<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
----------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 4, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-17540
MONTGOMERY WARD HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware 36-3571585
(State of incorporation) (I.R.S. Employer Identification No.)
Montgomery Ward Plaza, Chicago, Illinois 60671
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 312/467-2000
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
------ ------
As of May 15, 1998 the Registrant had 18,322,215 shares of Class A Common Stock
and 25,000,000 shares of Class B Common Stock outstanding.
================================================================================
<PAGE>
Montgomery Ward Holding Corp.
For the Quarter Ended April 4, 1998
Index to Quarterly Report on Form 10-Q
Page
Part I - Financial Information.
Item 1. Financial Statements (Unaudited).
Consolidated Statements of Income. 3
Consolidated Balance Sheets. 4
Consolidated Statements of Cash Flows. 5
Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 11
Part II - Other Information. 15
2
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the 13-Week
Periods Ended
-----------------------
April 4, March 29,
(In millions, except per share amounts) 1998 1997
-------- ---------
<S> <C> <C>
Revenues
Net sales, including leased and licensed department sales $ 772 $1,119
Direct response marketing revenues, including insurance 219 210
------ ------
Total Revenues 991 1,329
------ ------
Costs and Expenses
Cost of goods sold, including net occupancy and buying expense 625 997
Operating, selling, general and administrative expenses, including
benefits and losses of direct response operations (Note 4) 447 518
Interest expense 13 40
------ ------
Total Costs and Expenses 1,085 1,555
------ ------
Loss before Reorganization Costs and Income Taxes (94) (226)
Reorganization Costs (Note 5) 16 -
------ ------
Loss before Income Taxes (110) (226)
Income Tax Benefit - (85)
------ ------
Net Loss (110) (141)
Preferred Stock Dividend Requirements - 3
------ ------
Net Loss Applicable to Common Shareholders $ (110) $ (144)
------ ------
Net Loss per Common Share (Note 6)
Class A $(2.99) $(3.71)
Class B (2.19) (3.05)
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 4, January 3,
(In millions) 1998 1998
-------- ----------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 234 $ 189
Short-term investments 1 1
Investments of insurance operations 353 358
------ ------
Total cash and investments 588 548
Trade and other accounts receivable 277 234
Accounts and notes receivable from affiliates 8 6
------ ------
Total Receivables 285 240
Merchandise inventories 1,179 1,120
Prepaid pension cost 374 366
Properties, plant and equipment, net of accumulated depreciation
and amortization 1,072 1,088
Direct response and insurance acquisition costs 547 559
Other assets 298 352
Deferred income taxes 299 299
------ ------
Total Assets $4,642 $4,572
====== ======
Liabilities
Short-term debt $ 102 $ 102
Trade accounts payable 419 442
Accrued liabilities and other obligations 700 736
Insurance policy claim reserves 242 241
Long-term debt 355 122
Liabilities subject to compromise (Note 3) 3,472 3,468
------ ------
Total Liabilities 5,290 5,111
Commitments and Contingent Liabilities (Note 7)
Redeemable Preferred Stock 177 177
Shareholders' Deficit
Common stock 1 1
Capital in excess of par value 64 64
Retained deficit (761) (651)
Unrealized gain on marketable equity securities 10 9
Less: treasury stock, at cost (139) (139)
------ ------
Total Shareholders' Deficit (825) (716)
------ ------
Total Liabilities and Shareholders' Deficit $4,642 $4,572
====== ======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the 13-Week
Periods Ended
--------------------
April 4, March 29,
(In millions) 1998 1997
-------- ---------
<S> <C> <C>
Cash flows used for operating activities:
Net loss $(110) $(141)
Adjustments to reconcile net loss to net cash used for
operating activities:
Net receipts of cash relating to disposition of assets
of Lechmere, Inc. and closing of Electric Avenue &
More stores 41 -
Depreciation and goodwill amortization 29 35
Amortization of direct response and insurance
acquisition costs 59 61
Deferred income taxes - (96)
Changes in operating assets and liabilities:
Trade and other accounts receivable (43) 39
Accounts and notes receivable from affiliates (2) 2
Merchandise inventories (60) 143
Prepaid pension cost (8) (4)
Direct response and insurance acquisition costs (47) (57)
Other assets 14 (17)
Trade accounts payable 6 (245)
Accrued liabilities and other obligations (47) (77)
Insurance policy claim reserves 1 3
Liabilities subject to compromise (13) -
----- -----
Net cash used for operating activities (180) (354)
----- -----
Cash flows provided by (used for) investing activities:
Purchase of short-term investments - (43)
Sale of short-term investments - 42
Purchase of investments of insurance operations (215) (101)
Sale of investments of insurance operations 221 142
Capital expenditures (10) (21)
Disposition of properties, plants and equipment, net (1) -
----- -----
Net cash provided by (used for) investing activities $ (5) $ 19
----- -----
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the 13-Week
Periods Ended
--------------------
April 4, March 29,
(In millions) 1998 1997
-------- ---------
<S> <C> <C>
Cash flows provided by financing activities:
Borrowings under Post-Petition Loan and Guaranty Agreement, net $234 $ --
Proceeds from short-term borrowings, net -- 409
Payments of long-term debt (1) (2)
Payments of obligations under capital leases (3) (2)
Cash dividends paid -- (6)
---- ----
Net cash provided by financing activities 230 399
---- ----
Increase in cash and cash equivalents 45 64
Cash and cash equivalents at beginning of period 189 32
---- ----
Cash and cash equivalents at end of period $234 $ 96
==== ====
Supplemental disclosure of cash flow information:
Interest paid $ 8 $ 19
Non-cash investing activity:
Change in unrealized gain on marketable equity securities $ 1 $ 3
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements are unaudited. The
consolidated financial statements reflect all adjustments (consisting only of
normal recurring accruals) which are, in the opinion of management, necessary
for a fair statement of the results for the interim periods presented. The
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto filed with the Securities
and Exchange Commission in the 1997 Annual Report on Form 10-K of Montgomery
Ward Holding Corp. ("MW Holding" or, together with its subsidiaries, the
"Company"). Capitalized terms not otherwise defined herein have the meaning
ascribed to such terms in the 1997 Annual Report on Form 10-K. Certain prior
period amounts have been reclassified to be comparable with the current
period presentation.
Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130 ("SFAS 130"), Reporting Comprehensive Income. This statement establishes
rules for the reporting of comprehensive income and its components.
Comprehensive income (loss) consists of unrealized holding gains and losses
on available-for-sale securities. The adoption of SFAS 130 had no impact on
total shareholders' equity. Comprehensive loss was $109 million and $138
million for the quarterly periods ended April 4, 1998 and March 29, 1997,
respectively.
2. Reorganization
At the close of business on July 7, 1997 (the "Petition Date"), MW Holding
and certain of its U.S. subsidiaries filed petitions for reorganization under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware. These related proceedings are being jointly
administered under the caption "In re Montgomery Ward Holding Corp., a
Delaware corporation, et. al.", Case No. 97-1409 (PJW). The following U.S.
subsidiaries were not included in the bankruptcy filings: Signature
Financial/Marketing, Inc. and its direct and indirect subsidiaries
("Signature"); Marinco Insurance U.S.A., Inc. ("Marinco"); and Montgomery
Ward Foundation.
