have the right to
*Confidential treatment has been requested with respect to this information.
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purchase or to arrange for the purchase of the portfolio of Active Accounts
(including the Cardholder List) at a repurchase price equal to the product of
[ ]*, payable in immediately available funds. Retailer shall exercise
such right by giving written notice to Bank within 30 days of the date of the
notice of termination of this Agreement, which notice shall specify a date for
the repurchase which date shall be not more than 90 days after the effective
date of the termination and shall thereafter complete such purchase on such
date, or such other date as may be agreed to by Retailer and Bank. If Retailer
fails to exercise such option (by failing to deliver the notice required by this
Section 11.03(b)) then the option shall expire.
SECTION 11.04 TERMINATION FOR FORCE MAJEURE.
(a) This Agreement may be terminated by either Bank or Retailer without
penalty after the passing of sixty (60) days following the notice by one party
to the other that its performance hereunder is prevented or materially impeded,
without the ability to cure, by one of the following force majeure events; acts
of God, fire, explosion, accident, war, nuclear disaster, riot or material
changes in applicable laws or regulations rendering it illegal, impossible or
untenable for the notifying party or its ultimate parent corporation to perform
as contemplated in this Agreement.
(b) Any such failure to perform shall not be considered a breach of this
Agreement during the period of such disability (i.e., prior to sixty (60) days),
if the disabled party promptly advises the other party in writing that it is
unable to perform due to such a force majeure event, setting forth; (i) the
nature of the event; (ii) its expected effects(s) and duration; (iii) any
expected development which may further affect performance hereunder and (iv) the
efforts which will be made to cure such force majeure or provide substitute
performance.
(c) Such sixty (60) day period may be shortened upon written agreement
executed by duly-authorized officers of each party or if required by applicable
law or regulation.
SECTION 11.05 LIQUIDATION OF ACCOUNTS.
(a) Upon the termination of this Agreement, each party shall be required
to fulfill its respective obligations hereunder (unless prohibited by law) until
the Final Liquidation Date or there is some other disposition thereof in
accordance with either Section 11.03 or 11.05.
*Confidential treatment has been requested with respect to this information.
28
<PAGE>
(b) Upon any such termination of this Agreement, should Retailer not
purchase or arrange for a purchase of the Accounts from Bank, then:
(i) Bank shall have the right, in addition to and retaining all other
rights it may have under the terms of this Agreement or applicable law
to:
(A) liquidate the remaining Accounts in any lawful manner which
may be expeditious or economically advantageous to Bank including
the issuance of a replacement or substitute Card; and
(B) use the Retailer Names in accordance with the provisions of
this Agreement in communicating with existing Cardholders until
the Final Liquidation Date.
(ii) Retailer expressly agrees that in complying with its obligations
to accept substitute or replacement Cards, Retailer will cooperate
with Bank in order to effectuate any such liquidation or replacement
or substitute card issuance in an orderly manner, including but not
limited to, at Bank's request accepting in the manner as in effect
immediately prior to such termination the Credit Cards and any
replacement or substitute credit cards for up to 24 months following
the effective date of termination of the Agreement.
SECTION 11.06 ADDITIONAL TERMINATION PROVISIONS.
(a) Except as otherwise expressly provided herein, any termination of this
Agreement shall in no way affect or impair the powers, obligations, duties,
rights and liabilities of Retailer or Bank, including, without limitation, those
under Article XII hereof, relating to any transaction or event occurring prior
to such termination.
(b) Notwithstanding the termination of this Agreement for any reason,
until the Final Liquidation Date: (i) the license granted to Bank pursuant to
Section 14.07 hereof shall continue in effect after the effective date of
termination of this Agreement; (ii) the power of attorney granted to Bank
pursuant to Section 14.12 hereof shall continue in effect after the effective
date of termination of this Agreement; and (iii) the option
29
<PAGE>
granted to Retailer to purchase the Accounts pursuant to Section 11.03 hereof
shall survive the termination of this Agreement unless and until such option
shall expire in accordance with its terms.
(c) All undertakings, agreements, covenants, warranties, representations
and indemnities contained herein shall survive such termination, except as
specifically provided herein to the contrary. Without in any manner limiting
the generality of the foregoing, upon such termination, Bank shall continue to
own the Accounts, and, except as provided herein, Retailer shall continue to be
liable for all obligations set forth herein until the Final Liquidation Date;
provided, however, that the parties' respective obligations pursuant to Article
XII and Section 14.13 shall survive the Final Liquidation Date.
ARTICLE XII
INDEMNIFICATION
SECTION 12.01 INDEMNIFICATION BY RETAILER. Retailer agrees to protect,
indemnify, and hold harmless Bank, its Affiliates, and the employees, officers,
and directors thereof, from and against any and all losses, damages,
liabilities, costs, and expenses (including reasonable attorneys' fees and
expenses), judgments, damages, claims, demands, offsets, defenses,
counterclaims, actions, or proceedings ("Losses") by whomsoever asserted,
including, without limitation: (i) the Cardholders or other persons responsible
for the payment of Accounts; (ii) any Person or persons who prosecute or defend
any proceedings as representatives of or on behalf of a class or interest
group;(iii) any governmental instrumentality; or (iv) any other third party
(including, without limitation, any Licensee), arising out of, connected with or
resulting from:
(a) Credit Card sales of Goods and Services;
(b) any transaction, contract, understanding, promise, representation, or
any other relationship, actual, asserted, or alleged, between Retailer and any
Cardholder relating to an Account;
(c) any Goods and Services (including, without limitation, any product
liability or warranty claim with respect thereto) the purchase of which was
financed by an Account;
30
<PAGE>
(d) any other act, or omission where there was a duty to act, by Retailer
or its employees, officers, directors, agents, lessees, or any independent
contractors hired by a Retailer, relating to an Account or items of Indebtedness
relating to an Account;
(e) any breach by Retailer of any of the terms, covenants,
representations, warranties, or other provisions contained in this Agreement or
any other instrument or document delivered by Retailer to Bank in connection
herewith or therewith;
(f) the failure of Retailer to comply with all laws, rules or regulations
applicable to Retailer;
(g) any agreement, arrangement, understanding or course of dealing between
Retailer or any of its Affiliates and any Licensee.
Excluded from the foregoing indemnity shall be any Losses to the extent the same
arise out of or result from any violation by Bank or any of its Affiliates of
law, this Agreement, any Credit Card Agreement or any agreement, understanding
or promise between Bank and any Cardholder relating to such Cardholder's Account
which is not based on information provided by Retailer or its Affiliates.
SECTION 12.02 INDEMNIFICATION BY BANK. Bank agrees to protect, indemnify, and
hold harmless Retailer, its Affiliates, and the employees, officers, and
directors thereof, from and against any and all Losses by whomsoever asserted,
including, but not limited to., (i) the Cardholders or other persons responsible
for the payment of Accounts; (ii) any Person or Persons who prosecute or defend
any proceedings as representatives of or on behalf of a class or interest group;
(iii) any governmental instrumentality; or (iv) any other third party, arising
out of, connected with or resulting from:
(a) any breach by Bank of any of the terms, covenants, representations,
warranties or other provisions contained in this Agreement.
(b) any transaction, contract, understanding, promise, representation, or
any other relationship, actual, asserted, or alleged, between Bank and any
Cardholder relating to an Account;
(c) any other act, or omission where there was a duty to act, by Bank or
its employees, officers, directors, shareholders, agents or licensees or any
independent contractors hired by Bank
31
<PAGE>
relating to an Account or items of Indebtedness relating to an Account; or
(d) the failure of Bank to comply with any laws, rules or regulations
applicable to Bank.
Excluded from the foregoing indemnity shall be any Losses to the extent the same
arise out of or result from any violation by a Retailer or its Affiliates of
law, this Agreement, any Credit Card Agreement or any agreement, understanding
or promise between a Retailer and any Cardholder relating to such Cardholder's
Account which is not based on information provided by Bank or its Affiliates.
SECTION 12.03 PAYMENT OF INDEMNIFIED AMOUNTS. After any final judgment or
award shall have been rendered by a court, arbitration board, or administrative
agency of competent jurisdiction and the time for an appeal of such judgment or
award has expired without an appeal being taken by either party, or after any
settlement agreed to by the parties shall have been consummated, the party
seeking indemnification shall forward to the other party notice of any sums due
and owing by such other party with respect to such matter and such party shall
be required to pay all of the sums so owing to the party seeking indemnification
within thirty (30) days after the date of such notice unless otherwise mutually
agreed to in writing by the parties.
SECTION 12.04 NOTICE. Each party shall promptly notify the other party of any
claim, demand, suit or threat of suit of which that party becomes aware (except
with respect to a threat of suit either party might institute against the other)
which may give rise to a right of indemnification pursuant to this Agreement.
The indemnifying party will be entitled to participate in the settlement or
defense thereof and, if the indemnifying party elects, to take over and control
the settlement or defense thereof with counsel satisfactory to the indemnified
party. In any case, the indemnifying party and the indemnified party shall
cooperate (at no cost to the indemnified party) in the settlement or defense or
any such claim, demand, suit or proceeding.
ARTICLE XIII
OTHER AGREEMENTS
SECTION 13.01 OTHER PROGRAMS. If during the term of this Agreement Retailer
desires to make arrangements for the provision by any Person of either (i) any
private label commercial or
32
<PAGE>
business credit program of facility for use at Retailer Locations or (ii) any
private label credit program or facility for use outside of the United States,
then Retailer shall discuss in good faith with Bank or an Affiliate the
possibility of Bank providing either or both of such programs. If the parties
or an Affiliate are unable to mutually agree on terms and conditions pursuant to
which Bank or an Affiliate will provide one or both such programs, Retailer
agrees that it will not enter into any such programs with any other Person
unless they shall have first offered Bank or an Affiliate the opportunity to
provide such program(s) on the same or substantially similar terms and
conditions as such other Person would be willing to provide. Nothing in this
Agreement shall restrict Retailer's rights to continue its existing relationship
with Hurley State Bank with respect to credit accounts existing at the time this
Agreement is executed.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01 ASSIGNABILITY. Neither Bank nor any Retailer may assign its
rights and obligations under this Agreement without the prior written consent of
the other party, which consent shall not be unreasonably withheld; except that
Bank may without such prior written consent (i) assign all or part of its rights
and obligations under this Agreement to an Affiliate, or in connection with a
securitization or participation, or (ii) engage third parties to perform
services pursuant to this Agreement without such prior written consent.
SECTION 14.02 AMENDMENT. This Agreement may not be amended except by written
instrument signed by the parties hereto.
SECTION 14.03 NON-WAIVER. No delay by any party hereto in exercising any of
its rights hereunder, or in the partial or single exercise of such rights, shall
operate as a waiver of that or any other right. The exercise of one or more of
any party's rights hereunder shall not be a waiver of, nor preclude the exercise
of, any rights or remedies available to such party under this Agreement or in
law or equity.
SECTION 14.04 SEVERABILITY. If any provision of this Agreement is held to be
invalid, void or unenforceable, all other provisions shall remain valid and be
enforced and construed as if such invalid provision were never a part of this
Agreement.
33
<PAGE>
SECTION 14.05 GOVERNING LAW. This Agreement and all rights and obligations
hereunder, including, but not limited to, matters of construction, validity and
performance, shall be governed by and construed in accordance with the laws of
the state of Georgia without regard to internal principles of conflict of laws.
SECTION 14.06 CAPTIONS. Captions of the Sections of this Agreement are for
convenient reference only and are not intended as a summary of such Sections and
do not affect, limit, modify or construe the contents thereof.
SECTION 14.07 USE OF RETAILER NAME AND MARK.
(a) Subject to and only in accordance with the provisions of this
Agreement, Retailer hereby grants Bank a non-exclusive license to create,
develop, market and administer the Program and to use the name of Retailer
(hereafter the "Retailer Names"), and the logos therefor, in the creation,
development, marketing and administration of the Program. Retailer represents
that it owns the Retailer Names and has the right to grant such non-exclusive
license.
(b) Pursuant to the licenses granted to Bank pursuant to this Section
14.07, the parties understand and agree that until the latter of (i) the
termination of this Agreement and (ii) the Final Liquidation Date, Bank will, in
accordance with the provisions of this Agreement, use the Retailer Names in
connection with Bank's operation and administration of the Program and the
discharge of its obligations under the Agreement, including but not limited to
use in connection with Cardholder service; billing statements and inquiries;
credit card applications, agreements, mailers, and card carriers.
SECTION 14.08 SECURITIZATION/PARTICIPATION. Any rights to purchase the
Accounts which Retailer may have hereunder shall be subject to Bank's right to
securitize or participate the Accounts and Indebtedness and such rights shall be
available to Retailer only with respect to Accounts Indebtedness owned by Bank
at the time of such purchase.
SECTION 14.9 FURTHER ASSURANCES. Each party hereto agrees to execute all such
further documents and instruments and to do all such further things as the other
party may reasonably request in order to give effect and to consummate the
transactions contemplated hereby.
SECTION 14.10 ENTIRE AGREEMENT. This Agreement and a letter agreement of even
date is the entire agreement of the parties
34
<PAGE>
with respect to the subject matter hereof and supersedes all other prior
understandings and agreements whether written or oral.
SECTION 14.11 NOTICES. All notice, demands and other communications hereunder
shall be in writing and shall be sent by hand, by facsimile (with verbal
confirmation of receipt) or by nationally recognized overnight courier service
addressed to the party to whom such notice or other communication is to be given
or made at such party's address as set forth below, or to such other address as
such party may designate in writing to the other party from time to time in
accordance with the provisions hereof and shall be deemed given one Business Day
after being sent, as follows:
if to
Retailer: Lechmere Inc.
619 West Chicago Avenue
Chicago, Illinois 60671
Att: Chief Executive Officer
with a copy to Secretary/Legal
at the same address.
and if to
Bank: Monogram Credit Card Bank of Georgia
7840 Roswell Rd.
Building 100
Suite 210
Atlanta, Georgia 30350
Attention: Senior Vice President
Telecopier No.: 770/353-2464
with a copy to
RFS Counsel
260 Long Ridge Road
Stamford, Connecticut 06927
Telecopier No.: 203/961-5149
Provided, however, that if either of the above parties shall have designated a
different address by notice to the other, then to the last address so
designated.
SECTION 14.12 POWER OF ATTORNEY. Retailer authorizes and empowers Bank and
grants to Bank power of attorney (i) to sign and endorse Retailer name on all
checks, drafts, money orders or other forms of payment in respect of Accounts
under the Agreement; (ii) to do all the things reasonably necessary to carry out
or enforce the Accounts; (iii) to sign such Retailer's
35
<PAGE>
name on any notices to any Cardholder in connection with the collection of
Accounts; (iv) to send requests for verification of any Account to Cardholders;
(v) to sue Cardholders for the collection of Accounts; and (vi) to do any and
all things Bank determines may be necessary or appropriate to carry out or
enforce the obligations of Cardholders under Credit Card Agreements. This
limited power of attorney conferred hereby is deemed a power coupled with an
interest and shall be irrevocable prior to the Final Liquidation Date.
SECTION 14.13 CONFIDENTIAL INFORMATION.
(a) All proprietary and non-public material and information supplied by
Retailer to Bank or vice versa heretofore or hereafter, or supplied to Retailer
or Bank by Cardholders or applicants for Credit Cards, including, without
limitation, (i) the pricing and other financial terms of this Agreement,
(ii) information concerning the parties' marketing plans, objectives, financial
results and employee compensation and benefits, and (iii) the Customer List, is
confidential and proprietary ("Confidential Information"). Confidential
Information shall not include any information which (i) at the time of
disclosure by one party hereto or thereafter is generally available or known to
the public (other than as a result of an unauthorized disclosure by the other
party hereto); (ii) was available to one party on a non-confidential basis from
a source other than the other party (provided that such source, to the best of
one party's knowledge, was not obligated to the other party to keep such
information confidential); or (iii) was in one party's possession prior to
disclosure by the other party to it.
(b) Confidential Information shall be used by each party solely in the
performance of its obligations or exercise of its rights pursuant to this
Agreement. Each party shall receive Confidential Information in confidence and
not disclose Confidential Information to any third party, except (i) as may be
necessary to perform its obligations or exercise its rights pursuant to this
Agreement or to effect a securitization or participation as provided in Section
14.08, (ii) except as may be agreed upon in writing by the other party, or (iii)
as otherwise required by law or judicial or administrative process. Each party
will use its best efforts to ensure that its officers, employees, and agents
take such action as shall be necessary or advisable to preserve and protect the
confidentiality of Confidential Information. Upon written request or upon the
termination of this Agreement, each party shall destroy or return to the other
party all Confidential Information in its possession or control, subject to the
each party's respective document
36
<PAGE>
retention policies with respect to information required to be maintained by
regulatory authorities.
SECTION 14.14 INDEPENDENT CONTRACTOR. Nothing contained in this Agreement
shall be construed to constitute Bank and Retailer as partners, joint venturers,
principal and agent, or employer and employee. Bank will act hereunder solely
as an independent contractor and will exercise exclusive control over any and
all persons hired by it.
SECTION 14.15 THIRD PARTIES. Bank shall have the right to engage third parties
to perform services pursuant to this Agreement. In the event a party hereto
engages the services of subcontractors and/or other third parties to assist it
with the fulfillment of the terms hereunder, then such party agrees to be
responsible for and indemnify the other party hereto, its or their Affiliates
and the officers, directors, employees and agents of each, for any and all
claims (including reasonable legal costs and expenses) asserted by anyone
against such party and such Affiliates arising out of any and all work performed
by any such subcontractor and/or agent of such party in connection with this
Agreement.
SECTION 14.16 INTERPRETATION. As each of the parties have contributed to the
drafting of the language of this Agreement, it is agreed and understood that in
any interpretation of this Agreement, the language utilized will be construed
equally as and between the parties without regard to which party provided the
language of any particular provision.
SECTION 14.17 PAYMENTS. Unless otherwise provided, all payments due one party
from the other party shall be made within five (5) Business Days after notice of
the amount due.
SECTION 14.18 MULTIPLE COUNTERPARTS. This Agreement may be executed in any
number of multiple counterparts, all of which shall constitute but one and the
same original.
37
<PAGE>
IN WITNESS WHEREOF, Bank and Retailer have caused this Agreement to be
executed by their respective officers thereunto duly authorized as the date
first above written.
MONOGRAM CREDIT CARD BANK OF
GEORGIA
By: /s/
--------------------------
Title: Chairman
-----------------------
LECHMERE INC.
By: /s/
--------------------------
Title: Assistant Secretary
-----------------------
38
<PAGE>
GE Capital
- - - -----------------------------------------------------------------------------
GAIL N. LANIK Montgomery Ward Credit
President & Chief General Electric Capital Corporation
Executive Officer 535 West Chicago Avenue, Suite 16-N,
Chicago, IL 60610
(312) 467-3460, Fx (312) 467-7863
January 23, 1996
Mr. John L. Workman
Executive Vice President & Chief Financial Officer
Montgomery Ward & Co., Incorporated
619 W. Chicago Ave. -- 8C
Chicago, IL 60671
Dear John:
In our recent discussion you conveyed that you were comfortable with all
of the terms for the Lechmere/Electric Avenue & More deal structure. Please
indicate your acceptance of the terms as set forth in the attached January
16, 1996 term sheet by signing below.
Your timely approval will be appreciated, please call if you have any
questions.
Sincerely, Agreed & Accepted By:
/s/ Gail N. Lanik /s/ John L. Workman
- - - --------------------- ----------------------------
Gail N. Lanik John L. Workman
Executive Vice President
& CEO
Attachment
<PAGE>
LECHMERE/EA&M TERM SHEET -- JANUARY 16, 1996
TERM: Rolling 10 Year Termination Notice, coterminous with
the Montgomery Ward Company, Incorporated Account
Purchase Agreement
CONSUMER TERMS: Variable: Prime + 13.15%, 21.9% minimum (except
in opt-out state).
PAYMENT TERMS: 1/40th, $10 minimum; 1/50th, $10 minimum. Big
ticket program.
GUARANTEED ROE: [ ]* -- based on total equity participation
of 1/9; any shortfall paid yearly by Montgomery Ward;
ROE above [ ]* shared [ ]* GECC/[ ]*
Montgomery Ward. For the Lechmere portion only,
Montgomery Ward will not be responsible for ROE
shortfalls caused by the amortization of the initial
loss reserve (after year 1) related to the Lechmere
portfolio acquisition or the associated GECC legal
and conversion expenses.
GUARANTEED ROE
PAYMENT ADJUSTMENT:
(AFTER YEAR 1) If the ROE shortfall payment exceeds the "rolling loss
reserve", then Montgomery Ward is entitled
to a [ ]* credit of this reserve amount.
If the "rolling loss reserve" exceeds the shortfall
payment, then Montgomery Ward is entitled to a
[ ]* credit of the shortfall payment.
PRICING: Non-Promo: [ ]*
90 Day Skip Free: [ ]*
AFF with Pay: [ ]*
PROMO RESERVE: Montgomery Ward will provide advance funding to GECC
for the purpose of establishing a reserve equivalent
to 2 months of estimated promotional finance charge
revenues.
MONEY COSTS: Portfolio will be charged based on actual/assessed
interest expense incurred, using the debt profile
selected by GECC consistent with its ordinary funding
practices and including the initial 10 year funding
of approximately [ ]* million (at the 10 year
money rate at the time of purchase) of the Lechmere
receivable portfolio.
OPERATING EXPENSES: Pegged at [ ]* of average outstandings for
guaranteed ROE calculation. Adjustment will be made
for paper inflation using the appropriate wholesale
index and Postage inflation defined as the change in
the U.S. Postal Service 1st class rate when those
inflation indices exceed the CPI inflation rate on a
cumulative basis.
* Confidential treatment has been requested with respect to this information.
<PAGE>
PROMOTIONAL FUNDING: Pormotional Pricing
Reimbursement: At year-end, GECC funds MW for
credit marketing programs based
on [ ]* of average
outstandings multiplied by the
weighted APR. (CAN BE APPLIED TO
OTHER CREDIT MARKETING PROGRAMS IF
NOT NEEDED FOR 0%/AFF PROMOTIONS.)
In addition, GECC will also provide promotional
funding equal to [ ]* of average outstandings
net of Credit Merchandiser/Administrative expense.
PREMIUM (LECHMERE): $3.1MM = $2.5MM - Original Upfront Premium
0.8 - Additional 1/2% Premium
(0.2) - Money Cost Adjustment for
1994 Pre-funding
PORTFOLIO PURCHASE
PRICE (LECHMERE): [ ]* of Outstandings, net of prepaid promotional
billing
INITIAL LOSS RESERVE:
(LECHMERE) FOR LECHMERE ONLY, MONTGOMERY WARD WILL BE
RESPONSIBLE FOR PAYING [ ]* OF THE INITIAL
PORTION OF THE RESERVE POSTING WHICH MUST BE RECOGNIZED
IN THE FIRST YEAR. GE WILL FORGIVE ROE BASED SHORTFALL
IN THE FIRST YEAR BEYOND THIS 50% PAYMENT.
LOSS SHARING: NET LOSS ANI
[ ]* [ ]* GECC
[ ]* [ ]* GECC/Montgomery Ward
[ ]* [ ]* GECC
CROSS MARKETING: Signature receives [ ]* of income.
LOSS RESERVES: SHARED [ ]* AT THE TIME RECEIVABLES ARE PURCHASED
FROM BANK.
RECEIVABLE REPURCHASE: Upon termination of the contract, Montgomery Ward will
have the right to repurchase the receivables on a
gross basis (before loss reserves).
* Confidential treatment has been requested with respect to this information.
2
<PAGE>
March 13, 1996
Montgomery Ward & Co., Incorporated
and Lechmere, Inc.
619 West Chicago Avenue
8-C
Chicago, Illinois 60610
Attention: Mr. John Workman
Re: Consumer Credit Card Program Agreement between
Monogram Credit Card Bank of Georgia and Lechmere, Inc.
--------------------------------------------------------
Dear Mr. Workman:
Monogram Credit Card Bank of Georgia and Lechmere, Inc. ("Lechmere") are
entering into a Consumer Credit Card Program Agreement of even date herewith
("Lechmere Interim Agreement"). A letter agreement dated January 23, 1996 was
previously executed by Montgomery Ward Credit and Montgomery Ward & Co.,
Incorporated ("Montgomery Ward") incorporating a term sheet to be applicable
to long term agreements relating to Lechmere and Electric Ave. & More credit
card agreements ("Term Sheet"). In addition, Montgomery Ward and Montgomery
Ward Credit Corporation previously entered into an Account Purchase Agreement
dated as of June 24, 1988, as amended ("Account Purchase Agreement"). In
connection with such agreements, it is agreed as follows:
1. Various provisions set forth in the Term Sheet are not incorporated
at this time in the Lechmere Interim Agreement which is intended to be an
interim agreement until a definitive agreement incorporating the terms of the
Term Sheet is executed. Accordingly, it is agreed that to the extent the Term
Sheet contains provisions that are not incorporated in the Lechmere Interim
Agreement, the definitive long term agreements to be executed will provide
that the economic and other provisions set forth in the Term Sheet shall
control for the period that the Lechmere Interim Agreement is in effect.
2. The Lechmere Interim Agreement and the use of the credit card
program contemplated thereby shall in no way be deemed a violation of the
Account Purchase Agreement. Any accounts and receivables generated pursuant
to the Lechmere Interim
<PAGE>
Agreement credit card program will be governed by the Lechmere Interim
Agreement rather than the Account Purchase Agreement.
3. Notwithstanding anything otherwise provided in any agreement between
Montgomery Ward and Lechmere or in any financing statement, Montgomery Ward
has no right, title, interest in any of the property in which Monogram has
taken a security interest as set forth in Section 6.03 of the Interim Program
Agreement. Montgomery Ward will promptly file a UCC-3 releasing any of the
above interests, and prior to filing shall consult with General Electric
Capital Corporation as to the form of the UCC.
Please execute and return a copy of this letter acknowledging your
agreement to the foregoing. This letter may be executed in multiple
counterparts.
Yours very truly,
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/
--------------------------------
Its: Vice President
MONTGOMERY WARD CREDIT CORPORATION
By: /s/
--------------------------------
Its: President and CEO
-------------------------------
ACCEPTED AND AGREED TO:
MONTGOMERY WARD & CO., INCORPORATED
LECHMERE, INC.
By: /s/ Philip D. Delk /s/ Philip D. Delk
------------------- -----------------------
Its: Vice President Assistant Secretary
------------------- -----------------------
(Montgomery Ward) (Lechmere)
<PAGE>
MWCC PROGRAM AGREEMENT
BY AND AMONG
MONTGOMERY WARD CREDIT CORPORATION,
MONTGOMERY WARD & CO., INCORPORATED
AND
LECHMERE, INC.
dated April 3, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. ESTABLISHMENT OF PROGRAM . . . . . . . . . . . . . . . . . . . 9
Section 2.1 The Companies to Market the Program . . . . . . . . . 9
Section 2.2 MWCC to Purchase Accounts . . . . . . . . . . . . . . 9
Section 2.3 Promotion of the Program . . . . . . . . . . . . . . 10
ARTICLE III. ADMINISTRATION OF PROGRAM . . . . . . . . . . . . . . . . . . 11
Section 3.1 Preparation of Documents . . . . . . . . . . . . . . 11
Section 3.2 Account Administration . . . . . . . . . . . . . . . . 11
Section 3.3 Ownership of Accounts . . . . . . . . . . . . . . . . 12
Section 3.4 Credit Based Promotions . . . . . . . . . . . . . . . 12
Section 3.5 Use of Lists . . . . . . . . . . . . . . . . . . . . . 12
Section 3.6 Operating Procedures . . . . . . . . . . . . . . . . . 13
Section 3.7 In-Store Payments . . . . . . . . . . . . . . . . . . 13
Section 3.8 Purchase Authorization Procedures . . . . . . . . . . 14
Section 3.9 Settlement Procedures . . . . . . . . . . . . . . . . 14
Section 3.10 Service Fee Amount and Related Matters . . . . . . . . 15
Section 3.11 Postage Adjuster . . . . . . . . . . . . . . . . . . 15
Section 3.12 Repurchase of Accounts . . . . . . . . . . . . . . . . 15
Section 3.13 Monthly Billing Statement . . . . . . . . . . . . . . 16
Section 3.14 Establishment of Payment Terms, Late Fees and Charges 17
Section 3.15 Net Late Charges . . . . . . . . . . . . . . . . . . . 17
Section 3.16 Insurance Solicitation of Accounts . . . . . . . . . 17
Section 3.17 Value-Added Solicitation of Accounts . . . . . . . . . 17
Section 3.18 Additional Responsibilities of the Companies and MWCC 18
ARTICLE IV. SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.1 Grant of Security Interest . . . . . . . . . . . . . 18
ARTICLE V. WARRANTIES AND COVENANTS . . . . . . . . . . . . . . . . . . . 18
Section 5.1 Presentment Warranties . . . . . . . . . . . . . . . 18
Section 5.2 Account Covenants . . . . . . . . . . . . . . . . . . 22
Section 5.3 Additional Affirmative Covenants . . . . . . . . . . 22
Section 5.4 Negative Covenants of the Companies . . . . . . . . . 23
Section 5.5 General Representations and Warranties . . . . . . . . 23
Section 5.6 Representations and Warranties of MWCC . . . . . . . . 25
ARTICLE VI. EVENTS OF DEFAULT; RIGHTS AND REMEDIES . . . . . . . . . . . . 27
Section 6.1 Events of Default . . . . . . . . . . . . . . . . . . 27
Section 6.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VII. TERM/TERMINATION . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.1 Term . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.2 Termination by the Companies . . . . . . . . . . . . 29
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Section 7.3 Termination by MWCC . . . . . . . . . . . . . . . . . 30
Section 7.4 Renegotiation . . . . . . . . . . . . . . . . . . . . 30
Section 7.5 Termination for Force Majeure . . . . . . . . . . . . 30
Section 7.6 Purchase of Accounts by the Companies . . . . . . . . 31
Section 7.7 Liquidation of Accounts . . . . . . . . . . . . . . . 31
ARTICLE VIII. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.1 By The Companies . . . . . . . . . . . . . . . . . . 32
Section 8.2 By MWCC . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.3 Payment of Indemnified Amounts . . . . . . . . . . . 33
Section 8.4 Insurance and Mitigation . . . . . . . . . . . . . . 34
Section 8.5 Notice . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE IX. OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE X. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.1 Confidential Information . . . . . . . . . . . . . . 35
Section 10.2 Assignability . . . . . . . . . . . . . . . . . . . . 36
Section 10.3 Amendment . . . . . . . . . . . . . . . . . . . . . . 36
Section 10.4 Non-Waiver . . . . . . . . . . . . . . . . . . . . . 36
Section 10.5 Severability . . . . . . . . . . . . . . . . . . . . 36
Section 10.6 Governing Law . . . . . . . . . . . . . . . . . . . . 36
Section 10.7 Captions . . . . . . . . . . . . . . . . . . . . . . 36
Section 10.8 Use of Company Names and Marks . . . . . . . . . . . 36
Section 10.9 Further Assurances . . . . . . . . . . . . . . . . . 37
Section 10.10 Entire Agreement . . . . . . . . . . . . . . . . . . 37
Section 10.11 Notices . . . . . . . . . . . . . . . . . . . . . . . 37
Section 10.12 Power of Attorney . . . . . . . . . . . . . . . . . . 38
Section 10.13 Third Parties . . . . . . . . . . . . . . . . . . . . 38
Section 10.14 Interpretation . . . . . . . . . . . . . . . . . . . 39
Section 10.15 No Joint Venture . . . . . . . . . . . . . . . . . . 39
Section 10.16 Waiver of Jury Trial . . . . . . . . . . . . . . . . 39
Section 10.17 Counterparts . . . . . . . . . . . . . . . . . . . . 39
Section 10.18 Survival . . . . . . . . . . . . . . . . . . . . . . 39
Section 10.19 No Inconsistent Action . . . . . . . . . . . . . . . 40
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MWCC PROGRAM AGREEMENT
This MWCC Program Agreement, made as of the 3rd day of April, 1996 by and among
Montgomery Ward Credit Corporation, a Delaware corporation ("MWCC"), with
administrative offices at 3720 Howard Hughes Parkway, Suite 200, Las Vegas,
Nevada 89109, Montgomery Ward & Co., Incorporated, a Illinois corporation
("Montgomery Ward"), with its chief executive office at 619 W. Chicago Avenue,
Chicago, Illinois 60671, and Lechmere, Inc., a Massachusetts corporation
("Lechmere" and together with Montgomery Ward, collectively, the "Companies",
and each individually, a "Company"), with its chief executive office at 619 W.
Chicago Avenue, Chicago, Illinois 60671;
WITNESSETH
WHEREAS MWCC has established programs relating to the extension of
commercial credit to qualified customers for the purchase of goods and/or
services pursuant to CommerciaLine Agreements (as hereinafter defined); and
WHEREAS the Companies, through their Retail Locations (as hereinafter
defined), are engaged in, among other activities, the distribution and sale of
Goods and/or Services (as hereinafter defined) at retail on credit; and
WHEREAS MWCC and the Companies agree to establish customized Programs (as
hereinafter defined) for the exclusive use of the Companies at Retail Locations
and otherwise on the terms and conditions set forth herein during the Initial
Term and any Renewal Term(s) (as hereinafter defined);
NOW THEREFORE, in consideration of the terms and conditions stated herein,
and for good and valuable consideration, the receipt of which is hereby
acknowledged, MWCC and the Companies agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
"Account" means and includes the following:
a. a secured or unsecured business credit facility established in
connection with a CommerciaLine Agreement and established under an
agreement between one or both of the Companies and an Account Holder,
pursuant to which the Account Holder is permitted to purchase through
one or both of the Companies, from
<PAGE>
time to time, Goods and/or Services on credit and pursuant to which
the Account Holder must pay the outstanding balance in full using the
payment terms specified in the CommerciaLine Agreement;
b. any and all Account Documentation;
c. accounts, accounts receivable, other receivables, Indebtedness,
contract rights, choses in action, general intangibles, chattel paper,
instruments, documents, notes and all proceeds of all of the foregoing
(as each of those terms which is defined in the UCC is so defined)
arising in connection with the CommerciaLine accounts referred to in
subsection a of this definition;
d. any and all rights and remedies as to stoppage-in-transit,
reclamation, return and repossession of Goods and/or Services financed
pursuant thereto;
e. to the extent assignable, any and all goods or other property,
contracts of indemnity, guaranties, letters of credit or sureties
standing as security for payment of Indebtedness;
f. any and all proceeds of insurance and other proceeds at any time
standing as security for payment of Indebtedness; and
g. any and all other rights, remedies, benefits, interests and titles,
both legal and equitable, to which the Companies may be entitled in
respect of the foregoing.
"Account Documentation" means, with respect to any Account, any and all
documentation relating to an Account, including, without limitation,
CommerciaLine Applications, CommerciaLine Agreements, Charge Transaction
Data, Program Documents, checks and stubs, credit bureau reports, adverse
action information, change of terms notices, correspondence, memoranda,
documents, instruments, certificates, agreements and invoices, including
any and all amendments or modifications thereto, however stored or kept,
and any other written information relating to an Account.
"Account Holder" means a CommerciaLine Customer.
"Active CommerciaLine Account" means an Account (excluding Net-Writeoffs)
which arises under a CommerciaLine Agreement and, with respect to any
Billing Period, has a debit or credit balance at any time during such
Billing Period.
2
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"Agreement" means this Agreement, together with all of its schedules and
exhibits, and, if amended, restated, modified or supplemented, as the same
may be so amended, restated, modified or supplemented from time to time.
"Bankruptcy Code" means Title 11 of the United States Code, as now
constituted or as hereafter amended, or any successor law.
"Billing Date" means (i) for any Account the date during a calendar month
as of which the Account Holder, is billed, and (ii) for all Accounts each
date during a calendar month as of which Account Holders are billed, both
as designated by MWCC.
"Billing Period" means the elapsed time between Billing Dates, usually
twenty-eight (28) to thirty-two (32) days.
"Billing Period Outstandings" means, as of any Billing Date, the aggregate
Indebtedness on all Accounts determined as of the end of the Billing Period
applicable to such Accounts.
"Business Day" means any day, other than a Saturday, Sunday or New York
bank legal holiday.
"Change of Control" means (i) the acquisition by any Person or group of
Persons of beneficial ownership of 50% or more of the combined voting power
of the then outstanding voting securities of any Company entitled to vote
generally in the election of directors; (ii) the cessation by individuals
who, as of the Closing, constitute the Board of Directors of any Company
(the "Incumbent Board") to constitute at least a majority of such Board;
PROVIDED, that any individual becoming a director subsequent to the Closing
whose election or nomination for election by a Company's stockholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board; (iii) the approval by the stockholders of
any Company of a reorganization, merger or consolidation (each a
"Reorganization"), in each case through which all or substantially all the
Persons who where the respective beneficial owners of the voting securities
of such Company immediately prior to such Reorganization do not
beneficially own, following such Reorganization, directly or indirectly,
more than 50% of the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors of the
corporation, as a result of such Reorganization; or (iv) the sale or other
disposition of all or substantially all the assets or property of any
Company in one transaction or series of related transactions.
Notwithstanding the foregoing, should the
3
<PAGE>
owners of Montgomery Ward Holding Corp. Class A common stock transfer, sell
or otherwise dispose of their respective interest, such transfer, sale or
disposal (either individually or cumulatively) in a transaction involving
General Electric Capital Corporation shall not be deemed a Change of
Control under this Agreement.
"Charge Slip" means a sales receipt, including but not limited to an
invoice, evidencing a purchase of Goods and/or Services from any Company
that is to be charged to an Account.
"Charge Transaction Data" means Account Holder identification and
transaction information with regard to each purchase of Goods and/or
Services by Account Holders on credit from any Company with respect to an
Account and each return of Goods and/or Services for credit to the Account
Holders with respect to an Account, which data is being required to be
transmitted by the Companies to MWCC in accordance with the applicable
Operating Procedures.
"CommerciaLine Agreement" means the credit agreement between one or both
Companies and a CommerciaLine Customer pursuant to which the CommerciaLine
Customer may purchase Goods and/or Services on credit from the Companies at
the Companies' Retail Locations and is required to pay the outstanding
balance in full on the date specified in the billing statement, together
with any modifications or amendments which may be made to such agreement.
"CommerciaLine Application" means the credit application which must be
completed by applicants who wish to become CommerciaLine Customers.
"CommerciaLine Customer" means any Person who has entered into a
CommerciaLine Agreement or who is liable on an Account established by a
CommerciaLine Agreement for purchase of Goods and/or Services to be used
primarily for commercial or business purposes.
"Company" and "Companies" have the meanings set forth on page one.
"Company Names" means the trademarks, tradenames, service marks, logos and
other proprietary designations of the Companies licensed to MWCC by the
Companies pursuant to this Agreement.
"CP Base Rate" means [ ]*
"CP Factor" means, with respect to each calendar month, the product of (i)
the remainder of the CP Rate minus the CP
*Confidential treatment has been requested with respect to this information.
4
<PAGE>
Base Rate, multiplied by (ii) [ ]*.
"CP Rate" means, as of the last Business Day of the preceding calendar
month, [ ]* if not published therein, as published or made
available by such other source as MWCC shall reasonably determine.
"Confidential Information" has the meaning as set forth in Section 10.1
hereof.
"Credit Review Point" means, except as adjusted pursuant to Section 2.2,
[ ]*, or such higher amount as MWCC, in its sole discretion,
shall from time to time specify to the Companies in writing. MWCC
may, in its sole discretion, increase the Credit Review Point to
an amount MWCC deems acceptable during the Term.
"Credit Slip" means a sales credit receipt evidencing a return or exchange
of Goods or a credit on an Account or an adjustment for Services rendered or
not rendered by a Company to an Account Holder.
"Default" means any event the occurrence of which, with the passage of time
or the giving of notice or both, would constitute an Event of Default.
"Event of Default" has the meaning set forth in Section 6.1 hereof.
"Final Liquidation Date" means the date on which MWCC no longer owns any
Accounts that have a balance outstanding other than a balance that has been
written off.
"GAAP" means generally accepted accounting principles in the United States
of America as from time to time in effect.
"Goods and/or Services", separately or cumulatively, means all merchandise
and services which may be purchased by an Account Holder under an Account.
"Indebtedness" means any and all amounts that are from time to time due
from the Account Holder under an Account, including without limitation any
charges for Goods and/or Services, credit insurance charges, sales tax,
finance charges and all other charges in respect of an Account, whether or
not billed or posted, and all monies due or to become due with respect to
the foregoing and all proceeds of the foregoing, including without
limitation, insurance proceeds relating thereto.
*Confidential treatment has been requested with respect to this information.
5
<PAGE>
"Initial Period" means the period from the date of this Agreement through
the three month anniversary thereof.
"Initial Term" has the meaning set forth in Section 7.1 hereof.
"Insurance Program" means credit life, credit property and/or other types
of credit insurance that may be offered by MWCC to Account Holders pursuant
to Section 3.16 hereof.
"Invoice" means a Charge Slip or sales receipt evidencing a Purchase that
is charged to an Account and that evidences an amount to be paid by MWCC to
the Companies.
"Lid Code" means line item description as established from time to time by
MWCC.
"Lien" means any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, restriction, lien, charge, claim, security
interest (including, without limitation, any interest of a buyer of
accounts or chattel paper which is subject to Article 9 of the UCC),
easement or encumbrance, preference, priority, or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to file, any financing statement
pursuant to the UCC), other than mechanics liens and other liens that arise
by operation of law which have not been in existence for more than 30 days.
"Lists" has the meaning set forth in Section 3.5 hereof.
"Losses" has the meaning set forth in Section 8.1 hereof.
"Monthly Billing Statement" has the meaning set forth in Section 3.13
hereof.
"MWCC" has the meaning set forth on page 1 hereof.
"Net Credit Volume" means, with respect to any period, an amount equal to
the aggregate amount of Purchases on Accounts for such period (as reflected
in the Charge Transaction Data) less the sum of (x) the aggregate amount
of Credit Slips for such period (as reflected in the Charge Transaction
Data) and (y) the aggregate amount of Repurchases for such period.