The Company expects to reorganize its affairs under the protection of Chapter
11 and to propose a Chapter 11 plan of reorganization for itself and the
other filing subsidiaries, including Montgomery Ward & Co., Incorporated
("Wards"). The Bankruptcy Court has granted the Company's request to extend
its exclusive right to file a plan of reorganization through September 15,
1998. The Company expects to file a motion to further extend such exclusive
right to file a plan of reorganization. Although management expects to file a
plan of reorganization in late 1998 or 1999, which would contemplate
emergence in 1999, there can be no assurance at this time that a plan of
reorganization will be proposed by the Company or approved or confirmed by
the Bankruptcy Court, or that such plan will be consummated. After the
expiration of the exclusivity period, creditors of the Company have the right
to propose alternative plans of reorganization. Any plan of reorganization,
among other things, is likely to result in elimination of the equity of
existing shareholders, as a result of the issuance of equity to creditors or
new investors.
7
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Reorganization (continued)
The accompanying financial statements have been prepared on a going concern
basis, which contemplates continuity of operations, realization of assets and
liquidation of liabilities in the ordinary course of business. However, as a
result of the Chapter 11 filing and circumstances relating to this event,
including the Company's leveraged financial structure and losses from
operations, such realization of assets and liquidation of liabilities is
subject to uncertainty. While under the protection of Chapter 11, the Company
may sell or otherwise dispose of assets, and liquidate or settle liabilities,
for amounts other than those reflected in the financial statements. Further,
a plan of reorganization could materially change the amounts reported in the
financial statements, which do not give effect to all adjustments of the
carrying value of assets or liabilities that might be necessary as a
consequence of a plan of reorganization.
The appropriateness of using the going concern basis is dependent upon, among
other things, confirmation of a plan of reorganization, future profitable
operations, the ability to comply with the terms of the DIP Facility and the
ability to generate sufficient cash from operations and financing
arrangements to meet obligations.
3. Liabilities Subject to Compromise
The principal categories of claims classified as liabilities subject to
compromise under reorganization proceedings are identified below. All amounts
below may be subject to future adjustment depending on Bankruptcy Court
action, further developments with respect to disputed claims, determination
as to the value of any collateral securing claims, or other events.
Additional claims may arise resulting from rejection of additional executory
contracts or unexpired leases by the Company.
<TABLE>
<CAPTION>
April 4,
(In millions) 1998
--------
<S> <C>
Accounts payable $1,375
Long-term Credit Agreement 603
Short-term Credit Agreement 456
Note Purchase Agreements 276
Other Long-term Debt 9
Obligations under capital leases 48
Lease and other contract rejection claims 96
Other liabilities 609
------
$3,472
======
</TABLE>
The Company has $81 million of liabilities due Signature and Marinco which
have been eliminated in consolidation but are subject to compromise.
4. Insurance, Benefits and Losses
Operating, selling, general and administrative expenses include benefits and
losses related to direct response marketing operations of $39 million and $34
million for the 13-week periods ended April 4, 1998 and March 29, 1997,
respectively.
8
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Reorganization Costs
Reorganization costs recorded in the first quarter of fiscal 1998 of $16
million consisted of professional fees, fees relating to the Interim Account
Agreement (see Note 8), accrued retention bonuses not yet paid and other
expenses incurred relating to reorganization activities.
6. Net Loss Per Common Share
Net loss per common share is computed as follows:
<TABLE>
<CAPTION>
For the 13-Week For the 13-Week
Period Ended Period Ended
April 4, 1998 March 29, 1997
------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
(In millions, except share and per
share amounts) Class A Class B Class A Class B
------------------ ------------------ ------------------ -------------
Net loss applicable to common
shareholders $ (55) $ (55) $ (68) $ (76)
Weighted-average number of common
shares outstanding 18,322,237 25,000,000 18,322,248 25,000,000
Net loss per share $ (2.99) $ (2.19) $ (3.71) $ (3.05)
</TABLE>
Basic and diluted earnings per share are the same for the 13-week periods
ended April 4, 1998 and March 29, 1997, as all common stock equivalents are
antidilutive due to the net loss incurred during these periods.
7. Commitments and Contingent Liabilities
MW Holding, Wards and its subsidiaries are engaged in various litigation and
have a number of unresolved claims, as set forth in the 1997 Annual Report on
Form 10-K. 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.
8. Customer Credit Agreements
On April 3, 1998, the Bankruptcy Court approved an interim amendment to the
Bank Program and Account-Related Agreements ("Interim Account Agreement")
that provides the Company the ability to utilize the private label credit
card through the expected duration of the Company's Chapter 11 status. The
Interim Account Agreement provides for additional payments to Montgomery Ward
Credit Corporation ("Montgomery Ward Credit"), an affiliate of General
Electric Capital Corporation, of $2.5 million for the months of January 1998
through June 1998, $3.0 million per month for the remainder of 1998, $2.5
million per month from January 1999 though June 1999, and $2.0 million per
month from July 1999 through December 1999.
9
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Customer Credit Agreements (continued)
Wards is obligated to make all such payments through December 1999, except in
the circumstance where the Company would be liquidated, then payments shall
be made through the later of the date of liquidation termination or the last
Thursday in June 1999. The Interim Account Agreement will terminate on the
earliest of the following events: (a) the date the Bankruptcy Court enters an
order for rejection of the Agreements, (b) the sale of the portfolio of
receivables covered by the Agreements, (c) the date the Bankruptcy Court
enters an order for assumption of the Agreements, provided Montgomery Ward
Credit may withdraw its consent to assumption at any time prior to such an
order, (d) if the Bankruptcy Court enters an order after March 18, 1998,
whereby over 100 retail stores are to close, (e) upon adoption by the
Company's or Wards' Board of a resolution for liquidation, or (f) December
31, 1999.
10
<PAGE>
MONTGOMERY WARD HOLDING CORP.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of results of operations for the
Company compares the first quarter of 1998 to the first quarter of 1997. All
dollar amounts referred to in this discussion are in millions, and all income
and expense items are shown before income taxes, unless specifically stated
otherwise.
The Company's business is seasonal, with approximately one-third of the sales
traditionally occurring in the fourth quarter. Accordingly, the results of
operations for the quarter are not necessarily indicative of the results for
the entire year.
Forward-Looking Statements
Information included in this Report on Form 10-Q 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: Bankruptcy Court actions or proceedings
related to the bankruptcy, 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.
Results of Operations
First Quarter 1998 Compared with First Quarter 1997
Consolidated total revenues (net sales and direct response marketing
revenues, including insurance) were $991, compared with $1,329 in the first
quarter 1997, decreasing by $338, or 25%. The $338 total revenue decrease
consisted of a $347 decrease in net sales (a 31% decrease) and a $9 increase
in direct marketing revenues (a 4% increase). Sales on a comparable store
basis decreased approximately 6% after adjusting for the closing of stores,
the exit of the personal computer product line and the effect of the calendar
shift, as discussed below. The increase in direct response marketing revenues
was primarily due to new product line sales. The decrease in net sales is
attributable to the closing of 44 retail stores in conjunction with the
Company's decision in August 1997 to exit its non-core retail businesses, the
closing of 47 retail stores and liquidation and outlet centers in November
1997, and the closing of 8 other underperforming retail stores and 2 other
liquidation and outlet stores during 1997. The closed stores reported net
sales of $245 in the first quarter of 1997. The sales decrease was also
caused by the Company's decision in the third quarter of 1997 to exit its
personal computer product offerings which reported sales of $27 in the first
quarter of 1997. Wards' 1997 fiscal year was a 53-week year; therefore, the
first quarter of 1998 does not consist of comparable weeks with the 1997
first quarter. As the first quarter of 1997 included an additional week of
the post-Christmas selling season, the impact of the calendar shift resulted
in decreased sales of $24. Wards' management also believes that the decline
in promotional offers to Wards' credit cardholders and an aggressive markdown
and promotional advertising strategy to liquidate inventory during the first
quarter of 1997 contributed to the first quarter 1998 sales decrease.
11
<PAGE>
MONTGOMERY WARD HOLDING CORP.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
First Quarter 1998 Compared with First Quarter 1997 (continued)
Gross margin (net sales less cost of goods sold) dollars were $147, an
increase of $25, or 20%, from the first quarter 1997. This increase was due
to an increase in the gross margin rate on sales of $90 and decreased
occupancy and other margin-related expenses of $35 primarily related to the
closed stores, offset by the gross margin impact of decreased sales of $100.
The improvement of 8 percentage points in the gross margin rate in the first
quarter of 1998 as compared to the first quarter of 1997 was due the effects
of the closing of the Lechmere, Wards and Electric Avenue & More stores of 4
percentage points and the increase in the margin rate of comparable stores of
4 percentage points. The 4 percentage point increase in the margin rate at
comparable stores was attributable to the impact of higher margins in the
apparel, home, electronics and appliance businesses as a result of a more
profitable, trend-right product offering, as well as the negative impact of
the aggressive markdowns strategy employed in the first quarter of 1997 to
liquidate inventories.
Operating, selling, general and administrative expenses decreased $71, or
14%, from the first quarter 1997. The decrease is primarily due to the
closing of the Lechmere, Inc. stores of $41, decreased payroll costs
primarily related to the closing of the Wards and Electric Avenue & More
stores of $32, and a decrease in advertising and other promotional costs of
$25, offset by decreased product service income of $15, increased bad debt
expense of $10 and all other costs of $2.
Net interest expense decreased $27, or 68%, from the prior year. The Company
stopped accruing interest on its pre-petition short-term debt in connection
with the Chapter 11 filing. The weighted-average borrowings for the first
quarter of 1998, excluding pre-petition debt, decreased by approximately
$1,000 as compared to the first quarter of 1997.
No income tax benefit was recorded for the first quarter of 1998 as compared
to a benefit of $85 for the first quarter of 1997 due to the Company's
substantial net operating loss carryforwards.
Discussion of Financial Condition
As discussed in Note 2 to the Consolidated Financial Statements, due to the
inability of Wards to negotiate an out-of-court settlement with its lenders,
MW Holding and certain of its subsidiaries have filed petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Court. As a result of
the Chapter 11 filing the Company and those subsidiaries have ceased making
certain debt, interest, trade payable and other liability payments that arose
prior to the Chapter 11 filing. Payments related to these liabilities are
deferred, in most cases, until a plan for reorganization is confirmed by the
Bankruptcy Court.
Net cash used in the Company's operating activities totaled $180 compared to
$354 for the first quarter of 1997, a decrease of $174. The lower cash usage
is summarized as follows:
<TABLE>
<S> <C>
Cash impact of smaller operating loss $119
Net cash received from facility closings 41
All other cash from operations 14
----
$174
====
</TABLE>
12
<PAGE>
MONTGOMERY WARD HOLDING CORP.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Discussion of Financial Condition (continued)
Net cash provided by financing activities totaled $230 for the first quarter
1998, compared to $399 for the first quarter 1997. The Company had borrowed
to the full extent of its financing facilities prior to the Chapter 11
filing, with the exception of the Seasonal Credit Agreement. Net borrowings
under the DIP facility were $234 in the first quarter of 1998.
Wards is the only subsidiary of the Company and, therefore, Wards and its
subsidiaries are the Company's sole source of funds.
Wards entered into the DIP Facility on July 8, 1997, as amended, which was
approved by the Bankruptcy Court on July 31, 1997. Under the DIP Facility,
the lenders have agreed to provide a revolving credit and letter of credit
facility, the maximum amount of which is based on the book value of eligible
inventory (as defined in the DIP Facility), the fair market value of eligible
real property (as defined in the DIP Facility) and the earnings of Signature.
In no case may borrowings exceed $1,000. Under the DIP Facility, Wards may
select among several interest rate options, all of which are based on market
rates plus a margin. A commitment fee is payable based on the unused amount
of the facility. The facility expires on July 7, 1999, or earlier in the case
of an event of default. Total borrowings outstanding were $284 and letters of
credit outstanding were $96 at April 4, 1998. The Company had $605 of
borrowing availability under the DIP Facility at April 4, 1998.
On February 20, 1998, Wards obtained a waiver and second amendment to the DIP
Facility (the "Waiver and Second Amendment Agreement") which was approved by
the Bankruptcy Court on March 31, 1998. The Waiver and Second Amendment
Agreement waived and amended certain provisions of the DIP Facility,
including a reduction in the level of earnings required, as defined in the
DIP Agreement.
The Company is currently in default of the terms of each of the Long-Term
Credit Agreement, the Short-Term Credit Agreement and the Note Purchase
Agreements and no future amounts may be drawn thereunder. The Company was in
default of the Seasonal Credit Agreement, which was terminated as a result of
the Chapter 11 filings. There were no borrowings outstanding under this
agreement.
Signature borrowed $102 under a Credit Agreement ("Signature Credit
Agreement") dated as of September 27, 1996 as amended and restated October
21, 1996 between Signature and various lenders, as further modified and
amended. The proceeds were used to repay the intercompany loan from Wards to
Signature arising from Signature's acquisition of the Amoco Motor Club. The
loan matured on January 31, 1998 and has not been repaid. In March 1998,
Signature received a commitment from a new lender for a secured loan in the
amount of $100 which would enable Signature to repay the amounts borrowed
under the Signature Credit Agreement by June 30, 1998. The lenders have
agreed to extend the maturity date of the loan under the Signature Credit
Agreement to the earlier of June 30, 1998 or the funding of the replacement
loan facility provided Signature, as part of such extension, pledges the
stock of certain Signature subsidiaries, provides limited guarantees from
certain Signature subsidiaries, and agrees to certain additional terms
specified by the lenders. If the new lender's commitment were to be
terminated, the aforementioned extension agreement would also terminate.
In 1997, Wards had facilities available under vendor financing programs
(which are reflected in liabilities subject to compromise) which totaled
$725. At June 28, 1997, these facilities were principally drawn. These
facilities are no longer available due to the Chapter 11 filing.
13
<PAGE>
MONTGOMERY WARD HOLDING CORP.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Discussion of Financial Condition (continued)
The Company intends to improve its financial condition and reduce its
dependence on borrowing by increasing its sales base, controlling expenses
and potentially closing additional stores. Management has reevaluated the
Company's merchandising, marketing, store operations and real estate
strategies, and is in the early stages of implementing the new strategy.
Future cash is expected to continue to be provided by ongoing operations,
receipt of payment for credit sales under the agreements with Montgomery Ward
Credit Companies and borrowings under the DIP Facility.
In April 1998, Wards entered into a non-binding letter of intent with respect
to the sale of its corporate complex in Chicago, IL and the leaseback of
certain office space. As of the date of the filing of this Form 10-Q, Wards
is negotiating definitive documentation with respect to such sale and
leaseback. If such sale were to occur based on the terms of the non-binding
letter of intent, the Company would incur no adverse financial impact.