"Net Late Charges" means any late fees charged in respect of Accounts less
any of such fees or charges which have been waived pursuant to policies and
procedures adopted by the
6
<PAGE>
mutual agreement of the Companies and MWCC.
"Net Sales Volume" means, with respect to any period, Net Credit Volume for
such period before deducting the aggregate amount of Repurchases for such
period.
"New Retailer" has the meaning set forth in Article IX hereof.
"Operating Procedures" means the written instructions and procedures
established by MWCC and agreed to by the Companies in connection with the
Program, as the same may be amended from time to time.
"Person" means and includes any individual, partnership, joint venture,
corporation, trust, unincorporated organization of government or any
department, agency or instrumentality thereof.
"Postage Base Rate" means the first class postage-rate paid by MWCC as of
the date hereof.
"Presentment Warranties" has the meaning set forth in Section 5.1.
"Program" means the programs established by this Agreement and made
available to qualified Account Holders for the purchase of Goods and/or
Services sold or supplied by the Companies and/or Services rendered by the
Companies. The term "Program" includes the extension of credit, billings,
collections, accounting between the parties, and all aspects of the
relationships contemplated herein other than advertising in respect of
credit promotions.
"Program Documents" has the meaning set forth in Section 3.1 hereof.
"Purchase" means the purchase by an Account Holder of any of the Goods
and\or Services that may be purchased from any Company at any Retail
Location.
"Renewal Term" has the meaning set forth in Section 7.1 hereof.
"Repurchases" has the meaning set forth in Section 3.12 hereof.
"Retail Location(s)" means retail business locations which are owned or
operated by any Company or its licensees.
"RSA Average Account Balance" means with respect to any Billing Date, (i)
the portion of the Billing Period
7
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Outstandings on such Billing Date attributable to sales made at Retail
Locations, divided by (ii) the number of Active CommerciaLine Accounts
attributable to sales made at Retail Locations ending on such Billing Date.
"RSA Average Account Balance Factor" means the product of (i) the remainder
of [ ]* minus the RSA Average Account Balance, multiplied by,
(ii) either (a) [ ]*, if such remainder is a negative amount,
or (b) [ ]*, if such remainder is a positive amount.
"Service Fee Amount" has the meaning set forth in Section 3.10 hereof.
"Solvent", as to an entity, means (a) the current book value of such
entity's assets, as a going concern, is in excess of the total of its
current book liabilities, in each case as determined in accordance with
generally accepted accounting principles, and (b) such entity is currently
able generally to pay its debts as they become due. The phrase "book value"
means the net amounts at which assets and liabilities are carried on the
books of a Company on a going concern basis.
"Term" has the meaning set forth in Section 7.1 hereof.
"Transaction Day" means a day, whether or not a Business Day, on which
Goods and/or Services are sold by any Company.
"UCC" means the Uniform Commercial Code (or similar law) of the
jurisdiction with respect to which such term is used, as in effect from
time to time.
"Unadjusted RSA Discount Rate" has the meaning set forth in Section 3.10a.
"Uncontested Amount" means an amount which is owed by MWCC to any Company
or by any Company to MWCC, as the case may be, pursuant to the terms of
this Agreement and with respect to which written notice disputing such
amount has not been delivered by MWCC to the Companies or by the Companies
to MWCC, as the case may be.
"United States" or "U.S." means the fifty states of the United States of
America and the Commonwealth of Puerto Rico.
"Value-Added Program" means any products or services that may be offered by
MWCC to Account Holders that enhance the features of the Program and/or
Accounts including, without limiting the foregoing, credit card protection
plans, legal service plans, financial products and services, and such
*Confidential treatment has been requested with respect to this information.
8
<PAGE>
other products and services as MWCC may specify from time to time;
PROVIDED, that the term shall not be deemed to include (i) credit
insurance, or (ii) any offerings falling within the definition of
"Insurance Programs."
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and plural, and
pronouns stated in the masculine, feminine, or neuter gender shall include
the masculine, the feminine, and the neuter.
ARTICLE II. ESTABLISHMENT OF PROGRAM
SECTION 2.1 THE COMPANIES TO MARKET THE PROGRAM.
The Companies hereby agree that they will participate in the Program and
will market the Program. The Companies will make credit available to Account
Holders under the Program for the purchase of Goods and/or Services only in
accordance with the Operating Procedures.
SECTION 2.2 MWCC TO PURCHASE ACCOUNTS.
a. Subject to: (i) the terms of this Agreement, and (ii) the credit
limits applicable to each Account, MWCC shall purchase Accounts created on or
after the date hereof from the Companies in amounts set forth as the total
for any Purchase reflected in Charge Transaction Data properly submitted to
MWCC by the Companies in accordance with the terms of this Agreement and for
which the Companies have obtained authorization from MWCC, subject to any
applicable Service Fee Amounts (including as set forth in Section 3.10
hereof) or other promotional discounts, and any other adjustments expressly
permitted by this Agreement; PROVIDED, that MWCC will not be required to
purchase Accounts or the underlying Indebtedness to the extent that such new
purchase, together with the amount of existing Indebtedness purchased by
MWCC, would exceed the Credit Review Point; and PROVIDED FURTHER, that the
payment for or acceptance by MWCC of Accounts shall not be deemed a waiver of
any rights MWCC may have under this Agreement.
b. In the event the aggregate Indebtedness arising under all Accounts
equals or exceeds ninety percent (90%) of the then in effect Credit Review
Point, then within ninety (90) days after such balance reaches said point, MWCC
shall elect any one of the following options and give the Companies written
notice of such election within said ninety (90) day period:
(i) MWCC will, in its sole discretion, increase the Credit Review
Point to an amount MWCC deems acceptable, but in any event to a sum equal to or
higher than the amount which, at the time of the election of this option, would
not trigger the
9
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provisions of this Section 2.2b. If MWCC elects this option, then MWCC's written
notice to the Companies shall include the amount of the increased Credit Review
Point.
(ii) MWCC will obtain funds from one or more lending institutions, of
MWCC's sole choice and in such manner as MWCC deems appropriate and consistent
with the provisions of this Agreement, for the purpose of securitizing or
participating with MWCC in buying a portion of the Indebtedness, such portion to
be unlimited in amount and at MWCC's sole discretion. If MWCC elects this
option, then MWCC's written notice to the Companies shall constitute notice
that, for purposes of this Section 2.2, thenceforth the aggregate Indebtedness
shall be deemed to be reduced by an amount equal to the aggregate amount of the
portion of the Accounts participated pursuant to this Section 2.2b(ii).
(iii) MWCC may elect not to increase the Credit Review Point to an
amount as required in Section 7.2b. In such event, the Companies shall be
entitled to terminate this Agreement in accordance with Section 7.2b hereof.
c. The Companies expressly acknowledge MWCC's right to establish a Credit
Review Point as described in this Section 2.2 and, in this regard, provided that
MWCC has not wilfully misrepresented any facts relating to the Credit Review
Point, hereby release MWCC from any all Losses incurred as a result of MWCC's
refusal to purchase Accounts or the underlying Indebtedness to the extent that
the amount of such new purchase, together with the amount of existing
Indebtedness, would exceed the Credit Review Point, increase the Credit Review
Point or take any other action contemplated under Section 2.2, including but not
limited to, any Losses relating to a lender liability claim.
SECTION 2.3 PROMOTION OF THE PROGRAM.
a. (i) The Companies may promote the Program during the Term and
encourage the acquisition and usage of Accounts by Account Holders through
promotions mutually agreed upon by the Companies and MWCC, and MWCC shall
assist in planning and monitoring all such promotions. The Companies shall
include actual CommerciaLine Applications/Agreements and/or information
relating to the Program in its generalized and specialized brochure
advertising when deemed appropriate by the Companies' management. The
Companies shall be responsible for all costs and expenses of promoting the
Program.
(ii) The Companies and MWCC each shall obtain the prior written
consent of the other party with regard to the substance and timing of any press
releases issued during the Term which announce the execution of this Agreement,
or the transactions specified herein, which prior approval shall not
unreasonably be withheld. At all times thereafter, the Companies
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and MWCC, prior to issuing any press releases concerning this Agreement or
the transactions specified herein, shall consult with each other concerning the
proposed substance and timing of such releases and give due consideration to the
comments of the other party relating thereto. The foregoing notwithstanding, it
is understood that neither party shall be required to consult with the other
party with regard to (A) press releases and other announcements as may be
required by applicable laws or the applicable rules and regulations of any
governmental agency or stock exchange and (B) publications prepared
solely by and for employees of the Companies or MWCC, all of which may be issued
without prior consultation with, or the prior written consent of, the other
party.
ARTICLE III. ADMINISTRATION OF PROGRAM
SECTION 3.1 PREPARATION OF DOCUMENTS.
a. MWCC and the Companies shall cooperate and assist each other in the
preparation of all documents to be used in connection with the Program. MWCC
shall provide the Companies with the form and content of CommerciaLine
Applications, CommerciaLine Agreements, and other forms, as required by law and
this Agreement (hereinafter referred to as "Program Documents"). The Companies
shall be solely responsible for the costs of printing, customizing, and any
other incidental expenses associated with document preparation, including but
not limited to customized CommerciaLine Applications/Agreements, Charge Slips,
Credit Slips and other Program Documents. All Program Documents and other forms
shall, at MWCC's option exercised prior to the printing of such Program
Documents, state that the Accounts and underlying Indebtedness will be sold to,
assigned to and serviced by, MWCC. No Program Documents shall be utilized
unless MWCC has expressly approved the form and content of such documents. The
Companies shall be responsible for distributing such Program Documents to each
Company's customers and instructing their employees to use only Program
Documents that have been approved by MWCC. The Companies will indemnify MWCC
with respect to any Losses incurred as a result of all changes to and/or
omissions of Program Documents made without MWCC's written authorization.
b. The Companies shall be solely responsible for all costs and expenses
relating to materials promoting the Program and other credit marketing expenses
relating thereto including, without limitation, credit advertising, in-store
point-of-purchase promotional materials and credit marketing expenses related to
the promotion of the Program.
SECTION 3.2 ACCOUNT ADMINISTRATION.
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MWCC shall, in accordance with Operating Procedures, determine the
creditworthiness of individual applicants under the Program, the range of credit
limits to be made available to individual Account Holders and whether to
suspend, alter to terminate credit privileges of any Account Holder.
Indebtedness with respect to Accounts failing to meet such criteria as
determined by MWCC shall not be eligible for purchase.
The parties acknowledge that one or more affiliates of MWCC, as MWCC may
in its sole discretion appoint from time to time, may have day-to-day
responsibility for administration of the Program.
SECTION 3.3 OWNERSHIP OF ACCOUNTS.
With respect to the Accounts and underlying Indebtedness which it
purchases, MWCC shall be the sole and exclusive owner of all such Accounts and
underlying Indebtedness and of the related Account Documentation, Account
Holder data, Charge Transaction Data, Charge Slips, Credit Slips and receipts or
evidences of payment or purchases by Account Holders and other Program
Documents, and shall be entitled to receive all payments made by Account
Holders on Accounts and the underlying Indebtedness, and the Companies
acknowledge and agree that they have no right, title or interest in such
Accounts or underlying Indebtedness or related Account Documentation, Account
Holder data, Charge Transaction Data, Charge Slips, Credit Slips, receipts or
evidences of payments or purchases by Account Holders or other Program
Documents, and has no right to any payments made by Account Holders on Accounts
or underlying Indebtedness.
SECTION 3.4 CREDIT BASED PROMOTIONS.
MWCC may make available to the Companies, to encourage Account acquisition
and usage, certain credit-based promotions, which will be developed and
mutually agreed to by MWCC and the Companies. The Companies shall pay Service
Fee Amounts, in addition to those specified in Section 3.10, as mutually agreed
to by MWCC and the Companies, for any such credit promotion which may result in
additional expense to MWCC.
SECTION 3.5 USE OF LISTS.
The Companies or their designees (including unrelated third parties
designated by the Companies) have exclusive right and control of all lists of
applicants, Account Holders, Account Holder names and addresses, and all credit
and demographic information reflected therein, including that for approved and
declined applicants (hereinafter the "Lists"); PROVIDED, that (i) MWCC shall be
entitled to use such Lists in connection with its administration and operation
of the Programs as provided in this Agreement; (ii) upon the termination of
this Agreement however caused, then MWCC shall be entitled to use the Lists in
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connection with the liquidation or sale of the portfolio of Accounts as provided
in Section ?: and (iii) MWCC shall have a right of first refusal if at any time
the Companies propose to solicit the Lists for Visa or Master Charge
applications. MWCC agrees that during the term of this Agreement all income
arising from the marketing of or to the Lists will belong to the Companies,
other than any income derived by MWCC pursuant to the provisions of Sections
3.16 or 3.17.
SECTION 3.6 OPERATING PROCEDURES.
The Companies shall follow all applicable Operating Procedures in
connection with the Program including, but not limited to, distributing
CommericaLine Applications, seeking authorizations for Accounts, handling credit
transactions with Account Holders and transmitting Charge Transaction Data.
SECTION 3.7 IN-STORE PAYMENTS.
a. The Companies shall not advertise or otherwise indicate to any
persons that Account Holders (or other persons acting on behalf of Account
Holders) may make In-Store Payments (as defined in subsection c below) and
instead shall advise employees (i) not to accept In-Store Payments and (ii)
to direct Account Holders seeking to make such payments to send payments to
the payment address contained on the monthly billing statement. Without
derogating the restriction in the preceding sentence, if any In-Store Payment
is made, the Company receiving such In-Store payment shall give the person
making such In-Store Payment a receipt therefor and shall be deemed to hold
such In-Store Payment as property of, and in trust for, MWCC until (x) such
payment is delivered to MWCC or (y) MWCC is informed of the amount of such
payment and applies said amount to reduce amounts payable by MWCC to such
Company pursuant to this Agreement. MWCC shall apply amounts of In-Store
Payments received by any Company (and of which it is duly informed) to reduce
the amounts payable by MWCC to such Company; PROVIDED, that, the Companies
will, upon the request of MWCC, thenceforth transmit to MWCC all In-Store
Payments within two (2) Business Days of the day received by any Company.
b. Within twenty-four (24) hours after the receipt of any In-Store
Payment, the Companies shall notify MWCC of such receipt (which notification
shall include the amounts of such payments and identification of the Accounts
and make reasonable efforts to supply the Invoice number as to which such
payments relate) by providing such information with its provision of Charge
Transaction Data. An In-Store Payment shall be credited to the Account of
the relevant Account Holder as of the date MWCC applies the amount of such
payment to reduce amounts payable by MWCC to the Companies (or, if no such
application is made, as of the date MWCC receives said In-Store Payment from
the Companies).
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c. For purposes of this provision, "In-Store Payment" means a payment on
an Account made by an Account Holder (or any person acting on behalf of an
Account Holder) at a Retail Location.
SECTION 3.8 PURCHASE AUTHORIZATION PROCEDURES.
Each Company agrees as follows with respect to each Purchase by an Account
Holder:
a. It must complete an Invoice. The Account number must be printed or
written on the Invoice.
b. It must have the CommerciaLine Customer sign the Invoice, once all
other purchase information is filled in as requested.
c. It must obtain authorization through the existing POS Network for
all Purchases and record the authorization code on the Invoice. For
authorizations during any time that the POS Network is not in operation, the
Companies must call MWCC (or its affiliate, if an affiliate is appointed to
administer the processing Program) for an authorization code.
SECTION 3.9 SETTLEMENT PROCEDURES.
a. All sales data will be electronically transmitted to MWCC using POS
Network settlement procedures. The Companies, or an agent of the Companies,
will retain a copy of the Charge Slip.
b. Upon receipt, verification and processing of the Charge Transaction
Data by MWCC, MWCC will remit to the Companies an amount equal to [ ]*
the Transaction Day(s) for which such remittance is being made. MWCC will
transfer funds via wire transfer to a bank designated in writing by the
Companies. If Charge Transaction Data is received by MWCC's processing
center before 10 a.m. Eastern Time on a Business Day, MWCC will initiate such
wire transfer on the same Business Day. In the event that the Charge
Transaction Data is received after 10 a.m. Eastern Time, then MWCC will
initiate such transfer on the following Business Day. If MWCC, in its sole
discretion, determines that any amount payable to MWCC, as set forth on any
Monthly Billing Statement sent to the Companies has not been paid as set
forth in Section 3.13, MWCC may deduct from or set off against any amounts to
be remitted to the Companies pursuant to the foregoing sentence, the sum of
(x) the Service Amount Fee for that Business Day and any other Business Days
for which the Service Fee Amount has not been collected and (y) all other
amounts due, including without limitation amounts due pursuant to Sections
3.10b, 3.11 and 3.12 from the Companies to MWCC hereunder, except as
otherwise expressly provided herein.
*Confidential treatment has been requested with respect to this information.
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c. The Companies authorize MWCC to microfilm (or copy using any other
reasonable method) all documentation within the definition of Account and
Program Documents and destroy all such original Account and Program Documents in
the ordinary course of business as MWCC may see fit, and in accordance with
applicable laws.
SECTION 3.10 SERVICE FEE AMOUNT AND RELATED MATTERS.
In addition to any amount due to MWCC pursuant to Section 3.3 hereof:
a. With respect to RSA CommerciaLine Accounts, the Service Fee amount
payable by the Companies to MWCC will be the amount equal to the product of
(i) [ ]*, multiplied by (ii) the sum of (A) [ ]* (the
"Unadjusted RSA Discount Rate"), (B) the CP Factor (which may be either
positive, zero or negative), and, after the Initial Period, (C) the RSA
Average Account Balance Factor (which may be either positive, zero or
negative). For purposes of illustration, attached hereto as Exhibit A is a
schedule which shows how the Unadjusted RSA Discount Rate would be adjusted
for fluctuations in the CP Rate and the RSA Average Account Balance.
b. The Companies shall pay the MWCC a fee in the amount of [ ]*
with respect to each CommerciaLine Application processed by MWCC, regardless
of whether any such CommerciaLine Application is approved.
SECTION 3.11 POSTAGE ADJUSTER.
In the event actual first class postage rate paid by MWCC is increased at
any time above the Postage Base Rate, the Companies shall pay to MWCC in
respect each Billing Period an amount equal to the aggregate amount of such
increases multiplied by the number of Accounts as to which billing statements
are mailed, provided, that MWCC shall make reasonable efforts to obtain the
lowest postage rate possible.
SECTION 3.12 REPURCHASE OF ACCOUNTS.
a. The Companies shall Repurchase (any such repurchase made pursuant to
this Section 3.12 shall be referred to herein as a "Repurchase") for cash from
MWCC upon demand an Account or the amount of any Charge Slip or Credit Slip if
with respect to such Account or Charge Slip or Credit Slip or the underlying
transactions: (i) any Presentment Warranty proves to be materially false or
inaccurate in any respect; (ii) the Account Holder asserts any claim or defense
against MWCC as a result of any act or omission of any Company allegedly in
violation of any applicable law, statute, ordinance, rule or regulation; (iii)
the Account Holder reasonably disputes the amount or existence of
*Confidential treatment has been requested with respect to this information.
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such Account, or refuses to pay alleging dissatisfaction with the quality or
performance of Goods and/or Services received, including without limitation,
work or service performed by any agent, contractor, or supplier or any other
person retained or employed by any Company, a breach of warranty or
representation by any Company in connection with the transaction, or an
offset or counterclaim based on any Company's act or omission or any act or
omission of any agent, contractor or supplier; (iv) the Account Holder
disputes a Charge Slip and the Companies cannot supply MWCC with a copy of
the Charge Slip within eighteen (18) days of MWCC's written request (v); any
Charge Slip is submitted to and processed by MWCC and MWCC determines in its
reasonable discretion that any Company did not materially comply with the
Operating Procedures; (vi) the balance in any Account or item of Indebtedness
is for any reason not valid or enforceable (other than instances where such
invalidity or unenforceability is a direct result of some action or failure
to act by MWCC) against the Account Holder obligated for payment and
performance under the Account; and (vii) at the time of purchase by MWCC, the
Account or item of Indebtedness is not free of any defense, offset,
counterclaim, or recoupment assertable by the Account Holder or any other
person obligated therefor or by any Company's creditors or assignees other
than under any product warranty, service or installation agreement. The
parties agree that MWCC will recoup or set off the amount of any Repurchases
against amounts payable to the Companies pursuant to Section 3.9 unless the
amount of Repurchases is in excess of the amount payable to the Companies
pursuant to Section 3.9 in which case such excess will be payable to MWCC in
cash upon demand.
b. Any obligation by the Companies to make Repurchases pursuant to this
3.12 shall be joint and several, unconditional and shall not be waived,
released or affected by the retention of purchase by MWCC with the knowledge
of a breach of warranty or other infirmity, whether or not communicated to the
Companies, and such retention or purchase by MWCC with knowledge of a breach
of warranty other infirmity shall not be deemed a waiver of any of MWCC's
rights with respect to the asset purchased. MWCC shall not unreasonably be
required to exhaust its remedies against the Account Holder as condition
precedent to requiring performance by the Companies of their Repurchase
obligation.
c. The Repurchase price payable under this Section 3.12 shall be the
aggregate of [ ]* at the time of the purchase by the Companies.
SECTION 3.13 MONTHLY BILLING STATEMENT.
MWCC will send the Companies a monthly billing statement (the "Monthly
Billing Statement") setting forth the Service Fee
*Confidential treatment has been requested with respect to this information.
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Amounts, application fees, postage adjuster fees, amounts of Repurchases and
other charges and adjustments incurred during such calendar month. The
Companies will pay such Monthly Billing Statement within ten days of receipt
or MWCC may indicate its intent to recoup or offset such amounts pursuant to
the settlement procedures set forth in Section 3.9. MWCC's rights under this
Section 3.13 are in addition to, and not intended to limit, any rights MWCC
may have pursuant to this Agreement to recoup or offset against amounts due
to any Company hereunder.
SECTION 3.14 ESTABLISHMENT OF PAYMENT TERMS, LATE FEES AND CHARGES.
The payment terms, credit standards, credit limits, late charges and
other charges applicable to Accounts arising pursuant to a CommerciaLine
Agreement have been mutually agreed by the parties hereto. Payment terms,
late charges and other charges may be modified or amended at the sole
discretion of the Companies, PROVIDED, that the Companies shall compensate
MWCC in an amount or take such other action mutually agreed by MWCC and the
Companies to be reasonable in view of the changed or modified economics
arising in connection with any such modification or amendment, and PROVIDED,
FURTHER that the Companies shall not institute a proposed modification or
amendment until they have consulted with MWCC regarding such modification or
amendment. Notwithstanding the foregoing, all decisions with respect to
determining credit standards for opening a CommerciaLine Account and the
credit limits applicable thereto shall be made in accordance with mutually
agreed Operating Procedures.
SECTION 3.15 NET LATE CHARGES.
MWCC and the Companies shall each be entitled to [ ]* of Net
Late Charges collected by MWCC. The Companies' share of Net Late Charges in
respect of each Billing Period shall be set forth on each Monthly Billing
Statement and shall be credited against amounts otherwise owing to MWCC.
SECTION 3.16 INSURANCE SOLICITATION OF ACCOUNTS.
MWCC, or its agents, may solicit Account Holders for Insurance Programs,
but only after having offered the right to do so to the Companies and the
Companies having declined such right. Unless otherwise agreed to in writing
by the Companies, any solicitations regarding such Insurance Programs shall
in no way state or imply that such Insurance Programs are offered or endorsed
by the Companies in any way.
SECTIONS 3.17 VALUE-ADDED SOLICITATION OF ACCOUNTS.
MWCC, or its agents, may solicit Account Holders for Value-Added
Programs, but only after having offered the right to do so
*Confidential treatment has been requested with respect to this information.
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to the Companies and the Companies having declined such right. Unless
otherwise agreed to in writing by the Companies, any solicitations regarding
such Value-Added Programs shall in no way state or imply that such
Value-Added Programs are offered or endorsed by the Companies in any way.
SECTION 3.18 ADDITIONAL RESPONSIBILITIES OF THE COMPANIES AND MWCC.
As to Accounts which are delinquent, the Companies shall furnish to MWCC
such assistance with collections as MWCC may reasonably request and as the
parties may mutually agree from time to time.
ARTICLE IV. SECURITY INTEREST
SECTION 4.1 GRANT OF SECURITY INTEREST.
The parties intend that the transactions contemplated herein shall
constitute a purchase and sale of Accounts and Indebtedness for all purposes,
not lending transactions. Notwithstanding the foregoing, to secure all
obligations of the Companies to MWCC whatsoever, whether now existing or
hereafter created or acquired and, against the possibility that those
transactions contemplated herein as a purchase and sale of Accounts and
Indebtedness are not so considered despite the intentions of the parties,
each of the Companies hereby grants to MWCC a present and continuing first
priority security interest in and to the following, together with the
proceeds thereof: (A) all Accounts, Indebtedness and Program Documents; (B) all
deposits, credit balances and reserves on MWCC's books relating to the
Program; and (C) all proceeds of the foregoing. The Companies agree to
cooperate fully with MWCC as MWCC may reasonably request in order to give
effect to the security interest granted by this Section 4.1., including
without limitation the execution and filing by the Companies of UCC-1 or
comparable statements in order to perfect the interests created hereby. For
filing purposes, each Company agrees to provide MWCC with not less than 30
days prior written notice of any change in location of its chief executive
office or any change of its corporate name and, notwithstanding the
foregoing, no such change shall be effected before such Company shall have
supplied MWCC signed copies of all filings and actions as MWCC may reasonably
determine to be necessary or appropriate to preserve and maintain at all
times the perfection and priority of the interests granted or purported to be
granted to MWCC hereunder.
ARTICLE V. WARRANTIES AND COVENANTS
SECTION 5.1 PRESENTMENT WARRANTIES.
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Each of the Companies represents and warrants to MWCC with respect to
each Account and each item of Indebtedness purchased by MWCC (and the
following, referred to herein as the "Presentment Warranties" shall be deemed
restated, renewed and reaffirmed with respect to each transaction each time
MWCC receives Charge Transaction Data from any Company relative to each such
Account and item of Indebtedness):
a. That at the time of each sale to MWCC, it was the owner of such
Account and item of Indebtedness, free and clear of any Liens, and upon the
sale of such Account and item of Indebtedness to MWCC, MWCC shall be vested
with full and complete title to each such Account or item of Indebtedness,
free and clear of any Lien other than the interest of MWCC;
b. That it has complied with any materials MWCC in its reasonable
discretion provides it concerning applicable provisions of local, state and
federal law and implementing regulations as they apply to it in the sale of
Goods and/or Services to Account Holders in the offering of credit;
c. That each Account and item of Indebtedness shall have been authorized
and created in accordance with this Agreement, all applicable laws (other
than any breach of law arising directly from any action or failure to act on
the part of MWCC), and the Operating Procedures;
d. That credit application information submitted by it to MWCC shall be
identical to such information provided by an Account Holder to the
Companies, and the contract representing such Account shall be fully
executed by the Account Holder;
e. That there are no other agreements between it and any Account Holder
with respect to the Account or item of Indebtedness sold to MWCC and/or the
underlying Goods and/or Services, except any bona fide and reasonable sale,
warranty, service or installation agreement;
f. That all Goods and/or Services sold pursuant to each Account and item
of Indebtedness have been delivered by it to the Account Holder and accepted
by such Account Holder or that an arrangement has been formalized between it
and the Account Holder providing for such delivery, prior to the sale of such
Account and item of Indebtedness to MWCC;
g. That each Charge Slip will have resulted from a bona fide sale of
Goods and/or Services effected by it at one of its regular places of business
which will include all mail, phone and job-site orders, and not from a sale
of Goods and/or Services effected by a third party other than licensees or
other duly authorized agents;
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h. That it shall provide and maintain adequate services with respect to
the Goods and/or Services covered by such Account or item of Indebtedness
and shall comply with all its warranties, if any, and/or the manufacturer's
warranties (as the case may be) with respect to Goods and/or Services sold
under such Account or item of Indebtedness, other than warranties which are
the responsibility of others;
i. Except in connection with any proceeding in bankruptcy, insolvency,
reorganization, receivership or other similar law of the Account Holder, that
the balance in each Account or item of Indebtedness is valid and enforceable
against the Account Holder obligated for payment and performance under the
Account;
j. That each Account or item of Indebtedness is secured by a purchase
money security interest in the Goods to the extent described in the
applicable CommerciaLine Agreement, which security interest shall be prior
to all other security interests in and/or Liens which are created on such
Goods;
k. That the Goods covered by each Account or item of Indebtedness
shall be sold by it in the ordinary course of business to Account Holders who
represent that the Goods are to be used primarily for business or
commercial purposes;
l. That at the time of purchase by MWCC, each Account or item of
Indebtedness is free of any defense, offset, counterclaim or recoupment
assertable by the Account Holder or any other person obligated therefor or by
a Company's creditors or assignees except under any product warranty, service
or installation agreement;
m. That there are no actions, suits or proceedings existing, pending
or, to its knowledge, threatened against or affecting it before any court,
arbitrator or governmental administrative body or agency which affect the
validity or enforceability of Indebtedness, which might result in any
material adverse change in the value of such Account or item of Indebtedness
or which would have a material adverse effect on its ability to perform its
obligations hereunder;
n. That all actions taken by it and all agreements with Account
Holders, forms, letters, notices, statements and other materials used or
requested by Account Holders in connection with the performance of its duties
and obligations under this Agreement comply with and each sale of Goods
and/or Services resulting in an item of Indebtedness have been made in
compliance with and all documentation evidencing or connected with such sale
complies with all applicable state and federal laws concerning the sales of
goods and services, and all other applicable federal, state and local
statutes, regulations, ordinances or administrative rulings relating thereto,
including, but not
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limited to, those relating to unfair, deceptive or unconscionable practices;
o. That with respect to each Account or item of Indebtedness purchased by
MWCC hereunder, to the best of it's knowledge, information and belief, a
petition under the Bankruptcy Code (or similar state law) has not been filed by
or against the Account Holder; the Account Holder is not deceased, dissolved,
incompetent or otherwise not in existence; and the Account Holder has a valid
U.S. address;
p. It has caused to be paid and discharged all lawful taxes, assessments
and governmental charges or levies imposed upon it or its income or profits on
any property belonging to it before the same be in default except for such
taxes, assessments, charges or levies which are being contested in good faith by
appropriate proceedings;
q. That it is and at all times prior hereto has been kept adequately
insured by solvent insurers with respect to its property of a character usually
insured by corporations engaged in a similar business against loss or damage of
the kind customarily insured against by such corporation;
r. That the Charge Slip has not been materially altered;
s. That the transaction did not involve a cash advance or Goods and/or
Services not listed on the Charge Slip and only Goods and/or Services sold by it
are the subject of the transaction;
t. That the transaction giving rise to the Charge Transaction Data and
any matter incidental thereto were conducted by it in accordance with the
Operating Procedures;
u. That the Account number and name of the Account Holder has been
printed on each Charge Slip;
v. That all sales slips and other writings which bear a signature
purporting to be that of a Account Holder or an authorized user shall in fact be
genuine, not forged or unauthorized;
w. That each Charge Slip be executed by an authorized user of the Account
to which the Purchase is charged;
x. That it shall do nothing to prevent the Account or item of
Indebtedness from being valid and enforceable against the Account Holder
obligated for payment and performance under the Account; and
y. That the amount of credit extended in connection with
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each Purchase does not exceed the amount of credit authorized by MWCC for such
transaction.
SECTION 5.2 ACCOUNT COVENANTS.
Each of the Companies covenants to do the following with respect to each
transaction involving an Account or the Program:
a. It shall cooperate with MWCC promptly to resolve all disputes with
Account Holders;
b. It shall maintain a fair and equitable policy for the exchange and
return of Goods (other than those sold on an "as is" basis) and adjustments for
Services rendered or not rendered and shall promptly deliver a Credit Slip to
the Account Holder and include credit for such return or adjustment in the
Charge Transaction Data in accordance with the Operating Procedures;
c. It shall not seek or obtain any special agreement or condition from,
nor unlawfully discriminate in any way against, Account Holders with respect to
the terms of any transaction;
d. It shall submit invoices on the same day as the date of such invoice
by electronic transmission, in accordance with the Operating Procedures and
shall use only Account Documentation provided by MWCC when taking any action
with regard to the Program.
SECTION 5.3 ADDITIONAL AFFIRMATIVE COVENANTS.
Until the later of (i) the date on which the Agreement terminates or (ii)
the Final Liquidation Date, unless MWCC shall otherwise consent in writing, each
of the Companies shall:
a. As soon as reasonably available and in any event within 120 days after
the end of each fiscal year, submit to MWCC its consolidating annual financial
statements, consisting of a consolidating balance sheet and the related
statements of income, shareholder's equity, and changes in cash flow, all
prepared in accordance with GAAP applied on a consistent basis (except as
disclosed therein) certified by its regularly retained independent public
accountants.
b. Comply in all material respects with all laws with respect to it, its
business, and properties.
c. Promptly upon receipt, deliver to MWCC copies of any communications
relating to an Account from an Account Holder, or any governmental or
regulatory authority.
d. Permit MWCC, during normal business hours, to visit its offices from
time to time, and permit MWCC from time to time to
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discuss the Program with it and its officers and employees and to examine its
books and records relating to the Program or have the same examined by MWCC's
attorneys and/or accountants. In connection therewith, it agrees, subject to
applicable privacy and other laws, to make data regarding the Program available
to MWCC, and in connection therewith to permit MWCC to make copies of such
documentation.
e. Not, in connection with the selling of any service contract and/or
extended warranty, offer to return to Account Holders some or all of the
purchase price advanced by MWCC, including, without limitation, by granting
merchandise credits.
f. Provide all Charge Transaction Data to MWCC in such form satisfactory
to MWCC as to enable Lid Code level detail in all billings in respect of
CommerciaLine Accounts.
SECTION 5.4 NEGATIVE COVENANTS OF THE COMPANIES.
Until the later of (i) the date on which this Agreement terminates, and
(ii) the Final Liquidation Date, unless MWCC shall otherwise consent in
writing, the Companies shall not advertise, promote, sponsor, solicit, permit
solicitation of, or make available specifically to commercial customers of
the Companies or otherwise provide any commercial credit program, commercial
credit facility, commercial credit card program, commercial charge program or
commercial debit or commercial secured card program or commercial facility
(whether open-end, closed-end, fixed-term, private-label, "co-branded" or
third party), other than (i) credit provided in connection with the Program
hereunder, and (ii) credit provided by generally accepted multi-purpose
commercial credit or charge cards such as American Express, Mastercard, Visa
and the Discover card or by any generally accepted multi-purpose debit or
secured cards; PROVIDED, that none of the cards referred to in this paragraph
(ii) may be "co-branded", sponsored or co-sponsored with the Companies.
SECTION 5.5 GENERAL REPRESENTATIONS AND WARRANTIES.
To induce MWCC to establish and administer the Program, each of the
Companies makes the following representations and warranties to MWCC, each and
all of which shall survive the execution and delivery of this Agreement, and
each and all of which shall be deemed to be restated and remade on each day on
which any Account is opened or Charge Transaction Data submitted or any action
taken with respect to the Program:
a. Organization. Each Company: (i) is a corporation duly organized,
validly existing, and in good standing under the laws of its state of
incorporation, with its chief executive office as
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indicated in the first paragraph of this Agreement; (ii) is duly licensed or
qualified to do business as a corporation and is in good standing as a foreign
corporation in all jurisdictions in which the nature of the activities conducted
or proposed to be conducted by it or the character of the assets owned or leased
by it makes such licensing or qualification necessary to perform its obligations
hereunder; (iii) has all necessary material licenses, permits, consents, or
approvals from or by, and has made all material necessary notices to, all
governmental authorities having jurisdiction, to the extent required for its
current ownership, lease or conduct and operation of its business; (iv) has the
requisite corporate power, authority and legal right to own, pledge, mortgage,
and operate its properties, to lease the properties it operates under lease and
to conduct its business as conducted; and (v) is in compliance with its
certificate of incorporation and bylaws.
b. Capacity, Authorization, Validity. Each of the Companies has all
necessary corporate power and authority to (i) execute and enter into this
Agreement and (ii) perform the obligations required of the Companies hereunder
and any other documents, instruments and agreements required to be executed by
it pursuant hereto. The execution and delivery by each Company of this Agreement
and all documents, instruments and agreements required to be executed and
delivered by any Company pursuant hereto, and the consummation by each Company
of the transactions specified herein and therein have been duly and validly
authorized and approved by all necessary corporate action of each Company party
thereto. This Agreement and all documents, instruments and agreements required
to be executed and delivered by any Company pursuant hereto, (i) have each been
duly executed and delivered by each Company party thereto, (ii) constitute the
valid and legally binding obligations of each Company party thereto, and (iii)
are enforceable in accordance with their respective terms (subject to applicable
bankruptcy, insolvency, reorganization, receivership or other laws affecting the
rights of creditors generally and by general equity principles including,
without limitation, those respecting the availability of specific performance).
c. Conflicts, Defaults, Etc. The execution, delivery and performance of
this Agreement, its compliance with the terms hereof, and the consummation of
the transactions specified herein will not (i) conflict with, violate, result in
the breach of, constitute an event which would, or with the lapse of time or
action by a third party or both would, result in a default under, or accelerate
the performance required by, the terms of any contract, instrument or agreement
to which any Company is a party or by which it is bound, or by which any
Company's assets are bound; (ii) conflict with or violate the certificate of
incorporation, by-laws or any other equivalent organizational document(s) of any
Company; (iii) violate any law or conflict
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with, or require any consent or approval under, any judgment, order, writ,
decree, permit or license, to which any Company is a party or by which it is
bound or affected; (iv) require the consent or approval of any other party to
any contract, instrument or agreement to which any Company is a party or by
which it is bound, other than the approvals of regulatory authorities which
have been obtained; or (v) except for the filing of UCC-1 financing statements,
require any filing with, notice to, consent or approval of, or any other action
to be taken with respect to, any regulatory authority.
d. Solvency. Each of the Companies is Solvent.
e. Accuracy of Information. All information furnished by each of the
Companies to MWCC for purposes of or in connection with this Agreement and any
information hereafter furnished in writing by any Company to MWCC is or will be
true and correct in all material respects at the time of such delivery and no
such information has or will omit to state a material fact necessary to make the
information so furnished not misleading at the time of such delivery. There is
no fact known to any Company which the Companies have not disclosed to MWCC
which materially and adversely affects the financial condition, business,
property, or prospects of any Company.
f. Compliance with MWCC Procedures. With respect to each CommerciaLine
Application, Account and the Program, every action taken by the Companies, their
employees or agents materially complies with all procedures, including but not
limited to, the Operating Procedures provided to the Companies by MWCC.
g. No Event of Default or Default has occurred and is continuing.
SECTION 5.6 REPRESENTATIONS AND WARRANTIES OF MWCC.
To induce the Companies to enter into this Agreement and participate in the
Program, MWCC makes the following representations and warranties to the
Companies, each and all of which shall survive the execution and delivery of
this Agreement, and each and all of which shall be deemed to be restated and
remade on each day on which Accounts are opened and Charge Transaction Data
submitted or any action taken with respect to the Program:
a. Organization. MWCC: (i) is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, with its
principal place of business as indicated in the first paragraph of this
Agreement; (ii) is duly licensed or qualified to do business as a corporation
and is in good standing as a foreign corporation in all jurisdictions in which
the nature of the activities conducted or proposed to be
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conducted by it or the character of the assets owned or leased by it makes
such licensing or qualification necessary to perform its obligations
hereunder, except to the extent that its non-compliance would not have a
material and adverse effect on MWCC; (iii) has all necessary licenses,
permits, consents, or approvals from or by, and has made all necessary
notices to, all governmental authorities having jurisdiction, to the extent
required for MWCC's current ownership, lease or conduct and operation of its
business, except to the extent that the failure to obtain such licenses,
permits, consents, approvals or to provide such notices would not have a
material and adverse effect on MWCC; (iv) has the requisite corporate power,
authority and legal right to own, pledge, mortgage, and operate its
properties, to lease the properties it operates under lease and to conduct
its business as conducted; and (v) is in compliance with its certificate of
incorporation and bylaws.
b. Capacity, Authorization, Validity. MWCC has all necessary
corporate power and authority to (i) execute and enter into this Agreement
and (ii) perform the obligations required of MWCC hereunder and any other
documents, instruments and agreements required to be executed by MWCC
pursuant hereto. The execution and delivery by MWCC of this Agreement and all
documents, instruments and agreements required to be executed and delivered
by MWCC pursuant hereto, and the consummation by MWCC of the transactions
specified herein have been duly and validly authorized and approved by all
necessary corporate action of MWCC. This Agreement (i) has been duly executed
and delivered by MWCC, (ii) constitutes the valid and legally binding
obligations of MWCC, and (iii) is enforceable in accordance with its
respective terms (subject to applicable bankruptcy, insolvency, reorganization,
receivership or other laws affecting the rights of creditors generally and by
general equity principles including, without limitation, those respecting the
availability of specific performance).
c. Conflicts, Defaults, Etc. The execution, delivery and performance
of this Agreement, its compliance with the terms hereof, and the consummation
of the transactions specified herein will not (i) conflict with, violate,
result in the breach of, constitute an event which would, or with the lapse
of time or action by a third party or both would, result in a default under,
or accelerate the performance required by, the terms of any material
contract, instrument or agreement to which MWCC is a party or by which it is
bound, or by which MWCC's assets are bound, except for conflicts, breaches
and defaults which would not have a material and adverse effect upon MWCC;
(ii) conflict with or violate the certificate of incorporation, by-laws or
any other equivalent organizational document(s) of MWCC; (iii) violate any
law or conflict with, or require any consent or approval under, any judgment,
order, writ, decree, permit or license, to which MWCC is a party or by which
it is bound or
26
<PAGE>
affected, except to the extent that such violation or the failure to obtain
such consent or approval would not have a material and adverse effect upon
MWCC; (iv) require the consent or approval of any other party to any
contract, instrument or agreement to which MWCC is a party or by which it is
bound other than the approvals of regulatory authorities which have been
obtained.
d. Solvency. MWCC is Solvent.
e. Accuracy of Information. All information furnished by MWCC to the
Companies for purposes of or in connection with this Agreement or any
information hereafter furnished in writing by MWCC to the Companies is or
will be true and correct in all material respects at the time of such
delivery and no such information has or will omit to state a material fact
necessary to make the information so furnished not misleading at the time of
such delivery. There is no fact known to MWCC which MWCC has not disclosed to
the Companies which materially and adversely affects the financial condition,
business, property, or prospects of MWCC.
f. No Event of Default or Default has occurred and is continuing.