As discussed in Note 2 to the Consolidated Financial Statements, the
accompanying financial statements have been prepared on a going concern
basis. The appropriateness of using the going concern basis is dependent
upon, among other things, confirmation of a plan of reorganization, future
profitable operations, the ability to comply with the terms of the DIP
Facility and the ability to generate sufficient cash from operations and
financing arrangements to meet obligations.
Other Matters
In 1998, the Company adopted AICPA Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities," which requires that costs of start-up
activities, including organization costs, be expensed as incurred. The
Company had no start-up costs capitalized as of January 3, 1998 and,
therefore, the adoption of this statement had no effect on the financial
statements.
14
<PAGE>
MONTGOMERY WARD HOLDING CORP.
Part II - Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
The Company's Certificate of Incorporation provides that the holders of
shares of New Senior Preferred Stock of the Company are entitled to receive,
before any dividends may be declared or paid upon or set aside for the Common
Stock, cash dividends in quarterly payments on the last business day of
March, June, September and December. The Company did not make any dividend
payment with respect to the New Senior Preferred Stock on June 30, 1997. The
holder of all 1,750 outstanding shares of the New Senior Preferred Stock
would have been entitled to receive $3,066,875 in such dividend on such date.
Such amount also represents the total arrearage on the payment of dividends
on the New Senior Preferred Stock as of the date of filing of this report.
The redemption provisions of the New Senior Preferred Stock have been stayed
by the Chapter 11 proceedings. No further dividends will be declared or paid
prior to the approval of a plan of reorganization.
The Company's Certificate of Incorporation provides that the holders of
shares of Series C Preferred Stock of the Company are entitled to receive,
before any dividends may be declared or paid upon or set aside for the Common
Stock, cash dividends in quarterly payments on the last business day of
March, June, September and December. If for any reason the full dividend on
any payment date is not paid in cash on such date, the unpaid amount thereof
will be automatically, without further action, be deemed added to the
Liquidation Value. The Company did not make any dividend payment with respect
to the Series C Preferred Stock on June 30, 1997. The holder of all 352
shares would have been entitled to receive $1,726,154 in such dividend on
such date. This amount was added to the Liquidation Value.
The redemption provisions of the Series C Preferred Stock have been stayed by
the Chapter 11 proceedings. No further dividends will be declared or paid
prior to the approval of a plan of reorganization.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
15
<PAGE>
MONTGOMERY WARD HOLDING CORP.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
10.(i)(G)(5) Waiver and Second Amendment to Post-Petition Loan and
Guaranty Agreement among Montgomery Ward & Co.,
Incorporated, as borrower; Montgomery Ward Holding
Corp. and other debtor subsidiaries of Montgomery Ward
Holding Corp., as guarantors; General Electric Capital
Corporation, as agent and lender; and various lenders
dated as of February 20, 1998.
10.(ii)(B)(1) Letter Agreement dated March 27, 1998 by and between
Montgomery Ward & Co., Incorporated and Monogram Credit
Card Bank of Georgia amending the Bank Program
Agreement dated as of April 1, 1996.
10.(ii)(B)(2) Letter Agreement dated March 20, 1998 by and between
Montgomery Ward & Co., Incorporated and Montgomery Ward
Credit Corporation amending the Account-Related
Agreement dated as of April 1, 1996.
10.(ii)(B)(3) Interim Amendment Agreement Relating to Bank Program
and Account-Related Agreements dated as of April 1,
1998 by and between Monogram Credit Card Bank of
Georgia, Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated.
27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRANT MONTGOMERY WARD HOLDING CORP.
BY /s/ Thomas J. Paup
----------------------------------
NAME AND TITLE Thomas J. Paup, Executive Vice
President and Chief Financial Officer
DATE: May 15, 1998
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
-------------
<C> <S>
10.(i)(G)(5) Waiver and Second Amendment to Post-Petition Loan and
Guaranty Agreement among Montgomery Ward & Co., Incorporated
as borrower; Montgomery Ward Holding Corp. and other debtor
subsidiaries of Montgomery Ward Holding Corp., as
guarantors; General Electric Capital Corporation, as agent
and lender; and various lenders dated as of February 20,
1998.
10.(ii)(B)(1) Letter Agreement dated March 27, 1998 by and between
Montgomery Ward & Co., Incorporated and Monogram Credit Card
Bank of Georgia amending the Bank Program Agreement dated as
of April 1, 1996.
10.(ii)(B)(2) Letter Agreement dated March 20, 1998 by and between
Montgomery Ward & Co., Incorporated and Montgomery Ward
Credit Corporation amending the Account-Related Agreement
dated as of April 1, 1996.
10.(ii)(B)(3) Interim Amendment Agreement Relating to Bank Program and
Account-Related Agreements dated as of April 1, 1998 by and
between Monogram Credit Card Bank of Georgia, Montgomery
Ward Credit Corporation and Montgomery Ward & Co.,
Incorporated.
27. Financial Data Schedule.
</TABLE>
<PAGE>
10.(i)(G)(5)
WAIVER AND SECOND AMENDMENT TO
POST-PETITION LOAN AND GUARANTY AGREEMENT
WAIVER AND SECOND AMENDMENT TO POST-PETITION LOAN AND GUARANTY
AGREEMENT, dated as of February 20, 1998 (this "Amendment"), among MONTGOMERY
WARD & CO., INCORPORATED, an Illinois corporation and a debtor and debtor in
possession ("Borrower Representative"), MONTGOMERY WARD HOLDING CORP., a
Delaware corporation and a debtor and debtor in possession ("Parent" or
"Guarantor"), as Guarantor, the other Guarantors signatory hereto (together with
Parent and the Borrower Representative, the "Credit Parties"), GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation (in its individual capacity, "GE
Capital"), for itself, as Lender, and as Agent (the "Agent") for Lenders, and
the other Lenders signatory hereto.
RECITALS
--------
WHEREAS, the Borrower Representative, the Guarantors, the Lenders and
the Agent are parties to that certain Post-Petition Loan and Guaranty Agreement,
dated as of July 8, 1997 (as amended by the Waiver and First Amendment to Post-
Petition Loan and Guaranty Agreement, dated as of July 30, 1997 and as further
amended, supplemented or modified, the "Loan Agreement"). The Borrower
Representative and the Guarantors have requested that the Lenders agree to amend
and waive certain provisions of the Loan Agreement. The Borrower Representative,
the Guarantors, the Lenders and the Agent have agreed, upon the terms and
conditions specified herein, to amend and waive certain provisions of the Loan
Agreement, all as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained and for other good and valuable consideration,
the receipt and sufficiency of which are acknowledged, the parties hereto agree
as follows:
SECTION 1. Defined Terms and Interpretation.
(a) The capitalized terms used herein which are defined in the Loan
Agreement, shall have the respective meanings assigned to them in the Loan
Agreement except as otherwise provided herein or unless the context otherwise
requires. In addition, as used in this Amendment, the following terms shall
have the following meanings:
"Second Amendment" shall mean the Waiver and Second Amendment to Post-
Petition Loan and Guaranty Agreement dated as of February 20, 1998.
"Second Amendment Effective Date" shall have the meaning specified in
Section 5 hereof.
(b) Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
(c) No provision in this Amendment shall be interpreted or construed
against any Person because that Person or its legal representative drafted such
provision.
<PAGE>
SECTION 2. Waiver.
(a) As of the Second Amendment Effective Date, Lenders hereby waive
the provisions of Section 6.4 of the Loan Agreement, for the limited purpose of
permitting the Borrower Representative to sell the real property and
improvements that constituted the premises (the "Premises") of the Closed
Locations (as such term is defined in the Waiver to Post-Petition Loan and
Guaranty Agreement, dated November 7, 1997) and of the Borrower Representative's
Greenwood, Indiana retail store and auto center; provided, however, that the
Borrower Representative acknowledges and agrees that it is hereby permitted to
sell or cause to be sold, over and above the limit set forth in Section 6.4 of
the Loan Agreement, Premises which, in the aggregate, have a book value not to
exceed $70,000,000.
(b) The Lenders agree that any Premises sold pursuant to subsection
2(a) above, not in excess of an aggregate of $70,000,000, shall not be included
in calculating the amount of assets permitted to be sold by the Borrower
Representative and its Subsidiaries pursuant to Section 6.4 of the Loan
Agreement.
(c) As of the Second Amendment Effective Date, Lenders hereby waive
(i) the provisions of Section 8.1(r) of the Loan Agreement, for the limited
purpose of permitting the Credit Parties to make modifications to their cash
management systems including the treatment of Automated Clearinghouse
transactions pursuant to that certain Motion of Debtors and Debtors in
Possession for an Order, Pursuant to Sections 363 and 364 of the Bankruptcy
Code, Authorizing Certain Modifications to Cash Management System and Granting
Superpriority Status to Certain Claims that Would Arise Thereunder and (ii) the
provisions of Section 1.4 of the Loan Agreement, for the limited purpose of
permitting the Credit Parties to pay certain prepetition claims pursuant to (x)
Motion of Debtors and Debtors in Possession for an Order Approving Participation
in Consent Decree, Purity Site Work Agreement and Agreement for Participation of
Montgomery Ward in Purity Oil Sales Superfund Site Settlement and (y) Motion of
Debtors and Debtors in Possession for an Order (A) Approving Compromise and
Settlement of Eminent Domain Action, (B) Authorizing the Use of Estate Assets to
Make Certain Tax Payments in Connection Therewith and (C) Modifying the
Automatic Stay to Allow Such State Court Proceedings as Are Necessary for
Implementation of Settlement.
(d) As of the Second Amendment Effective Date, Lenders hereby agree
to waive the provisions of Section 6.3 of the Loan Agreement, for the limited
purpose and solely in connection with, the granting by the Borrower
Representative or any Guarantor of any Lien in favor of any Person acting as an
agent of such Credit Party in connection with any dispositions or sales of the
Premises pursuant to a valid and enforceable order of the Bankruptcy Court,
provided that: (i) any such Lien shall not extend to any assets or properties
other than the Premises that are being disposed of or sold and shall only secure
the fees and obligations owed to such person by such Credit Party and (ii) such
Premises shall not be considered Eligible Real Property for purposes of
calculating the Borrowing Base.
SECTION 3. Amendments to the Loan Agreement. The Loan Agreement is,
effective as of the Second Amendment Effective Date, amended as follows:
(a) Annex E to the Loan Agreement is hereby amended by inserting in
the second line of paragraph (a) thereof after "Fiscal Month" and before the
comma the wording "except the last Fiscal Month of each Fiscal Quarter" and by
adding the following paragraphs (n) and (o) thereto:
2
<PAGE>
"(n) Minimum Requirements for Additional Monthly Reporting. To
Agent and Lenders, (i) within 15 days after the end of each Fiscal Month,
for all stores of the Borrower Representative with respect to which no
order has been entered by the Bankruptcy Court authorizing the closing
thereof ("Comp Stores") in the aggregate, sales, gross margin dollars and
gross margin percent on a preliminary basis for each division within such
Comp Stores for such Fiscal Month, together with the aggregate divisional
sales, gross margin dollars and gross margin percent for such Comp Stores
included in the annual operating plan for that Fiscal Month, (ii) after the
end of each Fiscal Quarter except the last Fiscal Quarter of each Fiscal
Year, a copy of the financial report required to be delivered by the
Borrowers and their Subsidiaries to the United States Trustee in connection
with the chapter 11 cases of the Borrowers and their Subsidiaries that
summarizes, on a cumulative basis, the financial performance and the
results of the last Fiscal Month of such Fiscal Quarter and Fiscal Year to
date contemporaneously with the delivery of such report to the United
States Trustee, but in no event more than 30 days after the end of such
Fiscal Quarter (the "Fiscal Quarter Report") and (iii) after the end of
each Fiscal Year, a copy of the financial report required to be delivered
by the Borrowers and their Subsidiaries to the United States Trustee in
connection with the chapter 11 cases of the Borrowers and their
Subsidiaries that summarizes, on a cumulative basis, the financial
performance and the results of the prior Fiscal Year contemporaneously with
the delivery of such report to the United States Trustee, but in no event
more than 60 days after the end of such Fiscal Year (the "Fiscal Year
Report").
(o) Preliminary Compliance Estimates. No later than 45 days
after the end of each Fiscal Quarter, to Agent and Lenders a statement in
reasonable detail showing the calculations used in determining compliance
with each of the financial covenants set forth in Annex G based upon
Borrower Representative's preliminary estimate of the numbers to be used in
such calculations."
(b) Subsection (b) of Annex G of the Loan Agreement is hereby amended
and restated to read as follows:
"Minimum EBITDA. At the end of each Fiscal Quarter set forth below,
EBITDA, for the respective periods set forth below, shall be an amount not
less than the following:
(i) $(125,000,000) for the three Fiscal Months ending the first
Fiscal Quarter of 1998;
(ii) $(150,000,000) for the six Fiscal Months ending the second Fiscal
Quarter of 1998;
(iii) $(185,000,000) for the nine Fiscal Months ending the third
Fiscal Quarter of 1998;
(iv) $(185,000,000) for the twelve Fiscal Months ending the fourth
Fiscal Quarter of 1998;
(v) $(175,000,000) for the twelve Fiscal Months ending the first
Fiscal Quarter of 1999; and
(vi) $(150,000,000) for the twelve Fiscal Months ending the second
Fiscal Quarter of 1999."
3
<PAGE>
SECTION 4. Representations and Warranties True; No Default or Event
of Default. The Credit Parties represent and warrant to the Agent and the
Lenders that on the date of and after giving effect to the execution and
delivery of this Amendment (a) the representations and warranties set forth in
the Loan Agreement are true and correct in all material respects on the date
hereof as though made on and as of such date (unless any such representation or
warranty expressly relates to an earlier date); and (b) neither any Default nor
Event of Default has occurred and is continuing as of the date hereof.
SECTION 5. Conditions of Effectiveness. As used in this Amendment,
"Second Amendment Effective Date" shall mean:
(a) in connection with Sections 2 and 3(a), the date when, and only
when, Agent has received executed counterparts of this Amendment from the
requisite number of Lenders that comprise the Requisite Lenders; and
(b) in connection with Section 3(b), the date when, and only when:
(i) Agent has received executed counterparts of this Amendment from the
requisite number of Lenders that comprise the Requisite Lenders; (ii) the
Bankruptcy Court has entered a final order that is not subject to appeal, in
form and substance satisfactory to the Agent, in its sole and absolute
discretion, authorizing the payment of a fee to Agent from the Borrowers, for
the account of the Lenders who execute this Amendment, in an amount up to
$1,000,000 (the "Fee") and (iii) Agent has received the Fee.
SECTION 6. Reference to this Amendment and Effect on Loan Documents.
(a) From and after the Second Amendment Effective Date, each
reference in the Loan Agreement (including in any Exhibit thereto) to "this
Agreement," "hereunder," "herein" or words of like import shall mean and be a
reference to the Loan Agreement, as affected and amended hereby.