ARTICLE VI. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
The occurrence of any one or more of the following events (regardless of the
reason therefor) shall constitute an "Event of Default" hereunder:
a. Any party shall fail to pay the other any Uncontested Amount when
due and payable and the same shall remain unpaid for a period of three (3)
days after the other party shall have made written demand therefor.
b. Any party shall fail or neglect to perform, keep, or observe any
material term, provision, condition, or covenant contained in this Agreement
that is required to be performed, kept, or observed by it, and the same shall
remain uncured for a period of thirty (30) days after the other party shall
have given written notice thereof.
c. Any representation, warranty or statement, made or delivered by any
party or any of its respective officers shall not be true and correct in any
material respect as of the date when made or reaffirmed and such failure to
be true and correct has a material adverse effect on its ability to perform
its obligations hereunder.
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<PAGE>
d. Either MWCC or any Company (i) shall generally not pay its debts as
such debts become due, or shall admit in writing its inability to pay its
debts generally; (ii) shall make a general assignment for the benefit of its
creditors; or (iii) shall be the subject of any proceeding (other than an
involuntary proceeding which is dismissed within sixty (60) days) seeking to
adjudicate it bankrupt or insolvent or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition
of it or its debts under any law relating to bankruptcy, insolvency, or
reorganization or relief of debtors, or seeking the entry of an order for
such relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property; or any
party shall take any corporate action to authorize any of the actions set
forth above in this paragraph 6.1d.
e. Any Company shall be in default under any loan agreement, indenture
or other instrument relating to any indebtedness for borrowed money in excess
of [ ]* and such default gives any party, either with or without
notice and without giving effect to any extension of any grace period, the
right to accelerate such indebtedness.
f. There shall be a Change of Control.
g. Final judgment or judgments for the payment of money in excess of
[ ]* in the aggregate shall be rendered against any Company, and the
same shall not be either (i) covered by insurance or the insurer shall not
have accepted liability therefor or (ii) vacated, stayed, bonded, paid, or
discharged prior to expiration of the applicable appeal period.
h. In connection with any or both Company's indebtedness on money
borrowed, either (a) the holder or holders of such indebtedness shall
accelerate all of the outstanding balance thereof and the amount accelerated
shall be greater than or equal to [ ]*, or (b) any scheduled payments
of principal or interest in the aggregate amount in excess of [ ]*
shall remain unpaid for a period longer than one hundred twenty (120) days
beyond the due date.
i. The Account Purchase Agreement dated June 24, 1988, as amended,
restated, revised and/or supplemented from time to time, by and between
Montgomery Ward and MWCC (including without limitation any successor credit
card program agreement between Montgomery Ward and any Person that has
acquired, by way of assignment or otherwise, MWCC's rights and obligations
thereunder) shall be terminated (other than by default of Montgomery Ward) or a
Seller Default (as defined therein) shall occur thereunder.
*Confidential treatment has been requested with respect to this information.
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<PAGE>
SECTION 6.2 REMEDIES.
a. If any Event of Default shall have occurred and be continuing, all
of the defaulting party's payment obligations hereunder shall, in the
non-defaulting party's sole discretion, be deemed immediately due and
payable; PROVIDED, that upon the occurrence of an Event of Default described
in Section 6.1d, all the defaulting party's payment obligations hereunder
shall immediately become due and payable.
b. If any Event of Default shall have occurred by any Company (other
than the non-compliance of Lechmere with Section 5.5d), MWCC shall have any
and all rights and remedies under this Agreement, including but not limited
to, accepting Charge Slips or otherwise extending credit, and may declare
this Agreement terminated; PROVIDED, that upon the occurrence of an Event of
Default described in Section 6.1d, this Agreement shall terminate.
c. If any Event of Default shall have occurred by MWCC and be continuing,
the Companies shall have any and all rights and remedies under this Agreement
and may declare this Agreement terminated; PROVIDED, that upon the occurrence of
an Event of Default described in Section 6.1d, all of the defaulting party's
payment obligations hereunder shall immediately become due and payable.
ARTICLE VII. TERM/TERMINATION
SECTION 7.1 TERM.
This Agreement shall continue in full force and effect upon full
execution hereof for a period of two years (the "Initial Term" and together
with any Renewal Terms(s), the "Term") and shall be automatically renewed for
successive one year terms ("Renewal Terms(s)"), unless terminated as provided
elsewhere herein.
SECTION 7.2 TERMINATION BY THE COMPANIES.
a. In the event MWCC breaches its obligations under this Agreement,
and after notice to MWCC such breach remains uncured for a period of thirty
(30) days, then the Companies may terminate this Agreement by giving MWCC
thirty (30) days prior written notice and this Agreement shall terminate on
the thirtieth (30) day.
b. If (i) MWCC makes an election pursuant to Section 2.2b hereof and
(ii) during the one hundred and eighty (180) period subsequent to such
election, the Billing Period Outstandings exceed 95% of the Credit Review
Point then in effect for any period of ninety (90) consecutive days, then,
within ten (10)
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<PAGE>
days following the end of such period, the Companies shall have the right,
upon thirty (30) days prior written notice to MWCC, to terminate this
Agreement and this Agreement shall terminate on the thirtieth (30) day.
c. The Companies shall have the right to terminate this Agreement and
the Program as of the end of the Initial Term or at the end of any Renewal
Term upon 180 days prior written notice to MWCC.
SECTION 7.3 TERMINATION BY MWCC.
a. In the event any Company breaches its obligations under this
Agreement, and such breach remains uncured for a period of thirty (30) days,
MWCC shall have the right to terminate this Agreement by giving the Companies
thirty (30) days prior written notice and this Agreement shall terminate on
the thirtieth (30) day.
b. MWCC shall have the right to terminate this Agreement and the
Program as of the end of the Initial Term or at the end of any Renewal Term
upon 180 days prior written notice to the Companies.
c. MWCC shall have the right to terminate this Agreement and the
Program if any law, rule or regulation is enacted by any federal, state or
local authority that materially impairs or restricts MWCC's ability to
perform its obligations hereunder or impairs or restricts MWCC's ability to
realize substantially the benefits hereof.
SECTION 7.4 RENEGOTIATION.
Upon the one year anniversary of this Agreement MWCC and the Companies
agree to review the economics of the transactions contemplated by this
Agreement and to renegotiate in good faith the provisions of Section 3.10 in
light of such review. If such renegotiation is not completed to the
satisfaction of any party within 30 days following the one year anniversary
of this Agreement, such party may terminate this Agreement upon 60 days prior
written notice to the other party.
SECTION 7.5 TERMINATION FOR FORCE MAJEURE.
a. This Agreement may be terminated by either MWCC or the Companies
without penalty after the passing of sixty (60) days following the notice by
one party to the other that its performance hereunder is prevented or
materially impeded, without the ability to cure, by one of the following
force majeure events: acts of God, fire, explosion, accident, war, nuclear
disaster, riot or material changes in applicable laws or regulations
rendering it illegal, impossible or untenable for the
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<PAGE>
notifying party or its ultimate parent corporation to perform as contemplated
in this Agreement.
b. Any such failure to perform shall not be considered a breach of this
Agreement during the period of such disability (I.E., prior to sixty (60)
days), if the disabled party promptly advises the other party in writing that
it is unable to perform due to such a force majeure event, setting forth:
(i) the nature of the event; (ii) its expected effects(s) and duration;
(iii) any expected development which may further affect performance
hereunder; and (iv) the efforts which will be made to cure such force majeure
or provide substitute performance.
SECTION 7.6 PURCHASE OF ACCOUNTS BY THE COMPANIES.
In the event of a termination of this Agreement, the Companies may have
the option to purchase or arrange for the purchase of the portfolio of
non-written off Accounts at a price equal to [ ]* of the aggregate
amount of all Indebtedness on non-written off Accounts owned by MWCC on the
day of such purchase, payable in immediately available funds. The Companies
shall exercise such right by giving written notice to MWCC within thirty (30)
days of the date of the notice of termination of the Agreement, which notice
shall specify a date for the purchase no later than the date this Agreement
terminates. If The Companies fail to exercise such option (by failing to
deliver the notice required by this Section 7.6), then the option shall
expire.
SECTION 7.7 LIQUIDATION OF ACCOUNTS.
a. Upon the termination of this Agreement, each party shall be required
to fulfill its respective obligations hereunder (unless prohibited by law)
until all Accounts are liquidated or there is some other disposition thereof.
b. Upon the termination of this Agreement, should the Companies not
purchase or arrange for a purchase of the non-written off Accounts from MWCC,
then:
(i) MWCC shall have the right, in addition to and retaining all
other rights it may have under the terms of this Agreement or applicable law
to:
(a) liquidate the remaining Accounts in any lawful manner
which may be expeditious or economically advantageous to MWCC including
but not limited to, the sale of Accounts to any party; and
(b) use Company Names in accordance with the
*Confidential treatment has been requested with respect to this information.
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<PAGE>
provisions of this Agreement in communicating with existing Account Holders
and in communicating with respect to Accounts, including accounts that
have been written off.
(ii) The Companies will cooperate with MWCC in order to effectuate
any such liquidation in an orderly manner, and to that end shall permit MWCC
to use the Lists in connection with such liquidation.
ARTICLE VIII. INDEMNIFICATION
SECTION 8.1 BY THE COMPANIES.
The Companies agree to protect, indemnify, and hold harmless MWCC, its
affiliates, and the employees, officers, and directors thereof, from and
against any and all losses, damages, liabilities, costs, and expenses
(including attorneys' fees and expenses), judgments, damages, claims,
demands, offsets, defenses, counterclaims, actions, or proceedings ("Losses")
by whomsoever asserted, including, without limitation: (i) the Account
Holders or other persons responsible for the payment of Accounts; (ii) any
Person or persons who prosecute or defend any proceedings as representatives
of or on behalf of a class or interest group; (iii) any governmental
instrumentality; or (iv) any other third party, arising out of, connected
with or resulting from:
a. Sale of Goods and/or Services arising under a CommerciaLine
Agreement;
b. any transaction, contract, understanding, promise, representation,
or any other relationship, actual, asserted, or alleged, between any Company
and any Account Holder relating to an Account;
c. any act, or omission where there was a duty to act, by any Company
or its employees, officers, directors, shareholders, agents, lessees,
franchisees or any independent contractors hired by any Company, relating to
an Account or items of Indebtedness relating to an Account;
d. any breach by any Company of any of the terms, covenants,
representations, warranties, or other provisions contained in this Agreement
or any other instrument or document delivered by any Company to MWCC in
connection herewith or therewith;
e. the failure of any Company to comply with all laws, rules or
regulations applicable to it;
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<PAGE>
f. any agreement, arrangement, understanding or course of dealing
between any Company and any of its affiliates (other than General Electric
Company or any of its subsidiaries).
Excluded from the foregoing indemnity shall be any Losses to the extent
the same arise out of or result from any violation by MWCC of law, this
Agreement, a CommerciaLine Agreement or any agreement, understanding or
promise between MWCC and any Account Holder relating to the Account thereof.
SECTION 8.2 BY MWCC.
MWCC agrees to protect, indemnify, and hold harmless each Company, its
affiliates, and the employees, officers, and directors thereof, from and
against any and all Losses by whomsoever asserted, including, but not limited
to, (i) the Account Holders or other persons responsible for the payment of
Accounts; (ii) any Person or Persons who prosecute or defend any proceedings
as representatives of or on behalf of a class or interest group; (iii) any
governmental instrumentality; or (iv) any other third party, arising out of,
connected with or resulting from:
a. any act, or omission where there was a duty to act, by MWCC or its
employees, officers, directors, shareholders, agents, lessees, franchisees or
any independent contractors hired by MWCC, relating to an Account or items
of Indebtedness relating to an Account;
b. any breach by MWCC of any of the terms, covenants, representations,
warranties, or other provisions contained in this Agreement or any other
instrument or document delivered by MWCC to the Companies in connection
herewith or therewith;
c. the failure of MWCC to comply with all laws, rules or regulations
applicable to MWCC;
Excluded from the foregoing indemnity shall be any Losses to the extent
the same arise out of or result from any violation by any Company or its
affiliates (other than General Electric Company or any of its subsidiaries)
of law, this Agreement, any CommerciaLine Agreement, or any agreement,
understanding or promise between any Company and any Account Holder relating
to the Account thereto.
SECTION 8.3 PAYMENT OF INDEMNIFIED AMOUNTS.
After any final judgment or award shall have been rendered by a court,
arbitration board, or administrative agency of competent jurisdiction and the
time for an appeal of such judgement or award has expired without an appeal
being taken by either party, or after any settlement agreed to by the parties
33
<PAGE>
shall have been consummated, the party seeking indemnification shall forward
to the other party notice of any sums due and owing by such other party with
respect to such matter and such party shall be required to pay all of
the sums so owing to the party seeking indemnification within thirty (30) days
after the date of such notice unless otherwise mutually agreed to in writing
by the parties.
SECTION 8.4 INSURANCE AND MITIGATION.
The indemnified party shall use its best efforts to minimize the
indemnifying party's obligation to indemnify by recovering, to the maximum
extent possible without incurring any material expense, reimbursement from
insurance carriers under effective insurance policies covering such
liability. An indemnified party shall not be able to recover from an
indemnifying party hereunder for any damages to the extent that the
indemnified party shall have recovered under its insurance. The
indemnifications provided for in this Agreement shall be net of tax benefits,
if any. The indemnified party shall, at all times, use its reasonable efforts
to minimize the indemnity obligation of the indemnifying party through
remedial action which it has reason to know may minimize such obligations,
provided that the indemnifying party shall have first agreed to reimburse the
indemnified party for its cost, if any, in taking such remedial action.
SECTION 8.5 NOTICE.
Each party shall promptly notify the other party of any claim, demand,
suit or threat of suit of which that party becomes aware (except with respect
to a threat of suit either party might institute against the other) which may
give rise to a right of indemnification pursuant to this Agreement. The
indemnifying party will be entitled to participate in the settlement or
defense thereof and, if the indemnifying party elects, to take over and
control the settlement or defense thereof with counsel satisfactory to the
indemnified party. In any case, the indemnifying party and the indemnified
party shall cooperate (at no cost to the indemnified party) in the settlement
or defense of any such claim, demand, suit or proceeding.
ARTICLE IX. OTHER AGREEMENTS
In the event that any Company or any of its affiliates, directly or
indirectly, acquires an existing retail operation or acquires (regardless of
the form of the transaction) an affiliate that operates a retail operation
(collectively, a "New Retailer"), then, unless MWCC indicates otherwise to
the Companies in writing, the Companies shall cause such New Retailer to
execute and deliver to MWCC instruments in form and substance satisfactory to
MWCC pursuant to which such New Retailer shall agree to be bound by the terms
and conditions of this Agreement;
34
<PAGE>
provided, that such obligation shall be subject to the terms and conditions
of any commercial credit card program to which a New Retailer is party as of
the date it is acquired by any Company, it being agreed that the Companies
shall use reasonable efforts to terminate any such program as soon as
possible after any such acquisition and that, in any event, any such program
shall not be renewed or replaced, except with a program involving MWCC.
ARTICLE X. MISCELLANEOUS
SECTION 10.1 CONFIDENTIAL INFORMATION.
a. All proprietary and non-public material and information supplied by
the Companies to MWCC or vice versa heretofore or hereafter, or supplied to
any Company or MWCC by Account Holders or applicants, including, without
limitation, (i) the pricing and other financial terms of this Agreement, (ii)
information concerning the parties' marketing plans, objectives, financial
results and employee compensation and benefits, and (iii) the Lists, is
confidential and proprietary ("Confidential Information"). Confidential
Information shall not include any information which (i) at the time of
disclosure by one party hereto or thereafter is generally available or known
to the public (other than as a result of an unauthorized disclosure by the
other party hereto); (ii) was available to one party on a non-confidential
basis from a source other than the other party; PROVIDED, that such source,
to the best of one party's knowledge, was not obligated to the other party to
keep such information confidential; or (iii) was in one party's possession
prior to disclosure by the other party to it.
b. Confidential Information shall be used by each party solely in the
performance of its obligations or exercise of its rights pursuant to this
Agreement. Each party shall receive Confidential Information in confidence
and not disclose Confidential Information to any third party, except (i) as
may be necessary to perform its obligations, (ii) as may be agreed upon in
writing by the other party, or (iii) as otherwise required by law or judicial
or administrative process. Each party will use its best efforts to ensure
that its officers, employees, and agents take such action as shall be
necessary or advisable to preserve and protect the confidentially of
Confidential Information. Upon written request or upon the termination of
this Agreement, each party shall destroy or return to the other party all
Confidential Information owned by that other party in its possession or
control, subject to each party's respective document retention policies with
respect to information required to be maintained by regulatory authorities.
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<PAGE>
SECTION 10.2 ASSIGNABILITY.
Neither any Company nor MWCC may assign its respective rights and
obligations under this Agreement without the prior written consent of the
other party, which consent shall not be unreasonably withheld; PROVIDED, that
any party may assign all or part of this Agreement to its parent corporation,
or its parent corporation's affiliates or subsidiaries, without such prior
written consent.
SECTION 10.3 AMENDMENT.
This Agreement may not be amended except by written instrument signed by
both MWCC and the Companies.
SECTION 10.4 NON-WAIVER.
No delay by any party hereto in exercising any of its rights hereunder or
partial or single exercise of such rights, shall operate as a waiver of that
or any other right. The exercise of one or more of any party's rights
hereunder shall not be a waiver of, nor preclude the exercise of, any rights or
remedies available to such party under this Agreement or in law or equity.
SECTION 10.5 SEVERABILITY.
If any provision of this Agreement is held to be invalid, void or
unenforceable, all other provisions shall remain valid and be enforced and
construed as if such invalid provision were never a part of this Agreement.
SECTION 10.6 GOVERNING LAW.
This Agreement and all rights and obligations hereunder, including, but
not limited to, matters of construction, validity and performance, shall be
governed by and construed in accordance with the laws of the State of New
York without regard to principles of conflicts of laws.
SECTION 10.7 CAPTIONS.
Captions of the sections of this Agreement are for convenient reference
only and are not intended as a summary of such sections and do not affect,
limit, modify or construe the contents thereof.
SECTION 10.8 USE OF COMPANY NAMES AND MARKS.
a. Subject to and only in accordance with the provisions of this
Agreement, the Companies hereby grant MWCC a non-exclusive license to create,
develop, market and administer the Program and, subject to the prior
approval of the Companies which
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<PAGE>
shall not be unreasonably withheld, to use all Company Names in the creation,
development, marketing and administration of the Program.
b. Pursuant to the licenses granted to MWCC pursuant to this Section
10.8, the Companies understand and agree that until the later of (i) the
termination of this Agreement and (ii) the Final Liquidation Date, MWCC will,
in accordance with the provisions of this Agreement, use the Company Names in
connection with the operation and administration of the Program and the
discharge of its obligations under the Agreement, including but not limited
to use in connection with: Account Holder service; adverse action letters;
billing statements and inquiries; and matters incidental to collection and
recovery.
SECTION 10.9 FURTHER ASSURANCES.
Each party hereto agrees to execute all such further documents and
instruments and to do all such further things as the other party may
reasonably request in order to give effect and to consummate the transactions
contemplated hereby.
SECTION 10.10 ENTIRE AGREEMENT.
This Agreement supersede and incorporate all representations, promises
and statements, oral or written, made in connection with the subject matter
hereof and the negotiation hereof, and no such representation, promise or
statement not written herein or therein shall be binding upon the parties.
SECTION 10.11 NOTICES.
All notice, demands and other communications hereunder shall be in
writing and shall be sent by hand, by facsimile or by nationally recognized
overnight courier service addressed to the party to whom such notice or other
communication is to be given or made at such party's address as set forth
below, or to such other address as such party may designate in writing to the
other party from time to time in accordance with the provision hereof and
shall be deemed given one Business Day after being sent, as follows:
if to the Companies: Montgomery Ward & Co., Incorporated
619 W. Chicago Avenue
Chicago, Illinois 60671
Attention: Secretary
Telefax:
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with a copy to: Montgomery Ward & Co., Incorporated
619 W. Chicago Avenue
Chicago, Illinois 60671
Attention: Chief Financial Officer
Telefax:
and if to MWCC to: Montgomery Ward Credit Corporation
3720 Howard Hughes Parkway
Suite 200
Las Vegas, Nevada 89109
Attention: President
Telefax:
with a copy to: General Electric Capital
Corporation
Attention: RFS Legal Operation
1600 Summer Street
Stamford, Connecticut 06927
PROVIDED, that if either of the above parties shall have designated a
different address by notice to the other, then to the last address so
designated.
SECTION 10.12 POWER OF ATTORNEY.
Each Company authorizes and empowers MWCC (a) to sign and endorse its
name on all checks, drafts, money orders or other forms of payment with
regard to Indebtedness under the Agreement, (b) to sue Accountholders for
collection of Indebtedness in its name, and (c) to do all the things
reasonably necessary to carry out or enforce the Indebtedness. This limited
power of attorney conferred hereby is deemed a power coupled with an interest
and shall be irrevocable while any Indebtedness remains unpaid.
SECTION 10.13 THIRD PARTIES.
MWCC shall have the right to engage affiliated third parties to perform
services pursuant to this Agreement. In the event a party hereto engages the
services of subcontractors and/or other third parties to assist it with the
fulfillment of the terms hereunder, then such party agrees to be responsible
for and indemnify the other parties hereto, its or their affiliates and the
officers, directors, employees and agents of each, for any and all claims
(including reasonable legal costs and expenses) asserted by anyone against
such party and such affiliates arising out of any and all work performed by
any such subcontractor and/or agent of such party in connection with this
Agreement, and such party further agrees to contractually obligate such
subcontractors and/or agents to supply their services in accordance with the
terms and conditions of this Agreement.
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Notwithstanding the foregoing, this Agreement is not for the benefit of any
third party and shall not be deemed to give any right or remedy to any such
third party.
SECTION 10.14 INTERPRETATION.
As each of the parties have contributed to the drafting of the language
of this Agreement, it is agreed and understood that in any interpretation of
this Agreement, the language utilized will be construed equally as and
between the parties without regard to which party provided the language of
any particular provision.
SECTION 10.15 NO JOINT VENTURE.
Nothing contained in this Agreement shall be deemed or construed by the
parties or any third party to create the relationship of principal and agent,
partnership, joint venture or of any association between any Company and
MWCC, and no act of any party shall be deemed to create any such
relationship. MWCC and the Companies each agrees to such further actions as
the other may request to evidence and affirm the non-existence of any such
relationship.
SECTION 10.16 WAIVER OF JURY TRIAL.
The parties hereto waive all right to trial by jury in any action or
proceeding to enforce or defend any of their respective rights under this
Agreement.
SECTION 10.17 COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together constitute but
one Agreement.
SECTION 10.18 SURVIVAL.
a. Except as otherwise expressly provided herein, any termination of
this Agreement shall in no way affect or impair the powers, obligations,
duties, rights and liabilities of the Companies or MWCC, including, without
limitation, those under Article VIII hereof, relating to any transaction or
event occurring prior to such termination.
b. All undertakings, agreements, covenants, warranties, representations
and indemnities contained herein shall survive the termination of this
Agreement, except as may be specifically provided herein to the contrary.
Without in any manner limiting the generality of the foregoing, upon such
termination, MWCC shall continue to own the Accounts (unless the Companies
exercise their option under Section 7.5), and, except as provided herein,
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<PAGE>
the Companies and MWCC shall continue to be liable for all obligations set
forth herein until the Final Liquidation Date; PROVIDED, that the parties'
respective obligations pursuant to Article VIII and Sections 10.1, 10.9 and
10.12 shall survive the Final Liquidation Date.
SECTION 10.19 NO INCONSISTENT ACTION.
The Companies agree that any action (or failure to act) taken by either
Company with respect to its rights or obligations hereunder shall be binding
on both Companies and that MWCC shall be entitled to treat any inconsistent
action (or failure to act) taken by each Company in the manner most favorable
to MWCC.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as
of the date first written above.
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Philip D. Delk
------------------------
Title: Vice President
---------------------
LECHMERE, INC.
By: /s/ Philip D. Delk
------------------------
Title: Assistant Secretary
---------------------
MONTGOMERY WARD CREDIT CORPORATION
By: /s/ Gregory W. Pittman
------------------------
Title: President
---------------------
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<PAGE>
EXHIBIT "A"
RSA Discount Rate
- - - -------------------------------------------------------------------------------
Average Discount Avg Acct Bal Commercial Discount CP
Acct Balance Rate Factor Paper Rate Factor
-------------------------------------- --------------------------------
[ ]*
- - - -------------------------------------------------------------------------------
Base = [ ]* Base = [ ]*
- - - -------------------------------------------------------------------------------
[ ]*
Note: This Exhibit is for examples only of selected Average Account Balances
and Commercial Paper Rates.
See Section 3.10 for actual calculation methodology.
*Confidential treatment has been requested with respect to this information.
<PAGE>
PROGRAM AGREEMENT
THIS PROGRAM AGREEMENT is made and entered into this 12th day of October,
1989, by and between MONTGOMERY WARD & CO., INCORPORATED, an Illinois
corporation, having its principal executive office and place of business at
Montgomery Ward Plaza, Chicago, Illinois ("MW") and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation having its principal office at 570
Lexington Avenue, New York, New York and administrative offices at 1600
Summer Street, Stamford, Connecticut ("GE Capital").
WITNESSETH:
WHEREAS, MW acquires Inventory (as hereinafter defined) from certain
manufacturers and distributors for resale to its customers; and
WHEREAS, MW has requested GE Capital to pay to such manufacturers and
distributors whose payment terms are approved by GE Capital from time to time
in its sole discretion as hereinafter provided ("Vendors") the invoice price
of such Inventory acquired after the date of this Agreement (net of any
applicable discount); and
WHEREAS, GE Capital is willing to make such payments for MW if it is
reimbursed for such payments on the terms and subject to the conditions
herein set forth;
NOW, THEREFORE, the parties hereto, in consideration of the terms,
covenants, provisions and conditions hereinafter set forth, have agreed as
follows:
1. PAYMENTS BY GE CAPITAL. At MW's request, GE Capital shall, from time
to time, make payments to Vendors in amounts equal to the invoice price (net
of any applicable discount) for Inventory acquired by MW ("Payments"). GE
Capital shall from time to time in GE Capital's sole discretion approve or
refuse to approve specific purchase orders from any Vendors based upon each
such Vendor's payment terms. If GE Capital shall refuse
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such approval for any purchase order(s) from a Vendor at any time for any
reason it shall not have the right to rescind such approval for any
previously approved purchase order(s) from such Vendor. GE Capital shall be
under no obligation to make Payments to Vendors with respect to any purchase
orders which it has not approved. For purposes of this Agreement, the term
"Inventory" shall mean appliances, electronics, furniture and such other
items of merchandise as the parties may agree from time to time shall
constitute Inventory purchased by MW from Vendors for resale in its retail
stores. The aggregate amount of outstanding Payments and other amounts
payable hereunder, at any given time, shall not exceed One Hundred Million
Dollars ($100,000,000.00).
Whenever GE Capital is notified orally or in writing, in any manner, by
any Vendor, that MW desires GE Capital to pay for the acquisition of
Inventory to be sold to MW by such Vendor, GE Capital may rely upon such
notice as a request from MW to pay for such acquisition. Notwithstanding the
foregoing, GE Capital shall not be obligated to pay for any acquisition of
furniture by MW if after giving effect to such acquisition, the aggregate
amount of unreimbursed Payments made with respect to furniture would exceed
twenty-five percent (25%) of the aggregate amount of unreimbursed Payments
made with respect to all Inventory. Any invoice, notice of shipment or
schedule ("Invoice") pertaining to Inventory, which lists GE Capital as
vendee or which otherwise indicates that GE Capital will pay for the
acquisition of such Inventory for MW, shall be conclusive evidence that MW
has agreed that GE Capital is to pay for the acquisition of such Inventory
for MW under the terms of this agreement. The amount of any Payment plus any
applicable charges provided for on any supplement(s) attached hereto (each of
which, when signed by the parties hereto, shall become a part of this
Agreement) ("Supplement"), shall be subject to the reimbursement provisions
of this Agreement and any such applicable Supplement(s).
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2. MW REIMBURSEMENTS. MW shall, following receipt of Invoices from GE
Capital, reimburse GE Capital for Payments. Such reimbursements shall be
equal to the gross amount due as shown on such Invoices (prior to deducting
any applicable discount). Such reimbursement shall be made when due, as
determined in accordance with any applicable Supplement(s). MW shall make all
reimbursements at or to the GE Capital office located at 1600 Summer Street,
Stamford, Connecticut, or such other office address as GE Capital may
hereafter specify in writing for such purpose. Reimbursements shall be
applied by GE Capital against the Payments outstanding at the time
reimbursements are made. If any reimbursement is not received by GE Capital
on or before the date due, MW agrees to pay applicable charges as provided in
any applicable Supplement(s).
MW hereby assigns to GE Capital any credits or payments received by MW in
connection with the Inventory paid for by GE Capital hereunder, for
application in GE Capital's sole discretion to any amounts owed by MW.
GE Capital shall provide monthly, or at other intervals mutually agreed
to by GE Capital and MW, an accounting of Payments made to Vendors and
reimbursements received from MW. Each such accounting shall (absent manifest
error) be deemed prima facie evidence in all respects as to all matters
reflected therein, unless MW shall, within twenty (20) days after the date
any such accounting is rendered, notify GE Capital in writing of any objection
which MW may have to any such accounting, describing the basis for such
objection with specificity.
3. REPRESENTATIONS AND WARRANTIES. MW represents and warrants to GE
Capital that:
(a) MW is a corporation duly organized, validly existing and in
good standing under the laws of the State of Illinois;
(b) MW is duly authorized to enter into this Agreement, has taken
all necessary corporate action to authorize the execution and consummation of
this Agreement, and shall furnish
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GE Capital with satisfactory evidence of same upon request. This Agreement
is a legal, valid and binding obligation of MW enforceable against MW in
accordance with its terms except as such enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally;
(c) The execution, delivery and performance of this Agreement do
not constitute a breach of any provisions contained in MW's Articles of
Incorporation or Bylaws;
(d) The execution, delivery or performance of this Agreement is not
in contravention of any applicable provision of law, governmental rule or
regulation and does not require the consent of approval or any governmental
entity or authority or any other person which has not been obtained;
(e) The execution, delivery or performance of this Agreement is
not in contravention of any order binding upon MW, or any agreement,
indenture or other instrument, including, without limitation, any loan
agreement to which MW is a party or by which MW or its property is or may be
bound, and will not result in a breach or termination thereof, constitute a
default thereunder, or accelerate any performance required thereby or result
in the creation or imposition of a lien on any of its properties;
(f) The financial statements which have been delivered by or for MW
to GE Capital, have been prepared in accordance with generally accepted
accounting principles, and accurately reflect MW's financial condition as of
the dates of such statements. MW has no material contingent liabilities not
provided for or disclosed in the financial statements delivered to GE Capital;
(g) No litigation which might impair the enforceability of this
Agreement or MW's ability to perform its obligations hereunder ("Material
Litigation") is pending or, to MW's knowledge, threatened against MW;
(h) (1) All tax returns, reports and forms required to be filed
with any domestic or foreign taxing authority in connection with any
activities or assets of MW have been filed, except were the failure to file
any such return, report or form
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would not have any material adverse effect on the business or financial
condition of MW and its subsidiaries taken as a whole.
(2) All taxes required to be paid with respect to the
activities or assets of MW and its subsidiaries have been duly paid or
provisions deemed appropriate where made by Mobil Corporation ("Mobil"),
Marcor Inc. ("Marcor") and/or MW and its subsidiaries, on the books and
records therefor, except such amounts (i) as are contested in good faith and
as to which adequate reserves were provided by MW in accordance with the
best estimates of ultimate liability by the entity responsible therefor or
(ii) the non-payment of which would not have a material adverse effect on the
business or financial condition of MW and its subsidiaries taken as a whole.
(3) From July 1, 1976 through June 22, 1988, for federal
income tax purposes, MW and its subsidiaries were a member of the affiliated
group of which Mobil, MW's ultimate parent corporation, was the common
parent, and the income of MW and its subsidiaries were included in the
consolidated federal income tax returns of Mobil through June 22, 1988. All
filings and payments with respect thereto were made directly by Mobil, and
all refunds with respect thereto have been or will be paid directly to Mobil;
payments have been or are made and received by MW and its subsidiaries with
respect to such taxes under tax sharing agreements with Mobil and Marcor.
Accordingly, all representations and warranties made in Sections 3(h) (1) and
(2) with respect to federal income taxes are qualified to the best of MW's
general knowledge of Mobil's practices and procedures. To the best of its
knowledge, MW has made all payments which are due to Mobil and Marcor as
determined by Mobil and Marcor, under such tax sharing agreements.
(i) The Inventory is not covered by or subject to, in whole or in
part, (1) any effective security agreement or equivalent security or lien
instrument, or (2) any financing statement or continuation statement on file
or of record in any public office.
(j) MW's principal place of business is located at the address
indicated above.
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4. FINANCIAL STATEMENTS AND INFORMATION. For so long as MW shall have
any obligation to GE Capital under this Agreement, it shall deliver to GE
Capital:
(a) Within one hundred five (105) days after the close of each
fiscal year, a copy of the annual financial statements of MW and Parent,
consisting of a balance sheet, income statement and statements showing
changes in financial position, certified by independent public accountants
regularly retained by MW and Parent and accompanied by such accountants'
certification stating that, in the normal course of their audit, such
accountants have not become aware of any Event of Default under this
Agreement (or, if there is any such Event of Default, describing it and the
steps, if any, being taken to cure it);
(b) Within sixty (60) days after the end of each quarter, except the
last quarter of each fiscal year of MW, a copy of an unaudited financial
statement of MW prepared in the same manner as the audit report referred to
in Section (a) above and consisting of a balance sheet as of the close of
that quarter, statements of earnings for that quarter and statements of
earnings and cash flows for the period from the beginning of that fiscal year
to the close of that quarter;
(c) Within thirty (30) days after learning of the occurrence of
either of the following written notice thereof, describing the same and the
steps (if any) being taken by MW with respect thereto: (i) the occurrence of
any Event of Default (whether or not cured), or (ii) the institution of any
Material Litigation or development which might lead to Material Litigation.
The financial statements which are delivered by or for MW to GE
Capital pursuant to Section 4(a) and (b) shall be prepared in accordance with
generally accepted accounting principles, and accurately reflect MW's
financial condition as of the date of such statements.
5. COVENANTS. MW covenants and agrees that, for so long as it shall have
any obligation to GE Capital hereunder, it shall:
(a) Except as permitted in Section 5(b) below,
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preserve and maintain its corporate existence and rights, privileges and
franchises in connection therewith;
(b) Not consolidate or merge with or into any other entity or convey
its property as an entirety or substantially as an entirety to any other
entity unless: (i) in the case of a merger, MW shall be the surviving entity,
and immediately after such consolidation or merger no Event of Default shall
exist, or (ii) if MW shall not be the surviving entity, the entity into which
MW is consolidated or merged shall specifically assume in a writing
satisfactory to GE Capital any and all of the liabilities of MW under this
Agreement and the related documents, including any Supplement(s) hereto;
(c) Not violate any of the requirements of any applicable laws, rules,
regulations, and orders of any governmental authority (federal, state, local
or foreign, including, without limitation, environmental, health and safety
laws, rules, regulations and orders); provided, however, that any violation
by MW of any environmental, health or safety order, rule or regulation shall
not be deemed a violation of this Section 5(c) so long as MW shall, upon
notice of such violation, immediately take appropriate action to cure such
violation;
(d) Promptly pay when due all taxes, assessments or other charges owing
by MW except taxes, assessments and other charges which shall be diligently
contested in good faith by appropriate proceedings and as to which adequate
reserves shall have been set aside in accordance with generally accepted
accounting principles;
(e) Not grant a security interest in, or otherwise create a lien on,
the Inventory without forty-five (45) days prior written notice to GE Capital;
(f) Not change its principal place of business without giving GE
Capital thirty (30) days prior written notice thereof;
(g) Permit a GE Capital employee designated by GE Capital to work on
MW's premises in MW's accounts payable operation to administer this program;
MW agrees to allow such
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employee access to all MW books and records as necessary to perform this
function;
(h) Use its best efforts to implement streamlined payment and other
procedures, including but not limited to tape to tape purchasing, mutually
agreed to by GE Capital and MW in order to administer this Agreement; and
(i) Indemnify and hold GE Capital harmless from and against any and all
third party suits, actions, proceedings, claims, damages, losses, liabilities
and expenses (including without limitation, reasonable attorneys' fees and
disbursements, including those incurred upon any appeal) which may be
instituted or asserted against or incurred by GE Capital as the result of its
having entered into this Agreement or made Payments hereunder; provided,
however, that MW shall not be liable for such indemnification to GE Capital
to the extent that any such suit, action, proceeding, claim, damage, loss,
liability or expense results from GE Capital's gross negligence or willful
misconduct.
6. TERM. This Agreement shall remain in effect for one year commencing on
the date hereof, unless sooner terminated as provided in this Section 6 or in
Section 7, and shall continue thereafter from year to year unless terminated
by either party by giving the other party thirty (30) days written notice
prior to any anniversary date hereof. Notwithstanding the foregoing, GE
Capital may terminate this Agreement at any time upon thirty (30) days prior
written notice to MW or upon the occurrence of an Event of Default specified
in Section 7.
Upon termination of this Agreement by either party, pursuant to this
Section 6, MW shall reimburse to GE Capital (a) the amount of Payments which
have not been reimbursed as of the date of termination (including Payments
covering any Inventory shipped to MW for which the Invoice(s) has not yet
been received by GE Capital) which amount of Payments shall be due and
payable in accordance with the terms of any applicable Supplement(s), and (b)
all applicable charges and any other unpaid amounts owing pursuant to this
Agreement and any Supplement(s),
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which charges and other unpaid amounts shall be immediately due and payable
unless otherwise provided in any applicable Supplement(s).
7. EVENTS OF DEFAULT.
(a) Each of the following shall constitute an Event of Default under
this Agreement:
(1) Failure by MW to make any reimbursement due under Section 2 or
any applicable Supplement(s) and the continuance thereof for five (5)
business days after notice thereof to MW by GE Capital;
(2) Failure by MW to make any other payment under any other
provision of this Agreement or any applicable Supplement(s) and continuance
of such failure for ten (10) days after notice thereof to MW by GE Capital;
(3) Failure by MW to comply with or to perform its obligations
under any material provision of this Agreement (and not constituting an Event
of Default under any of the other provisions of this Section (7) and (i)
continuance of such failure for thirty (30) days after notice thereof to MW
by GE Capital specifying such failure if such failure can be cured with
diligence within such 30-day period by MW or can be cured by the payment of
money, or (ii) continuance of such failure for sixty (60) days after notice
thereof to MW by GE Capital specifying such failure if such failure cannot
with diligence be cured within such 30-day period and cannot be cured by the
payment of money.
(4) Default by MW in the payment when due (subject to any
applicable grace period), whether by acceleration or otherwise, of any Debt
(as hereinafter defined) of MW or default in the performance or observance of
any obligation or condition with respect to any such Debt, if (i) such
default has not been remedied within five (5) business days after notice
thereof to MW by the holder or holders of such Debt or any trustee or agents
for such holders; (ii) the effect of such default is to accelerate the
maturity of any such Debt or cause any of such Debt to be prepaid, purchased
or
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redeemed; or (iii) the holder of holders thereof, or any trustee or agent for
such holder(s) (x) causes such Debt to become due and payable prior to its
express maturity or to be prepaid, purchased or redeemed or (y) receives any
payment (other than any payment which was scheduled to be made prior to the
occurrence of such default), guaranty or security or other concession from or
on behalf of MW, or any subsidiary; provided, however, that no such default
under this Section 7(a)(4) shall constitute an Event of Default unless the
amount of Debt so affected is at least $5,000,000. For purposes hereof,
"Debt" with respect to MW means, as of the date of determination thereof, (i)
all of MW's indebtedness for borrowed money, (ii) all of MW's capitalized
lease obligations, (iii) all of MW's actual or contingent reimbursement
obligations with respect to letters of credit issued for MW's account (iv)
all of MW's actual or contingent obligations with respect to interest swap
agreements or currency swap agreements or other hedge agreements relating to
fluctuations in interest rates or currencies, (v) all of MW's liabilities
under Title IV of ERISA, and (vi) any and all indebtedness or obligations of
any of the types described in the preceding clauses (i), (ii), (iii), (iv)
and (v) for which MW is liable, directly or indirectly, under a guaranty.
(5) The Account Purchase Agreement (the "Account Purchase
Agreement") dated as of June 24, 1988 between MW and Montgomery Ward Credit
Corporation ("MWCC") shall be amended or modified in any material respect, or
shall fail to remain in full force and effect, or (ii) any "Seller Default"
or "Buyer Default", as defined in the Account Purchase Agreement, shall occur
thereunder, or (iii) MW or MWCC shall give notice of termination or take any
action to terminate thereunder, or (iv) MWCC shall exercise an option to
repurchase any receivables thereunder.
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(6) The occurrence of any of the following events: (i) MW shall
become insolvent or generally fail to pay, or shall admit in writing its
inability or refusal to pay debts as they become due, or (ii) MW shall apply
for, consent to, or acquiesce on the appointment of a trustee, receiver, or
other custodian shall be appointed for MW or for a substantial part of its
property and shall not be discharged within sixty (60) days, or (iv) any
bankruptcy, reorganization, debt arrangement, or other case or proceeding
under any bankruptcy or insolvency law, or any dissolution or liquidation
proceeding shall be commenced in respect to MW, and if such case or
proceeding is not commenced by MW, it shall be consented to or acquiesced in
by MW or remain for sixty (60) days undismissed, or (v) MW shall generally
fail to pay its debts as they become due, or (vi) MW shall take any corporate
action to authorize, or in furtherance of, any of the foregoing.