(b) From and after the Second Amendment Effective Date, each
reference in the Loan Documents (i) to the Loan Agreement shall mean and be
reference to the Loan Agreement, as affected and amended hereby and (ii) to the
terms whose definitions are amended pursuant to this Amendment shall mean and be
a reference to such term as affected and amended hereby.
(c) The Loan Agreement, the Notes and the other Loan Documents, as
affected and amended hereby, shall remain in full force and effect and the Loan
Documents are hereby ratified and confirmed in all respects.
(d) The effectiveness of the waiver evidenced by Section 2 hereof,
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Lenders or the Agent under the Loan Agreement, or
constitute a waiver of any other provision of the Loan Agreement or any other
Loan Document.
SECTION 7. Governing Law; Binding Effect. In all respects, including
all matters of construction, validity and performance, this Amendment shall be
governed by, and construed and enforced in accordance with, the internal laws of
the State of New York (without regard to conflict of law provisions) and any
applicable laws of the United States of America, and shall be binding upon the
parties hereto and their respective successors and permitted assigns.
4
<PAGE>
SECTION 8. Execution in Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
SECTION 9. Consent of Guarantors. By their execution and delivery of
this Amendment, each Guarantor hereby consents to all of the terms and
provisions of this Amendment and ratifies and confirms that each of the other
Loan Documents to which it is a party remains in full force and effect and
enforceable in accordance with their respective terms.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
date first written above.
BORROWER:
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Douglas V. Gathany
-----------------------------------
Name: Douglas V. Gathany
Title: Vice President and Treasurer
GUARANTORS:
LECHMERE, INC.
By: /s/ Douglas V. Gathany
-----------------------------------
Name: Douglas V. Gathany
Title: Assistant Treasurer
AMERICAN DELIVERY SERVICE COMPANY
By: /s/ Philip D. Delk
-----------------------------------
Name: Philip D. Delk
Title: Vice President, Secretary
CONTINENTAL TRANSPORTATION, INC.
By: /s/ Philip D. Delk
-----------------------------------
Name: Philip D. Delk
Title: Vice President and Assistant
Treasurer
5
<PAGE>
JRI DISTRIBUTING, INC.
STANDARD T CHEMICAL COMPANY, INC.
WFL REALTY, INC.
By: /s/ Philip D. Delk
-----------------------------------
Name: Philip D. Delk
Title: Vice President and Secretary
M-W PRESTRESS, INC.
MW DIRECT GENERAL, INC.
MW DIRECT LIMITED, INC.
By: /s/ Philip D. Delk
-----------------------------------
Name: Philip D. Delk
Title: Secretary
MONTGOMERY WARD
INTERNATIONAL, INC.
MPI, INC.
By: /s/ Philip D. Delk
-----------------------------------
Name: Philip D. Delk
Title: Assistant Secretary
BARRETWARD PROPERTIES CO., INC.
BRANDYWINE DC, INC.
BRANDYWINE PROPERTIES, INC.
BRETTWARD PROPERTIES CO., INC.
FIRST MONT CORPORATION
FOURTH WYCOMBE PROPERTIES,
INC.
GABEWARD PROPERTIES
CORPORATION
GARDEN GROVE DEVELOPMENT
CORPORATION HUGA REALTY INC.
JOSHWARD PROPERTIES
CORPORATION
LECHMERE DEVELOPMENT
CORPORATION
M-W FAIRFAX PROPERTIES, INC.
M-W PROPERTIES CORPORATION
M-W RESTAURANTS REALTY
CORPORATION
MARCOR HOUSING SYSTEMS, INC.
MARYWARD PROPERTIES
CORPORATION
6
<PAGE>
MF NEVADA INVESTMENTS, INC.
MICHAELWARD PROPERTIES CO.,
INC.
MONTGOMERY WARD
DEVELOPMENT CORPORATION
MONTGOMERY WARD LAND
CORPORATION
MONTGOMERY WARD PROPERTIES
CORPORATION
MONTGOMERY WARD REALTY
CORPORATION
MW LAND CORPORATION
NATIONAL HOMEFINDING SERVICE,
INC.
998 MONROE CORPORATION
PAULWARD PROPERTIES CO., INC.
ROBERTWARD PROPERTIES
CORPORATION
SACWARD PROPERTIES, INC.
SECOND MONT CORPORATION
7TH & CARROLL CORPORATION
SEVENTH MONT CORPORATION
618 CORPORATION
619 CORPORATION
THE 535 CORPORATION
THIRD WYCOMBE PROPERTIES, INC.
2825 DEVELOPMENT CORPORATION
2825 REALTY CORPORATION
UNIVERSITY AVENUE
MARKETPLACE, INC.
WFL DEVELOPMENT CORPORATION
WYCOMBE PROPERTIES, INC.
By: /s/ G. Tad Morgan
---------------------------------
Name: G. Tad Morgan
Title: Vice President and Secretary
GOODE FURNITURE COMPANIES, INC.
MONTGOMERY WARD SECURITIES,
INC.
R M P DEVELOPMENT CORPORATION
By: /s/ G. Tad Morgan
---------------------------------
Name: G. Tad Morgan
Title: Secretary
7
<PAGE>
MONTGOMERY WARD HOLDING
CORP.
By: /s/ G. Tad Morgan
---------------------------------
Name: G. Tad Morgan
Title: Assistant Secretary
JEFFERSON STORES, INC.
By: /s/ G. Tad Morgan
---------------------------------
Name: G. Tad Morgan
Title: Vice President and Treasurer
AGENT and as LENDER
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ James C. Ungari
---------------------------------
Name: James C. Ungari
Title: Its Authorized Signatory
LENDERS:
THE CHASE MANHATTAN BANK
By: /s/ William P. Rindfuss
---------------------------------
Name: William P. Rindfuss
Title: Vice President
BANK OF SCOTLAND
By: /s/ Joseph Fratus
---------------------------------
Name: Joseph Fratus
Title: Assistant Vice President
8
<PAGE>
BANKAMERICA BUSINESS CREDIT,
INC.
By: /s/ Thomas G. Sullivan
---------------------------------
Name: Thomas G. Sullivan
Title: Vice President
BANKBOSTON RETAIL FINANCE INC.
(f/k/a GBFC, INC.)
By: /s/ Joseph V. Balsamo
---------------------------------
Name: Joseph V. Balsamo
Title: Vice President
BANQUE PARIBAS
By: /s/ Duane Helkowski
---------------------------------
Name: Duane Helkowski
Title: Vice President
By: /s/ Robert G. Carino
---------------------------------
Name: Robert G. Carino
Title: Vice President
CREDIT AGRICOLE INDOSUEZ
By: /s/ David Bouhl, F.V.P.
---------------------------------
Name: David Bouhl
Title: Head of Corporate Banking,
Chicago
By: /s/ Dean Balice
---------------------------------
Name: Dean Balice
Title: Senior Vice President, Branch
Manager
9
<PAGE>
THE CIT GROUP/BUSINESS CREDIT,
INC.
By: /s/ Nicole Cangelos
---------------------------------
Name: Nicole Cangelos
Title: Assistant Secretary
CITIBANK, N.A.
By: /s/ John Calder
---------------------------------
Name: John Calder
Title: Attorney-in-Fact
CITICORP USA, INC.
By: /s/ Claudia Slacik
---------------------------------
Name: Claudia Slacik
Title: Vice President
FLEET CAPITAL CORPORATION
By: /s/ Thomas E. Joyce
---------------------------------
Name: Thomas E. Joyce
Title: V.P. & Portfolio Manager
FLEET NATIONAL BANK
By: /s/ Kevin Chamberlain
---------------------------------
Name: Kevin Chamerlain
Title: Vice President
GOLDMAN SACHS CREDIT PARTNERS
L.P.
By: /s/ John Urban
---------------------------------
Name: John Urban
Title: Authorized Signatory
10
<PAGE>
GREEN TREE FINANCIAL SERVICING
CORPORATION
By: /s/ Hugh M. Norris
------------------------------------
Name: Hugh M. Norris
Title: Director of Credit
HELLER FINANCIAL, INC.
By: /s/ Thomas Bukowski
------------------------------------
Name: Thomas Bukowski
Title: Senior Vice President
IBJ SCHRODER BUSINESS CREDIT
CORP.
By: /s/ Alfred J. Scoyni
------------------------------------
Name: Alfred J. Scoyni
Title: Vice President
JACKSON NATIONAL LIFE
INSURANCE COMPANY
By: PPM FINANCE, INC.
Its Attorney-in-fact
By: /s/ Jeffrey J. Podwika
------------------------------------
Name: Jeffrey J. Podwika
Title: Vice President
LEHMAN COMMERCIAL PAPER, INC.
By: /s/ Michele Swanson
------------------------------------
Name: Michele Swanson
Title: Authorized Signatory
NATIONAL CITY COMMERCIAL
FINANCE, INC.
By: /s/ Mark Hanak
------------------------------------
Name: Mark Hanak
Title: Account Officer
11
<PAGE>
STAR BANK, N.A.
By: /s/ Mike Ehlert
------------------------------------
Name: Mike Ehlert
Title: Vice President
12
<PAGE>
10.(ii)(B)(1)
MONOGRAM CREDIT CARD BANK OF GEORGIA
March 27, 1998
Mr. John Workman
Montgomery Ward & Co., Inc.
619 West Chicago Avenue
Chicago, Illinois 60610
Re: Amendment to Bank Program Agreement
----------------------------------------
Dear John:
This letter confirms the following amendments to that certain Bank Credit
Card Program Agreement, dated as of April 1, 1996 (the "Bank Program
Agreement"), by and between Montgomery Ward & Co., Incorporated ("MW") and
Monogram Credit Card Bank of Georgia ("Monogram"). For purposes of this letter,
capitalized terms not otherwise defined herein shall have the meaning assigned
to such terms in the Bank Program Agreement.
Definitions
- -----------
1. The following definition is added to Section 1 of the Bank Program
Agreement after the definition of "Subsidiary":
"Supplementary Store Closing-Related Account" shall mean an Account,
the primary Cardholder in respect of which:
(a) (i) is associated with a retail Store location or locations
operated by MW or an Authorized Affiliate being closed or
sold on a Store Closing Date, (ii) does not live within
thirty (30) 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 a Store Closing Date
and (iii) has not made a purchase at a retail Store location
other than at a closed Store during a consecutive 12-month
period during the period commencing twelve months prior to
the Store Closing Date and ending twelve months after the
Store Closing Date;
<PAGE>
(b) (i) is associated with a retail Store location or locations
operated by MW or an Authorized Affiliated being closed or
sold on a Store Closing Date, (ii) lives within thirty (30)
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 a Store Closing Date and (iii) does
not make a purchase at a retail Store location not being
closed or sold on the Store Closing Date during the 12-month
period following the announcement of the Store Closing; or
(c) 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.
Store Closing
- -------------
2. The following are added as new subsections (iii) and (iv) of Section
5.14 (4):
(iii) Monogram and/or an Affiliate of Monogram (at their option
exercised in their sole discretion) at any time that Monogram owns
Supplementary Store Closing-Related Accounts in connection with such
Store Closing may (a) issue (or authorize a Person to 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, and market (or authorize the issuer to market) goods and
services to the holders of such replacement or substitute cards, (b)
sell such Supplementary Store Closing-Related Accounts (or the related
portion of the Customer List) to any Person, provided such person may
issue new cards only in accordance with (a) above, and/or (c) cease to
authorize purchases on and close such Accounts. All Store Closings
that have occurred or may occur after July 7, 1997, shall be
considered Store Closings to which this paragraph applies. In the
event that any Store Closing(s) occur hereafter, at least ninety (90)
days prior to any Store Closing Date, MW shall deliver to Monogram a
written notice identifying the Store location or locations that will
be closed or sold on such Store Closing Date. Except as provided
above, MW shall continue to have the right to market goods and
services sold by MW to such Customer List as such list existed upon
the date of such Store closings.
2
<PAGE>
(iv) MW shall cause Signature to cease marketing to all Supplementary Store
Closing-Related Accounts on and after the date such Accounts first
constitute Supplementary Store Closing-Related Accounts. Monogram
shall continue to authorize purchases of items sold by Signature to
the extent then being billed on a continuing or renewal basis as long
as Monogram owns such Accounts and the Cardholders obligated in
respect thereof are in good standing with respect to payments owed on
their Accounts, except that Monogram at any time may cease such
authorizations upon ninety (90) days' notice to Signature and MW in
the event that Monogram in good faith determines that continuing such
authorizations no longer is economically appropriate for Monogram.
If the foregoing evidences your understanding of the amendments agreed to
by the parties, please acknowledge the same by signing below.
MONOGRAM CREDIT CARD BANK OF
GEORGIA
By: /s/ Marc Sheinbaum
-----------------------------------
Name: Marc Sheinbaum
Title: Director
ACKNOWLEDGED & AGREED:
MONTGOMERY WARD & CO.,
INCORPORATED
By: /s/ John Workman
-----------------------------------
Name: John Workman
Title: Executive Vice President
General Electric Capital Corporation, as guarantor of the obligations of
Monogram under the Bank Program Agreement, hereby acknowledges the terms and
agrees that the Guaranty is not invalidated hereby and that the Guaranty
continues in full force and effect in accordance with its terms with respect to
the Bank Program Agreement as so amended.
3
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Marc Sheinbaum
-----------------------------------
Name: Marc Sheinbaum
Title: Vice President
SIGNATURE FINANCIAL/MARKETING, INC.,
FOR ITSELF AND ITS SUBSIDIARIES,
ACKNOWLEDGES THIS LETTER.
By: /s/ John Workman
-----------------------------------
Name: John Workman
Title: Acting Chief Financial Officer
4
<PAGE>
10.(ii)(B)(2)
MONTGOMERY WARD CREDIT CORPORATION
March 27, 1998
Mr. John Workman
Montgomery Ward & Co., Inc.
619 West Chicago Avenue
Chicago, Illinois 60610
Re: Amendment to Account-Related Agreement
-------------------------------------------
Dear John:
This letter confirms the following amendments to that certain Account-
Related Agreement, dated as of April 1, 1996 (the "Account-Related Agreement"),
by and between Montgomery Ward & Co., Incorporated ("MW") and Montgomery Ward
Credit Corporation ("MWCC"). For purposes of this letter, capitalized terms not
otherwise defined herein shall have the meaning assigned to such terms in the
Account-Related Agreement.