(7) Any representation or warranty made by MW herein is breached or
contains any statement which is false or misleading in any material respect.
(8) The rendering of any final judgment or judgments (after the
expiration of all times to appeal therefrom) for the payment of money in
excess of One million dollars ($1,000,000.00) in the aggregate against MW, if
the same shall not be (i) fully covered by insurance, or (ii) vacated, stayed,
bonded, paid or discharged for a period of sixty (60) days;
(b) EFFECT OF EVENT OF DEFAULT. If any Event of Default shall occur,
GE Capital may immediately, by written notice to MW, terminate this
Agreement, cease making further Payments to Vendors pursuant to Section 1
hereof, and declare all of MW's obligations under this Agreement and any
applicable Supplement(s) to be immediately due and payable without
presentment, demand, protest or further notice of any kind, all of which are
expressly waived by MW, and GE Capital may proceed to enforce payment of same.
8. SELECTION OF INVENTORY; DICLAIMER OF WARRANTY/ MAINTENANCE. MW has
selected both the Inventory and the Vender from whom it shall acquire the
Inventory and MW acknowleges and agrees that GE Capital makes no
representation
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or warranty as to, and MW assumes all responsibility and risk for the
Inventory including, without limitation, the existence, character, quality,
condition and value of the Inventory. MW irrevocably waives any claims against
GE Capital with respect to the Inventory, whether for breach of warranty or
otherwise. Any such claims shall not alter, diminish or otherwise impair MW's
liabilities or obligations to GE Capital hereunder. Without limiting the
foregoing, MW shall be obligated to REIMBURSE GE Capital in full even if the
Inventory is defective or fails to conform to the warranties extended by
Vendors. MW shall not assert against GE Capital any claim or defense MW may
have against any Vendor.
9. COLLECTIONS FROM VENDORS BY GE CAPITAL.
(a) Notwithstanding anything to the contrary contained herein, GE
Capital's right to any reimbursement under this Agreement shall be subject to
MW's right of deduction of any valid claim of MW asserted in good faith
against a Vendor to the extent that, at the time MW notifies GE Capital of
such valid claim, there are unpaid Payments due from GE Capital on Invoices
from such Vendor or it is reasonably expected by MW that GE Capital will be
requested to make Payments to such Vendor in the future. The deduction shall
be no greater than the amount of the valid claim charged back by or on behalf
of MW to said Vendor. A copy of the chargeback documentation shall be
furnished to GE Capital at the time MW asserts such right of deduction.
Valid claims shall be limited to (i) claims respecting Inventory which
result from returned merchandise, damaged merchandise, or incorrect unit
pricing or quantities of merchandise, or (ii) other such bona fide claims
directly related to the Inventory merchandise.
GE Capital shall use its best efforts to resolve any valid claims
submitted as chargebacks to Vendor. MW will indemnify GE Capital and will
hold harmless GE Capital from and against any and all losses, liabilities,
claims, expenses, charges, demands, suits, judgements, and awards (including
all attorney's fees) (collectively "Losses") arising from the taking of any
deduction by MW, including without limitation
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(i) any Losses arising from GE Capital's inability to withhold an amount
equal to such deduction from amounts payable on Invoices to the applicable
Vendor if (a) such inability arises from the fact that MW has ceased doing
business with such Vendor and (b) sixty (60) days have passed since the date
GE Capital learned that MW has ceased doing business with such Vendor and
(ii) any Losses arising from any chargeback withheld from such Vendor which
is disputed by such Vendor and which cannot be resolved satisfactorily with
such Vendor within one hundred (120) days after the date MW notified GE
Capital of such valid claim; provided that MW shall not be required to
indemnify GE Capital to the extent that the Losses arise solely from GE
Capital's negligence or misconduct and provided, further, that with respect
to indemnification under (ii) above, GE Capital shall not make payment to the
Vendor of the amount represented by the disputed chargeback which was
previously deducted by GE Capital, but shall assign the claim to MW, and MW
shall assume all obligations for resolving such claim. MW shall remit
promptly to GE Capital all amounts which become payable pursuant to the above
indemnity upon the expiration of the time periods referred to in (i) and (ii)
above, but in no case shall such amounts be remitted sooner than one hundred
twenty (120) days from the earlier of (i) the shipping date of the Inventory
covered by such Invoice or (ii) the date of such Invoice. Without limiting
the foregoing, if amounts previously deducted by MW become payable to GE
Capital pursuant to the above indemnity and are not remitted immediately to
GE Capital when due, such amounts shall be subject to interest at a rate
equal to the prime rate in effect on the last business day of the month
preceeding the month in which such amounts become payable.
(b) GE Capital agrees that it shall, during the term of this Agreement,
at no cost to MW, use its best efforts to collect from any Vendor with whom
MW has ceased doing business any debit balance owed to MW by such Vendor with
regard to Inventory for which GE Capital has made Payments, provided that
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MW requests that GE Capital do so and provides GE Capital with documentation
verifying said debit balance. Notwithstanding the foregoing, MW shall not be
entitled to deduct any such debit balance from any reimbursement due to GE
Capital and shall remain obligated to reimburse GE Capital in full for any
Payment made with respect to such Inventory in accordance with the applicable
Supplement(s). MW shall indemnify GE Capital against Losses arising in
connection with any such collection efforts; provided that MW shall not be
required to indemnify GE Capital to the extent that the Losses arise solely
from GE Capital's negligence, willful misconduct or failure to comply with
applicable law.
10. GENERAL PROVISIONS.
(a) GE Capital's rights and remedies under this Agreement shall be
cumulative and non-exclusive of any other rights or remedies which it may
have under any other agreement or instrument, by operation of law or
otherwise.
(b) This Agreement may not be assigned by GE Capital or MW without
the prior written consent of the other party, which consent shall not be
unreasonably withheld. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns.
(c) Wherever this Agreement provides for notice from one party to the
other (except as expressly provided to the contrary), it shall be given by
messenger, electronic transmission, telegram or mail, effective when received
by the corporate party to whom addressed, and shall be addressed as follows,
or to such other address as the party affected may hereafter designate in
writing to the other party:
If to GE Capital:
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06902
Attention: S.P. Joyce
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With a copy to:
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06904
Attention: Counsel, Retailer Financial Services
and if to MW:
Montgomery Ward & Co., Incorporated
Montgomery Ward Plaza
Chicago, Illinois 60671
Attention: E.G. Pohlmann
with a copy to:
Montgomery Ward & Co, Incorporated
Montgomery Ward Plaza
Chicago, Illinois 60671
Attention: Corporate Secretary
(d) No delay or failure on the part of GE Capital in exercising any
right, privilege, remedy or option hereunder shall operate as a waiver of
such or of any other right, privilege, remedy or option and no waiver
whatsoever shall be valid unless in writing and signed by an officer of GE
Capital and then only to the extent therein set forth.
(e) In the event that GE Capital employs counsel, other than salaried
employees of GE Capital, with respect to the enforcement or defense of this
Agreement, or the relationship created hereby, all reasonable attorney's fees
arising from such services, and any expenses, costs and charges relating
thereto shall constitute additional obligations of MW, payable on demand.
(f) This Agreement and the Supplement(s) to which it expressly refers
constitute the complete agreement between the parties with respect to the
subject matter and may not be
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changed, modified, waived, amended or terminated orally, but only by a
writing signed by the party to be charged.
(g) The validity of this Agreement and of all transactions provided
for herein shall be governed by, interpreted and construed under, and in
connection with, the laws of the State of New York.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
General Electric Capital Corporation
By:
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Title: Vice President
---------------------------------
Montgomery Ward & Co., Incorporated
By:
------------------------------------
Title: Sr. Vice President
---------------------------------
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SUPPLEMENT NO. 1 TO PROGRAM AGREEMENT
TO: GENERAL ELECTRIC CAPITAL CORPORATION
MW hereby supplements and amends its Program Agreement ("Agreement") with
GE Capital dated October 12, 1989, to include and incorporate by reference
the following additional terms and conditions:
In consideration of the Payments made from time to time by GE Capital for
MW under the Agreement, for certain Invoices covering Inventory acquired by
MW from Vendors, MW agrees to make reimbursement in full of each such Invoice
paid by GE Capital no later than 120 days from the earlier of (i) the
shipping date of the Inventory covered by such Invoice or (ii) the date of
such Invoice. If for any reason any reimbursement is received by GE Capital
later than the applicable due date, MW agrees to pay to GE Capital a late
charge fee equal to the sum of (i) two (2) basis points (.02% or .0002) times
the amount due times the number of days past due up to fifteen (15) days and
(ii) five (5) basis points (.05% or .0005) times the amount due times the
number of days past due in excess of fifteen (15) days.
With respect to each six (6) month period during the term of the
Agreement, (beginning with the period which ends on the date which is six (6)
months from the date of the Agreement), GE Capital shall calculate whether MW
is entitled to a discount rebate ("Discount Rebate"). GE Capital shall
calculate the Discount Rebate for each six (6) month period as follows:
(1) GE Captial shall first make the following calculations with respect
to each month during such six month period:
(a) Determine the actual number of days elapsed between (i) the
earlier of (y) the shipping date of the Inventory covered by
each Invoice for which reimbursement has been made by MW to GE
Capital during such month (each such reimbursed Invoice herein
referred to as a "Paid Invoice") and (z) the date of such Paid
Invoice, and (ii) the date reimbursement for such Paid Invoice
has been received by GE Capital ("Actual Number of Elapsed
Days").
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(b) Determine the "Required Dollar Discount" for each Paid Invoice.
The "Required Dollar Discount" with respect to a Paid Invoice
shall equal the "Required Percent Discount" for such Paid
Invoice times the gross amount due as shown on such Invoice
(prior to deducting any applicable discount). The "Required
Percent Discount" for such Paid Invoice shall be determined by
reference to Exhibit A hereto, based on the applicable "Prime
Rate" and the Actual Number of Elapsed Days with respect to
such Paid Invoice. The applicable "Prime Rate" shall be the
highest prime rate as published in the Money Rates Table of THE
WALL STREET JOURNAL on the last business day of the month
preceeding the month in which the Paid Invoice was paid to the
Vendor by GE Capital; and
(c) Determine the actual discount received by GE Capital with
respect to its payment to Vendors of each Paid Invoice with
respect to such month ("Actual Dollar Discount"); and
(d) Aggregate the Required Dollar Discounts for all Paid Invoices
with respect to such month ("Aggregate Required Dollar
Discounts"); and
(e) Aggregate the Actual Dollar Discounts for all Paid Invoices
with respect to such month ("Aggregate Actual Dollar
Discounts"); and
(f) Compute the "Base Discount Rebate" for all Paid Invoices with
respect to such month by (i) multiplying .003 times the gross
amount due as shown on each Paid Invoice (prior to deducting
any applicable discount) and (ii) adding such products
together; and
(g) Compute the "Average Number of Elapsed Days" by (i) aggregating
the Actual Number of Elapsed Days for all Paid Invoices with
respect to such month and (ii) dividing such aggregate by the
number of Paid Invoices with respect to such month; and
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<PAGE>
(h) Determine the "Required 120 Day Dollar Discount" for each Paid
Invoice. The "Required 120 Day Dollar Discount" with respect
to a Paid Invoice shall be computed in the same manner as the
"Required Dollar Discount" in subparagraph (b) above with the
exception that the Actual Number of Elapsed Days shall be
assumed to be 120 days for all Paid Invoices; and
(i) Aggregate the Required 120 Day Dollar Discounts for all Paid
Invoices with respect to such month ("Aggregate Required 120
Day Dollar Discounts").
(2) GE Capital shall then apply such calculations as follows with
respect to each month during such six (6) month period:
(a) If Aggregate Actual Dollar Discounts exceed Aggregate Required
Dollar Discounts, GE Capital shall credit all or a portion of
the amount of such excess to a MW Rebate Memorandum Account
("Rebate Account") as follows: (i) First, an amount equal to
the amount by which, if any, the Aggregate Required 120 Day
Dollar Discount exceeds the Aggregate Required Dollar Discount
shall be credited by GE Capital to the Rebate Account; (ii)
Second, GE Capital shall determine the amount by which, if any,
the Aggregate Actual Dollar Discount exceeds the Aggregate
Required 120 Day Dollar Discount (the "Shared Excess"); (iii)
Third, GE Capital shall credit the Rebate Account with all or a
portion of the Shared Excess as follows:
(1) If the Shared Excess is less than the Base Discount
Rebate, all of the Shared Excess shall be credited to the
Rebate Account.
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<PAGE>
(2) If the Shared Excess exceeds the Base Discount Rebate, GE
Capital shall credit the Rebate Account in an amount equal
to (X) the Base Discount Rebate, plus (Y) fifty percent
(50%) of the portion of the Shared Excess which exceeds
the Base Discount Rebate plus (Z) if the Average Number of
Elapsed Days is less than one hundred twenty (120) and
greater than seventy (70), an additional one percent (1%)
of the portion of the Shared Excess which exceeds the Base
Discount Rebate for each such day by which the Average
Number of Elapsed Days is less than one hundred twenty
(120), but in no event more than fifty percent (50%) of
such portion.
(b) If Aggregate Actual Dollar Discounts are less than Aggregate
Required Dollar Discounts, GE Capital shall debit the Rebate
Account in an amount equal to such difference.
(3) At the end of each six (6) month period of the Agreement, GE Capital
shall net the credits and debits made to the Rebate Account during
such six month period (including any carried over from prior six (6)
month periods.) Any net credit amount shall be the Discount Rebate
and shall be remitted to MW by check. Any net debit amount shall be
carried over to future six (6) month periods.
GE Capital shall provide a monthly accounting of the Rebate Account to MW.
GE Capital shall have the right to set off any late charge fees and other
amounts, including Payments, due and unpaid pursuant to this Supplement
and/or the Agreement, against any Discount Rebates owed to MW hereunder.
-4-
<PAGE>
In no event shall late charge fees due hereunder exceed the maximum
amount of such charges permissible under applicable law. In the event that a
court of competent jurisdiction, notwithstanding the provisions of the
preceding sentence, shall make a final determination that GE Capital has
received late charge fees hereunder in excess of the maximum permissible
under applicable law GE Capital shall, to the extent permitted by applicable
law, promptly apply such excess first to any due and unpaid reimbursements
under the Agreement, and thereafter shall refund any excess to MW or as a
court of competent jurisdiction may otherwise order.
The parties agree that this Supplement contains the entire
Agreement between the parties relating to the subject matter hereof. There
are merged herein all prior representations, promises and conditions, whether
oral or written, which relate to the subject matter, and any representation,
promise or condition not incorporated herein will not be binding upon the
parties. All terms used in this Supplement will have the meanings defined in
the Agreement. If any provisions of this Supplement are inconsistent with
any provisions of the Agreement or any other Supplement(s) executed on or
prior to the date hereof, the provisions of this Supplement will prevail and
govern and the inconsistent provisions of the Agreement or such other
Supplement(s) will be deemed to be amended accordingly.
The parties agree that this Supplement may not be varied, altered
or its provisions waived except by another agreement in writing signed by the
parties' authorized representatives. This Supplement will be binding on the
respective permitted successors and assigns of MW and GE Capital under the
Agreement, their legal representatives, heirs, executors and administrators.
-5-
<PAGE>
IN WITNESS WHEREOF, this Supplement is hereby signed and sealed this
12th day of October, 1989.
MONTGOMERY WARD & CO., INCORPORATED
-----------------------------------
CORPORATE SEAL By
--------------------------------
Title Sr. Vice President
-----------------------------
ACCEPTED:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
----------------------------------
Title: Vice President
------------------------------
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<PAGE>
PROGRAM AGREEMENT AMENDMENT
PROGRAM AGREEMENT AMENDMENT dated as of March 4, 1997 (this
"Amendment") among GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("GE Capital"), MONTGOMERY WARD & CO., INCORPORATED, an Illinois
corporation ("MW"), and LECHMERE, INC., a Massachusetts corporation
("Lechmere").
R E C I T A L S
WHEREAS, MW and GE Capital have heretofore entered into a Program
Agreement dated October 12, 1989, as amended (the "Program Agreement"; terms
defined therein being used herein as so defined); and
WHEREAS, GE Capital and MW desire to amend the Program Agreement in
certain respects (including, but not limited to, adding Lechmere, a wholly
owned subsidiary of MW, as a party thereto); and
WHEREAS, MW and Lechmere each acquire Inventory for resale to its
customers from certain manufacturers and distributors; and
WHEREAS, MW and Lechmere have requested GE Capital to provide funds to
each of MW and Lechmere to pay to such manufacturers and distributors
supplying Inventory to MW and/or Lechmere; and
WHEREAS, GE Capital is willing to make such payments for MW and
Lechmere in the amounts and under the terms and subject to the conditions set
forth in the Program Agreement as amended by this Amendment; and
WHEREAS, in connection with this Amendment, Montgomery Ward Holding
Corp., the direct parent of MW ("Holding"), will agree to amend its
certificate of incorporation to create and issue to GE Capital shares of its
Series C Preferred Stock having a liquidation value of $21,120,000, and MW
will agree to amend its articles of incorporation to create and issue to
Holding preferred stock with substantially identical forms of such Series C
Preferred Stock of Holding and with an equivalent liquidation value;
<PAGE>
NOW, THEREFORE, the parties hereto, in consideration of the terms,
covenants, provisions and conditions hereinafter set forth, hereby agree as
follows:
1. Section 1 of the Program Agreement is hereby amended by (i)
inserting "or Lechmere's" after the word "MW" on the first line of this
Section, (ii) deleting the reference to "One Hundred Million Dollars
($100,000,000.00)" in the first paragraph of this Section and replacing it
with the words "Three Hundred Fifty Million Dollars ($350,000,000.00)", (iii)
inserting the words "or Lechmere" after each other reference to "MW" in this
Section and (iv) adding the following at the end thereof:
"MW and Lechmere shall, from time to time, make payments to
vendors (the "Vendor Payable Extension Program") in amounts equal
to the invoice price (net of applicable discount) for inventory
acquired by MW or Lechmere by checks written against an account
maintained for such purpose at The First National Bank of Boston
("FNBB"), or such other account as may be approved by GE Capital
(the "FNBB Account"). MW and Lechmere will send GE Capital a
report indicating the total amount of the same day's cleared checks
before 11:00 a.m. of each day. Upon the request of MW or Lechmere,
GE Capital will wire same day funds into the FNBB Account in an
amount equal to the prior day's Vendor Payments (the "Daily FNBB
Funding"). GE Capital will provide MW and Lechmere an invoice equal
to the amount of the previous day's Daily FNBB Funding (the "Vendor
Payable Invoices"). The aggregate amount of outstanding payments
and other amounts payable in connection with the Vendor Payable
Extension Program, at any given time, shall not exceed One Hundred
Fifty Million Dollars ($150,000,000).
Notwithstanding anything contained herein to the contrary, (i)
the maximum aggregate amount of outstanding payments and other
amounts payable to GE Capital hereunder, at any time, shall not
exceed $500,000,000 and (ii) in no event shall the aggregate amount
of outstanding payments and other amounts payable to GE Capital
pursuant to the Vendor Payable Extension Program exceed the amount
set forth below for the time periods indicated:
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<PAGE>
Maximum
Amount Outstanding Period
$100,000,000 date hereof through
March 14, 1997
150,000,000 March 15, 1997 and thereafter
GE Capital shall not be obligated to make any payments pursuant to
the Vendor Payable Extension Program if MW has the ability to
borrow any amounts under the Long Term Credit Agreement among MW,
various banks, and The First National Bank of Chicago, The Bank of
Nova Scotia, The Bank of New York, and Bank of America National
Trust and Savings Association, as agents, or the Short Term Credit
Agreement among MW, various banks, and The First National Bank of
Chicago, The Bank of Nova Scotia, The Bank of New York, and Bank of
America National Trust and Savings Association, as agents, each
dated as of September 15, 1994 and as amended on March 19, 1996,
September 6, 1996 and as of December 23, 1996 (collectively, the
"Bank Facility") or under its existing inventory financing facility
with Deutsche Financial Services Corporation ("DFS") pursuant to
the Program Agreement, dated as of October 7, 1996, among DFS, MW
and Lechmere (the "Inventory Financing Facility"), to the extent
that MW or Lechmere have outstanding invoices payable thereunder.
MW hereby covenants and agrees that it will not make any optional
prepayment of principal under the Bank Facility or the Inventory
Financing Facility, if the aggregate amount of outstanding Payments
and other amounts payable to GE Capital hereunder exceed
$350,000,000 (a "Prohibited Payment"). The making of any such
Prohibited Payment shall constitute an Event of Default and shall
have the consequences set forth in Section 7(b) of this Agreement.
GE Capital's agreement to provide funds to MW and Lechmere under
this Agreement pursuant to the Vendor Payable Extension Program
shall terminate on the first to occur of (i) March 4, 1998, (ii) an
occurrence and continuation of an Event of Default pursuant to
Section 7(a)(6) of this Agreement or (iii) upon notice by GE
Capital, the occurrence and continuation of an Event of Default
pursuant to any other subsection of Section 7(a) of this
3
<PAGE>
Agreement. Upon any termination of GE Capital's obligations under
this Agreement due to the occurrence and continuance of an Event of
Default pursuant to Section 7(a)(6) of this Agreement, all of
MW's and Lechmere's obligations under this Agreement shall be
immediately due and payable and upon any termination due to the
occurrence and continuation of an Event of Default under any other
subsection of Section 7(a) of this Agreement, GE Capital may
immediately, by written notice to MW and Lechmere, declare all of
MW's and Lechmere's obligations under this Agreement to be
immediately due and payable."
2. Section 2 of the Program Agreement is hereby amended by (i) adding
the words "and Lechmere" after each reference to "MW" in this Section and (ii)
adding the following to the end thereof:
"MW and Lechmere shall each reimburse GE Capital in full the
amount funded by it on their respective behalfs as set forth in
each Vendor Payable Invoice no later than 45 days after the date of
such Vendor Payable Invoice together with interest on such amount
from the date of funding until paid in full at the GE Capital
Charge Rate as in effect from time to time. "GE Capital Charge
Rate" means the per annum GE Capital money cost as reported in the
internal financial reports of GE Capital's Appliance/Electronics
Financing Group plus four hundred twenty-five (425) basis points."
3. Section 3 of the Program Agreement is hereby amended by inserting
after the second word of subsection (i) the words "purchased by MW" and by
adding the following to the end thereof:
"Lechmere represents and warrants to GE Capital that:
(a) Lechmere is a corporation duly organized, validly existing
and in good standing under the laws of the State of Massachusetts;
(b) Lechmere is duly authorized to enter into this Agreement,
has taken all necessary corporate action to authorize the execution
and
4
<PAGE>
consummation of this Agreement, and shall furnish GE Capital with
satisfactory evidence of same upon request. This Agreement is a
legal, valid and binding obligation of Lechmere enforceable against
Lechmere in accordance with its terms except as such enforceability
may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally;
(c) The execution, delivery and performance of this Agreement
do not constitute a breach of any provisions contained in
Lechmere's Articles of Organization or Bylaws;
(d) The execution, delivery or performance of this Agreement is
not in contravention of any applicable provision of law,
governmental rule or regulation and does not require the consent or
approval of any governmental entity or authority or any other
person which has not been obtained;
(e) The execution, delivery or performance of this Agreement is
not in contravention of any order binding upon Lechmere, or any
agreement, indenture or other instrument, including, without
limitation, any loan agreement to which Lechmere is a party or
by which Lechmere or its property is or may be bound, and will not
result in a breach or termination thereof, constitute a default
thereunder, or accelerate any performance required thereby or
result in the creation or imposition of a lien on any of its
properties;
(f) No litigation which might impair the enforceability of this
Agreement or Lechmere's ability to perform its obligations
hereunder ("Material Litigation") is pending or, to Lechmere's
knowledge, threatened against Lechmere;
(g) The Inventory of Lechmere is not covered by or subject to,
in whole or in part, (1) any effective security agreement or
equivalent security or lien instrument, or (2) any financing
statement or continuation statement on file or of record in any
public office, except for the security agreement and financing
statement in favor of MW;
5
<PAGE>
(h) Lechmere's principal place of business is located at
Montgomery Ward Plaza, Chicago, Illinois 60671."
4. Section 5 of the Program Agreement is hereby amended by deleting
subsection (i) and by adding the following to the end thereof:
"Lechmere covenants and agrees that, for so long as it
shall have any obligation to GE Capital hereunder, it shall:
(a) Not grant a security interest in, or otherwise
create a lien on, any Inventory with respect to which GE
Capital is to make or makes a Payment to a Lechmere Vendor
without giving GE Capital 45 days prior written notice thereof;
(b) Not change its principal place of business without
giving GE Capital 30 days' prior written notice thereof;
(c) Permit a GE Capital employee or employees designated
by GE Capital to work on Lechmere's premises in Lechmere's
accounts payable operation to administer the program as to
Lechmere and to allow such employee or employees access to all
Lechmere's books and records necessary to perform this function."
5. Section 6 of the Program Agreement is hereby amended by inserting
the words "and Lechmere" after each reference to "MW" in this Section.
6. Section 7 of the Program Agreement is hereby amended by (i)
inserting the words "or Lechmere" after each reference to "MW" in subsection
(a)(1), (a)(2), (a)(3), (a)(4), (a)(6), (a)(7) and (a)(8), (ii) by inserting
the words "or Lechmere's" after each reference to "MW's" in subsection
(a)(4), (iii) inserting the words "and Lechmere" after each reference to "MW"
and inserting the words "or Lechmere's" after the reference to "MW's" in
subsection (b), and (iv) deleting subsection (a)(5) in its entirety and
replacing it with the following:
(5) The Interim Consumer Credit Card Agreement, dated as
of April 1, 1996, as amended, restated and renamed The Bank Credit Card
Program
6
<PAGE>
Agreement, among Monogram Credit Card Bank of Georgia and MW or
the Account Purchase Agreement dated as of June 24, 1988, as amended and
restated and renamed the Account Related Agreement, dated as of April 1,
1996, between Montgomery Ward Credit Corporation and MW (i) shall fail to
remain in full force and effect, or (ii) any "MW Default" (as defined in
such agreements) shall occur thereunder or (iii) MW shall give notice of
termination or take any action to terminate any of such agreements.
7. Section 8 of the Program Agreement is hereby amended by (i)
inserting the words "and Lechmere" after each reference to "MW" and (ii)
inserting the words "or Lechmere's" after each reference to "MW's".
8. Section 9 of the Program Amendment is hereby amended by (i)
inserting the words "and Lechmere" after each reference to "MW", (ii) inserting
the words "and Lechmere's" after each reference to "MW's", (iii) deleting the
first two words of the second sentence of the third paragraph of subsection
9(a) and by inserting in its place "MW and Lechmere will jointly and
severally" and (iv) deleting the first two words of the last sentence of
subsection 9(b) and by inserting in its place "MW and Lechmere will jointly
and severally".
9. Section 10 of the Program Agreement is renumbered as Section 12 and
new Sections 10 and 11 are hereby added as follows:
"10. LECHMERE AND MW LIABILITY. (a) By becoming a party to this
Agreement, Lechmere shall be responsible only for reimbursement
obligations or other obligations hereunder arising out of commitments or
Payments made with respect to Lechmere's invoices or deduction against
Payments made or claims asserted on behalf of Lechmere against Lechmere's
Vendors, or payments made by GE Capital in connection with Lechmere's
participation in the Vendor Payable Extension Program, but not for
reimbursement obligations or other obligations hereunder arising out of
commitments or Payments made with respect to MW's invoices or deductions
made or claims asserted on behalf of MW against MW's Vendors or any other
obligations of MW under this Agreement. MW shall
7
<PAGE>
be responsibe for all its obligations under this Agreement.
(b) MW and Lechmere agree to jointly and severally
indemnify and hold GE Capital harmless from and against any and
all third party suits, actions, proceedings, claims, damages,
losses, liabilities and expenses (including, without limitation,
reasonable attorneys' fees and disbursements, including those
incurred upon any appeal) which may be instituted or asserted
against or incurred by GE Capital as the result of its having
entered into this Agreement or made Payments hereunder or any
payments pursuant to the Vendor Payable Extension Program;
provided, however, that MW and Lechmere shall not be liable for
such indemnification to GE Capital to the extent that any such
suit, action, proceeding, claim, damage, loss, liability or
expense results from GE Capital's gross negligence or willful
misconduct.
11. GUARANTEE.
11.1 MW GUARANTEE. MW hereby unconditionally and
irrevocably guarantees (the "Guarantee") to GE Capital the due and
punctual payment and performance of all current and future
liabilities and obligations of Lechmere arising under this
Agreement, including, without limitation, the reimbursement
obligations of Lechmere arising out of commitments or Payments for
the benefit of Lechmere hereunder, including payments pursuant to
the Vendor Payable Extension Program, together with all costs and
expenses incurred by GE Capital for which Lechmere is responsible
hereunder or incurred by GE Capital in connection with the
enforcement of this Guarantee. The obligations of MW under this
Guarantee shall be unconditional and absolute and, without
limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or
release in respect
8
<PAGE>
of any obligation of Lechmere under this Agreement by operation of
law or otherwise;
(b) any modification or amendment of or supplement to this
Agreement if such modification, amendment or supplement is signed
by an officer of MW;
(c) any modification, amendment, waiver, release,
non-perfection or invalidity of any direct or indirect security,
or of any guarantee or other liability of any third party, for
any obligation of Lechmere under this Agreement;
(d) any change in the corporate existence, structure or
ownership of, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting Lechmere, its assets or any
resulting release or discharge of any obligation of
Lechmere hereunder;
(e) the existence of any claim, set-off or other rights which
MW may have at any time against Lechmere, whether or not arising in
connection with this Agreement, or against GE Capital arising under
this Agreement; provided, however, that nothing herein shall
prevent the assertion of any such claim by seperate suit or
compulsory counterclaim;
(f) any invalidity or unenforceability of any liability or
obligation of or relating to Lechmere for any reason under this
Agreement, or any provision of applicable law or regulation
purporting to prohibit the payment or performance by Lechmere of
any liability or obligation under this Agreement; or
(g) any other act or omission to act or delay of any kind by
Lechmere, GE Capital or any other circumstance whatsoever that
might, but for the provisions of this paragraph, constitute
9
<PAGE>
a legal (excluding any statute of limitations defense) or
equitable discharge of the obligations of MW under this
Guarantee.
MW's obligations under this Guarantee shall remain in full force and
effect until all liabilities and obligations of Lechmere under this
Agreement shall have been irrevocably paid and performed in full.
If at any time the payment of any amount by Lechmere under this
Agreement is rescinded or must be otherwise restored or returned
upon the insolvency, bankruptcy or reorganization of Lechmere or
otherwise, MW's obligations under this Guarantee with respect to
such payment shall be reinstated at such time as though such
payment had become due but had not been made at such time.
11.2. WAIVERS. With respect to the Guarantee, MW irrevocably
waives acceptance hereof, presentment, demand, protest and any
notice not provided for herein, as well as any requirement that at
any time any action be taken by any person against Lechmere or its
successors or assigns. Furthermore, MW irrevocably and absolutely
waives any and all rights of subrogation, contribution,
indemnification, recourse, reimbursement and any similar rights
against Lechmere arising as a result of any payment made by MW
hereunder for the account of Lechmere, whether such rights arise
under any express or implied contract or by operation of law, until
Lechmere's obligations hereunder have been irrevocably paid and
discharged in full. If acceleration or the time for payment of any
amount payable by Lechmere under this Agreement is stayed upon the
insolvency, bankruptcy or reorganization of Lechmere, all such
amounts otherwise payable or subject to acceleration under the
terms of this Agreement shall nonetheless be payable by MW hereunder
forthwith on demand by GE Capital."
10. Section 12 of the Program Agreement is hereby amended by inserting
the words "and Lechmere" after each reference to "MW". Subsection (c) of
Section 12 of the Program Agreement is hereby deleted and replaced with the
following:
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<PAGE>
"(c) Notices give under this Agreement shall be deemed
made and received: (a) three Business Days after depositing
same in the U.S. Mail, postage paid, addressed to the party to whom
such notice is directed at the address set forth below or at such
other address as such party may by written notice received by the
other parties hereto designates as its address for such purpose or
(b) if sooner, the next Business Day following facsimile
transmission to the party to whom such notice is directed at the
number set forth below or at such other number as such party may by
written notice received by the other parties hereto designates as
its number for such purpose. The addresses and the facsimile
transmission numbers for notices hereunder are as follows:
If to GE Capital:
General Electric Capital Corporation
7595 Centurion Parkway
Jacksonville, FL 32256
Attention: Director of Inventory Financing
FAX No. (800) 723-1590
With a copy to:
General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06904
Attention: Vice President and General Manager,
Retailer Financial Services
FAX No. (203) 357-4135
and if to MW:
Montgomery Ward & Co., Incorporated
844 N. Larrabee, 5-3
Chicago, Illinois 60671
Attention: Treasurer
FAX No. (312) 467-7421
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<PAGE>
with a copy to:
Montgomery Ward & Co., Incorporated
535 W. Chicago Avenue, 24-S
Chicago, Illinois 60671
Attention: Secretary
FAX No. (312) 467-7898
and if to Lechmere:
Lechmere, Inc.
c/o Montgomery Ward & Co., Incorporated
844 N. Larrabee, 5-3
Chicago, Illinois 60671
Attention: Treasurer
FAX No. (312) 467-7421
with a copy to:
Lechmere, Inc.
c/o Montgomery Ward & Co., Incorporated
535 W. Chicago Avenue, 24-S
Chicago, Illinois 60671
Attention: Secretary
FAX No. (312) 467-7898
11. In each place in the Program Agreement when the words "and
Lechmere", "or Lechmere" or "Lechmere's" have been inserted, all words in
the singular that follow such insertion shall include the plural and all
words in the plural that follow such insertion shall include the singular.
12. Supplement No. 1 to the Program Agreement is hereby amended by
inserting the words "and Lechmere" after the first reference to "MW" in such
supplement and the words "or Lechmere" after each subsequent reference to
"MW". In addition, the second paragraph of Supplement No. 1 to the Program
Agreement is hereby deleted and replaced with the following:
"Commencing as of March 1, 1997 in consideration of the
payments made from time to time by GE Capital for MW and/or
Lechmere under the Agreement for certain invoices covering
inventory acquired by MW and/or Lechmere from Vendors (other than
pursuant to the Vendor Payable Extension Program, as to which the
provisions of this Supplement No. 1 shall not be applicable), MW
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<PAGE>
and Lechmere each agree to make reimbursement in full of each such
Invoice paid by GE Capital on its behalf no later than 120 days
from the earlier of (i) the shipping date of the Inventory covered
by such Invoice or (ii) the date of such Invoice, or such other
date as may be agreed upon by GE Capital and MW or Lechmere, as the
case may be. Notwithstanding the foregoing, MW or Lechmere may
delay any such reimbursement payment for up to 90 days beyond the
due date with respect to any particular Invoice, but not beyond 180
days from the date of such Invoice. GE Capital may terminate this
90-day extension right as to future Invoices at any time upon 30
days' prior written notice to MW and Lechmere. If for any reason
any reimbursement is received by GE Capital later than the
applicable due date, MW and Lechmere, as the case may be, each
agree to pay to GE Capital interest on such outstanding amount from
such due date until paid in full at the GE Capital Charge Rate as
in effect from time to time."
13. MW and Lechmere hereby jointly and severally represent and warrant
to GE Capital as follows:
(a) No Event of Default or event which with the giving of notice
or the lapse of time, or both, would constitute an Event of Default has
occurred and is continuing.
(b) The execution, delivery and performance by MW and Lechmere of
this Amendment have been duly authorized by all necessary or proper
corporate action and do not require the consent or approval of any person
which has not been obtained.
(c) This Amendment has been duly executed and delivered by MW and
Lechmere and each of this Amendment and the Program Agreement as amended
hereby constitutes a legal, valid and binding obligation of MW and Lechmere,
enforceable against them in accordance with its terms.
MW further represents and warrants to GE Capital that each of the
representations and warranties of MW contained in subsections 3(a), (c), (d),
(e), (g), (i) and (j) is true and correct as of the date hereof, with all
references therein to the Agreement being deemed to refer to the Agreement as
amended hereby.
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<PAGE>
14. That certain letter agreement dated February 14, 1997 between GE
Capital and MW relating to the Program Agreement (the "Letter Agreement") is
deemed terminated and the commitment amount under Section 1 of the Agreement
is reinstated at $350,000,000; provided, however, that MW's payment
obligation under the Letter Agreement shall remain in full force and effect
and that any amounts funded by GE Capital pursuant to the Letter Agreement
prior to the date hereof shall be deemed outstanding for purposes of
calculating the maximum amount outstanding under Section 1 of the Program
Agreement (as amended hereby).
15. MW agrees to pay on demand all costs and expenses of GE Capital in
connection with the preparation, execution and delivery of this Amendment and
the Letter Agreement, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for GE Capital with respect thereto.
16. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which, when so
executed and delivered, shall be deemed to be an original and all of which
taken together shall constitute but one and the same instrument.
17. This Amendment shall be governed by, construed and enforced in
accordance with the laws of the State of New York, without regard to the
principles thereof regarding conflict of laws.
18. Except as amended hereby, the Program Agreement shall remain in
full force and effect.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed as of the date first above written.
GENERAL ELECTRIC CAPITAL CORPORATION
By:
---------------------------------
Name:
Title:
MONTGOMERY WARD & CO., INCORPORATED
By:
---------------------------------
Name:
Title:
LECHMERE, INC.
By:
---------------------------------
Name:
Title:
15
<PAGE>
MONTGOMERY WARD & CO., INCORPORATED
First Amendment
to the
Montgomery Ward & Co., Incorporated
Retirement Security Plan
Dated: October 9, 1995
WHEREAS, Montgomery Ward & Co., Incorporated, an Illinois corporation
("Ward"), maintains the Montgomery Ward & Co., Incorporated Retirement Security
Plan ("Plan"); and
WHEREAS, pursuant to Section 17.1 POWER TO AMEND, the power to amend the
Plan is reserved to the Board of Directors of Montgomery Ward & Co.,
Incorporated ("Board"); and
WHEREAS, the Board desires to amend the Plan.
NOW, THEREFORE, the Plan is amended effective October 1, 1995, in the
following manner:
1. Addendum A is added to the Plan to read in its entirety as attached
hereto.
2. In all other respects, the Plan shall continue in full force and
effect.
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Robert A. Kasenter
-------------------------------------
Its: EVP Human Resources
------------------------------------
ATTEST:
By: /s/ Philip Delk
--------------------------------
Its: VP & Deputy General Counsel
-------------------------------
<PAGE>
ADDENDUM A
MONTGOMERY WARD & CO., INCORPORATED
RETIREMENT SECURITY PLAN
A-1 PURPOSE. The purpose of this Addendum A is to provide for
participation in the Plan by eligible employees of Montgomery Ward (Hong Kong)
Limited.
A-2 USE OF TERMS. Except where the context of this Addendum A expressly
indicates to the contrary, terms used and defined in the Plan shall have the
same meanings for purposes of this Addendum A. As used in this Addendum A, the
term this "Addendum A" shall include only this Addendum A, and the references to
the "Plan" shall include all provisions of the Plan but shall not include this
Addendum A.
A-3 CONFLICTS BETWEEN PLAN AND THIS ADDENDUM A. This Addendum A, together
with the Plan, comprises the Plan with respect to Participants under this
Addendum A. In case of any conflict between the provisions of the Plan and this
Addendum A, the terms and the provisions of this Addendum A shall govern to the
extent necessary to eliminate such conflict.
A-4 PARTICIPANTS. Nonresident aliens employed by Montgomery Ward (Hong
Kong) Limited shall be considered "Employees", "Associates", and "Hong Kong
Associates" for purposes of the Plan and this Addendum A. Hong Kong Associates
employed by Montgomery Ward (Hong Kong) Limited on October 1, 1995 who have
completed one Year of Service by October 1, 1995 participate in the Plan as of
October 1, 1995. Each other Hong Kong Associate who both attains age 21 and
completes one Year of Service shall become a Participant under the Plan on the
first day of the month following the month in which the Hong Kong Associate
meets the eligibility requirements.
A-5 VESTING. If a Hong Kong Associate completes five Years of Service,
such Hong Kong Associate shall be Vested (have a nonforfeitable right to a
Retirement Benefit) in the Hong Kong Associate's Retirement Benefit. Each Hong
Kong Associate employed by Montgomery Ward (Hong Kong) Limited on October 31,
1995 who has completed two years of service with Montgomery Ward (Hong Kong)
Limited but has not yet completed five Years of Service shall be Vested (have a
nonforfeitable right to a Retirement Benefit) in the Retirement Benefit to which
the Associate would have been entitled if the Associate terminated employment
with Montgomery Ward (Hong Kong) Limited on October 31, 1995.
A-6 FINAL MONTHLY SALARY. For purposes of this Addendum A, "Final Monthly
Salary" means annual base salary or pay preceding the date of termination of
Service by a Hong Kong Associate, calculated in Hong Kong Dollars, divided by
fourteen (14).
<PAGE>
A-7 RETIREMENT BENEFIT. If a Participant who is a Hong Kong Associate
Retires on the Participant's Normal Retirement Date, the amount of the
Retirement Benefit shall be the Actuarial Equivalent of a lump sum expressed in
Hong Kong Dollars determined by multiplying the participant's Final Monthly
Salary by the Participant's years of Service (calculated to the nearest month).
Sections 9.1, 9.2, 9.3, 10.1, 10.2 and 10.3 of the Plan do not apply to
Participants who are Hong Kong Associates. Except as otherwise provided in
Article IX and Section 11.4 of the Plan, a Participant who is a Hong Kong
Associate who Retires on the Participant's Normal Retirement Date shall be
eligible for the Retirement Benefit defined in this paragraph A-7 or an
Actuarial Equivalent benefit thereto as provided for herein.
A-8 OPTIONAL METHODS OF PAYMENT. In lieu of the Qualified Joint and
Survivor Benefit payable to a married Participant or the single life annuity
payable to an unmarried Participant, a Participant who is a Hong Kong Associate
may elect, subject to Sections 11.3 and 11.4 of the Plan, to receive the
Actuarial Equivalent of the Retirement Benefit to which the Participant is
entitled under the Plan in one lump sum payment in Hong Kong Dollars or in
installments over five quarterly payments in Hong Kong Dollars. Any such
election shall comply with the spousal consent requirements of Section 11.5 of
the Plan. Section 11.2 of the Plan does not apply to Participants who are Hong
Kong Associates.
A-9 TERMINATION OF SERVICE BY A VESTED PARTICIPANT.
If the Service of a Participant who is a Hong Kong Associate and who is Vested
terminates prior to Retirement, such Participant may elect, subject to the
spousal consent requirements of Section 11.5 of the Plan, a Retirement Benefit
commencing on the first day of any month within nine months after the
Participant's termination of Service and prior to the Participant's Normal
Retirement Date or on the Participant's Normal Retirement Date. Section 13.2 of
the Plan does not apply to Participants who are Hong Kong Associates.
A-10 DEATH BENEFITS. In lieu of the Pre-Retirement Death Benefit described
in Section 12.1, the spouse of a Participant who died while employed as a Hong
Kong Associate or within the first nine months after the Participant's
termination of Service may elect to receive (i) a lump sum amount equal to the
lump sum amount which would have been payable to the Participant if the
Participant had terminated Service on the earlier of the date of the
Participant's death or the Participant's prior termination of Service or (ii)
five quarterly installments equal to the quarterly installment amount which
would have been payable to the Participant if the Participant had terminated
Service on the earlier of the date of the Participant's death or the
Participant's prior termination of Service.
2
<PAGE>
A-11 ACTUARIAL EQUIVALENT. For purposes of this Addendum, "Actuarial
Equivalent" shall mean the lesser of (i) Actuarial Equivalent as otherwise
defined in the Plan and (ii) Actuarial Equivalent computed as otherwise defined
in the Plan but using a 5% interest rate.
3
<PAGE>
MONTGOMERY WARD & CO., INCORPORATED
Second Amendment
to the
Montgomery Ward & Co., Incorporated
Retirement Security Plan
Dated: October 31, 1996
WHEREAS, Montgomery Ward & Co., Incorporated, an Illinois corporation
("Ward"), maintains the Montgomery Ward & Co., Incorporated Retirement Security
Plan ("Plan"); and
WHEREAS, pursuant to Section 17.1 POWER TO AMEND, the Benefit Plans
Committee ("Committee") has reserved the power to amend the Plan under certain
circumstances; and
WHEREAS, the Committee desires to amend the Plan.
NOW, THEREFORE, the Plan is amended effective January 1, 1996, in the
following manner:
1. Section 2.13 "Credited Service" is amended by deleting the third and
fourth sentences thereof, and inserting the following in lieu thereof:
"Effective January 1, 1989, Credited Service shall include any period of
disability leave of absence provided that the Associate was a Participant
immediately prior to such leave or became eligible while on such leave and
further provided that (i) the Participant is receiving long-term disability
benefits from a plan sponsored by the Company, or a Disability Retirement
Benefit from this Plan and (ii) the number of years of Credited Service
credited pursuant to this Section 2.13 does not exceed the number of years
of Credited Service prior to the disability. Effective January 1, 1994,
credit under the Plan for the period of disability leave of absence during
which the Participant is receiving long-term disability benefits from a
plan sponsored by the Company shall be limited to (i) the duration of the
disability leave of absence; (ii) the period prior to the Participant's
Normal Retirement Date; (iii) one year if the Participant has less than ten
years of continuous service; or (iv) two years if the Participant has ten
or more years of continuous service prior to such disability leave of
absence, whichever is less."
In addition, Section 2.13 "Credited Service" is amended by adding the
following as the last paragraph thereof:
"For purposes of determining the Associate's eligibility under the Plan
under Article IV ELIGIBILITY, for purposes of determining the Associate's
eligibility for a Retirement Benefit under Article X ELIGIBILITY FOR
RETIREMENT BENEFIT or for purposes of determining both the Associate's
eligibility under the Plan and eligibility for a Retirement Benefit,
Credited Service shall include any service an Associate was credited with
as an employee of any organization which operated any trade or business, or
any separate unit of a trade or business substantially acquired by the
Company, but only to the extent so provided by appropriate action of the
Committee."
2. Sections 2.14(1), 2.14(2) and 2.14(3) are added to the Plan
immediately following Section 2.14 as follows:
<PAGE>
"2.14(1) 'Disability Participant' means each Associate or former
Associate who is entitled to receive Disability Retirement Benefit payments
hereunder in accordance with an election made pursuant to Section 5.1
hereof.
2.14(2) 'Disability Plan' means the Montgomery Ward & Co.,
Incorporated Long-Term Disability Plan, as amended (except as otherwise
stated herein), through the date of the Disability Participant's election
to receive a Disability Retirement Benefit under this Plan pursuant to
Section 5.1 hereof.
2.14(3) 'Disability Retirement Benefit' means a Disability
Participant's monthly annuity benefit determined in accordance with Section
9.3(1)(a) and (b) hereof upon the Disability Participant's election
pursuant to Section 5.1 hereof and payable in accordance with Section 11.8
hereof."
3. Section 2.55 is hereby amended by adding the following to the end
thereof:
"For purposes of determining Years of Service under ARTICLE IV ELIGIBILITY
and under Section 2.51 regarding vesting of benefits, each Participant who
was employed by Amoco Oil Company or its affiliates on December 31, 1995
and who became an Associate of Montgomery Ward Life Insurance Company, also
known as "Signature", on January 1, 1996 in connection with the Stock
Purchase Agreement by and between Amoco Oil Company, Amoco Oil Holding
Company, Montgomery Ward & Co., Incorporated and Signature
Financial/Marketing, Inc., dated December 29, 1995 shall have all years of
service with Amoco Oil Company or its affiliates treated as Years of
Service with the Company. Also, for purposes of determining Years of
Service under ARTICLE IV ELIGIBILITY and under Section 2.51 regarding
vesting of benefits, each Participant who was an employee of Emanacom Data
Services, Inc. on July 16, 1996 and who became an Associate of Signature on
July 16, 1996 shall have all years of service with Emanacom Data Services,
Inc. treated as Years of Service with the Company."
4. ARTICLE IV ELIGIBILITY is hereby amended by adding the following to
the end thereof:
"Each Associate or former Associate who became 'Totally Disabled' (as such
term was defined by the Disability Plan as in effect at such time) on or
before October 1, 1990; is entitled to receive the full Disability Benefit
(as that term is defined in the Disability Plan); and elects to receive a
Disability Retirement Benefit under this Plan shall be eligible to
participate in this Plan as a Disability Participant. Notwithstanding the
foregoing, each participant in the Amoco Employee Savings Plan ("Amoco
Plan") on December 31, 1995 and each participant in the Amoco Oil Company
Retirement Plan ("Amoco Oil Plan") on December 31, 1995 who became an
Associate of Signature on January 1, 1996 (or, with respect to a
participant in the Amoco Plan or the Amoco Oil Plan on December 31, 1995
who on January 1, 1996 was on medical, military, personal, educational or
family leave status from Amoco Oil Company or its affiliates, who became an
Associate of Signature on any date prior to January 1, 1997), shall become
a Participant in the Plan as of the first day of the first month following
the date he becomes an Associate of Signature even if such Associate shall
have had less than one Year of Service, in which case such Associate shall
be granted one Year of Service credit
2
<PAGE>
for purposes of eligibility and shall be deemed to be age 21 for
eligibility purposes, unless such Associate is a Highly Compensated
Associate. Notwithstanding the foregoing, each employee of Emanacom Data
Services, Inc. on July 16, 1996 who became an Associate of Signature on
July 16, 1996 shall become a Participant in the Plan as of the first day of
the first month following July 16, 1996."
5. Section 5.1 ENROLLMENT is amended by adding the following at the end
thereof:
"Each Associate or former Associate who is eligible to become a Disability
Participant under the Plan and elects to receive a Disability Retirement
Benefit shall become a Disability Participant on a date determined by the
Administrative Director, but no later than ninety (90) days following the
Associate's or former Associate's submission of an election, in such form
as may be prescribed by the Committee, to receive a Disability Retirement
Benefit under this Plan."
6. Article VIII RETIREMENT DATES is amended by adding the following
Section 8.4 at the end thereof:
"8.4 DISABILITY RETIREMENT DATE. A Disability Participant's
Disability Retirement Date shall be the date on which the Disability
Participant became a Disability Participant pursuant to Section 5.1
hereof."
7. The title of Article IX AMOUNT OF RETIREMENT BENEFIT is amended by
inserting the phrase "OR DISABILITY RETIREMENT BENEFIT" at the end thereof.
8. Article IX AMOUNT OF RETIREMENT BENEFIT OR DISABILITY RETIREMENT
BENEFIT is amended by adding the following Section immediately following Section
9.3:
"Section 9.3(1) DISABILITY RETIREMENT BENEFIT PAYABLE AT
DISABILITY RETIREMENT DATE.
(a) A Disability Participant who makes an election to receive the
Disability Retirement Benefit under this Plan shall receive a monthly
annuity in an amount, determined as of the Disability Participant's
Disability Retirement Date, equal to sixty percent (60%) of the Disability
Participant's Covered Earnings (as defined by the Disability Plan as in
effect on the Disability Participant's Retirement Date); provided that such
amount shall not exceed SIX THOUSAND DOLLARS ($6,000) prior to reduction
for any other benefits payable as described in Subsection (b) below.
(b) The monthly amount of the Disability Retirement Benefit shall be
reduced by the amount payable from the following sources determined as of
the Disability Participant's Retirement:
(i) Any applicable worker's compensation or occupational
diseases law,
(ii) the Social Security Act (including any portion
attributable to dependents), and
3
<PAGE>
(iii) any state disability benefit law or no-fault insurance in
lieu thereof;
provided that the amount of any benefit referred to in clause (ii) above
shall not be taken into account to the extent it is attributable to any
cost-of-living increase two years or more after commencement of the
benefits to the Disability Participant under the Disability Plan.
Reduction shall be made whether or not a Disability Participant applied for
and actually received any such other benefit to which he is or may be
entitled. The amount of the benefits payable referred to in paragraphs
(i), (ii) and (iii) of this Subsection and such reduction shall be
determined by the Committee, in its sole discretion.
(c) A Disability Participant who becomes a Disability Participant on
or before November 1, 1996 shall be entitled to the lump sum benefit
described in this Subsection. The amount of the lump sum benefit shall be
equal to the present value, determined as of the Disability Participant's
Disability Retirement Date, of the Disability Retirement Benefit payable to
the Disability Participant under this Plan, multiplied by twelve and
one-half percent (12 1/2%). For the purpose of determining the amount of
the lump sum benefit under this Subsection, the present value of the
Disability Participant's Disability Retirement Benefit shall be determined
using the interest rate and mortality assumptions used under the Plan to
determine Actuarial Equivalent and by assuming that the Disability
Participant will continue to receive such monthly annuity benefit until the
earlier of the Disability Participant's death or attainment of age
sixty-five (65.)"
9. Section 9.4 OFFSET OF RETIREMENT BENEFIT is amended for purposes of
clarification by deleting the last sentence thereof and inserting the following
in lieu thereof:
"The Retirement Benefit payable to associates of Montgomery Ward Insurance
Company shall be reduced by the current annuity rates of a legal reserve
life insurance company chosen by the Committee of that portion of the
annuity that could be purchased with the Transferred Contributions and
their contributions prior to January 1, 1984 (or October 1, 1984 for
certain associates) under the Savings and Profit Sharing Plan."
10. Section 9.6 RETIREMENT BENEFIT PAYABLE UPON RETIREMENT FOLLOWING
REEMPLOYMENT AFTER TERMINATION OF SERVICE is amended by adding the following
words immediately after the words "(after applying the offset":
"of the actuarial equivalent of any Retirement Benefit paid to the
Participant."
11. Section 10.4 LONG-TERM DISABILITY BENEFITS is amended by adding the
following to the end thereof:
"During any period that a Disability Retirement Benefit would otherwise be
payable under this Plan, no Retirement Benefit will be payable under this
Plan unless the Participant ceases to receive the Disability Retirement
Benefit under this Plan."
12. Article XI METHODS OF PAYMENT is amended by adding the following
Section 11.8 to the end thereof:
4
<PAGE>
"11.8 DISABILITY RETIREMENT BENEFIT. A Participant's Disability
Retirement Benefit shall only be paid in the form of a monthly annuity
benefit the amount of which is determined in accordance with Section
9.3(1)(a) and (b) payable commencing with the Participant's Disability
Retirement Date and ending on the first day of the month in which the
Disability Participant attains age sixty-five, dies, begins to receive a
Retirement Benefit under the terms of this Plan, whichever is the first to
occur. The lump sum benefit, if any, to which a Disability Participant is
entitled pursuant to Section 9.3(1)(c) shall be paid within a reasonable
period of time following the month in which the Associate or former
Associate first became a Disability Participant."
13. The text of Section 11.5 WRITTEN EXPLANATION OF SURVIVOR BENEFIT is
hereby deleted in its entirety and the following is inserted in lieu thereof:
"(a) The Committee shall furnish or cause to be furnished to each
married Participant explanations of the Qualified Joint and Survivor
Benefit and Pre-Retirement Death Benefit in Section 12.1(a) under
procedures developed by the Committee in accordance with the Code and
Regulations. Specifically, with respect to the election to waive a
Qualified Joint and Survivor Benefit, the Committee shall furnish or cause
to be furnished to the Participant the written explanation of the Qualified
Joint and Survivor Benefit, as described in Subsection (b) below. If the
Participant, after having received the written explanation described in
Subsection (b) below, affirmatively elects in writing to receive the
Participant's Retirement Benefit in one of the optional forms described in
Section 11.2 in lieu of a Qualified Joint and Survivor Benefit with the
consent of the Participant's spouse, if necessary, such optional form of
distribution may commence no less than seven (7) days after the written
explanation described in Subsection (b) below is provided to the
Participant. A Participant is permitted to revoke an affirmative
distribution election up until the date payment of the Participant's
Retirement Benefit commences, or, if later, at any time prior to the
expiration of the seven (7) day period that begins the date after the
explanation in Subsection (b) below is provided to the Participant.
(b) Other than as described in Subsection (a) above, with regard to
the election to waive a Qualified Joint and Survivor Benefit, the Committee
shall furnish or cause to be furnished to the Participant no less than
thirty (30) days and no more than ninety (90) days prior to the date
payment of the Participant's Retirement Benefit commences written
explanation of:
(i) the terms and conditions of the Qualified Joint and
Survivor Benefit;
(ii) the Participant's right to make, and the effect of, an
election to waive the Qualified Joint and Survivor Benefit;
(iii) the right of the Participant's spouse to consent to any
election to waive the Qualified Joint and Survivor Benefit;
(iv) the right of the Participant to revoke such election, and
the effect of such revocation; and
5
<PAGE>
(v) the right of the Participant to consider whether to waive
the Qualified Joint and Survivor Benefit for at least thirty (30) days
prior to the date payment of the Participant's Retirement Benefit
commences.
(c) A married Participant may elect in writing to waive the Qualified
Joint and Survivor Benefit. Such election must be consented to by the
Participant's spouse. If the Participant elects a Ten Years Certain and
Continuous Benefit, the election and the spouse's consent thereto must
designate specific beneficiary(ies) including any class of beneficiaries or
any alternate beneficiaries, and, with respect to a Qualified Joint and
Survivor Benefit, the form of benefits that the designated beneficiary
(ies) shall receive, which designations may not be changed without spousal
consent unless the spouse expressly permits designations by the
Participant, without any further spousal consent. Such spouse's consent
must acknowledge the effect of such election and be witnessed by a Plan
representative or a notary public. Such consent shall not be required if
it is established to the satisfaction of the Committee that the required
consent cannot be obtained because there is no spouse, the spouse cannot be
located, or other circumstances that may be prescribed by the Regulations.
The election made by the Participant and consented to by the Participant's
spouse may be revoked by the Participant in writing without the consent of
the spouse at any time prior to the distribution of the Participant's
Retirement Benefit. Any new election must comply with the requirements of
this Subsection (c). A former spouse's waiver shall not be binding on a
new spouse."
14. In all other respects, the Plan, as amended, shall continue in full
force and effect.
6
<PAGE>
MONTGOMERY WARD & CO., INCORPORATED
First Amendment
to the
Montgomery Ward & Co., Incorporated
Savings and Profit Sharing Plan
Dated: October 31, 1996
WHEREAS, Montgomery Ward & Co., Incorporated, an Illinois corporation
("Ward"), maintains the Montgomery Ward & Co., Incorporated Savings and Profit
Sharing Plan ("Plan"); and
WHEREAS, pursuant to Section 18 AMENDMENT OR TERMINATION OF THE PLAN AND
TRUST, the Benefit Plans Committee ("Committee") has reserved the power to amend
the Plan under certain circumstances; and
WHEREAS, the Committee desires to amend the Plan.
NOW, THEREFORE, the Plan is amended effective January 1, 1996, unless
otherwise indicated, in the following manner:
1. Section 2.23 "Hours of Service" is amended by adding the following to
the end thereof:
"For purposes of determining the Associate's membership under Section 3.
MEMBERSHIP, for purposes of determining the Associate's nonforfeitable
interest in amounts under Section 11. ELIGIBILITY FOR BENEFITS or for
purposes of determining both the Associate's eligibility for membership and
nonforfeitable interest in amounts, an Associate shall be entitled to be
credited with Hours of Service to which the Associate was credited as an
employee of any organization which operated any trade or business, or any
separate unit of a trade or business, substantially acquired by the
Company, but only to the extent so provided by appropriate action of the
Committee."
2. The following Section is hereby added immediately following Section
2.41 "Retirement Security Plan":
"2.41A "Rollover Contribution" and "Rollover Contribution Account"
means those contributions made pursuant to Section 10.6 and that portion of
the Member's Account to which such contributions are credited."
3. Section 2.53 is hereby amended by adding the following to the end
thereof:
"For purposes of determining Years of Service under SECTION 3. MEMBERSHIP
and SECTION 11. ELIGIBILITY FOR BENEFITS, each Member who was employed by
Amoco Oil Company or its affiliates on December 31, 1995 and who became an
Associate of Montgomery Ward Life Insurance Company, also known as
"Signature", on January 1, 1996 in connection with the Stock Purchase
Agreement By and Between Amoco Oil Company, Amoco Oil Holding Company,
Montgomery Ward & Co., Incorporated and Signature Financial/Marketing,
Inc., dated December 29, 1995 shall have all years of service with Amoco
Oil Company or its affiliates treated as Years of
<PAGE>
Service with the Company. Also, for purposes of determining Years of
Service under SECTION 3. MEMBERSHIP and SECTION 11. ELIGIBILITY FOR
BENEFITS, each Member who was an employee of Emanacom Data Services Inc. on
July 16, 1996 and who became an Associate of Signature on July 16, 1996
shall have all years of service with Emanacom Data Services Inc. treated as
Years of Service with the Company."
4. The following subsection is added immediately following subsection
3.1(c) to read as follows:
"(d) Notwithstanding the foregoing, each participant in the Amoco
Employee Savings Plan ("Amoco Plan") on December 31, 1995 and each
participant in the Amoco Oil Company Retirement Plan ("Amoco Oil Plan") on
December 31, 1995 who became an Associate of Signature on January 1, 1996
(or, with respect to a participant in the Amoco Plan or the Amoco Oil Plan
on December 31, 1995 who on January 1, 1996 was on medical, military,
personal, educational or family leave status from Amoco Oil Company or its
affiliates, who became an Associate of Signature on any date prior to
January 1, 1997), shall be eligible to become a Member in the Plan as of
the first day of the first month following the date he becomes an Associate
of Signature even if such Associate shall have had less than one Year of
Service, in which case such Associate shall be granted one Year of Service
credit for purposes of eligibility and shall be deemed to be age 21 for
purposes of SECTION 3. MEMBERSHIP, unless such Associate is a Highly
Compensated Associate. Notwithstanding the foregoing, each employee of
Emanacom Data Services Inc. on July 16, 1996 who became an Associate of
Signature on July 16, 1996 shall become a Member in the Plan as of the
first day of the first month following July 16, 1996."
5. Section 10.6 is added immediately after Section 10.5 to read as
follows:
"10.6 Notwithstanding anything herein to the contrary, the
Committee, in its sole discretion in connection with the Company's
acquisition of businesses, may authorize an Associate to transfer to the
Trust, to be held as part of the Associate's Rollover Contribution Account,
cash received by the Associate in one or more distributions together
constituting, under the Code, an eligible rollover distribution from or
under another qualified trust or qualified plan. The Committee may, in its
sole discretion, develop procedures for rolling over eligible distributions
to the Plan. The interest of an Associate with respect to a Rollover
Contribution to the Trust, together with earnings thereon, shall be fully
vested, and the assets attributable thereto shall be held, invested and
distributed pursuant to the terms of the Plan governing the Associate's
After-Tax Supplemental Contribution Account; provided, however, that the
interest of an Associate with respect to Rollover Contributions shall be
segregated for accounting and reporting purposes."
6. Effective July 1, 1994, Section 11.2 is amended to clarify an
administrative practice by adding the following to the end thereof:
"If a Member has received a distribution of less than 100% of the Member's
Account and is subsequently rehired before incurring five (5) consecutive
one (1) year Breaks in
2
<PAGE>
Service, he may repay the amount of the distribution to the Trust before
the earlier of five (5) years after the first day the Associate is rehired,
or the close of the first period of five (5) consecutive one (1) year
Breaks in Service commencing after the distribution. If upon termination
of a Member's Service the balance of his nonforfeitable Account is zero,
the Member shall be deemed to have received a distribution of such
nonforfeitable Account upon termination of his Service. If a Member is
deemed to have received a distribution, he may notify the Committee of his
return to Service and his desire to have his account reinstated before the
close of the first period of five (5) consecutive one (1) year Breaks in
Service commencing after the deemed distribution ("Committee
Notification"). Upon such repayment or Committee Notification, the Member
shall be credited on the vesting schedule with all previous Years of
Service, and the Member's Account will be credited with the amount of his
Account which was not vested at the time of the termination of his Service.
No additional Years of Service shall be credited, however, until the Member
shall have completed one thousand (1,000) Hours of Service in any Plan Year
ending after re-employment by the Company.
The amount credited to the Account of a rehired Associate upon
repayment of a distribution or Committee Notification will be restored from
the following sources, to the extent necessary, in the order listed:
(1) Forfeitures for the Plan Year;
(2) Company contributions;
(3) Trust earnings or gains.
In the event that the amount derived from the foregoing sources shall
not be sufficient to restore the amount credited to the Member's Account
upon repayment or Committee Notification, the Company shall be obligated to
make an additional contribution to the Trust to the extent required.
A Member who has received a distribution or is deemed to have received
a distribution of his vested interest and either elects not to make
repayment of such amount or elects not to perform Committee Notification
and who has incurred (5) consecutive one (1) year Breaks in Service, shall
not be entitled to an increase in the Member's pre-Break in Service credit
based upon any post-Break in Service credit, but in determining the
Member's post-Break in Service credit all of his pre-Break in Service and
post-Break in Service credit shall be aggregated. If a termination of a
Member's Service shall occur prior to the vesting of any of the Member's
interest in his Account and if he is subsequently rehired, his pre-Break in
Service and post-Break in Service credit will be aggregated if the period
of his absence does not exceed the greater of five (5) consecutive one (1)
year Breaks in Service or his Years of Service with the Company. If the
Member's period of absence does exceed the greater of five (5) consecutive
one (1) year Breaks in Service or his Years of Service with the Company,
his pre-Break in Service credit shall not be considered in determining his
vested interest."
7. Section 12.3 is hereby amended by adding the following immediately
after the words "that no such consent is required).":
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"If a distribution is one to which the qualified joint and survivor and
qualified preretirement survivor annuity rules do not apply and the
Committee informs the Member that the Member has a right to a period of at
least thirty (30) days after receiving the notice to consider the decision
of whether or not to elect a distribution or a particular distribution
option, and the Member, after receiving such notice, affirmatively elects a
distribution, the Committee may authorize the commencement of such
distribution to begin as soon as administratively feasible."
8. In all other respects, the Plan shall continue in full force and
effect.
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EXECUTION COPY
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into on the
20th day of December, 1996 (the "Effective Date"), by and among Montgomery
Ward & Co., Incorporated, an Illinois corporation (together with its
successors and assigns permitted under this Agreement, the "Company"),
Montgomery Ward Holding Corp., a Delaware corporation ("Holding") and Roger
V. Goddu (the "Executive").
W I T N E S S E T H
WHEREAS, the Company desires to employ the Executive and the Executive
desires to accept such employment, subject to the terms and provisions of this
Agreement;
NOW THEREFORE, in consideration of the mutual covenants and premises
contained herein, the parties hereto agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) "Affiliate" of a person or other entity shall mean a person or
other entity that directly or indirectly controls, is controlled by, or is
under common control with, the person or other entity specified.
(b) "Base Salary" shall mean the salary provided for in Section 4
herein.
(c) "Board" shall mean the Board of Directors of any one or more of
the Company, Holding and each Subsidiary, as the context may provide.
(d) "Cause" shall mean any one or more of the following:
(i) the Executive is convicted of a felony involving moral
turpitude or any other felony if in the case of such other felony the
Executive is unable to show that he
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(A) acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Company, Holding or any Subsidiary or
(B) had no reason to believe his conduct was unlawful;
(ii) a majority of the Company's Board, consisting of at least a 2/3
majority of the non-management directors, determines that:
(A) the Executive has engaged in illegal conduct which is
materially injurious to the Company;
(B) the Executive has engaged in conduct that constitutes
willful or gross misconduct in carrying out his duties under this Agreement;
or
(C) the Executive has neglected or refused, after written
notice from the Board of the Company, to attend to the material duties
assigned to him by such Board, provided that such duties are consistent with
his position, duties and responsibilities as set forth in Section 3 herein.
(e) A "Change in Control" shall mean (i) any sale, lease, license,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the business and/or assets of
the Company or Holding or (ii) the possession by any person or entity (other
than Holding, General Electric Capital Corporation or an Affiliate of either
of them) of beneficial ownership (as such term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) of either (A) a number of
securities carrying a greater voting power than General Electric Capital
Corporation and its Affiliates taken together or (B) over 50% of the then
outstanding voting securities of the Company; PROVIDED, that in the case of
either (A) or (B), no Change in Control shall be deemed to occur unless and
until, after the occurrence of such event, a majority of the members of the
Board of the Company or Holding are removed or replaced within six months
following any event described in either (A) or (B) above.
(f) "Constructive Termination" shall mean a termination of the
Executive's employment at his initiative within six months following the
occurrence (except in consequence of a prior termination), without the
Executive's prior written consent, of one or more of the following
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events, in each such case after the Executive shall have given the Company
(A) prior written notice reasonable in the circumstances and (B) an
opportunity to cure reasonable in the circumstances:
(i) a reduction in the Executive's then current Base Salary or
Annual Bonus opportunity (as described in Section 5 herein) or the
termination or material reduction of any material employee benefit or
perquisite enjoyed by him (other than as part of an across-the-board
reduction of such benefit or perquisite applicable to all executive officers
of the Company);
(ii) reduction by overt action of the Board in the scope of the
responsibilities and authority assigned to the position held by the Executive
or a removal of the Executive from any of the positions (including any
directorship) described in Section 3(a) herein (other than in connection
with or as a result of the sale, transfer or dissolution of any Subsidiary)
or the creation of a position (other than member of a Board) in the Company
of equal or superior rank to the highest position then held by the Executive
in the Company;
(iii) the failure of the Company or Holding, as appropriate, to
obtain the assumption in writing of its obligation to perform this Agreement
by any successor to the Company, Holding or their business within 15 days
after the occurrence of the transaction which results in such person or
entity becoming a successor to the Company, Holding or their business; or
(iv) a Change in Control.
(g) "Current Employer" shall mean Toys "R" Us, Inc. and any subsidiary
thereof.
(h) "Disability" shall mean the Executive's inability to substantially
perform his duties and responsibilities under this Agreement by reason of any
physical or mental incapacity, as determined by a majority of the Company's
Board, consisting of a least a 2/3 majority of the non-management directors,
for 90 days in any period of 180 consecutive days.
(i) "ERISA" shall mean the Employee Retirement Income Security Act of
1974.
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(j) "Fair Market Value Per Share" shall mean the fair market value of
a share of Class A Common Stock of Holding as determined in accordance with
Article III of the Stockholders' Agreement.
(k) "Plan" shall mean the Montgomery Ward & Co., Incorporated Stock
Ownership Plan.
(l) "Start Date" shall mean January 6, 1997.
(m) "Stock" shall mean all capital stock of Holding.
(n) "Stockholders' Agreement" shall mean that certain Stockholders'
Agreement, dated as of June 18, 1988, as amended through December 10, 1996.
(o) "Subsidiary" shall mean any corporation in which the Company or
Holding owns, directly or indirectly, more than 50% of the outstanding voting
securities of such corporation entitled to vote in the election of directors.
2. AGREEMENT TERM AND EMPLOYMENT PERIOD. The Company hereby employs
the Executive, and the Executive hereby accepts such employment, pursuant to
the terms and conditions set forth in this Agreement. The term of this
Agreement shall commence on the date hereof and shall end on December 31,
2001. The employment period shall commence on the Start Date and end on the
earlier of (i) the effective date of any terminations of employment and (ii)
December 31, 2001 (the "Employment Period"). This Agreement is void if the
Executive has not submitted his written resignation to Current Employer by
the close of business on December 20, 1996 and delivered a copy thereof to
the Company.
3. POSITION, DUTIES AND RESPONSIBILITIES.
(a) During the Employment Period, the Executive shall be employed and
serve as the Chairman of the Board and Chief Executive Officer of the Company
and the Chief Executive Officer of Holding (or such other position or
positions as may be agreed upon in writing by the Executive and the Company).
The Executive's services shall be performed in Chicago, Illinois and the
Executive shall not be transferred outside that area without his consent,
other than for normal business travel and temporary assignments. In
addition, Executive is entering into this Agreement on the basis that,
pursuant to the terms of the Stockholders'
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Agreement the Executive and a designee of the Executive shall be elected a
member of the Board of Holding and the Company and, following such election,
each shall be nominated and recommended for election to each such Board at
each annual meeting of such entity held during the Employment Period. The
Executive shall report only to the Board of the Company and the Board of
Holding, or a duly organized committee thereof, and shall be a member of any
Board committee directed to formulate the strategic direction to be taken by
the Company or Holding. The Executive shall make, at his earliest
convenience, a recommendation to the Board of the Company and Holding, or
such committee, as to all strategic planning issues for the Company.
(b) The Executive shall perform such duties and carry out such
responsibilities incident to his position as may be determined from time to
time by the Board of the Company, which shall be consistent with the duties
and responsibilities customarily performed by persons in a similar executive
capacity. Subject to periods of vacation, sick leave, and the like to which
he may be entitled, the Executive shall devote all of his business time,
attention and skill to the performance of such duties and responsibilities,
and shall use his best efforts to promote the interests of the Company.
(c) Notwithstanding anything to the contrary contained herein, nothing
shall preclude the Executive from (i) serving on the boards of trade
associations and/or charitable organizations (subject to the reasonable
approval of the Board of the Company), (ii) engaging in charitable activities
and community affairs, and (iii) managing his personal investments and
affairs, provided that such activities individually or collectively do not
interfere with the proper performance of his duties and responsibilities
hereunder.
(4) BASE SALARY. During the Employment Period, the Company shall pay to
the Executive for the services to be rendered by the Executive hereunder a
base salary at the rate of One Million Dollars ($1,000,000) per annum ("Base
Salary"), increasing at the rate of $50,000 per year in each successive year
("Minimum Increase"). Base Salary shall be reviewed at least once each year
and may be increased in excess of the Minimum Increase at any time from time
to time in the discretion of the Board of the Company, and shall be payable
in accordance with the Company's customary payroll
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practices applicable for senior-level executives generally. After any
increase in Base Salary (whether as a result of a Minimum Increase or
otherwise), Base Salary shall not thereafter be reduced.
5. ANNUAL BONUS; RELOCATION; SUPPLEMENTAL PENSION PAYMENTS.
(a) In addition to the Base Salary and any other benefits or emoluments
received from the Company, Holding or any Affiliate thereof, the Executive
shall be eligible to receive an annual cash bonus in an amount equal to not
more than 50% of the Base Salary (as the same may be increased from time to
time) (the "Annual Bonus"), payable within the first fiscal quarter following
the close of each of the Company's fiscal years during the Employment Period.
The Annual Bonus shall be based on performance targets to be established from
time to time by the Board of the Company (or any committee thereof appointed
for such purpose); provided that for the fiscal years ending in 1997, 1998
and 1999, the Annual Bonus will not be less than $350,000 for each of such
years without regard to such performance targets. The Annual Bonus may be
increased by up to an additional 50% of the Base Salary (as the same may
change from time to time), based on the achievement of exceptional
performance against the aforementioned targets, as determined by the Board
of the Company in the good faith exercise of its business judgment.
(b) The Company and the Executive shall, simultaneously with execution
and delivery of this Agreement, execute and deliver the Relocation Agreement
attached hereto as Exhibit A.
(c) The Company shall provide for a supplemental pension benefit on the
same terms and conditions as Executive's current pension arrangement with an
actuarial present value at age 60 of $3.9 million subject to the Executive's
providing to the Company W-2 Forms for the five years ending on December 31,
1995 or an earnings history from Current Employer for the same period.
6. STOCK OPTION AWARDS.
(a) Holding shall, as promptly as possible following the Effective
Date, receipt of shareholder approval pursuant to Section 6(g) hereof and the
execution by the Executive of the Stockholders' Agreement (subject to
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certain amendments as agreed in that certain letter agreement dated the date
hereof among the Executive, Holding, General Electric Capital Corporation and
Bernard F. Brennan), grant to the Executive non-qualified stock
options (the "Options"), pursuant to the Plan, to purchase that number of
shares of Class A Common Stock Series 3 of Holding equal to 5% of the issued
and outstanding shares of Stock on a fully diluted basis after giving effect
to the Options granted hereunder, as of the date of this Agreement. For
purposes of this calculation, the number of shares of Stock underlying the
Options shall be adjusted upwards from time to time until the last day of the
fiscal year of the Company ending on or about December 31, 1998, to give
effect to the grant of stock options during such period to management
employees of the Company covering up to 10% of the outstanding shares of
Stock (the "Management Options") on a fully diluted basis after giving effect
to such grants. Such Options shall be granted pursuant to the terms and
conditions of the Plan and such additional terms and conditions as may be
customary or appropriate in the circumstances.
(b) Subject to the terms of this Agreement and the provisions of the
Plan, the Options shall (i) have a per share exercise price equal to the Fair
Market Value Per Share as of December 29, 1996 (i.e. the first day of the
1997 fiscal year) and (ii) become vested on the basis of cumulative
installments of 25% of the underlying shares on each of December 31, 1997
and the last day of each successive fiscal year of the Company until the
Option is 100% vested; PROVIDED HOWEVER, that an Option will not vest unless
the Executive is at the applicable date of determination, and has been at all
times since the date of grant of the Option, employed by the Company. Only
Options which are vested may be exercised.
(c) Once any Option becomes vested, it shall remain exercisable until
(i) three (3) months after the date of cessation of the Executive's employment
with the Company, if such cessation occurs due to the Executive's voluntary
termination as provided under Section 9(e) or termination for Cause as
provided under Section 9(c), or (ii) the third anniversary of the date of
cessation of the Executive's employment with the Company for any other reason.
(d) The Options contemplated hereby (and the underlying shares of
Stock) and the Management Options shall equally dilute all holders of Stock
then outstanding (taking
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into account the impact of then outstanding stock options of Holding).
(e) Subject to the Executive's put rights described in Section 6(f),
Holding shall have the right to repurchase any shares of Stock, (the "Call
Shares") acquired by the Executive pursuant to the exercise by the Executive
of his vested Options in accordance with the terms of this Agreement, at any
time and from time to time during the period beginning on the date of
termination of the Executive's employment hereunder and ending on the date
that is 90 days after the expiration of all of the Executive's rights to
exercise his vested Options. The purchase price (the "Call Purchase Price")
for such Call Shares shall be equal to the Fair Market Value per Share as of
the first day of the fiscal year in which the Closing Date (as defined below)
occurs determined in accordance with Section 3.10 of the Stockholders'
Agreement, multiplied by the number of Call Shares being purchased by
Holding. Holding shall exercise its rights hereunder by delivering a written
notice to the Executive setting forth the number of Call Shares it is
purchasing and the expected date of closing, which shall be no later than 10
days after the date of such written notice (the "Closing Date"). On the
Closing Date, the Executive shall deliver to Holding stock certificates
representing the Call Shares being purchased by Holding free and clear of any
and all liens, claims or encumbrances of any kind in exchange for the Call
Purchase Price by check or wire transfer in immediately available funds.
(f) The Executive shall have the right, at any time and from time to
time during the period beginning on December 31, 1997 and ending on the date
that is 90 days after the expiration all of the Executive's rights to
exercise his vested Options, to request Holding to repurchase any shares of
Stock (the "Put Shares") acquired by the Executive pursuant to the exercise
by the Executive of any vested Option in accordance with the terms of this
Agreement. The purchase price (the "Put Purchase Price") for each such Put
Share shall be equal to the Fair Market Value Per Share as of the first day
of the fiscal year of the Company in which the Executive Notice is given,
determined in accordance with Section 3.10 of the Stockholders Agreement,
multiplied by the number of Put Shares being purchased by Holding. The
Executive may exercise his rights hereunder by delivering a written notice
(the "Executive Notice") to Holding setting forth (i) the number of Put
Shares it is requesting Holding to purchase;
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and (ii) the date ("Put Closing Date") upon which the purchase of such Put
Shares shall occur, which shall not be less than 30 nor more than 90 days
after the Executive Notice. Holding shall, within 10 days of receipt of such
Executive Notice, provide the Executive written notice stating whether it can
repurchase all or part of such Put Shares. If Holding determines that it
cannot repurchase all the Put Shares, it shall so specify in its notice and
set forth the reasons therefor; provided, that the only reason Holding may
decline to purchase such Put Shares will be the Limitations (as defined and
applied in Article IV of the Stockholders Agreement). In such event, however,
Holding will purchase Put Shares to the extent permitted by the Limitations
(as defined and applied in Article IV of the Stockholders Agreement). If
Holding fails to provide such notice, it will be deemed to have given notice
that it will repurchase all of the Put Shares covered by the Executive Notice
subject to the Limitations (as defined and applied in Article IV of the
Stockholders Agreement).
On the Put Closing Date, the Executive shall deliver to Holding stock
certificates representing the Put Shares being purchased by Holding free and
clear of any and all liens, claims or encumbrances of any kind in exchange for
the Put Purchase Price which shall be payable as provided in section 3.9 of
the Stockholders Agreement in 25% cash and 75% promissory notes.
The obligation of Holding provided hereunder to purchase Put Shares shall not
exceed a total of $15,000,000 in the aggregate in any fiscal year of the
Company, beginning with the 1998 fiscal year (and, to the extent purchases
are less than $15,000,000 in any such fiscal year, such unutilized portion
shall be rolled over to the next fiscal year on a cumulative basis), up to an
aggregate amount of $75,000,000 for all such purchases of Put Shares, such
amounts to be determined on a cashless exercise basis (i.e. the spread of the
Fair Market Value Per Share paid over the exercise price for such option
shares).
(g) Promptly after the Effective Date, Holding shall seek all approvals
of its stockholders necessary to effectuate the terms of the Options
reflected in this Agreement, including without limitation any necessary
amendments to the certificate of incorporation of Holding or the Plan, and
any such amendments as are necessary to comply with the provisions of this
Section 6, and shall recommend such approval to its stockholders.
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7. EMPLOYEE BENEFIT PROGRAMS. During his employment with the Company,
the Executive shall be entitled to participate in all employee pension and
welfare benefit plans and programs made available to the Company's
senior-level executives or its employees generally, as such plans or programs
may be in effect from time to time, including, without limitation, pension,
profit sharing, savings and other retirement plans or programs, medical,
dental, hospitalization, short-term and long-term disability and life
insurance plans, accidental death and dismemberment protection, travel
accident insurance, and any other pension or retirement plans or programs and
any other employee welfare benefit plans or programs that may be sponsored by
the Company from time to time, including any plans that supplement the
above-listed types of plans or programs, whether funded on unfunded. The
Executive shall be entitled to post-retirement welfare benefits, if any, as
are made available by the Company to its senior-level executives generally.
8. REIMBURSEMENT OF BUSINESS EXPENSES; PERQUISITES; VACATION.
(a) The Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement and the
Company or Holding, as appropriate, shall promptly reimburse him for all
such expenses, subject to documentation in accordance with its Company's
policy.
(b) During the Employment Period, the Executive shall be entitled to
participate in any of the Company's executive fringe benefits (including any
benefits relating to tax and financial planning services), in accordance with
the terms and conditions of such arrangements as are in effect from time to
time for the Company's senior-level executives generally.
(c) During the Employment Period, the Executive shall be entitled to
four weeks paid vacation per year in accordance with the policies of the
Company as in effect from time to time with respect to senior executives of
the Company.
(d) The Company shall pay to the Executive on or before January 6. 1997
the amount of $2,221,948 as compensation for benefits which have been accrued
with the Executive's present employer and which shall be lost upon
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Executive's acceptance of employment with the Company pursuant to this
Agreement.
(e) On or before January 6, 1997, the Company shall loan to Executive
the principal amount of $2,000,000, which loan ("Loan") shall be due and
payable 5 years from the date said loan is made, with interest accruing
annually at Libor plus 25 basis points (.25%) and payable annually in arrears
on each January 6 during the loan term and shall be evidenced by a promissory
note in substantially the form attached as Exhibit B.
(f) Nothing herein shall be construed to prevent the Company from
amending, altering, eliminating or reducing any plans, benefits or programs
so long as the Executive continues to have the opportunity to receive
compensation and benefits consistent with Sections 8(a) through (c).
9. TERMINATION OF EMPLOYMENT.
(a) TERMINATION DUE TO DEATH. In the event the Executive's employment
is terminated due to his death, then, this Agreement shall terminate without
further obligation of the Company or Holding under this Agreement to the
Executive's legal representatives other than those accrued hereunder or under
the terms of applicable Company plans or programs which take effect at the
date of his death or those obligations provided in this Section 9(a).