Definitions
- -----------
1. The following definition is added to Section 1 of the Account-Related
Agreement after the definition of "Subsidiary":
"Supplementary Store Closing-Related Account" shall mean an account,
the primary Cardholder in respect of which:
(a) (i) is associated with a retail Store location or locations
operated by MW or an Authorized Affiliate being closed or
sold on a Store Closing Date (as defined in the Bank Program
Agreement), (ii) does not live within thirty (30) 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 a Store Closing Date and (iii) has not made a
purchase at a retail Store location other than at a closed
Store during a consecutive 12-month period during the period
commencing twelve months prior to the Store Closing Date and
ending twelve months after the Store Closing Date;
<PAGE>
(b) (i) is associated with a retail Store location or locations
operated by MW or an Authorized Affiliated being closed or
sold on a Store Closing Date, (ii) lives within thirty (30)
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 a Store Closing Date and (iii) does
not make a purchase at a retail Store location not being
closed or sold on the Store Closing Date during the 12-month
period following the announcement of the Store Closing; or
(c) 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.
Store Closing
- -------------
2. The following are added as new Section 5.14 (5) and new Section 5.14
(6):
(5) At any time that MWCC owns Supplementary Store Closing-Related
Accounts in connection with such Store Closing may (a) issue (or
authorized a Person to issue) to some or all Cardholders obligated in
respect of such Supplementary Store Closing-Related Account a
replacement or substitute widely-accepted general purpose credit card,
whether or not co-branded, and market (or authorize the issuer to
market) goods and services to the holders of such replacement or
substitute cards, (b) sell such Supplementary Store Closing-Related
Accounts (or the related portion of the Customer List (as defined in
the Bank Program Agreement)) to any Person, provided such person may
issue new cards only in accordance with (a) above, and/or (c) cease to
authorize purchases on and close such Accounts. All Store Closings
that have occurred or may occur after July 7, 1997, shall be
considered Store Closings to which this paragraph applies. In the
event that any Store Closing(s) occur hereafter, at least ninety (90)
days prior to any Store Closing Date, MW shall deliver to MWCC a
written notice identifying the Store location or locations that will
be closed or sold on such Store Closing Date. Except as provided
above, MW shall continue to have the right to market goods and
services sold by MW to such Customer List as such list existed upon
the date of such Store closing.
2
<PAGE>
(6) MW shall cause Signature to cease marketing to all Supplementary Store
Closing-Related Accounts on and after the date such Accounts first
constitute Supplementary Store Closing-Related Accounts. MWCC shall
continue to authorize purchases of items sold by Signature to the
extent then being billed on a continuing or renewal basis as long as
MWCC owns such Accounts and the Cardholders obligated in respect
thereof are in good standing with respect to payments owed on their
Accounts, except that MWCC at any time may cease such authorizations
upon ninety (90) days' notice to Signature and MW in the event that
MWCC in good faith determines that continuing such authorizations no
longer is economically appropriate for MWCC.
If the foregoing evidences your understanding of the amendments agreed to
by the parties, please acknowledge the same by signing below.
MONTGOMERY WARD CREDIT
CORPORATION
By: /s/ Marc Sheinbaum
-----------------------------------
Name: Marc Sheinbaum
Title: President & Chief Executive Officer
ACKNOWLEDGED & AGREED:
MONTGOMERY WARD & CO.,
INCORPORATED
By: /s/ John Workman
-----------------------------------
Name: John Workman
Title: Executive Vice President
General Electric Capital Corporation, as guarantor of the obligations of
MWCC under the Account-Related Agreement, hereby acknowledges the terms and
agrees that the Guaranty is not invalidated hereby and that the Guaranty
continues in full force and effect in accordance with its terms with respect to
the Account-Related Agreement as so amended.
3
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Marc Sheinbaum
-----------------------------------
Name: Marc Sheinbaum
Title: Vice President
SIGNATURE FINANCIAL/MARKETING, INC.,
FOR ITSELF AND ITS SUBSIDIARIES,
ACKNOWLEDGES THIS LETTER.
By: /s/ John Workman
-----------------------------------
Name: John Workman
Title: Acting Chief Financial Officer
4
<PAGE>
10.(ii)(B)(3)
INTERIM AMENDMENT AGREEMENT RELATING TO
BANK PROGRAM AND ACCOUNT-RELATED AGREEMENTS
-------------------------------------------
INTERIM AMENDMENT AGREEMENT (the "Interim Amendment Agreement"), made and
entered into as of April 1, 1998, 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, MONOGRAM CREDIT
CARD BANK OF GEORGIA ("Monogram"), a Georgia banking corporation with offices
located at 7840 Roswell Road, Atlanta, Georgia 30350, and MONTGOMERY WARD CREDIT
CORPORATION ("MWCC"), a Delaware corporation with offices at 880 Grier Drive,
Las Vegas, Nevada 89119.
W I T N E S S E T H:
--------------------
WHEREAS, MW and Monogram are parties to that certain Bank Credit Card
Program Agreement, dated as of April 1, 1996 (the "Bank Agreement"), pursuant to
which Monogram has agreed to issue Credit Cards and directly enter into Accounts
with individuals in order to allow them to buy Merchandise at Stores on credit
pursuant to Accounts owned by Monogram; and
WHEREAS, MW and MWCC are parties to that certain Account-Related Agreement,
dated as of April 1, 1996 (the "Account-Related Agreement" and, together with
the Bank Agreement, the "Credit Card Agreements"), pursuant to which MWCC has
agreed to purchase certain Accounts and Indebtedness (as hereinafter defined)
from MW with respect to Credit Cards in order to allow individuals to buy
Merchandise on credit at Stores; and
WHEREAS, on July 7, 1997, MW and certain related entities (collectively,
the "Debtors") filed voluntary petitions under chapter 11 of title 11, United
States Code (the Debtors' chapter 11 cases being referred to herein collectively
as the "Bankruptcy Cases") in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"); and
WHEREAS, by motion dated July 8, 1997 (the "Assumption Motion"), the
Debtors sought an order of the Bankruptcy Court authorizing the assumption of
the Credit Card Agreements; and
WHEREAS, since July 8, 1997, the parties have been operating the Program
pursuant to an interim order issued by the Bankruptcy Court mandating, among
other things, that the Credit Card Agreements be treated as if such Credit Card
Agreements had been assumed by the Debtors (the "Interim Order"); and
WHEREAS, the Debtors have determined not to seek assumption of the Credit
Card Agreements at this time and, accordingly, the Debtors, Monogram and MWCC
have agreed to defer a hearing to consider the Assumption Motion; and
<PAGE>
WHEREAS, pursuant to an agreement among the parties hereto and various
other parties to the Bankruptcy Cases which agreement was "So Ordered" by the
Bankruptcy Court on January 14, 1998 (the "January Order"), MW (among other
things) has been making monthly payments to MWCC in accordance with the terms of
the January Order; and
WHEREAS, MW, Monogram and MWCC each desire that (a) MW continue to operate
under the Program upon the terms and subject to the conditions set forth herein,
(b) the Credit Card Agreements be amended, for the Interim Term (as hereinafter
defined) only, in accordance with the terms and conditions hereinafter set
forth, and (c) upon entry of the Approval Order (as hereinafter defined), this
Interim Amendment Agreement shall become effective as of April 1, 1998 (the
"Interim Amendment Agreement Effective Date"); and
WHEREAS, as of February 28, 1998, MW and MWCC conducted certain settlement
transactions provided for in the Account-Related Agreement and in accordance
with the Interim Order, which transactions included (among others): (a) the
execution by MW of a $15,123,200 note deferring payment of a portion of the
amount owed by MW under the Credit Card Agreements in respect of credit losses
for Fiscal