Provided the lawful representative of the Executive's estate shall have
executed an employment release as mutually agreed by the parties at the time
of execution (the "Employment Release"), such estate shall be entitled to:
(i) all unpaid Base Salary through the end of the month in which the
death occurs;
(ii) in lieu of any Annual Bonus, an amount equal to 50% of the Base
Salary in effect on the date of death;
(iii) the right to exercise the Options to the extent vested pursuant
to the vesting schedule set forth in Section 6(b), but, as provided in
Section 6(c), only until the third anniversary of the Executive's death;
(iv) the Loan shall be amended and restated to provide a maturity date
of the third anniversary of the date of death;
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(v) any amount earned, accrued or owing to the Executive but not yet
paid under Section 8 herein; and
(vi) other or additional benefits in accordance with the plans and
programs of the Company referred to in Section 7 herein, and reimbursement of
any employee benefit contribution paid by the Executive's family pursuant to
the Consolidated Omnibus Budget Reconciliation Act ("COBRA").
(b) TERMINATION DUE TO DISABILITY. In the event the Executive's
employment is terminated due to his Disability, then, provided the Executive
or his legal representative shall have executed the Employment Release, the
Executive shall be entitled to:
(i) all unpaid Base Salary through the date of termination due to
Disability;
(ii) in lieu of any Annual Bonus, an amount equal to 50% of the
Base Salary in effect at the date of such termination;
(iii) the benefits due him under any then current disability program of
the Company;
(iv) the right to exercise the Options to the extent vested pursuant to
the vesting schedule set forth in Section 6(b), but, as provided in Section
6(c), only until the third anniversary of the date of the Executive's
termination due to his Disability;
(v) the Loan shall be amended and restated to provide a maturity date
of the third anniversary of the date of termination due to Disability;
(vi) any amount earned, accrued or owing to the Executive but not yet
paid under Section 8 herein; and
(vii) other or additional benefits in accordance with the plans and
programs of the Company referred to in Section 7 herein, and reimbursement of
any employee benefit contribution paid by the Executive or Executive's family
pursuant to COBRA.
In no event shall a termination of the Executive's employment for
Disability occur unless the party terminating
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his employment gives written notice to the other party in accordance with
Section 21 herein.
(c) TERMINATION BY THE COMPANY FOR CAUSE.
(i) A termination for Cause shall not take effect unless the
provisions of this clause (i) are complied with. The Executive shall be
given written notice by the Board of the Company of its intention to
terminate him for Cause, such notice (A) to state in detail the particular
act or acts or failure or failures to act that constitute the grounds on
which the proposed termination for Cause is based and (B) to be given within
six (6) months of the Board of the Company learning of such act or acts or
failure or failures to act. The Executive shall have ten (10) days after the
date that such written notice has been given to the Executive in which to
cure such conduct, to the extent such cure is possible. If he fails to cure
such conduct, the Executive shall then be entitled to written notice by the
Board of the Company confirming that, in their judgment, grounds for Cause on
the basis of the original notice exist, at which time his employment with the
Company shall thereupon be terminated for Cause.
(ii) In the event the Company terminates the Executive's employment
for Cause, then, provided the Executive shall have executed the Employment
Release, the Executive shall be entitled to:
(A) all unpaid Base Salary through the date of termination of his
employment for Cause;
(B) the right to exercise the Options to the extent vested
pursuant to the vesting schedule set forth in Section 6(b), but, as provided
in Section 6(c), only until the end of the third month after the date of the
Executive's termination;
(C) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 8 herein; and
(D) other or additional benefits in accordance with the plans or
programs of the Company referred to in Section 7 herein.
(iii) If the Executive is terminated for Cause pursuant to Section 9(c)
the Loan shall become due and
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payable, including any interest accrued, 90 days after such termination.
(iv) If the Executive is terminated for Cause solely as the result of
being convicted of a felony, which conviction is ultimately reversed on
appeal, the Executive shall be deemed to have been terminated without cause
and shall be entitled to the benefits provided under Section 9(d) to the
extent such benefits are greater than those received by the Executive in
accordance with Section 9(c), provided, that the date of termination shall
be deemed to be the date of the original termination.
(d) TERMINATION WITHOUT CAUSE OR CONSTRUCTIVE TERMINATION. In the
event the Executive's employment is terminated without Cause, other than due
to Disability or death, or in the event there is a Constructive Termination,
then, provided the Executive shall have executed the Employment Release, the
Executive shall be entitled to:
(i) all unpaid Base Salary and a prorated Annual Bonus for the fiscal
year of the date of termination through the date of termination based on the
prior year's Annual Bonus;
(ii) the Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in
Base Salary is the basis for a Constructive Termination, then the annualized
rate of the Base Salary in effect immediately prior to such reduction), for a
period of twenty-four (24) months following the date of such termination and,
in lieu of any further Annual bonus, and amount equal to $700,000, in each
case in substantially equal installments payable not less frequently than
semi-monthly in arrears; PROVIDED, that the Company may at any time and from
time to time pay the Executive the present value of such salary continuation
payments in a lump sum (using as the discount rate the applicable Federal
rate for short-term Treasury obligations as published by the Internal Revenue
Service for the month in which such termination occurs); and PROVIDED
FURTHER, that if a Change in Control is the basis for a Constructive
Termination, the salary continuation payments shall be paid in a lump sum
without any discount;
(iii) the right to exercise the Options to the extent vested pursuant to
the vesting schedule set forth in Section 6(b), but as provided in Section
6(c), only
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until the third anniversary of the date of the Executive's termination
without Cause (other than due to Disability or death) or the Executive's
Constructive Termination, as the case may be;
(iv) cancellation without further payment by the Executive of his
obligation to pay the principal and all unpaid accrued interest thereon under
the loan;
(v) any amount earned, accrued or owing to the Executive but not yet
paid under Section 8 herein;
(vi) other or additional benefits in accordance with the plans and
programs of the Company referred to in Section 7 herein; and
(vii) until the earlier of (1) the third anniversary of the date of
termination or (2) the date the Executive accepts other employment:
(A) reimbursement for any employee benefit contribution paid by
the Executive or the Executive's family pursuant to COBRA;
(B) out placement services at the expense of the Company
commensurate with those provided to terminated executives of comparable level
and made available through and at the facilities of a reputable and
experienced vendor; and
(C) use of personal, financial and legal counseling services
through the vendor engaged by the Executive and paid for by the Company, up
to a maximum of $20,000 per year.
If it is determined that any payment or distribution by the Company to
the Executive pursuant to Section 9(d) (determined without regard to any
additional payments required pursuant to this sentence) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), or by similar provisions of state or
local tax laws applicable to the Executive or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax
and similar provisions, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive with respect to each Payment an
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additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(e) VOLUNTARY TERMINATION. In the event of a termination of employment
by the Executive on his own initiative ("Voluntary Termination"), other than
a termination due to death or Disability or a Constructive Termination,
then, provided the Executive shall have executed the Employment Release, the
Executive shall be entitled to:
(i) the Base Salary through the date of termination of his
employment;
(ii) the right to exercise the Options to the extent vested pursuant
to the vesting schedule set forth in Section 6(b), but as provided in Section
6(c), only for a period ending three (3) months after the effective date of
the Executive's voluntary termination;
(iii) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 8 herein; and
(iv) other or additional benefits in accordance with the plans or
programs of the Company referred to in Section 7 herein.
In the event of a Voluntary Termination, the Loan shall become due and
payable, including any interest accrued, 90 days after such termination.
(f) EXPIRATION OF TERM. If the Executive continues to be employed by the
Company until the expiration of the Term of this Agreement, but does not
continue to be employed by the Company after such time, the Executive shall
receive as salary continuation payments (i) the Base Salary, at an annualized
rate in effect on the date of the expiration of the Term of this Agreement,
for a period of twenty-four (24) months following such expiration and (ii) in
lieu of any Annual Bonus an amount equal to $700,000, in each case payable
in substantially equal installments not
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less frequently than semi-monthly in arrears; PROVIDED, that the Company may
at any time and from time to time pay the Executive the present value of such
salary continuation payments in a lump sum (using as the discount rate the
then applicable Federal rate for short-term Treasury obligations as published
by the Internal Revenue Service for the month in which such termination
occurs). In addition, the Loan shall be forgiven without further obligation
on the part of the Executive to pay the principal and all unpaid accrued
interest thereon. The expiration of the Term of this Agreement shall not
constitute termination of the Executive's employment with the Company under
any of Sections 9(a), 9(b), 9(c), 9(d) or 9(e) herein and, other than as set
forth in this Section 9(f), the Executive shall not be entitled to any other
compensation or benefits provided for in this Agreement.
(g) OFFSETS. In the event of any termination of employment under this
Section 9, (i) any remuneration attributable to any subsequent employment with
a Direct Competitor that the Executive may obtain and (ii) any amounts due
the Company under any claim the Company may have against the Executive may,
at the option of the Company, be applied to reduce any amounts due the
Executive under this Agreement.
(h) NATURE OF PAYMENTS. Any amounts due under this Section 9 are in the
nature of severance or salary continuation payments considered to be
reasonable by the Company and are not in the nature of a penalty.
(i) ASSIGNMENT. The severance or salary continuation payments hereunder
may not be transferred, assigned or encumbered in any manner, either
voluntarily or involuntarily, without the prior written consent of the
Company.
(j) EXCLUSIVITY OF SEVERANCE OR SALARY CONTINUATION PAYMENTS. Upon
termination of the Executive's employment, he shall not be entitled to any
severance or salary continuation payments or benefits from the Company or
Holding or any payments by the Company or Holding on account of any claim by
him of wrongful termination, including claims under any federal, state or
local human and civil rights or labor laws, common law, other than the
payments and benefits provided under paragraphs 9(a) through (e) of this
Section 9 depending on the factual circumstances of the termination hereunder.
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<PAGE>
(k) TERMINATION AT WILL. Notwithstanding anything herein to the
contrary, the Executive's employment with the Company is terminable at will
with or without Cause; PROVIDED that the Executive's entitlement to payments
and benefits following such termination will depend on the type of
termination and therefore be governed by the other provisions of this
Section 9.
(l) BOARD RESIGNATION. Upon the Executive's cessation of employment
with the Company for any reason whatsoever, the Executive shall thereupon be
deemed to have resigned from the Board of Holding, the Company and of every
Subsidiary on which he shall then be serving, and of any other company in
which the Executive is then serving as a director at the request of the
Company or Holding, in each case effective as of the date of cessation.
10. NON-COMPETITION, NON-SOLICITATION AND PROTECTION OF TRADE SECRETS.
(a) By and in consideration of the substantial compensation and
benefits to be provided by the Company and Holding hereunder, and in further
consideration of the Executive's exposure to the proprietary information of
the Company, Holding and/or any Affiliate of either of them, the Executive
agrees that he shall not, during the Employment Period and for a period equal
to the greater of (i) the period during which he is receiving salary
continuation payments (or in respect of which a lump-sum salary continuation
payment is made) pursuant to this Agreement or (ii) one (1) year after the
Employment Period, directly or indirectly own, manage, operate, join,
control, be employed by, or participate in the ownership, management,
operation or control of or be connected in any manner, including but not
limited to holding the positions of officer, director, shareholder,
consultant, independent contractor, employee, partner, or investor, with any
Direct Competitor (as defined below); PROVIDED, HOWEVER, that the Executive
may invest in stocks, bonds, or other securities of any corporation or other
entity (but without participating in the business thereof) if such stocks,
bonds, or other securities are listed for trading on a national securities
exchange or NASDAQ and the Executive's investment does not exceed 1% of the
issued and outstanding shares of capital stock, or in the case of bonds or
other securities, 1% of the aggregate principal amount thereof issued and
outstanding. "Direct Competitor" shall mean any of Kmart Corporation,
Wal-Mart
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Stores, Inc., Sears Roebuck and Co., Dayton Hudson Corp., or Current Employer
or any Affiliate of any of them; PROVIDED, that Current Employer and
Affiliates thereof shall only be deemed to be Direct Competitors in the event
of a Voluntary Termination.
(b) The Executive recognizes that the services to be performed by him
hereunder are special, unique and extraordinary and that, by reason of his
employment hereunder, he may acquire confidential information and trade
secrets concerning the operations of the Company, Holding and/or any
Affiliate of either of them. Accordingly, the Executive agrees that he will
not, except in the good faith performance of his duties on behalf of the
Company or Holding, and not inconsistent with his fiduciary duties owed to
the Company or Holding, disclose on or after the date hereof any secret or
confidential information that he has learned by reason of his association
with the Company, Holding and any Subsidiary, or use any such information to
the detriment of the Company, Holding and any Subsidiary, so long as such
confidential information or trade secrets have not become generally known
through no fault of the Executive, provided that, if required to be disclosed
pursuant to a court order or legal process, the Executive shall give the
Company timely notice of such order or process and cooperate with the Company
to avoid or limit such disclosures.
(c) The Executive further agrees that he will not, at any time during
the Employment Period, and for a period of two years thereafter, directly or
indirectly solicit or induce any of the employees of the Company, Holding or
any Subsidiary to terminate their employment with the Company, Holding or any
Subsidiary.
(d) The Executive agrees that any material breach of the terms of this
Section would result in irreparable injury and damage to the Company, Holding
or any Subsidiary for which the Company, Holding or any Subsidiary would have
no adequate remedy at law; the Executive therefore also agrees that in the
event of said breach or any reasonable threat of material breach, the
Company, Holding or any Subsidiary shall be entitled to an immediate
injunction and restraining order to prevent such breach and/or threatened
breach and/or continued breach by the Executive and/or any and all persons
and/or entities acting for and/or with the Executive. The terms of this
paragraph shall not prevent the Company, Holding or any Subsidiary from
pursuing any
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other available remedies for any breach or threatened breach hereof, including
but not limited to the recovery of damages. The Executive, Holding and the
Company agree that the provisions of this Section are reasonable. Should a
court or arbitrator determine, however, that any provision of this Section is
unreasonable, either in period of time, geographical area, or otherwise, the
parties hereto agree that this Section shall be interpreted and enforced to
the maximum extent which such court or arbitrator deems reasonable.
(e) The provisions of this Section 10 shall survive any termination of
this Agreement, and the extension of any claim or cause of action by the
Executive against the Company, Holding or any Subsidiary, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company, Holding or any Subsidiary of the covenants and
agreements of this Section.
11. REPRESENTATIONS OF THE EXECUTIVE. The Executive represents and
warrants that he is free to enter into this Agreement and to perform the
duties required hereunder, and that there is no agreement or understanding,
written or oral, between the Executive and Current Employer pertaining to
employment non-competition, disclosure of confidential information and/or
trade secrets or other restrictions preventing the performance of his duties
hereunder.
12. EFFECT OF AGREEMENT ON OTHER BENEFITS. Except as specifically
provided in this Agreement, the existence of this Agreement shall not prohibit
or restrict the Executive's entitlement to full participation in the employee
benefit and other plans or programs in which senior-level executives of the
Company are eligible to participate generally (PROVIDED, however, that
notwithstanding anything to the contrary in this Agreement, the Executive may
not participate in any such plans or programs pertaining to severance or
salary continuation payments, or stock options, stock awards or other
equity-based forms of compensation).
13. ASSIGNABILITY; BLINDING NATURE. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors, heirs (in the case of the Executive) and assigns. No right or
obligation of the Company or Holding, as the case may be, under this Agreement
may be assigned or transferred by the
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Company or Holding, as the case may be, except that such right or obligation
may be assigned or transferred pursuant to a merger or consolidation in which
the Company or Holding, as the case may be, is not the continuing entity, or
pursuant to the sale or liquidation of all or substantially all of the assets
or business of the Company or Holding, as the case may be, provided that the
assignee or transferee is the successor to all or substantially all of the
assets or business of the Company or Holding, as the case may be, and such
assignee or transferee assumes the liabilities, obligations and duties of the
Company or Holding, as the case may be, as contained in this Agreement, either
contractually or as a matter of law. Each of the Company and Holding further
agrees that, in the event of a sale of assets or liquidation as described in
the preceding sentence, it shall exercise reasonable efforts to cause such
assignee or transferee to expressly assume the liabilities, obligations and
duties of the Company and Holding hereunder. No right or obligation of the
Executive under this Agreement may be assigned or transferred by the Executive
other than his rights to compensation and benefits, which may be transferred
only by will or operation of the law, except as provided herein. Nothing in
this Section 14 shall be deemed to affect the Executive's rights under this
Agreement following a Change in Control.
14. REPRESENTATIONS OF THE COMPANY. Each of Holding and the Company
represents and warrants that it is fully authorized and empowered by action of
its Board or a duly authorized committee thereof to enter into this Agreement,
that the Agreement is the valid and binding obligation of the Company
enforceable against the Company in accordance with the terms herein, subject
to applicable bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium and other laws of general application affecting creditors' rights
generally and by equitable principles and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.
15. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties hereto concerning the subject matter hereof
and supersedes all prior agreements, understandings, discussions, negotiations
and undertakings, whether written or oral, between the parties with respect
thereto.
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<PAGE>
16. AMENDMENT OR WAIVER. No provision in this Agreement may be amended
unless such amendment is agreed to in writing and signed by the Executive and
an authorized officer of each of the Company and Holding. No waiver by either
party of any breach by the other party of any condition or provision contained
in this Agreement to be performed by such other party shall be deemed a waiver
of a similar or dissimilar condition or provision at the same or any prior or
subsequent time. Any waiver must be in writing and signed by the Executive or
an authorized officer of the Company or Holding, as the case may be.
17. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
in whole or in part, in any jurisdiction the remaining provisions of this
Agreement shall be unaffected thereby and shall remain in full force and
effect to the fullest extent permitted by law in such jurisdiction, and such
invalidity or unenforceability shall have no effect in any other jurisdiction.
18. BENEFICIARIES/REFERENCES. The Executive shall be entitled, to the
extent permitted under applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder
following the Executive's death by giving the Company and Holding written
notice thereof. In the event of the Executive's death or a judicial
determination of his incompetence, reference in this Agreement to the
Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
19. GOVERNING LAW/JURISDICTION. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of Illinois
without reference to principles of conflict of laws.
20. CONFIDENTIALITY; PRESS RELEASE. The Executive shall not disclose
the contents of this Agreement to Current Employer or to any other potential
employer except as may be required by enforceable legal process or to the
extent there is public disclosure made by the Company or Holding of such
matters. The Executive shall use his best efforts to arrange an opportunity
for the Company or its designee to coordinate any press release with his
present employer.
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21. NOTICES. Any notice given to a party shall be in writing and shall
be deemed to have been given when delivered personally or, if sent by
certified or registered mail, postage prepaid, return receipt requested, five
days after being sent duly addressed to the party concerned at the address
indicated below or to such changed address as such party may subsequently give
such notice.
If to the Company
or Holding: Montgomery Ward & Co., Incorporated
Montgomery Ward Plaza
Chicago, IL 60671
Attention: General Counsel
If to the Executive: Roger V. Goddu
930 Olentangy Road
Franklin Lakes, New Jersey 07417
With a copy to :
Buchalter, Nemer, Fields & Younger
601 S. Figueroa Street
Suite 2400
Los Angeles, CA 90017
Attention: Stuart D. Buchalter, Esq.
22. WITHHOLDING. All amounts required to be paid by the Company herein
shall be subject to reduction in order to comply with applicable Federal,
state and local tax withholding requirements.
23. HEADINGS. The headings of the sections contained in this Agreement
are for convenience of reference only and shall not be deemed to control or
affect the meaning or construction of any provision of this Agreement.
24. COUNTERPARTS. THis Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the undersigned have executed
this Agreement on the date first written above.
MONTGOMERY WARD & CO., INCORPORATED
_________________ By:__________________________
Witness Name:
Title:
MONTGOMERY WARD HOLDING CORP.
_________________ By:__________________________
Witness Name:
Title:
_________________ __________________________
Witness Roger V. Goddu
<PAGE>
RELATIONSHIP AGREEMENT
This Relationship Agreement is being entered into as of the 10th day of
December by and among Bernard F. Brennan ("BFB"), Montgomery Ward Holding
Corp. ("HOLDING"), Montgomery Ward & Co., Incorporated (the "RETAILER") and
General Electric Capital Corporation ("GECC"). It is intended to implement
the understandings reached among the parties with respect to BFB's ongoing
relationship with Holding and the Retailer and to agree upon the further
actions that must be taken with respect to such understandings.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties agree as follows:
1. NEW CEO. A new Chairman and Chief Executive Officer (the "NEW CEO")
for the Retailer will be recruited and will report to the board of the
Retailer. The New CEO will have senior direct responsibility for the
Retailer and such additional duties as are assigned from time to time
by the board of the Retailer.
2. NEW CEO SELECTION PROCESS. BFB will be involved in the selection
process for the New CEO as a member of a board subcommittee consisting of
Denis J. Nayden, Silas Cathcart and BFB, but such subcommittee shall have
the power to act by the vote of a majority of its members.
3. PRO RATA DILUTION. Shares of Holding stock or options for such shares
will be issued or granted in order to attract and incentivize the New CEO
and the management team for the Retailer. Such stock and options will
dilute equally all holders of all stock of Holding then outstanding on a
fully diluted basis (taking into account all shares issuable upon
outstanding options) up to maximum dilution of 15% in the aggregate.
4. BFB TERMINATION OF EMPLOYMENT. Pursuant to the understandings reached
among the parties, upon the date of the appointment of an operating
committee (members of which need not be directors of the Retailer) by the
board of directors of the Retailer to report directly to such board of
directors with respect to the direction of the day-to-day affairs,
activities and operations of the Retailer ("TERMINATION DATE"), BFB's
employment with Holding and each of its subsidiaries will be deemed
terminated by Holding and each of such subsidiaries without cause for all
purposes, including, without limitation, for purposes of Article III of
the Stockholders' Agreement dated as of June 17, 1988 and amended and
restated as of December 29, 1994 (the "STOCKHOLDERS AGREEMENT"). Effective
on the Termination Date, BFB shall cease to be a director of each
subsidiary of the Retailer that is not a Significant Ward Group Member (as
defined in the Amendment Agreement referred to in paragraph 14 below (the
"AMENDMENT AGREEMENT"), it being understood that he shall continue as a
director of Holding, the Retailer and each Significant Ward Group Member
to the extent set forth in the Stockholders Agreement as amended by the
Amendment Agreement but shall not serve as chairman of the board of any
such company other than Holding to
<PAGE>
the extent set forth in paragraph 9 below. The parties hereto agree to
use their best efforts to cause the Termination Date to occur on the
date of execution of this Agreement or as soon thereafter as is
practicable, but in any event prior to the end of the seven day period
referred to in paragraph 24 below. BFB acknowledges that he has had a
draft of the Agreement and notice of his termination of employment and
the terms thereof for more than 21 days prior to the date hereof.
5. PAYMENT OF LOAN AMOUNT. Holding shall loan $12.5 million in cash (the
"LOAN AMOUNT") to BFB on or after the Termination Date on the last to
occur of (i) the execution by BFB of the Amendment Agreement, (ii) the
expiration of the seven day period referred to in paragraph 24 below
without BFB having revoked this Agreement and (iii) the Termination
Date. The Loan Amount shall be paid by wire transfer of immediately
available funds to an account designated by BFB. No interest shall
accrue on or be payable with respect to the Loan Amount. Holding's sole
recourse for the repayment of the Loan Amount shall be the Holding stock
owned by BFB and his Permitted Transferees on the date hereof and any
Holding stock issued with respect thereto in any stock split, stock
dividend or other recapitalization (the "BFB HOLDING STOCK") and the
Proceeds Amount and neither BFB nor any of his Permitted Transferees
shall pledge any shares of the BFB Holding Stock other than one or more
pledges of up to 50% of the BFB Holding Stock solely for the purpose of
obtaining one or more loans to be used solely for the purpose of
financing one or more charitable contributions ("CHARITY LOANS"), so
long as the aggregate amount of the Charity Loans never exceeds at any
one time $10 million. The lesser of the Loan Amount or any Proceeds
Amount shall be repaid to Holding without interest within five business
days after BFB or any of his Permitted Transferees sells any Holdings
stock or receives any proceeds with respect to such stock other than as
a result of a Charity Loan; provided, however, that if such sale is to
Holding pursuant to a sale of BFB Holding Stock under Article III of the
Stockholders Agreement or any successor provision, (a) BFB or his
Permitted Transferees shall be deemed to have tendered to Holding a
portion of any promissory notes issued to them as payment for the Put
price equal to the lesser of the face amount of such notes or the then
outstanding balance of the Loan Amount, and such amount shall be
applied, to such extent, to reduce the Loan Amount and (b) BFB and his
Permitted Transferees shall be entitled to keep 25% of the total amount
of any Put payment (i.e., the cash portion of any Put payment) and shall
not be obligated to repay the Loan Amount with such amount; provided,
further, that in no event shall BFB be required to repay an amount in
excess of the Proceeds Amount; and provided, further, that the Loan
Amount, if not paid sooner, shall be due and payable on the last to
occur of the deaths of each of BFB, his wife and his children.
The term "Proceeds Amount" shall mean the amount paid in cash (whether
upon sale of such stock or upon payments under any notes issued in
respect of such stock) for BFB Holding Stock until the Loan Amount is
reduced to zero, or in the event that the consideration for the BFB
Holding Stock is stock or other securities, the Fair Market Value of any
such stock or securities received in the disposition of BFB Holding
Stock;
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provided, however, that if BFB Holding Stock is sold for stock or other
securities in a transaction approved by the board of directors of
Holding or in a transaction in which more than 50% of all of the common
capital stock of Holding is sold in exchange for stock or other
securities (a "SALE OF THE COMPANY"), then there shall be no Proceeds
Amount as a result thereof and the stock or other securities received by
BFB or his Permitted Transferees in the Sale of the Company shall be
deemed to be BFB Holding Stock such that upon its sale it will give rise
to a Proceeds Amount.
If BFB desires to make a gift of any shares of BFB Holding Stock to a
charity or educational institution, Holding and GECC agree to discuss
and cooperate in good faith to structure such a gift so long as such a
gift can be done on terms that are acceptable to each of BFB, Holding
and GECC.
The term "PERMITTED TRANSFEREES" shall have the meaning assigned in the
Stockholders Agreement.
The term "FAIR MARKET VALUE" shall mean as to any security the average
of the closing prices of such security's sales on all domestic
securities exchanges on which such security may at the time be listed,
or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges
at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in
the Nasdaq System as of 4:00 P.M., New York time, on such day, or, if on
any day such security is not quoted in the Nasdaq System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case
averaged over a period of 21 days consisting of the day as of which
"Fair Market Value" is being determined and the 20 consecutive business
days prior to such day; provided that if such security is listed on any
domestic securities exchange the term "business days" as used in this
sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities
exchange or quoted in the Nasdaq System or the domestic over-the-counter
market, the "Fair Market Value" shall be the fair value thereof
determined jointly by Holding and BFB; provided that if they fail to
reach an agreement within 30 days, such fair value shall be determined
by an appraiser jointly selected by Holding and BFB. The determination
of such appraiser shall be final and binding on the parties and the fees
and expenses of such appraiser shall be paid by Holding.
6. CONSULTING ARRANGEMENT. From and after the Termination Date through the
earlier of the fifth anniversary of the Termination Date or the date
(the "STOCK LIQUIDATION DATE") on which BFB and his Permitted
Transferees no longer own any BFB Holding Stock (the "CONSULTING
PERIOD"), BFB shall be available from time to time at mutually
acceptable times and places (and for up to 20 hours per month) to advise
Holding and the Retailer with respect to strategic issues, planning,
acquisitions, merchandising
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strategies and operational issues. As payment for BFB's commitment to
provide such services and devote his time to enhance the value of
Holding and the Retailer, in lieu of any severance payment that might
otherwise be payable to BFB, from and after the Termination Date, the
Retailer and Holding shall be jointly and severally obligated to make an
annual cash consulting payment to BFB of $1.5 million payable in
substantially equal installments in arrears not less frequently
than semi-monthly until the end of the Consulting Period. The payments
shall be made regardless of whether BFB dies or becomes disabled and
regardless of the extent to which Holding and the Retailer request BFB
to perform the services outlined in this paragraph 6.
7. CONSEQUENCES OF CERTAIN COMPETITIVE ACTIVITIES. The parties agree that
nothing in this Agreement or the agreements and instruments contemplated
hereby or any other agreements, arrangements or relationships between or
among BFB and the other parties hereto shall limit in any way the right
of BFB to make any investment or participate in any business (as an
employee, director, consultant, advisor or otherwise) of any kind
whatsoever with the exception that if BFB becomes an employee or director
of, or paid consultant or advisor to, Sears, Roebuck & Co., J.C. Penny
Company, Inc., Wal-Mart Stores, Inc., Kmart Corporation or Dayton Hudson
Corporation, he shall notify Holding of his taking such position and,
regardless of whether he so notifies Holding, shall cease to be the
chairman of the board of Holding and shall forfeit his right to any
payment under paragraph 6 hereof which would accrue after the date of
such employment and the right to any benefits under paragraph 10 hereof
which would accrue after the date of such employment.
8. MAINTENANCE OF LIFE INSURANCE. Holding and the Retailer agree that
until the fifth anniversary of the date hereof, they shall pay all
premiums payable with respect to, and take all actions necessary to keep
in full force and effect, at their respective present face values, those
certain life insurance policies which are the subject of, and are
identified in, that certain Split Dollar Agreement dated November 28,
1995 between the Brennan 1995 Irrevocable Trust and Holding and keep in
full force and effect and fully perform all of Holding's obligations
under such Split Dollar Agreement.
9. CHAIRMAN OF BOARD. From and after the Termination Date through the
earlier of the Stock Liquidation Date, the fifth anniversary of the
Termination Date or the date BFB otherwise ceases to hold such office
(including pursuant to paragraph 7 above or as a result of his voluntary
resignation from such office), BFB shall serve as the non-employee
Chairman of the board of Holding. Holding and the Retailer shall
promptly reimburse BFB for any expenses reasonably incurred by him in
connection with his service in such capacity.
10. CONTINUING BENEFITS. From and after the Termination Date through the
fifth anniversary of the Termination Date, Holding and the Retailer
shall provide BFB the following:
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a. Appropriate office space, parking and furnishings for BFB in the
United States city of BFB's choice (but outside of the Retailer's
corporate complex);
b. Reasonable operating expenses for such offices for utilities,
telephone, supplies, postage and other customary expenses (all of
which shall be paid directly by the Retailer);
c. Continued use of corporate jet aircraft, when available in
accordance with the scheduling practices in effect as of the date
hereof for business use and for personal use (subject to
reimbursement by BFB for such personal use in accordance with the
Retailer's customary reimbursement policies), it being understood
that (i) business use shall mean any travel by BFB at the request of
the board of directors of Holding or the Retailer or by the CEO of
the Retailer and (ii) BFB's personal use of such aircraft shall not
exceed 30 flight hours during any year, treating each anniversary of
the Termination Date as the termination of a year for such purpose
unless such aircraft is made available to him by Holding for more
than 30 flight hours and he agrees to pay the actual out-of-pocket
per hour charge to Holding or the Retailer for all such hours over
30;
d. Continuation of all executive benefits and perquisites, including
health care, pension and dental coverage as such may apply from time
to time to senior executives of the Retailer; and
e. A full time administrative assistant of BFB's choice (such assistant
to be employed by the Retailer and to receive compensation and
benefits consistent with competitive executive assistant pay levels).
11. CONTINUATION OF LIABILITY INSURANCE AND INDEMNIFICATION. For a period
of six years after the last day on which BFB or any of his board
designees serves as a director of Holding, the Retailer or any of their
subsidiaries, Holding and the Retailer shall (and shall cause each such
subsidiary to) retain in full force and effect to the extent permitted
by applicable law all indemnification and limitation of liability
provisions (and all related liability insurance to the extent available
at commercially reasonable rates) currently in effect with respect to
officers and directors of Holding, the Retailer or such subsidiaries.
The parties acknowledge that BFB and his board designees shall have
these indemnification rights as a matter of contract.
12. TAX GROSS UP. In the event that any portion of any payment made to BFB
under paragraphs 5 or 6 above is treated as an excess parachute payment
under Section 4999 of the Internal Revenue Code or any state or local
equivalent other than as a result of any change of control transaction
caused by BFB or his Permitted Transferees, the Retailer will transfer
an additional payment to BFB sufficient to place BFB in the same after
tax economic position that he would have been in if Section
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4999 had not applied to any such payment and no gross up payment had been
made hereunder. GECC and BFB hereby, in their capacities as stockholders
of Holding, approve the payments to be made under paragraphs 5 and 6.
In addition, Holding, in its capacity as the sole stockholder of the
Retailer, hereby approved such payments.
13. LEGAL FEES AND EXPENSES. In recognition of the fact that BFB had to
restain special counsel in connection with the negotiation and execution
of this Agreement and the Amendment Agreement, that such negotiation
took place in the context of a dispute regarding certain prior actions
and agreements for which BFB had to prepare to defend his position and
that BFB's counsel has taken responsibility for drafting initial drafts
of, and revising all subsequent drafts of, this Agreement and the Amendment
Agreement, Holding and the Retailer shall pay all of the fees and
expenses of counsel incurred by BFB in connection with the negotiation
and execution of the relationship set forth herein up to an aggregate
amount of $100,000.
14. AMENDMENTS TO STOCKHOLDERS AGREEMENT, CHARTER AND BYLAWS. The
Stockholders Agreement shall be amended pursuant to the Amendment Agreement
being executed on the date hereof and the parties shall take whatever
action is necessary to amend the charter and bylaws of Holding and the
Retailer to be consistent with the Stockholders Agreement as so amended.
15. NO SET-OFF RIGHTS. The obligations of Holdings, the Retailer and GECC
hereunder, including, without limitation, payment obligations, shall not
be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which any or all may have against BFB or others
other than the right of Holding and the Retailer to set off, on a dollar-
for-dollar basis, payments due hereunder to BFB or his Permitted
Transferees in response to a failure by BFB to make any payments he is
obligated to make to Holding or the Retailer hereunder. In no event shall
BFB be obligated to seek employment or take any other action by way of
mitigation of the amounts payable to BFB under this Agreement and such
amounts shall not be reduced whether or not BFB obtains any such
employment.
16. DISPARAGING REMARKS. BFB agrees, subject to any obligations under
applicable law, that he will not make or cause to be made any disparaging
or inimical statements intended by him for publication in the media about
GECC, Holding or the Retailer, of any of their respective affiliates,
agents, officers, directors or employees. GECC, Holding and the Retailer
agree, subject to any obligations under applicable law, not to, and to
cause their respective affiliates, agents, officers, directors and
employees not to make or cause to be made any disparaging or inimical
statements intended by any of them for publication in the media about BFB.
17. WAIVER BY GECC, HOLDING AND THE RETAILER. Effective on the date hereof
GECC, Holding and the Retailer, on behalf of themselves and each of their
affiliates and their respective successors (collectively, the "RELEASING
COMPANIES"), hereby waive and
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<PAGE>
release any and all claims any of them has or may have (in any capacity,
including as a stockholder) against BFB and his estate for obligations or
liabilities (whether known or unknown, accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due and regardless
of when asserted) arising out of or relating to BFB's status as an
employee, director or stockholder of Holding, the Retailer or any of
their affiliates or the termination of his employment or any transaction
entered into or occurring at or prior to such date, or out of any action
or inaction or any state of facts existing or event occurring at or
prior to such date, of any nature whatsoever, other than any claims
against BFB for expenses incurred by Holding or any of its subsidiaries
on BFB's behalf for which he has customarily reimbursed Holding or its
subsidiaries in the ordinary course.
18. WAIVER BY BFB. Effective on the date hereof BFB hereby waives and
releases any and all claims he has or may have (in any capacity including
as a stockholder) against any of the Releasing Companies (including their
respective officers, directors and employees to the extent acting in such
capacity) for obligations or liabilities (whether known or unknown,
accrued, absolute, contingent, unliquidated or otherwise, whether due or
to become due and regardless of when asserted) arising out of or relating
to BFB's status as an employee, director or stockholder of Holding, the
Retailer or any of their affilates or the termination of his employment or
any transaction entered into or occurring at or prior to such date, or out
of any action or inaction or any state of facts existing or event occurring
at or prior to such date, of any nature whatsoever (including any such
obligations or liabilities arising under Title VII or the Civil Rights Act
of 1964. as amended, the Americans With Disabilities Act, the Age
Discrimination in Employment Act of 1974, as amended by various
congressional enactments, including the Older Workers Benefit Protection
Act of 1990, any state or local laws or regulations similar to any of the
foregoing and any common law claims or causes of action), other than any
claims against any of the Releasing Companies (i) for indemnification or
insurance coverage under the charter or bylaws of, or any contract with,
Holding, the Retailer or any of their affilates or successors, (ii) against
Holding, the Retailer or any of their affilates or successors arising out
of any rights (that are now vested or will become vested in the future
notwithstanding the termination of BFB's employment) under written employee
benefit, retirement or compensation plans or arrangements (including
accrued salary and vacation), whether applying to BFB or to employees of
the Retailer generally, other than any claims for severance payments
which are hereby specifically waived and released by BFB and (iii) any
claims by BFB for reimbursement of expenses incurred by him for which he
has customarily been reimbursed by Holding or its subsidiaries in the
ordinary course.
19. NO STRICT CONSTRUCTION. Each of the parties hereto have been represented
by counsel and has participated in the drafting of this Agreement and the
agreements contemplated hereby and the language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule
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of strict construction or rule of presumption against the drafting party
will be applied against any person.
20. NO CIRCUMVENTION. Where any provision in this Agreement refers to action
to be taken by any person, or which such person is prohibited from
taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such person (including indirectly
through any subsidiary or through any transaction or series of
transactions, or through any scheme, artifice, device or contrivance,
no matter how structured or labeled). The parties agree that the waivers
and releases in paragraphs 17 and 18 above shall not in any way limit
any party's ability to enforce the terms and provisions of this
Agreement, the Stockholders Agreement or the Amendment Agreement.
21. COUNTERPARTS; DELIVERY BY FACSIMILE. This Agreement may be executed in
two or more counterparts, any one of which need not contain the
signatures of more than one party, but all of such counterparts taken
together shall constitute one and the same instrument. This Agreement
and any amendments hereto, to the extent delivered by means of a
facsimile machine, shall be treated in all manner and respects as an
original agreement and shall be considered to have the same binding
legal effect as if it were the original signed version thereof delivered
in person. At the request any party hereto, each other party hereto
shall re-execute original forms thereof and deliver them to all other
parties. No party hereto shall raise the use of a facsimile machine
or the fact that any signature was transmitted or communicated through
the use of a facsimile machine as a defense to the formation of a
contract and each such party forever waives any such defense.
22. GOVERNING LAW. The internal law, not the law of conflicts, of the State
of Illinois will govern all questions concerning the construction,
validity and interpretation of this Agreement and the performance of the
obligations imposed by this Agreement.
23. SUCCESSORS. This Agreement shall be binding on Holding, the Retailer and
GECC and their respective successors in interest and on BFB and, to the
extent set forth herein, on his Permitted Transferees. Each of Holdings
and the Retailer will require any proposed successor (whether by
purchase, merger, consolidation, spin off or otherwise) to all or
substantially all of its business and/or assets to, as a condition to
such succession, assume expressly and agree to perform this Agreement
(including, without limitation, the obligations under this paragraph) in
the same manner and to the same extent as Holdings and the Retailer
would be required to perform this Agreement if no such succession had
taken place.
24. RIGHT OF BFB TO REVOKE. BFB may revoke this Agreement in writing within
seven days of signing it. If BFB revokes this Agreement, he shall give
written notice to GECC and to Holding and all of the provision hereof
shall be void and unenforceable.
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<PAGE>
25. NOTICES. All notices, requests, demands, claims, and other communications
hereunder shall be in writing. Any notice, request, demand, claim or
other communication hereunder shall be deemed duly given (i) when
delivered, if personally, delivered, (ii) when receipt is electronically
confirmed, if faxed or (iii) one day after deposit with a reputable
overnight courier, in each case addressed to the intended recipient as
set forth below:
If to Holding or the Retailer:
------------------------------
Montgomery Ward Holding Corp.
Montgomery Ward & Co., Incorporated
Montgomery Ward Plaza
Chicago, IL 60671
Attention: General Counsel
Telecopy #: (312) 467-3545
with a copy (which shall not constitute notice)
-----------------------------------------------
to:
---
Altheimer & Gray
10 South Wacker Drive
Chicago, IL 60606
Attention: Myron Lieberman
Peter Lieberman
Telecopy #:(312) 715-4150
If to GECC:
-----------
General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06927
Attention: Edward Stewart
Brian McAnaney
Telecopy #: (203) 357-6487
with a copy (which shall not constitute notice) to:
---------------------------------------------------
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Ted S. Waksman
Telecopy #: (212) 310-8007
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<PAGE>
If to BFB:
----------
Bernard F. Brennan
568 West Hawthorne Place
Chicago, IL 60657
Telecopy #: (312) 477-7919
with a copy (which shall not constitute notice) to:
---------------------------------------------------
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Frank Cicero, Jr., P.C.
Mark B. Tresnowski
Telecopy #: (312) 861-2200
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
Montgomery Ward Holding Corp.
By:
------------------------------
Its:
------------------------------
Montgomery Ward & Co., Incorporated
By:
------------------------------
Its:
------------------------------
General Electric Capital Corporation
By:
------------------------------
Its:
------------------------------
-----------------------------------
Bernard F. Brennan
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into on the __
day of January, 1997 (the "Effective Date"), by and among Montgomery Ward & Co.,
Incorporated, an Illinois corporation (together with its successors and assigns
permitted under this Agreement, the "Company"), Montgomery Ward Holding Corp., a
Delaware corporation ("Holding") and Burnett Donoho (the "Executive").
W I T N E S S E T H
WHEREAS, the Company desires to employ the Executive and the Executive
desires to accept such employment, subject to the terms and provisions of this
Agreement;
NOW THEREFORE, in consideration of the mutual covenants and premises
contained herein, the parties hereto agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) "Affiliate" of a person or other entity shall mean a person or other
entity that directly or indirectly controls, is controlled by, or us under
common control with, the person or other entity specified.
(b) "Base Salary" shall mean the salary provided for in Section 4 herein.
(c) "Board" shall mean the Board of Directors of any one or more of the
Company, Holding and each Subsidiary, as the context may provide.
(d) "Cause" shall mean any one or more of the following:
(i) the Executive is convicted of a felony involving moral turpitude
or any other felony if in the case of such other felony the Executive is unable
to show that he (A) acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company, Holding or any
Subsidiary or (B) had no reason to believe his conduct was unlawful;
(ii) a majority of the Company's Board, consisting of at least a 2/3
majority of the non-management directors, determines that:
(A) the Executive has engaged in illegal conduct which is
materially injurious to the Company;
(B) the Executive has engaged in conduct that constitutes
willful or gross misconduct in carrying out his duties under this Agreement; or
<PAGE>
(C) the Executive has neglected or refused, after written notice
from the Board of the Company, to attend to the material duties assigned to him
by such Board, provided that such duties are consistent with his position,
duties and responsibilities as set forth in Section 3 herein.
(e) A "Change in Control" shall mean (i) any sale, lease, license,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the business and/or assets of the
Company or Holding or (ii) the possession by any person or entity (other than
Holding, General Electric Capital Corporation or an Affiliate of either of them)
of beneficial ownership (as such term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of either (A) a number of
securities carrying a greater voting power than General Electric Capital
Corporation and its Affiliates taken together or (B) over 50% of the then
outstanding voting securities of the Company; PROVIDED, that in the case of
either (A) or (B), no Change in Control shall be deemed to occur unless and
until, after the occurrence of such event, a majority of the members of the
Board of the Company or Holding are removed or replaced within six months
following any event described in either (A) or (B) above.
(f) "Constructive Termination" shall mean a termination of the Executive's
employment at his initiative within six months following the occurrence (except
in consequence of a prior termination), without the Executive's prior written
consent, of one or more of the following events, in each such case after the
Executive shall have given the Company (A) prior written notice reasonable in
the circumstances and (B) an opportunity to cure reasonable in the
circumstances:
(i) a reduction in the Executive's then current Base Salary or
Annual Bonus opportunity (as described in Section 5 herein) or the termination
or material reduction of any material employee benefit or perquisite enjoyed by
him (other than as part of an across-the-board reduction of such benefit or
perquisite applicable to all executive officers of the Company);
(ii) reduction by overt action of the Board in the scope of the
responsibilities and authority assigned to the position held by the Executive or
a removal of the Executive from any of the positions (including any
directorship) described in Section 3(a) herein (other than in connection with or
as a result of the sale, transfer or dissolution of any Subsidiary) or the
creation of a position (other than member of a Board) in the Company of equal or
superior rank to the highest position then held by the Executive in the Company;
(iii) the failure of the Company or Holding, as appropriate, to obtain
the assumption in writing of its obligation to perform this Agreement by any
successor to the Company, Holding or their business within 15 days after the
occurrence of the transaction which results in such person or entity becoming a
successor to the Company, Holding or their business; or
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<PAGE>
(iv) a Change of Control.
(g) "Disability" shall mean the Executive's inability to substantially
perform his duties and responsibilities under this Agreement by reason of any
physical or mental incapacity, as determined by a majority of the Company's
Board, consisting of at least a 2/3 majority of the non-management directors,
for 90 days in any period of 180 consecutive days.
(h) "ERISA" shall mean the Employee Retirement Income Security Act of
1974.
(i) "Fair Market Value Per Share" shall mean the fair market value of a
share of Class A Common Stock of Holding as determined in accordance with
Article III of the Stockholders' Agreement.
(j) "Plan" shall mean the Montgomery Ward & Co., Incorporated Stock
Ownership Plan.
(k) "Start Date" shall mean .
(l) "Stock" shall mean all capital stock of Holding.
(m) "Stockholders' Agreement" shall mean that certain Stockholders'
Agreement, dated as of June 18, 1988, as amended through December 10, 1996.
(n) "Subsidiary" shall mean any corporation in which the Company or
Holding owns, directly or indirectly, more than 50% of the outstanding voting
securities of such corporation entitled to vote in the election of directors.
2. AGREEMENT TERM AND EMPLOYMENT PERIOD. The Company hereby employs the
Executive, and the Executive hereby accepts such employment, pursuant to the
terms and conditions set forth in this Agreement. The term of this Agreement
shall commence on the date hereof and shall end on January 31, 2000. The
employment period shall commence on the Start Date and end on the earlier of (i)
the effective date of any termination of employment and (ii) January 31, 2000
(the "Employment Period").
3. POSITION, DUTIES AND RESPONSIBILITIES.
(a) During the Employment Period, the Executive shall be employed and
serve as the Vice Chairman and Chief Operating Officer of the Company and the
Chief Operating Officer of Holding (or such other position or positions as may
be agreed upon in writing by the Executive and the Company). The Executive's
services shall be performed in Chicago, Illinois and the Executive shall not be
transferred outside that area without his consent, other than for normal
business travel and temporary assignments. In addition, Executive is entering
into this Agreement on the basis that, pursuant to the terms of the
Stockholders'
3
<PAGE>
Agreement the Executive shall be elected a member of the Board of Holding and
the Company and, following such election, shall be nominated and recommended for
election to each such Board at each annual meeting of such entity held during
the Employment Period. The Executive shall report to the Chairman and Chief
Executive Officer of the Company and the Chief Executive Officer of the Board of
Holding, or a duly organized committee thereof.
(b) The Executive shall perform such duties and carry out such
responsibilities incident to his position as may be determined from time to time
by the Chairman and Chief Executive Officer of the Company, which shall be
consistent with the duties and responsibilities customarily performed by persons
in a similar executive capacity. Subject to periods of vacation, sick leave,
and the like to which he may be entitled, the Executive shall devote all of his
business time, attention and skill to the performance of such duties and
responsibilities, and shall use his best efforts to promote the interests of the
Company.
(c) Notwithstanding anything to the contrary contained herein, nothing
shall preclude the Executive from (i) serving on the boards of trade
associations and/or charitable organizations (subject to the reasonable approval
of the Chairman and Chief Executive Officer of the Company), (ii) engaging in
charitable activities and community affairs, and (iii) managing his personal
investments and affairs, provided that such activities individually or
collectively do not interfere with the proper performance of his duties and
responsibilities hereunder.
4. BASE SALARY. During the Employment Period, the Company shall pay to
the Executive for the services to be rendered by the Executive hereunder a base
salary at the rate of Seven hundred thousand dollars ($700,000) per annum ("Base
Salary"). Base Salary shall be reviewed at least once each year and may be
increased at any time from time to time in the discretion of the Board of the
Company, and shall be payable in accordance with the Company's customary payroll
practices applicable for senior-level executives generally. After any increase
in Base Salary, Base Salary shall not thereafter be reduced without the consent
of the Executive.
5. ANNUAL BONUS; RELOCATION; SUPPLEMENTAL PENSION PAYMENTS.
(a) In addition to the Base Salary and any other benefits or emoluments
received from the Company, Holding or any affiliate thereof, the Executive shall
be eligible to receive an annual cash bonus in an amount equal to not more than
40% of the Base Salary (the "Annual Bonus"), payable within the first fiscal
quarter following the close of each of the Company's fiscal years during the
Employment Period. The Annual Bonus shall be based on performance targets to be
established from time to time by the Board of the Company (or any committee
thereof appointed for such purpose); provided that for the fiscal years ending
in 1997, and 1998, the Annual Bonus will be not less than $250,000 for each of
such years without regard to such performance targets. The Annual Bonus may be
increased based on
4
<PAGE>
the achievement of exceptional performance against the aforementioned targets,
as determined by the Board of the Company in the good faith exercise of its
business judgement.
(b) The Company will provide executive with a relocation plan that
includes interim living expense for up to six months, movement of household
goods and payment of closing costs for home purchase in the Chicago area.
Additionally, Company will pay executive a one-time payment of $50,000 upon the
completion of his relocation to the Chicago area.
(c) The Company will provide Executive with a Special Retention Plan that
provides Executive a cash award of $100,000 for every full six months of
Executive's active service with the Company up to a maximum of $500,000 total,
all or any earned part of which will be paid on December 31, 1999.
6. STOCK OPTION AWARDS.
(a) Holding shall, as promptly as possible, grant to the Executive
non-qualified stock options (the "Options"), pursuant to the Plan, to purchase
one million (1,000,000) shares of Class A Common Stock Series 3 of Holding.
Such Options shall be granted pursuant to the terms and conditions of the Plan
and such additional terms and conditions as may be customary or appropriate in
the circumstances.
(b) Subject to the terms of this Agreement and the provisions of the Plan,
the Options shall (i) have a per share exercise price equal to the Fair Market
Value Per Share as of the first day of the 1997 fiscal year and (ii) become
vested on the basis of cumulative installments of:
400,000 - February 1, 1998
300,000 - February 1, 1999
300,000 - February 1, 2000
PROVIDED, HOWEVER, that an Option will not vest unless the Executive is at the
applicable date of determination, and has been at all times since the date of
grant of the Option, employed by the Company. Only Options which are vested may
be exercised. These options will have a ten year term from the grant date,
after which they will expire if not exercised.
(c) Once any Option becomes vested, it shall remain exercisable until (i)
three (3) months after the date of cessation of the Executive's employment with
the company, if such cessation occurs due to the Executive's voluntary
termination as provided under Section 9(e) or termination for Cause as provided
under Section 9(c), or (ii) the third anniversary of the date of cessation of
the Executive's employment with the Company for any other reason.
(d) The Options contemplated hereby (and the underlying shares of Stock)
and the Management Options shall equally dilute all holders of Stock then
outstanding (taking into account the impact of then outstanding stock options of
Holding).
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<PAGE>
7. EMPLOYEE BENEFIT PROGRAMS. During his employment with the Company,
the Executive shall be entitled to participate in all employee pension and
welfare benefit plans and programs made available to the Company's senior level
executives or its employees generally, as such plans or programs may be in
effect from time to time, including, without limitation, pension, profit
sharing, savings and other retirement plans or programs, medical, dental,
hospitalization, short-term and long-term disability and life insurance plans,
accidental death and dismemberment protection, travel accident insurance, and
any other pension or retirement plans or programs and any other employee welfare
benefit plans or programs that may be sponsored by the Company from time to
time, including any plans that supplement the above-listed types of plans or
programs, whether funded or unfunded. The Executive shall be entitled to
post-retirement welfare benefits, if any, as are made available by the Company
to its senior level executives generally.
8. REIMBURSEMENT OF BUSINESS EXPENSES; PERQUISITES; VACATION.
(a) The Executive is authorized to incur reasonable expenses in carrying
out his duties and responsibilities under this Agreement and the Company or
Holding, as appropriate, shall promptly reimburse him for all such expenses,
subject to documentation in accordance with its company's policy.
(b) During the Employment Period, the Executive shall be entitled to
participate in any of the Company's executive fringe benefits (including any
benefits relating to tax and financial planning services), in accordance with
the terms and conditions of such arrangements as are in effect from time to time
for the Company's senior level executives generally.
(c) During the Employment Period, the Executive shall be entitled to four
weeks paid vacation per year in accordance with the policies of the Company as
in effect from time to time with respect to senior executives of the Company.
(d) Nothing herein shall be construed to prevent the Company from
amending, altering, eliminating or reducing any plans, benefits or programs so
long as the Executive continues to have the opportunity to receive compensation
and benefits consistent with Sections 8(a) through (c).
9. TERMINATION OF EMPLOYMENT.
(a) TERMINATION DUE TO DEATH. In the event the Executive's employment is
terminated due to his death, then, this Agreement shall terminate without
further obligation of the Company or Holding under this Agreement to the
Executive's legal representatives other than those accrued hereunder or under
the terms of applicable Company plans or programs which take effect at the date
of his death or those obligations provided in this Section 9 (a). Provided the
lawful representative of the Executive's estate shall have executed an
employment
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<PAGE>
release as mutually agreed by the parties at the time of execution (the
"Employment Release"), such estate shall be entitled to:
(i) all unpaid Base Salary through the end of the contract
employment period.
(ii) any Annual Bonus, that would have been paid during the contract
employment period except that the target bonus amount of $250,000 will be used
to calculate the bonus amount.
(iii) the right to exercise all Options set forth in Section 6(b);
(iv) any amount earned, accrued or owing to the Executive but not yet
paid under Section 8 herein; and
(v) other or additional benefits in accordance with the plans and
programs of the Company referred to in Section 7 herein.
(b) TERMINATION DUE TO DISABILITY. In the event the Executive's
employment is terminated due to his Disability, then, provided the Executive or
his legal representative shall have executed the Employment Release, the
Executive shall be entitled to:
(i) all unpaid Base Salary through the date of termination due to
Disability;
(ii) in lieu of any Annual Bonus, an amount equal to 30% of the Base
Salary in effect as the date of such termination;
(iii) the benefits due him under any then current disability program
of the Company;
(iv) the right to exercise the Options to the extent vested pursuant
to the vesting schedule set forth in Section 6(b) for the period of three (3)
years following the termination date;
(v) any amount earned, accrued or owing to the Executive but not yet
paid under Section 8 herein; and
(vi) other or additional benefits in accordance with the plans and
programs of the Company referred to in Section 7 herein.
In no event shall a termination of the Executive's employment for
Disability occur unless the party terminating his employment gives written
notice to the other party in accordance with Section 21 herein.
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(c) TERMINATION BY THE COMPANY FOR CAUSE.
(i) A termination for Cause shall not take effect unless the
provisions of this clause (i) are complied with. The Executive shall be given
written notice by the Board of the Company of its intention to terminate him for
Cause, such notice (A) to state in detail the particular act or acts or failure
or failures to act that constitute the grounds on which the proposed termination
for Cause is based and (B) to be given within six (6) months of the Board of the
Company learning of such act or acts or failure or failures to act. The
Executive shall have ten (10) days after the date that such written notice has
been given to the Executive in which to cure such conduct, to the extent such
cure is possible. If he fails to cure such conduct, the Executive shall then be
entitled to written notice by the Board of the Company confirming that, in their
judgement, grounds for Cause on the basis of the original notice exist, at which
time his employment with the Company shall thereupon be terminated for Cause.
(ii) In the event the Company terminates the Executive's employment
for Cause, then, provided the Executive shall have executed the Employment
Release, the Executive shall be entitled to:
(A) all unpaid Base Salary through the date of termination of
his employment for Cause;
(B) the right to exercise the Options to the extent vested
pursuant to the vesting schedule set forth in Section 6(b), but, as provided in
Section 6(c), only until the end of the third month after the date of the
Executive's termination;
(C) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 8 herein; and
(D) other or additional benefits in accordance with the plans or
programs of the Company referred to in Section 7 herein.
(iii) If the Executive is terminated for Cause solely as the result of
being convicted of a felony, which conviction is ultimately reversed on appeal,
the Executive shall be deemed to have been terminated without Cause and shall be
entitled to the benefits provided under Section 9(d) to the extent such benefits
are greater than those received by the Executive in accordance with Section
9(c), provided, that the date of termination shall be deemed to be the date of
the original termination.
(d) TERMINATION WITHOUT CAUSE OR CONSTRUCTIVE TERMINATION. In the event
the Executive's employment is terminated without Cause, other than due to
Disability or death, or in the event there is a Constructive Termination, then,
provided the Executive shall have executed the Employment Release, the Executive
shall be entitled to:
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(i) all unpaid Base Salary and a prorated Annual Bonus for the
fiscal year of the date of termination through the date of termination based on
the prior year's Annual Bonus;
(ii) the Base Salary, at the annualized rate in effect on the date of
termination of the Executive's employment (or in the event a reduction in Base
Salary is the basis for a Constructive Termination, then the annualized rate of
the Base Salary in effect immediately prior to such reduction), for a period of
twenty-four (24) months following the date of such termination and, in lieu of
any further Annual Bonus, an amount equal to the greater of two years actual
bonus award using the last paid award or $500,000, in each case in substantially
equal installments payable not less frequently than semi-monthly in arrears;
PROVIDED, that the Company may at any time and from time to time pay the
Executive the present value of such salary continuation payments in a lump sum
(using as the discount rate the applicable Federal rate for short-term Treasury
obligations as published by the Internal Revenue Service for the month in which
such termination occurs);
(iii) the right to exercise the Options to the extent vested pursuant
to the vesting schedule set forth in Section 6(b), but as provided in Section
6(c), only until the third anniversary of the date of the Executive's
termination without Cause (other than due to Disability or death) or the
Executive's Constructive Termination, as the case may be;
(iv) any amount earned, accrued or owing to the Executive but not yet
paid under Section 8 herein;
(v) other or additional benefits in accordance with the plans and
programs of the Company referred to in Section 7 herein; and
(vi) until the earlier of (1) the second anniversary of the date of
termination or (2) the date the Executive accepts other employment:
(A) reimbursement for any employee benefit contribution paid by
the Executive or the Executive's family pursuant to COBRA;
(B) outplacement services at the expense of the Company
commensurate with those provided to terminated executives of comparable level
and made available through and at the facilities of a reputable and experienced
vendor; and
(C) use of personal, financial and legal counseling services
through the vendor engaged by the Executive and paid for by the Company, up to a
maximum of $10,000 per year.
If it is determined that any payment or distribution by the Company to
the Executive pursuant to Section 9(d) (determined without regard to any
additional payments required pursuant to this sentence) (a "Payment") would be
subject to the excise tax imposed
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<PAGE>
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
or by similar provisions of state or local tax laws applicable to the Executive
or any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax and similar provisions, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive with respect to each
Payment an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(e) TERMINATION DUE TO CHANGE OF CONTROL. If Executive's employment
is terminated due solely to a Change of Control as defined in Section 1(e),
Executive will receive the same entitlements as Section 9(d) except that the
salary continuation payments shall be paid in a lump sum without any discount.
(f) VOLUNTARY TERMINATION. In the event of a termination of
employment by the Executive on his own initiative ("Voluntary Termination"),
other than a termination due to death or Disability or a Constructive
Termination, then, provided the Executive shall have executed the Employment
Release, the Executive shall be entitled to:
(i) the Base Salary through the date of termination of his
employment;
(ii) the right to exercise the Options to the extent vested
pursuant to the vesting schedule set forth in Section 6(b), but as provided in
Section 6(c), only for a period ending three (3) months after the effective date
of the Executive's Voluntary Termination;
(iii) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 8 herein; and
(iv) other or additional benefits in accordance with the plans
or programs of the company referred to in Section 7 herein.
(g) EXPIRATION OF TERM. If the Executive continues to be employed by
the Company until the expiration of the Term of this Agreement, but does not
continue to be employed by the Company after such time, the Executive shall
receive as salary continuation payments (i) the Base Salary, at an annualized
rate in effect on the date of the expiration of the Term of the Agreement, for a
period of twenty-four (24) months following such expiration, in substantially
equal installments not less frequently than semi-monthly in arrears; PROVIDED,
that the Company may at any time and from time to time pay the Executive the
present value of such salary continuation payments in a lump sum (using as the
discount rate the then applicable
10
<PAGE>
Federal rate for short-term Treasury obligations as published by the Internal
Revenue Service for the month in which such termination occurs). The expiration
of the Term of this Agreement shall not constitute termination of the
Executive's employment with the Company under any of Sections 9(a), 9(b), 9(c),
9(d) or 9(e) herein and, other than as set forth in this Section 9(f), the
Executive shall not be entitled to any other compensation or benefits provided
for in this Agreement.
(h) OFFSETS. In the event of any termination of employment under
this Section 9, (i) any remuneration attributable to any subsequent employment
with a Direct Competitor that the Executive may obtain and (ii) any amounts due
the Company under any claim the Company may have against the Executive may, at
the option of the Company, be applied to reduce any amounts due the Executive
under this Agreement.
(i) NATURE OF PAYMENTS. Any amounts due under this Section 9 are in
the nature of severance or salary continuation payments considered to be
reasonable by the Company and are not in the nature of a penalty.
(j) ASSIGNMENT. The severance or salary continuation payments
hereunder may not be transferred, assigned or encumbered in any manner, either
voluntarily or involuntarily, without the prior written consent of the Company.
(k) EXCLUSIVITY OF SEVERANCE OR SALARY CONTINUATION PAYMENTS. Upon
termination of the Executive's employment, he shall not be entitled to any
severance or salary continuation payments or benefits from the Company or
Holding or any payments by the Company or Holding on account of any claim by him
of wrongful termination, including claims under any federal, state or local
human and civil rights or labor laws, common law, other than the payments and
benefits provided under paragraphs 9(a) through (e) of this Section 9 depending
on the factual circumstances of the termination hereunder.
(l) TERMINATION AT WILL. Notwithstanding anything herein to the
contrary, the Executive's employment with the Company is terminable at will with
or without Cause; PROVIDED, that the Executive's entitlement to payments and
benefits following such termination will depend on the type of termination and
therefore be governed by the other provisions of this Section 9.
(m) BOARD RESIGNATION. Upon the Executive's cessation of employment
with the Company for any reason whatsoever, the Executive shall thereupon be
deemed to have resigned from the Board of Holding, the Company and of every
Subsidiary on which he shall then be serving, and of any other company in which
the Executive is then serving as a director at the request of the Company or
Holding, in each case effective as of the date of cessation.
10. NON-COMPETITION, NON-SOLICITATION AND PROTECTION OF TRADE SECRETS.
11
<PAGE>
(a) By and in consideration of the substantial compensation and
benefits to be provided by the Company and Holding hereunder, and in further
consideration of the Executive's exposure to the proprietary information of the
Company, Holding and/or any Affiliate of either of them, the Executive agrees
that he shall not, during the Employment Period and for a period equal to the
greater of (i) the period during which he is receiving salary continuation
payments pursuant to this Agreement or (ii) one (1) year after the Employment
Period, directly or indirectly own, manage, operate, join, control, be employed
by, or participate in the ownership, management, operation or control of or be
connected in any manner, including but not limited to holding the positions of
officer, director, shareholder, consultant, independent contractor, employee,
partner, or investor, with any Direct Competitor (as defined below); PROVIDED,
HOWEVER, that the Executive may invest in stocks, bonds, or other securities of
any corporation or other entity (but without participating in the business
thereof) if such stocks, bonds, or other securities are listed for trading on a
national securities exchange or NASDAQ and the Executive's investment does not
exceed 1% of the issued and outstanding shares of capital stock, or in the case
of bonds or other securities, 1% of the aggregate principal amount thereof
issued and outstanding. "Direct Competitor" shall mean any of Kmart
Corporation, Wal-Mart Stores, Inc., Sears Roebuck and Co., Dayton Hudson Corp.,
or J. C. Penney or any Affiliate of any of them.
(b) The Executive recognizes that the services to be performed by him
hereunder are special, unique and extraordinary and that, by reason of his
employment hereunder, he may acquire confidential information and trade secrets
concerning the operations of the Company, Holding and/or any Affiliate of either
of them. Accordingly, the Executive agrees that he will not, except in the good
faith performance of his duties on behalf of the Company or Holding, and not
inconsistent with his fiduciary duties owed to the Company or Holding, disclose
on or after the date hereof any secret or confidential information that he has
learned by reason of his association with the Company, Holding and any
Subsidiary, or use any such information to the detriment of the Company, Holding
and any Subsidiary, so long as such confidential information or trade secrets
have not become generally known through no fault of the Executive, provided
that, if required to be disclosed pursuant to a court order or legal process,
the Executive shall give the Company timely notice of such order or process and
cooperate with the Company to avoid or limit such disclosures.
(c) The Executive further agrees that he will not, at any time during
the Employment Period, and for a period of two years thereafter, directly or
indirectly solicit or induce any of the employees of the Company, Holding or any
Subsidiary to terminate their employment with the Company, Holding or any
Subsidiary.
(d) The Executive agrees that any material breach of the terms of
this Section would result in irreparable injury and damage to the Company,
Holding or any Subsidiary for which the Company, Holding or any Subsidiary would
have no adequate remedy at law; the Executive therefore also agrees that in the
event of said breach or any reasonable threat of material breach, the Company,
Holding or any Subsidiary shall be entitled to seek an
12
<PAGE>
immediate injunction and restraining order to prevent such breach and/or
threatened breach and/or continued breach by the Executive and/or any and all
persons and/or entities acting for and/or with the Executive. The terms of this
paragraph shall not prevent the Company, Holding or any Subsidiary from pursuing
any other available remedies for any breach or threatened breach hereof,
including but not limited to the recovery of damages. The Executive, Holding
and the Company agrees that the provisions of this Section are reasonable.
Should a court or arbitrator determine, however, that any provision of this
Section is unreasonable, either in period of time, geographical area, or
otherwise, the parties hereto agree that this Section shall be interpreted and
enforced to the maximum extent which such court or arbitrator deems reasonable.
(e) The provisions of this Section 10 shall survive any termination
of this Agreement, and the extension of any claim or cause of action by the
Executive against the Company, Holding or any Subsidiary, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company, Holding or any Subsidiary of the covenants and agreements of
this Section.
11. REPRESENTATIONS OF THE EXECUTIVE. The Executive represents and
warrants that he is free to enter into this Agreement and to perform the duties
required hereunder, and that there is no agreement or understanding, written or
oral, between the Executive and any Employer pertaining to employment
non-competition, disclosure of confidential information and/or trade secrets or
other restrictions preventing the performance of his duties hereunder.
12. EFFECT OF AGREEMENT ON OTHER BENEFITS. Except as specifically
provided in this Agreement, the existence of this Agreement shall not prohibit
or restrict the Executive s entitlement to full participation in the employee
benefit and other plans or programs in which senior-level executives of the
Company are eligible to participate generally (PROVIDED, however, that
notwithstanding anything to the contrary in this Agreement, the Executive may
not participate in any such plans or programs pertaining to severance or salary
continuation payments, or stock options, stock awards or other equity-based
forms of compensation).
13. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
heirs (in the case of the Executive) and assigns. No right or obligation of the
Company or Holding, as the case may be, under this Agreement may be assigned or
transferred by the Company or Holding, as the case may be, except that such
right or obligation may be assigned or transferred pursuant to a merger or
consolidation in which the Company or Holding, as the case may be, is not the
continuing entity, or pursuant to the sale or liquidation of all or
substantially all of the assets or business of the Company or Holding, as the
case may be, provided that the assignee or transferee is the successor to all or
substantially all of the assets or business of the Company or Holding, as the
case may be, and such assignee or transferee assumes the liabilities,
obligations and duties of the Company or Holding, as the case may be, as
contained in this Agreement, either contractually or as a matter of law. Each
of the Company and Holding further agrees
13
<PAGE>
that, in the event of a sale of assets or liquidation as described in the
preceding sentence, it shall exercise reasonable efforts to cause such assignee
or transferee to expressly assume the liabilities, obligations and duties of the
Company and Holding hereunder. No right or obligation of the Executive under
this Agreement may be assigned or transferred by the Executive other than his
rights to compensation and benefits, which may be transferred only by will or
operation of law, except as provided herein. Nothing in this Section 13 shall
be deemed to affect the Executive's rights under this Agreement following a
Change in Control.
14. REPRESENTATIONS OF THE COMPANY. Each of Holding and the Company
represents and warrants that it is fully authorized and empowered by action
of its Board or a duly authorized committee thereof to enter into this
Agreement, that the Agreement is the valid and binding obligation of the
Company enforceable against the Company in accordance with the terms herein,
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium and other laws of general application affecting
creditors' rights generally and by equitable principles and that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person, firm or organization.
15. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties hereto concerning the subject matter hereof
and supersedes all prior agreements, understandings, discussions, negotiations
and undertakings, whether written or oral, between the parties with respect
thereto.
16. AMENDMENT OR WAIVER. No provision in this Agreement may be amended
unless such amendment is agreed to in writing and signed by the Executive and an
authorized officer of each of the Company and Holding. No waiver by either
party of any breach by the other party of any condition or provision contained
in this Agreement to be performed by such other party shall be deemed a waiver
of a similar or dissimilar condition or provision at the same or any prior or
subsequent time. Any waiver must be in writing and signed by the Executive or
an authorized officer of the Company or Holding, as the case may be.
17. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, in any jurisdiction the remaining provisions of this Agreement
shall be unaffected thereby and shall remain in full force and effect to the
fullest extent permitted by law in such jurisdiction, and such invalidity or
unenforceability shall have no effect in any other jurisdiction.
18. BENEFICIARIES/REFERENCES. The Executive shall be entitled, to the
extent permitted under applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
the Executive's death by giving the Company and Holding written notice thereof.
In the event of the Executive's death or a judicial determination of his
incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to his beneficiary, estate or other legal
representative.
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<PAGE>
19. GOVERNING LAW/JURISDICTION. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of Illinois
without reference to principles of conflict of laws.
20. CONFIDENTIALITY; PRESS RELEASE. The Executive shall not disclose the
contents of this Agreement to anyone except as may be required by enforceable
legal process or to the extent there is a public disclosure made by the Company
or Holding of such matters. The Executive shall use his best efforts to arrange
an opportunity for the Company or its designee to coordinate any press release.
21. NOTICES. Any notice given to a party shall be in writing and shall be
deemed to have been given when delivered personally or, if sent by certified or
registered mail, postage prepaid, return receipt requested, five days after
being sent duly addressed to the party concerned at the address indicated below
or to such changed address as such party may subsequently give such notice.
If to the Company
or Holding: Montgomery Ward & Co., Incorporated
Montgomery Ward Plaza
Chicago, IL 60671
Attention: General Counsel
If to the Executive: Burnett Donoho
9 West County Line Road
Barrington, Illinois 60010
With a copy to:
_______________________________
_______________________________
_______________________________
Attention: ____________________
22. WITHHOLDING. All amounts required to be paid by the Company herein
shall be subject to reduction in order to comply with applicable Federal, state
and local tax withholding requirements.
15
<PAGE>
23. HEADINGS. The headings of the sections contained in this Agreement
are for convenience of reference only and shall not be deemed to control or
affect the meaning or construction of any provision of this Agreement.
24. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the date first written above.
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Roger V. Goddu
- - - ------------------------------ --------------------------------------
Witness Name:
Title:
MONTGOMERY WARD HOLDING CORP.
By: /s/ Robert A. Kasenter
- - - ------------------------------ --------------------------------------
Witness Name:
Title:
/s/ Burnett Donoho
- - - ------------------------------ -----------------------------------------
Witness BURNETT DONOHO
16
<PAGE>
17
<PAGE>
LINE OF CREDIT AGREEMENT
BETWEEN
MONTGOMERY WARD & CO., INCORPORATED
AND
THE NORTHERN TRUST COMPANY
AS OF DECEMBER 19, 1996
<PAGE>
INDEX
PAGE
1. ADOPTION OF RECITALS.................................................... 1
2. DEFINITIONS............................................................. 2
a. "Associate"........................................................ 2
b. "Average Closing Price"............................................ 2
c. "Bank"............................................................. 2
d. "Borrowers"........................................................ 2
e. "Call Right"....................................................... 2
f. "Callable Loan".................................................... 2
g. "Ceiling Amount"................................................... 2
h. "Collateral"....................................................... 2
i. "Collateral Insufficiency Notice".................................. 2
j. "Company".......................................................... 2
k. "Credit Agreement.................................................. 2
l. "Fair Market Value per Share"....................................... 3
m. "First Chicago".................................................... 3
n. "Holding Corp.".................................................... 3
o. "Line"............................................................. 3
p. "Line Amount"...................................................... 3
q. "Line of Credit Program"........................................... 3
r. "Lines"............................................................ 3
s. "Loan"............................................................. 3
t. "1991 Line of Credit Agreement".................................... 3
u. "Note"............................................................. 3
v. "Notice"........................................................... 4
w. "Outstanding Amount"............................................... 4
x. "Pledge Agreement"................................................. 4
y. "Program Committee"................................................ 4
z. "Program Term"..................................................... 4
aa. "Put Right"........................................................ 4
bb. "Putable Loan"..................................................... 4
cc. "Shares"........................................................... 4
dd. "Stockholders Agreement"........................................... 4
ee. "Title 11"......................................................... 4
ff. "Vested Shares".................................................... 4
gg. "Voting Trust Agreement"........................................... 4
i
<PAGE>
INDEX
PAGE
hh. "Voting Trust Certificates"........................................ 4
3. LINES OF CREDIT......................................................... 5
a. Terms of the Lines................................................. 5
b. Note and Pledge Agreement.......................................... 6
c. Charges to Borrowers............................................... 6
4. COVENANTS AND AGREEMENT................................................. 6
a. Establishment of Lines............................................. 6
b. Acceleration of Lines.............................................. 7
c. Change in Fair Market Value per Share.............................. 7
d. Death or other Cessation of Employment of a Borrower............... 7
e. Provision of Certain Financial Data................................ 7
f. Secretary's Certificate............................................ 7
5. BANK'S RIGHT TO PUT A LOAN TO THE COMPANY............................... 7
a. Put Right.......................................................... 7
b. Survival of Put Rights............................................. 8
c. Closing............................................................ 8
d. Recovery of Deficiency by the Bank................................. 9
6. COMPANY'S RIGHT TO CALL A LOAN FROM THE BANK............................ 9
a. Call Right......................................................... 9
b. Survival of Call Rights............................................ 10
c. Closing............................................................ 10
d. Recovery of Deficiency by the Bank................................. 10
7. ASSIGNMENT BY THE COMPANY............................................... 10
8. APPLICATION OF STOCKHOLDERS AGREEMENT AND VOTING TRUST AGREEMENT;
LETTER AGREEMENT........................................................ 10
a. Application........................................................ 10
b. Letter Agreement................................................... 11
9. PROGRAM COMMITTEE....................................................... 11
10. TERMINATION............................................................. 11
ii
<PAGE>
INDEX
PAGE
11. FEES.................................................................... 11
12. TERMINATION OF THE BANK'S COMMITMENT TO MAKE LOANS...................... 11
a. Any Loans.......................................................... 11
b. Putable Loan....................................................... 12
c. Regulation U....................................................... 12
d. Updated Financial Information...................................... 12
e. Defaulted Loan..................................................... 12
13. MISCELLANEOUS........................................................... 12
a. Waiver............................................................. 12
b. Further Assurances................................................. 13
c. No Representations, Warranties or Guaranty......................... 13
d. Governing Law...................................................... 13
e. Remedy............................................................. 13
f. Notice............................................................. 13
g. Entire Agreement................................................... 14
h. Severability....................................................... 14
i. Headings........................................................... 15
j. Counterparts....................................................... 15
SCHEDULE I - Schedule of Borrowers and Ceiling Amounts
iii
<PAGE>
LINE OF CREDIT AGREEMENT
THIS LINE OF CREDIT AGREEMENT (the "Agreement") is entered into as of the
19th day of December, 1996, by and between MONTGOMERY WARD & CO., INCORPORATED
(the "Company") and THE NORTHERN TRUST COMPANY (the "Bank").
R E C I T A L S
A. The Company, the Bank and The First National Bank of Chicago ("First
Chicago") have entered into a Line of Credit Agreement dated as of November 19,
1991 (the "1991 Line of Credit Agreement") providing for a line of credit
program with a term of five years under which the Bank and First Chicago agreed
to make available to certain Associates (as hereinafter defined) designated by
the Company from time to time revolving lines of credit with the Bank and First
Chicago in the aggregate amount of $10,000,000 secured by shares of Class A
common stock ("Shares") of Montgomery Ward Holding Corp. ("Holding Corp.")
pledged directly or through the pledge of Voting Trust Certificates (as
hereinafter defined) representing an Associate's beneficial ownership of Shares;
B. The Company desires to replace the expired line of credit program
under the 1991 Line of Credit Agreement with a line of credit program under
which revolving lines of credit (the "Lines") totaling an aggregate of
$614,364.18 and secured by Shares of Holding Corp. pledged directly or through
the pledge of Voting Trust Certificates are made available by the Bank to those
Associates listed on SCHEDULE I hereto ("Borrowers") in order to provide
liquidity for such Shares owned by each of the Borrowers (the "Line of Credit
Program");
C. The Bank desires to participate in the Line of Credit Program as the
lender; and
D. The Bank and the Company desire to create certain put and call options
contained herein with respect to each Loan (as hereinafter defined);
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Bank agree as
follows:
1. ADOPTION OF RECITALS. The parties hereto adopt the foregoing recitals
and agree and affirm that construction of this Agreement shall be guided
thereby.
<PAGE>
2. DEFINITIONS. For purposes of this Agreement:
a. "ASSOCIATE" shall mean an employee of the Company or any of its
affiliates;
b. "AVERAGE CLOSING PRICE" shall have the meaning ascribed to it in
the Stockholders Agreement;
c. "BANK" shall have the meaning ascribed to it in the heading of
this Agreement;
d. "BORROWERS" shall have the meaning ascribed to it in Recital B of
this Agreement;
e. "CALL RIGHT" shall have the meaning ascribed to it in Section 6a
of this Agreement;
f. "CALLABLE LOAN" shall have the meaning ascribed to it in Section
6a of this Agreement;
g. "CEILING AMOUNT" shall mean the maximum amount available to an
Associate under his or her Line, as specified for such Associate
opposite his or her name on SCHEDULE I hereto, as such amount may be
reduced from time to time by the Program Committee; PROVIDED, HOWEVER,
that the consent of the Bank shall be required to reduce the Ceiling
Amount of any Borrower below the greater of (i) $25,001 or (ii) the
Outstanding Amount (as hereafter defined) for such Borrower; PROVIDED
FURTHER, HOWEVER, that upon a default under any Borrower's Note, the
Bank, in its sole discretion, may reduce such Borrower's Ceiling
Amount;
h. "COLLATERAL" shall mean either the Shares, or Voting Trust
Certificates (as hereinafter defined) representing a Borrower's
beneficial ownership of Shares, pledged to the Bank to secure the
obligation to repay a Loan and any other property pledged to secure
such repayment, including, without limitation, any promissory note
pledged in accordance with Section 8a of this Agreement;
i. "COLLATERAL INSUFFICIENCY NOTICE" shall have the meaning ascribed
to it in Section 6a of this Agreement;
j. "COMPANY" shall have the meaning ascribed to it in the heading of
this Agreement;
k. "CREDIT AGREEMENT" shall mean that certain Long Term Credit
Agreement dated as of September 15, 1994 among the Company, various
banks, First Chicago,
2
<PAGE>
as Documentary Agent, The Bank of Nova Scotia, as Administrative
Agent, The Bank of New York, as Negotiated Loan Agent, and Bank of
America National Trust and Savings Association, as Advisory Agent, as
heretofore and hereafter amended, and any extensions or renewals
thereof or any agreement under which indebtedness is issued that
serves to refund or refinance the indebtedness thereunder; if
indebtedness is issued on both a term and a revolving basis to refund
or refinance such indebtedness, the agreement under which the
revolving indebtedness is issued shall constitute the Credit
Agreement, and if such indebtedness is paid in full and has not been
refunded or refinanced and the commitments with respect thereto have
been terminated, until such refunding or refinancing, for the purposes
of this Agreement, the last Credit Agreement in effect at the time of
such payment shall be deemed to constitute the Credit Agreement;
l. "FAIR MARKET VALUE PER SHARE" shall have the meaning ascribed to
it in the Stockholders Agreement, and is $17.00 as of the date of this
Agreement;
m. "FIRST CHICAGO" shall have the meaning ascribed to it in Recital
A of this Agreement;
n. "HOLDING CORP." shall have the meaning ascribed to it in Recital
A of this Agreement;
o. "LINE" shall mean a line of credit established with the Bank
pursuant to the Line of Credit Program;
p. "LINE AMOUNT" shall mean the maximum borrowings permitted under a
Line which shall not exceed the Ceiling Amount;
q. "LINE OF CREDIT PROGRAM" shall have the meaning ascribed to it in
Recital B of this Agreement;
r. "LINES" shall have the meaning ascribed to it in Recital B of
this Agreement;
s. "LOAN" shall mean the amount of money a Borrower borrows from the
Bank pursuant to his or her Line;
t. "1991 LINE OF CREDIT AGREEMENT" shall have the meaning ascribed
to it in Recital A of this Agreement.
u. "NOTE" shall have the meaning ascribed to it in Section 3b of
this Agreement;
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<PAGE>
v. "NOTICE" shall have the meaning ascribed to it in Section 6a of
this Agreement;
w. "OUTSTANDING AMOUNT" shall mean the outstanding principal amount
of a Loan, as the same may change from time to time;
x. "PLEDGE AGREEMENT" shall have the meaning ascribed to it in
Section 3b of this Agreement;
y. "PROGRAM COMMITTEE" shall mean the program committee as empowered
to act on behalf of the Company and Holding Corp. with respect to all
matters concerning the Line of Credit Program;
z. "PROGRAM TERM" shall mean the term commencing on the date hereof
and ending on June 21, 1998;
aa. "PUT RIGHT" shall have the meaning ascribed to it in Section 5a
of this Agreement;
bb. "PUTABLE LOAN" shall have the meaning ascribed to it in Section
5a of this Agreement;
cc. "SHARES" shall have the meaning ascribed to it in Recital A of
this Agreement and shall, unless the context otherwise requires,
include Voting Trust Certificates issued in exchange therefor;
dd. "STOCKHOLDERS AGREEMENT" shall mean that certain BFB Acquisition
Corp. Stockholders Agreement dated June 17, 1988, between Bernard F.
Brennan, General Electric Capital Corporation, and certain holders of
Shares, as heretofore and hereafter amended;
ee. "TITLE 11" shall mean Title 11 of the United States Code and any
successor provision;
ff. "VESTED SHARES" shall have the meaning ascribed to it in the
Stockholders Agreement;
gg. "VOTING TRUST AGREEMENT" shall mean that certain Voting Trust
Agreement dated June 21, 1988 between Bernard F. Brennan, as the
voting trustee, and certain holders of Shares; and
4
<PAGE>
hh. "VOTING TRUST CERTIFICATES" shall mean voting trust certificates
issued by the voting trustee pursuant to the Voting Trust Agreement.
3. LINES OF CREDIT. The Bank hereby covenants to and agrees with the
Company as follows:
a. TERMS OF THE LINES. The Bank covenants to and agrees with the
Company that, during the Program Term, the Bank shall make available
to Borrowers Lines in the aggregate amount of $614,364.18 and, in the
case of each Borrower, a Line in an amount up to such Borrower's
Ceiling Amount; PROVIDED, HOWEVER, that the Bank shall not be
obligated to establish a Line in an amount less than $25,001. The
Note and the Pledge Agreement shall establish the following
requirements with respect to each Loan made thereunder:
(1) the Collateral required for each Loan shall be a number
of Shares which are Vested Shares owned by the Borrower equal to:
(i) the Line Amount multiplied by two; and (ii) divided by the
Fair Market Value per Share in effect at the date of such Loan;
(2) at such times as the Fair Market Value per Share is
reduced below the value at the date hereof or below the value in
effect at the time of the most recent adjustment in accordance
with this Section 3a(2) or Section 3a(3), the Collateral shall be
adjusted such that the aggregate fair market value of the
Collateral shall be equal to two (2) times the Line Amount, and
the Borrower shall, within ten (10) days of such date:
(i) make a prepayment of the Outstanding Amount of his
or her Loan sufficient to effect such adjustment; or
(ii) pledge additional Shares sufficient to effect such
adjustment; PROVIDED, HOWEVER, that in making such
adjustments, no adjustment shall be made for fractional
Shares;
(3) at such times as the Fair Market Value per Share is
increased by ten percent (10%) or more over the value at the date
hereof or over the value in effect at the time of the most recent
adjustment in accordance with this Section 3a(3) or Section
3a(2), the Bank shall promptly, upon the Borrower's written
request, return Shares to the Borrower sufficient to cause the
fair market value of the Collateral to be equal to and not exceed
two (2) times the Line Amount for such Borrower; PROVIDED,
HOWEVER, that in making such adjustments, no adjustment shall be
made for fractional Shares;
5
<PAGE>
(4) the principal amount of each Loan, together with all
accrued and unpaid interest, shall be payable at the end of the
Program Term, except as otherwise provided in Sections 4a and
12b-e of this Agreement; PROVIDED, HOWEVER, that a Borrower shall
be required to make prepayments on his or her Loan in accordance
with Section 8a of this Agreement in the event that Collateral is
purchased pursuant to exercise of options under the Stockholders
Agreement;
(5) the Outstanding Amount shall accrue interest at the
Bank's prime rate, as the same may change from time to time;
(6) accrued interest shall be payable monthly in arrears,
except as otherwise provided in Sections 5a and 6a of this
Agreement;
(7) each Borrower shall be permitted to prepay his or her
Loan in whole or in part at any time without premium or penalty;
and
(8) the Bank may not exercise any rights to foreclose on
the Collateral or take any Collateral in lieu of foreclosure with
respect to any Loan unless the Bank has exercised a Put Right (as
hereinafter defined) with respect thereto and the Company has
failed to perform its obligations with respect to closing the
sale and purchase of such Loan in accordance with the terms of
Section 5c of this Agreement.
b. NOTE AND PLEDGE AGREEMENT. The Bank covenants to and agrees with
the Company that, in connection with each Loan it initiates under the
Line of Credit Program, a Borrower will be required to execute (i) a
promissory note ("Note") in substantially the form attached hereto as
EXHIBIT A and hereby made a part hereof, and (ii) a pledge agreement
("Pledge Agreement") in substantially the form attached hereto as
EXHIBIT B and hereby made a part hereof, which Pledge Agreement shall
(x) require each Borrower to agree that the Shares pledged thereunder
constitute Vested Shares and (y) provide that such Pledge Agreement
and all rights and obligations thereunder are subject to the terms and
significant restrictions contained in each of this Agreement, the
Voting Trust Agreement and the Stockholders Agreement;
c. CHARGES TO BORROWERS. The Bank covenants to and agrees with the
Company that the Bank shall not assess any charges against a Borrower
in connection with a Loan except for the payment of principal and
interest thereon in accordance with the terms of such Borrower's Note;
PROVIDED, HOWEVER, that the Bank shall be permitted to provide in each
Borrower's Note that costs of collection are borne by such Borrower.
6
<PAGE>
4. COVENANTS AND AGREEMENTS.
a. ACCELERATION OF LINES. The Bank covenants to and agrees with the
Company that, without the express written consent of the Company, it
shall not, prior to exercise of the Put Right with respect to a
Borrower's Loan and breach by the Company of its obligation to
purchase the Loan under Section 5c, accelerate such Borrower's Note or
Pledge Agreement for any default thereunder; PROVIDED, HOWEVER, that
this shall in no way limit the Bank's ability to exercise any Put
Right; and PROVIDED FURTHER, HOWEVER, that the Company shall reimburse
the Bank for any accrued interest in excess of one (1) year's interest
on such Borrower's Loan if such excess arose as a result of the
Company's failure to consent to acceleration thereof as a result of
the death of the Borrower after request by the Bank for such consent.
b. CHANGE IN FAIR MARKET VALUE PER SHARE. The Company covenants to
and agrees with the Bank that it will notify the Bank of the Fair
Market Value per Share within ten (10) business days of any change in
the Fair Market Value per Share or, until such notice, as of the date
of this Agreement; PROVIDED, HOWEVER, that the Company's obligation to
notify the Bank of such change in Fair Market Value per Share shall
terminate on the date a public market for the Shares exists, and the
Fair Market Value per Share shall thereafter be the Average Closing
Price. The notice required under this Section 4b shall be certified
as complete and correct by the Chief Financial Officer on behalf of
the Company.
c. DEATH OR OTHER CESSATION OF EMPLOYMENT OF A BORROWER. The
Company covenants to and agrees with the Bank that it will notify the
Bank of the death or cessation of employment with the Company and its
affiliates of any Borrower promptly after its knowledge of such death
or cessation of employment.
d. PROVISION OF CERTAIN FINANCIAL DATA. The Company acknowledges
and agrees with the Bank that, as a condition to establishing a Line
for any Borrower, such Borrower may be required to deliver to the Bank
a recently prepared balance sheet and a copy of such Borrower's
federal and state income tax returns as filed for the latest tax year.
e. SECRETARY'S CERTIFICATE. The Company covenants to and agrees
with the Bank that, as a condition to establishing the Line of Credit
Program, the Company shall deliver to the Bank a certificate of the
secretary or any assistant secretary of the Company certifying as to
the adoption of resolutions of the Company authorizing the Company to
enter into and deliver this Agreement and all other documents
contemplated thereby.
7
<PAGE>
5. BANK'S RIGHT TO PUT A LOAN TO THE COMPANY.
a. PUT RIGHT. The Bank shall have the option to sell and require
the Company to purchase (the "Put Right") a Borrower's Loan in whole
or in part to the Company upon the occurrence of any of the following
events: (i) nonpayment of interest on such Borrower's Loan which is
uncured for ninety (90) days; (ii) the filing by such Borrower of a
voluntary petition under Title 11; (iii) the commencement of a case
against such Borrower under Title 11 (x) resulting in an order for
relief which shall not have been stayed or dismissed within sixty (60)
days or (y) in which an order for relief shall not have been entered
and which shall not have been stayed or dismissed within sixty (60)
days after the commencement thereof; (iv) failure by such Borrower to
pay the Outstanding Amount at maturity or within thirty (30) days of
acceleration in accordance with this Agreement; (v) the Company's
breach of performance of its obligations in connection with a Put
Right on any Loan, together with its failure to cure within ten (10)
days of written notice of such default received by the Company from
the Bank; (vi) failure by such Borrower to pledge additional Shares as
Collateral when required to do so as a result of a decrease in the
Fair Market Value per Share and failure to cure such default within
ten (10) days of written notice of such default received by the
Borrower from the Bank; or (vii) a default and acceleration of the
indebtedness under the Credit Agreement or, at such time as the Credit
Agreement indebtedness shall have been paid in full and not refunded
or refinanced and the commitments with respect thereto have been
terminated, an event shall have occurred which would have been a
default under the deemed Credit Agreement and the expiration of all
applicable periods of grace shall have occurred such that the lenders
thereunder would have be permitted to accelerate the indebtedness
thereunder (in the case of each of (i) - (vii), a "Putable Loan"). At
the closing of a Put Right, subject to the provisions of Section 4a of
this Agreement, the Company shall purchase the Putable Loan from the
Bank for an amount equal to (i) the Outstanding Amount of the Putable
Loan, plus (ii) interest accrued, through the date of purchase, on
such Putable Loan not to exceed one year's interest; PROVIDED,
HOWEVER, that if the principal amount of the Putable Loan exceeds the
Ceiling Amount, the Company shall purchase the Putable Loan from the
Bank for an amount equal to (i) the Ceiling Amount, plus (ii) interest
accrued, through the date of purchase, on the Ceiling Amount not to
exceed one year's interest.
b. SURVIVAL OF PUT RIGHTS. The Company acknowledges that the Put
Right with respect to a Borrower's Loan, and the Company's obligation
to purchase thereunder, shall survive such Borrower's death or other
termination of such Borrower's employment with the Company and its
affiliates. The Company further acknowledges and agrees that no
waiver or failure to exercise any right granted by this Agreement or
any Note or Pledge Agreement or extension of the times set
8
<PAGE>
forth herein for performance or amendment or modification in any
respect with or without the consent of the Company of any provision of
any of those agreements nor any forbearance by the Bank whatsoever
with respect to any of those agreements shall release, discharge,
modify or change the obligation of the Company hereunder.
c. CLOSING. The Company shall purchase the Putable Loan within
thirty (30) days of receipt by the Company of a written notice from
the Bank which identifies the Putable Loan and states the Bank's
intent to exercise the Put Right with respect thereto. At the
closing, against delivery of the purchase price, the Bank shall
deliver the Note, the Pledge Agreement and the Collateral to the
Company and transfer to the Company all of its rights with respect to
the Putable Loan, including, without limitation, an assignment of the
applicable Note and Pledge Agreement and all rights thereunder, free
and clear of any liens, claims or encumbrances created by or through
the Bank, including, without limitation, under the Line of Credit
Program, other than those assigned to the Company pursuant to this
Agreement. The transfer of the Putable Loan by the Bank shall be
without recourse or warranty except warranty of title to the Note.
d. RECOVERY OF DEFICIENCY BY THE BANK. To the extent that the
Company receives from a Borrower on account of his or her Note an
amount in excess of the purchase price paid by the Company for such
Borrower's Putable Loan under Section 5c of this Agreement, the
Company shall promptly remit such amounts to the Bank.
6. COMPANY'S RIGHT TO CALL A LOAN FROM THE BANK.
a. CALL RIGHT. The Bank shall promptly notify the Company in
writing (the "Notice") in the event that a Borrower is ninety (90)
days past due with respect to his or her interest payments under a
Loan. The Bank shall also promptly notify the Company in writing (a
"Collateral Insufficiency Notice") in the event that a Borrower fails
to pledge additional Collateral when required to do so as a result of
a decrease in the Fair Market Value per Share. The Company shall have
the option to purchase and require the Bank to sell (the "Call Right")
a Borrower's Loan in whole or in part from the Bank upon any of the
following events: (i) receipt of a Notice with respect to such
Borrower; (ii) failure of a Borrower to make the required reduction in
his or her Outstanding Amount or to provide required additional
Collateral within sixty (60) days of the date of a Collateral
Insufficiency Notice; (iii) the filing by such Borrower of a voluntary
petition under Title 11; (iv) the commencement of a case against such
Borrower under Title 11; (v) death, Permanent Disability (as defined
in the Stockholders Agreement), termination of employment for any
reason or substantial reduction in the corporate responsibilities
9
<PAGE>
of such Borrower; or (vi) delivery of written notice with respect
thereto to the Bank by the Company (in the case of each of (i) - (vi),
a "Callable Loan"). At the closing of a Call Right, the Company shall
purchase such Borrower's Loan from the Bank for an amount equal to (i)
the Outstanding Amount of such Callable Loan, plus (ii) interest
accrued, through the date of purchase, on such Callable Loan not to
exceed one year's interest; PROVIDED, HOWEVER, that if the principal
amount of such Callable Loan exceeds the Borrower's Ceiling Amount,
the Company shall purchase the Callable Loan from the Bank for an
amount equal to (i) the Ceiling Amount, plus (ii) interest accrued,
through the date of purchase, on the Ceiling Amount not to exceed one
year's interest.
b. SURVIVAL OF CALL RIGHTS. The Bank acknowledges that the Call
Right with respect to a Borrower's Loan, and the Company's right to
purchase thereunder, in addition to such rights created under Section
6a(v), shall survive the termination of such Borrower's employment
with the Company and its affiliates.
c. CLOSING. The Bank shall sell the Callable Loan to the Company
within thirty (30) days of receipt by the Bank of a written notice
from the Company which identifies the Callable Loan and states the
Company's intent to exercise the Call Right with respect thereto. At
the closing, against delivery of the purchase price, the Bank shall
deliver the Note, the Pledge Agreement and the Collateral to the
Company and transfer to the Company all of its rights with respect to
the Callable Loan, including, without limitation, an assignment of the
applicable Note and Pledge Agreement and all rights thereunder, free
and clear of any liens, claims or encumbrances created by or through
the Bank, including, without limitation, under the Line of Credit
Program, other than those assigned to the Company pursuant to this
Agreement. The transfer of the Callable Loan by the Bank shall be
without recourse or warranty except warranty of title to the Note.
d. RECOVERY OF DEFICIENCY BY THE BANK. To the extent that the
Company receives from a Borrower on account of his or her Note an
amount in excess of the purchase price paid by the Company for such
Borrower's Callable Loan under Section 6c of this Agreement, the
Company shall promptly remit such amounts to the Bank.
7. ASSIGNMENT BY THE COMPANY. The Company may from time to time assign
any of its rights and obligations hereunder to Holding Corp.; PROVIDED, HOWEVER,
that in the event of such assignment, the Company shall remain primarily liable
to perform all of such obligations.
8. APPLICATION OF STOCKHOLDERS AGREEMENT AND VOTING TRUST AGREEMENT;
LETTER AGREEMENT.
10
<PAGE>
a. APPLICATION. The Collateral shall at all times remain subject to
the terms and significant restrictions of each of the Stockholders
Agreement and the Voting Trust Agreement as the same may be amended
from time to time, including, without limitation, the right of
Designated Management Optionees, as defined in the Stockholders
Agreement, and Holding Corp. to purchase Shares subject thereto
pursuant to the terms of such Stockholders Agreement, free and clear
of all claims, liens and encumbrances created under or in connection
with the Line of Credit Program and rights of refusal with respect to
any transfer, including a transfer upon foreclosure on the Shares or
taking the Shares in lieu of foreclosure. One-half (1/2) of all cash
proceeds of any purchase of Shares included in the Collateral,
including payments of principal of any promissory note issued to pay
the purchase price for such purchase, up to the full amount of the
applicable Loan, plus accrued interest, shall be applied to payment of
the Loan by or on behalf of the applicable Borrower, with any excess
being held by or returned to the Borrower, and any such promissory
note shall be pledged as Collateral to secure the repayment of the
Loan. The Company shall remain subject to Put Rights and retain Call
Rights hereunder to the extent such proceeds are insufficient to repay
the Loan.
b. LETTER AGREEMENT. Concurrently with the execution of this
Agreement, the Bank shall execute a letter agreement regarding the
Stockholders Agreement in substantially the form contained in EXHIBIT
C attached hereto and hereby made a part hereof.
9. PROGRAM COMMITTEE. The Bank shall be entitled to rely on the
authority of the Program Committee with respect to all matters concerning the
Line of Credit Program. The Program Committee presently consists of Bernard F.
Brennan and Myron Lieberman, and the Bank shall be entitled to rely on their
constituting the Program Committee until such time as the Company provides
notice to the contrary.
10. TERMINATION. This Agreement shall terminate on the later of the end
of the Program Term or at such time as there are no outstanding Lines or Loans.
It is understood that all Loans are required to be paid on or before June 21,
1998.
11. FEES. The Company shall pay fees, in an amount mutually agreeable to
the parties hereto, to the Bank in connection with the Line of Credit Program.
12. TERMINATION OF THE BANK'S COMMITMENT TO MAKE LOANS.
a. ANY LOANS. The Bank's commitment to advance any additional funds
pursuant to the Line of Credit Program shall terminate upon the
occurrence of any of the following events:
11
<PAGE>
(1) the filing by the Company or Holding Corp. of any voluntary
petition under Title 11 or the commencement of a similar proceeding by
the Company or Holding Corp. under any similar state or federal
statute;
(2) the commencement of a case against the Company or Holding
Corp. under Title 11 by a third party:
(i) resulting in an order for relief which shall not have
been stayed or dismissed within sixty (60) days; or
(ii) in which an order for relief shall not have been
entered and which shall not have been stayed or dismissed within
sixty (60) days after the commencement thereof;
(3) any breach of the Stockholders Agreement, provided such
breach has a material adverse effect on the Bank;
(4) occurrence of a default and the expiration of all applicable
periods of grace permitting the lenders thereunder to accelerate the
indebtedness under the Credit Agreement; or
(5) failure, as a result of breach by the Company, to close when
required under Section 5c of this Agreement.
b. PUTABLE LOAN. If a Borrower's Loan shall become a Putable Loan
pursuant to Section 5a of this Agreement, the Bank shall not be under
any obligation thereafter to make a Loan to such Borrower, and shall
be permitted to terminate such Borrower's Line.
c. REGULATION U. If the Shares shall become margin securities under
Regulation U promulgated by the Federal Reserve Board, the Bank shall
not be under any obligation thereafter to make a Loan to such
Borrower, and shall be permitted to terminate such Borrower's Line if
such Borrower does not provide the customary undertaking as to the use
of such Borrower's Line within ten (10) days of the written request
therefor by the Bank.
d. UPDATED FINANCIAL INFORMATION. If a Borrower does not provide
the Bank with annual updates to the financial information requested by
the Bank pursuant to Section 4d of this Agreement, the Bank shall not
be under any obligation thereafter to make a Loan to such Borrower,
and shall be permitted to terminate such Borrower's Line.
12
<PAGE>
e. DEFAULTED LOAN. If a Borrower defaults under the terms of the
Note, the Bank shall not be under any obligation thereafter to make a
Loan to such Borrower, and shall be permitted to terminate such
Borrower's Line.
13. MISCELLANEOUS.
a. WAIVER. The failure in any one or more instances of a party to
insist upon performance of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said party of any breach of any of the
terms, covenants or conditions of this Agreement, shall not be
construed as a subsequent waiver of any such terms, covenants,
conditions, rights or privileges, but shall continue and remain in
full force as if no such forbearance or waiver had occurred. No
waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party.
b. FURTHER ASSURANCES. The Bank and the Company agree that they
shall execute such further documents and do such other acts and things
as may be necessary or proper to effectuate any transaction
contemplated by this Agreement.
c. NO REPRESENTATIONS, WARRANTIES OR GUARANTY. The Company shall
not at any time be deemed to have made any representation or warranty,
express or implied, with respect to the validity, enforceability or
collectibility of any Loan or the creditworthiness of any Borrower.
Under no circumstances shall the Company be deemed to be the guarantor
of payment for any Loan.
d. GOVERNING LAW. The validity, interpretation and performance of
this Agreement shall be governed by and construed in accordance with
the internal laws of the State of Illinois applicable to contracts
made in that state, without giving effect to the conflict of laws
principles thereof.
e. REMEDY. Each of the parties hereto acknowledges and agrees that,
in the event of a breach of this Agreement, the nonbreaching party
will not have an adequate remedy in money or damages. Each party
hereto agrees that in the event of a breach hereunder, the
nonbreaching party shall be entitled to obtain an injunction, without
notice or bond, against such breach from a court of competent
jurisdiction, immediately upon request.
f. NOTICE. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be delivered in person, sent
by registered or certified mail, and addressed as specified below or
to such other address as may be substituted by written notice from one
party to the others, delivered by an air courier who guarantees next
day delivery and so addressed or sent by telecopy to
13
<PAGE>
the number specified below or to such other number as may be
substituted by written notice from one party to the others with a copy
of such telecopy to follow by United States mail, postage prepaid:
(a) If to the Bank The Northern Trust Company
as follows: 50 South LaSalle Street
Chicago, Illinois 60675
Attn: Ms. Deborah A. Hopkins,
Vice President
Telecopy No. (312) 557-2964
Telephone No. (312) 444-3580
with a copy to: Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attn: Thomas N. Jersild, Esq.
Telecopy No. (312) 701-7711
Telephone No. (312) 701-7022
(b) If to the Company Montgomery Ward & Co., Incorporated
as follows: One Montgomery Ward Plaza
Chicago, Illinois 60610
Attn: Senior Vice President - Finance
Telecopy No. (312) 467-7421
Telephone No. (312) 467-3242
with a copy to: Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attn: John E. Lowe, Esq.
Telecopy No. (312) 715-4800
Telephone No. (312) 715-4020
and such notice shall be conclusively deemed given when delivered in
person, five (5) days after mailing same, one (1) day after delivery
to the air courier for next day delivery, or if sent by telecopy, on
the next business day after it was sent.
14
<PAGE>
g. ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement between the parties and supersedes all previous agreements
and understandings, if any (whether written or oral, express or
implied), between the parties hereto with respect to the subject
matter hereof. No terms, conditions, understanding or agreement
purporting to modify or amend the terms of this Agreement shall be
binding unless such modification or amendment is made in writing,
executed by the parties hereto, expressly refers to this Agreement and
recites its intention to modify or amend this Agreement.
h. SEVERABILITY. The invalidity of any provision of this Agreement
or a portion of the provisions shall not affect the validity of any
other provision of this Agreement or the remaining portion of the
applicable provision. In the event any one or more of the provisions
of this Agreement shall for any reason be held to be invalid, illegal
or unenforceable, the parties consent that a court of competent
jurisdiction may modify it so as to create the valid, legal and
enforceable commitment which comes closest to the intention of the
parties underlying the provision so modified.
i. HEADINGS. The Section and subsection headings as to the content
of particular Sections and subsections are for the convenience of the
parties and are in no way to be construed as part of this Agreement or
as a limitation of the scope of the particular Sections or subsections
to which they refer.
j. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all
such counterparts shall constitute but one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
THE NORTHERN TRUST COMPANY
By:________________________________________
Its:____________________________________
MONTGOMERY WARD & CO., INCORPORATED
By:_________________________________________
Its:________________________________________
15
<PAGE>
SCHEDULE I
BORROWER CEILING AMOUNT
- - - -------- --------------
Irving P. Hammer $ 75,000.00
Carol J. Harms $ 29,837.42
Robert A. Kasenter $297,035.42
G. Tad Morgan $ 75,000.00
George C. Overholt, Jr. $ 74,439.91
James J. Poetz $ 63,051.43
<PAGE>
[LETTERHEAD]
August 31, 1995
Robert J. Stevenish
106 Bremen Lane
McMurray, Pa. 15317
Dear Bob:
This letter confirms our offer to you as Executive Vice President,
Operations, with responsibility for stores and distribution, reporting to
Bernie Brennan, Chairman and Chief Executive Officer and serving as a member
of the Executive Committee. Your compensation plan will include the following:
1) Base salary of $450,000 annually, paid semi-monthly.
2) Target bonus on the Performance Management Plan of $150,000. Based upon
the achievement of specific objectives for the year, you have the
opportunity to earn up to 150% of your target bonus. For fiscal 1995,
your target bonus of $150,000 will be guaranteed.
3) Participation in the Montgomery Ward Long Term Incentive Plan. For the
1993-1995 cycle, you will participate at 50% of the normal award, with
a target of $78,750. Thereafter, you will continue to participate at
the full award level, which has a target level of 35% of your average
base pay.
4) You will receive a hiring bonus of $50,000 within 30 days of employment
to handle miscellaneous expenses of your move. This payment will not
offset payments due in paragraph 6.
5) You will participate in the senior officer perquisites, including;
financial counseling, tax assistance, executive medical, and annual
physical examination.
6) Montgomery Ward will provide you with a full relocation plan, including
movement of household goods, househunting trips, and home purchase
option at 100% of appraised value. In addition, Montgomery Ward will
pay your closing costs on your home purchase, plus up to two points on
your financing of a new home. Your temporary housing expenses in the
Chicago area for the first six months (or until relocation if sooner)
will be paid by Montgomery Ward.
<PAGE>
Robert J. Stevenish
August 31, 1995
Page Two
7) You will receive a stock option for 55,000 shares of Montgomery Ward
Holding stock at the fair value of $24.50 as of the date of acceptance.
These options will vest as follows:
25,000 Nov. 1, 1996
30,000 Nov. 1, 1997
All stock options in point 7 are subject to the Terms and Conditions of
the Stockholders Agreement. (A copy of the current 10-Q is included.)
8) If Montgomery Ward initiates a separation of your employment prior to
November 1, 1997 for any reason other than "Cause" as defined below,
you will receive:
A) The greater of your base salary and P.M.P. bonus through November 1,
1997 or one year's base salary. After November 1, 1997, you will
participate in the normal Senior Officer Severance Plan of one year's
base salary.
B) The continuation of the vesting of your stock and stock options
through November 1, 1997.
"Cause" shall mean (i) your willful failure to substantially perform
your duties hereunder, (ii) your willful failure to follow a written,
lawful order or written directive from the Board of Directors or Chief
Executive Officer of the company, or (iii) your conviction of any kind
of felony or any misdemeanor involving moral turpitude. For purposes of
this paragraph, no act, or failure to act, on your part shall be
considered "willful" unless such act, or failure to act by you was not
in good faith and was without reasonable belief that your action or
omission was in the best interest of the Company.
If you voluntarily leave Montgomery Ward, or are separated for "Cause",
you will receive no severance payments, nor will your stock continue to
vest beyond your separation date.
<PAGE>
Robert J. Stevenish
August 31, 1995
Page Three
I am happy that you are considering joining Montgomery Ward. If you are in
agreement with this letter, please sign below and return it to me whereupon
it will become our binding agreement. I am certain that your management
ability can help move Montgomery Ward to the premier position in the Industry.
Sincerely,
/s/ Robert A. Kasenter
- - - ------------------------------------
Robert A. Kasenter
cc: Bernie Brennen
/s/ Robert J. Stevenish
----------------------------
Robert J. Stevenish
August 31, 1995*
----------------------------
Date
*Employment to commence November 1, 1995 or any earlier date that I am
released from my employment obligations to Hills' Stores Company.
<PAGE>
CONFIDENTIAL
January 28, 1997
Tom Grimes
c/o Tremmingham's
37 Front Street
Hamilton, Bermuda
Dear Tom:
This letter confirms our offer to you as President, Hardlines for Montgomery
Ward with responsibility for all merchandising activities for Electric Avenue,
Auto Express, Soft Home and Furniture. Additionally, you will be the Chief
Executive Officer for Lechmere Stores. You will report to Roger Goddu, Chairman
and Chief Executive Officer and serve as a member of the Montgomery Ward
Executive Committee. Your compensation plan will include the following:
1.) Base salary of $500,000 annually, paid semi-monthly.
2.) Target bonus on the Performance Management Plan of $200,000. Based
upon the achievement of superior performance against specific
objectives for the year, you have the opportunity to earn up to 150%
of your target bonus. For fiscal 1997, your target bonus of $200,000
will be guaranteed.
3.) You will receive a hiring bonus of $50,000 within 30 days of
employment to handle miscellaneous expenses of your move.
4.) You will participate in the senior officer perquisites, including;
financial counselling, tax assistance, executive medical, and annual
physical examination.
5.) Montgomery Ward will provide you with a relocation plan, including
movement of household goods, househunting trips, and payment of your
closing costs on your home purchase, plus up to two points on your
financing of a new home. Your temporary housing expenses in the
Chicago area for the first six months (or until relocation if sooner)
will be paid by Montgomery Ward.
<PAGE>
Tom Grimes
January 28, 1997
Page 2
6.) As soon as possible after your start date, you will receive a stock
option for 500,000 shares of Montgomery Ward Holding stock at the 1997
fair market value as of December 29, 1996. These options will vest as
follows:
200,000 - February 1, 1998
150,000 - February 1, 1999
150,000 - February 1, 2000
All stock options in point 6 are subject to the Stockholder's
Agreement which you will be required to sign as a Type 2 Management
Shareholder. (A copy of the current 10-Q and latest Prospectus are
included).
7.) If Montgomery Ward initiates a separation of your employment prior to
February 1, 2000 for any reason other than "Cause" as defined below,
you will receive:
A) Your base salary for twenty-four months. After February 1,
2000, you will participate in the normal Senior Officer
Severance Plan that exists as of that date.
B) The continuation of the vesting of your stock and stock
options through February 1, 2000.
"Cause" shall mean (i) your willful failure to substantially perform
your duties hereunder, (ii) your willful failure to follow a written,
lawful order or written directive from the Board of Directors or Chief
Executive Officer of the company, or (iii) your conviction of any kind
of felony or any misdemeanor involving moral turpitude. For purposes
of this paragraph, no act, or failure to act, on your part shall be
considered "willful" unless such act, or failure to act by you was not
in good faith and was without reasonable belief that your action or
omission was in the best interest of the Company.
In the event of a Change of Control where the Company is sold to a
third party you may elect to leave the Company upon thirty (30) days
written notice to the Chairman and Chief Executive Officer. If you
elect this separation reason, you will receive
<PAGE>
Tom Grimes
January 28, 1997
Page 3
one year's base salary in a lump sum. All stock and stock options
will vest in accordance with the normal terms of the Stockholder's
Agreement and will NOT be accelerated. You must elect this option
within thirty (30) days of the Change of Control or it will terminate
as an option to you.
If you voluntarily leave Montgomery Ward, or are separated for
"Cause", you will receive no severance payments, nor will your stock
continue to vest beyond your separation date.
I am happy that you are considering joining Montgomery Ward. If you are in
agreement with this letter, please sign below and return it to me whereupon it
will become our binding agreement. I am certain that your management ability
can help move Montgomery Ward to the premier position in the Industry.
Sincerely,
Robert A. Kasenter
Executive Vice President
Human Resources
cc: Roger Goddu
/s/ Tom Grimes
______________________________
Tom Grimes
<PAGE>
[Letterhead]
April 19, 1996
Mike Searles
64 Balfour Drive
West Hartford, CT 07761
Dear Mike:
This letter will confirm our offer to you to join Montgomery Ward as
Executive Vice President Apparel and Gold 'N Gems. You will report to the
Chairman and C.E.O. and become a member of the Executive Committee of
Montgomery Ward Retail. Your compensation plan will be as follows:
1.) Base salary will be $500,000 annually, paid semi-monthly.
2.) Target bonus on the Short-Term Performance Management Plan will be
$250,000 annually. Your objectives under this incentive plan will
be set by the Board Committee on Senior Executive Compensation as
required by the tax and S.E.C. regulations. Under the provisions of
this plan, you can earn up to 150% of the target amount by
exceeding the objectives. For 1996 and 1997, your target bonus of
$250,000 will be guaranteed.
3.) You will participate in the Executive Long Term Incentive Plan with
a target award of 50% of your average annual base salary for the
three year cycle. For the 1994-1996 cycle, which ends in December
of 1996, you will participate at a target amount of $150,000.
Thereafter, you will participate at the full 50% target level for
all cycles, including the 1995-1997 and 1996-1998 cycles. A copy
of the plan description is attached.
4.) You will participate in all Senior Officer Perquisite Plans,
including In-Town Limo Service, Financial Planning, Tax Preparation,
Supplemental Medical and Life coverage and annual physicals. You
will also participate in the Montgomery Ward Change of Control
Security Plan for Senior Officers. Copies of these plans are attached.
<PAGE>
Mike Searles
April 19, 1996
Page 2
5.) The Stock Ownership Committee will be requested (and endorsed by
Bernie Brennan) to grant you options for 300,000 shares of
Montgomery Ward Holding Stock at $24.50 per share. These options will
have a ten year term and will vest as follows:
150,000 June 1, 1997
150,000 June 1, 1998
These Stock Options will be offered in accordance with the Terms and
Conditions of the Stockholders Agreement. A copy of the current
Prospectus is included.
6.) Montgomery Ward will provide you with a full relocation plan,
including movement of household goods, househunting trips, and home
purchase at 100% of the $1.5 million purchase value of your home in
West Hartford. In addition, Montgomery Ward will pay your closing
costs on your home purchase in the Chicago area, plus up to two
points on your financing of a new home. Your temporary housing
expenses in the Chicago area for the first four months (or until
relocation if sooner) will be paid by Montgomery Ward.
7.) If Montgomery Ward initiates a separation of your employment for any
reason other than "Cause" as defined below, or if you terminate
your employment for "Good Reason" as defined below, you will receive
the higher of either your base pay and most recent short term bonus
award through May 31, 1998; the payments provided in the Montgomery
Ward Change of Control Security Plan; or, 18 months base salary plus
1 1/2 times your most recent short term P.M.P. Award. (See attached
plans.) Also, all stock options in point 5 above will immediately
vest if you are separated by the Company without "Cause", or if you
terminate your employment for "Good Reason" as defined below.
Additionally, you will be permitted to retain your health care
coverage at the associate rate for 18 months following termination.
<PAGE>
Mike Searles
April 19, 1996
Page 3
"Cause" shall mean (i) your willful failure to substantially perform
your duties hereunder and to remedy such failure within ninety (90)
days after receiving notice from the Board of Directors of the
Company or their representative specifying the details thereof,
(ii) your willful failure to follow a written, lawful order or
written directive from the Board of Directors or Chief Executive
Officer of the Company or their representative and to remedy such
failure within ninety (90) days after receiving notice from the
Board of Directors of the Company or their representative specifying
the details thereof, or (iii) your conviction of any kind of felony
or your conviction of any misdemeanor involving moral turpitude that
negatively reflects on the Company. For purposes of this paragraph,
no act, or failure to act, on your part shall be considered "willful"
unless such act, or failure to act by you was not in good faith and
was without reasonable belief that your action or omission was in the
best interest of the Company. NOTE: "Cause" does not include poor
work performance.
If you are not made President, Montgomery Ward Retail on or before
January 1, 1998, or if another Executive is named President,
Montgomery Ward Retail during that period, you may elect (within
90 days and with 90 days written notice) to treat your employment as
separated without "Cause" and will receive a special severance plan
equal to 18 months base salary plus 1 1/2 times your most recent
short term P.M.P. Award in lieu of any other severance plan and your
stock options in point 5 above will immediately vest. Additionally,
you will be permitted to retain your health care coverage at the
associate rate for the severance period.
If you voluntarily leave Montgomery Ward without "Good Reason", or
are separated for "Cause", you will receive no severance payments,
nor will your stock or stock options (as the case may be) continue
to vest beyond your separation date. "Good Reason" shall mean any
action by Montgomery Ward which, without you prior written consent
significantly reduces your job responsibilities, job title,
compensation, or benefits.
<PAGE>
Mike Searles
April 19, 1996
Page 4
If you are in agreement with the compensation plan as detailed above, please
sign this letter below and return it to me.
Mike, I am pleased that you will be joining Montgomery Ward and I look forward
to working with you on moving our business to the next level.
Sincerely,
/s/ Robert A. Kasenter
________________________
Robert A. Kasenter
Executive Vice President
Human Resources
cc: Bernie Brennan
Silas Cathcart
Dan Porter
/s/ Michael S. Searles
________________________
Mike Searles
4/22/96
________________________
Date
<PAGE>
[LETTERHEAD]
October 24, 1995
Frederick E. Meiser
100 Happy Trail
San Antonio, Texas 78231
Dear Rick:
This letter confirms our offer to you as Vice Chairman, Lechmere. Until his
retirement on or before April 1, 1996, you will be reporting to Dick Bergel.
After Dick's retirement, you will become the Chairman and CEO, Lechmere and
you will report to the Chairman, Montgomery Ward Retail, who currently is
Bernie Brennan. Your compensation plan will include the following:
1) Base salary of $400,000 annually, paid semi-monthly.
2) Target bonus on the Performance Management Plan of $200,000. Based upon
the achievement of specific objectives for the year, you have the
opportunity to earn up to 150% of your target bonus. For 1995, your
bonus will be guaranteed at $100,000.
3) Participation in the Montgomery Ward Long Term Incentive Plan. For the
1994-1996 cycle, you will participate at 100% of the normal award, with
a target of $80,000. Thereafter, you will continue to participate at
the full award level, which has a target level of 20% of your average
base pay.
4) You will receive a hiring bonus of $50,000 grossed up for federal and
state income taxes only at 31% and 5.5% respectively within 30 days of
employment to handle miscellaneous expenses of your move.
5) You will participate in the senior officer perquisites, including:
financial counseling, tax assistance, executive medical, and annual
physical examination.
6) Montgomery Ward will provide you with a full relocation plan, including
movement of household goods, househunting trips, and home purchase at
100% of appraised value. In addition, Montgomery Ward will pay your
closing costs on your home purchase, plus up to two points on your
financing of a new home. Your temporary housing expenses in the Boston
area for the first four months (or until relocation if sooner) will be
paid by Montgomery Ward.
<PAGE>
Frederick E. Meiser
October 24, 1995
Page Two
7) The Board Stock Ownership Committee will be asked to grant you a stock
option for 100,000 shares of Montgomery Ward Holding stock at the fair
value of $24.50 as of the date of acceptance of this offer. These
options will vest as follows:
50,000 November 1, 1996
50,000 November 1, 1997
All stock options in point 7 are subject to the terms and conditions of
both the Montgomery Ward Stock Option Plan and the Stockholders
Agreement. (A copy of the current Prospectus is included.) Your
acceptance of this letter shall be deemed a joinder in, and your
agreement to be bound by such Stockholders Agreement.
8) If Montgomery Ward initiates a separation of your employment for any
reason other than "Cause" as defined below, you will receive:
A) The higher of either your base pay through November 1, 1997 or the
Senior Officer Severance Plan of one year's base salary. (See
attached plan.)
B) The continuation of the vesting of your stock options through
November 1, 1997.
"Cause" shall mean (i) your willful failure to substantially perform
your duties hereunder, (ii) your willful failure to follow a written,
lawful order or written directive from the Board of Directors or Chief
Executive Officer of the Company, or (iii) your conviction of any kind
of felony or any misdemeanor involving morale turpitude. For purposes
of this paragraph, no act, or failure to act, on your part shall be
considered "willful" unless such act, or failure to act by you was not
in good faith and was without reasonable belief that your action or
omission was in the best interest of the Company.
If you are not made C.E.O. Lechmere on or before April 1, 1996, you may
elect (within 30 days thereafter) to treat your employment as
separated without "Cause" as outlined above.
<PAGE>
Frederick E. Meiser
October 24, 1995
Page Three
If you voluntarily leave Montgomery Ward, or are separated for "Cause",
you will receive no severance payments, nor will your stock or stock
options (as the case may be) continue to vest beyond your separation
date.
I am happy that you are joining Lechmere. If you are in agreement with this
letter, please sign below and return it to me. I am certain that your
management ability can help move Lechmere to the premier position in the
Industry.
Sincerely,
/s/ Robert A. Kasenter
- - - ---------------------------
Robert A. Kasenter
cc: Bernie Brennan
/s/ Frederick E. Meiser
----------------------------------
Frederick E. Meiser
10/26/95
----------------------------------
Date
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
52-WEEK PERIOD ENDED
DECEMBER 28, 1996
Class A Class B
------------- ------------
Earnings Available for Common
Shareholders (117,717,998) (131,205,047)
Weighted Average of Shares
Outstanding:
Shares Outstanding 19,058,574 25,000,000
Shares Issued Upon Assumed
Exercise of Stock Options -- --
Shares Assumed to be
Repurchased Under Treasury
Stock Method (At Fair Market
Value of $17.00) -- --
Total Number of Options
Considered As Common Stock
Equivalents -- --
Total Weighted Average
Number of Shares 19,058,574 25,000,000
Earnings Per Share (6.18) (5.25)
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
52-WEEK PERIOD ENDED
DECEMBER 30, 1995
Class A Class B
------------- ------------
Earnings Available for Common
Shareholders (6,456,000) (7,073,000)
Weighted Average of Shares
Outstanding:
Shares Outstanding 20,824,514 25,000,000
Shares Issued Upon Assumed
Exercise of Stock Options -- --
Shares Assumed to be
Repurchased Under Treasury
Stock Method (At Fair Market
Value of $24.50) -- --
Total Number of Options
Considered As Common Stock
Equivalents -- --
Total Weighted Average
Number of Shares 20,824,514 25,000,000
Earnings Per Share (.31) (.28)
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
52-WEEK PERIOD ENDED
DECEMBER 31, 1994
Class A Class B
------------- ------------
Earnings Available for Common
Shareholders 67,335,000 67,487,000
Weighted Average of Shares
Outstanding:
Shares Outstanding 19,481,364 25,000,000
Shares Issued Upon Assumed
Exercise of Stock Options 5,434,576 --
Shares Assumed to be
Repurchased Under Treasury
Stock Method (At Fair Market
Value of $26.50) (3,508,561) --
Total Number of Options
Considered As Common Stock
Equivalents 1,926,015 --
Total Weighted Average
Number of Shares 21,407,379 25,000,000
Earnings Per Share 3.15 2.70
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Montgomery Ward Holding Corp:
Re: Form 10-K Report for the year ended December 28, 1996
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice. As of December 28, 1996, the Company
changed from the last-in, first-out ("LIFO") method of accounting for
inventories to the first-in, first-out ("FIFO") method. According to the
management of the Company, this change was made to better measure the current
value of such inventories and provides for a more appropriate matching of
current costs and current revenues consistent with the Company's merchandising
strategy.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 27, 1997
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (File No. 33-57075 and
File No. 33-41161).
Arthur Andersen LLP
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<PAGE>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 32
<SECURITIES> 320
<RECEIVABLES> 226
<ALLOWANCES> 0
<INVENTORY> 1545
<CURRENT-ASSETS> 0
<PP&E> 2113
<DEPRECIATION> 805
<TOTAL-ASSETS> 4879
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<BONDS> 0
175
0
<COMMON> 1
<OTHER-SE> 432
<TOTAL-LIABILITY-AND-EQUITY> 4879
<SALES> 5879
<TOTAL-REVENUES> 6620
<CGS> 4869
<TOTAL-COSTS> 4869
<OTHER-EXPENSES> 2015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111
<INCOME-PRETAX> (375)
<INCOME-TAX> (138)
<INCOME-CONTINUING> (237)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (237)
<EPS-PRIMARY> (6.18)
<EPS-DILUTED> (6.18)
</TABLE>
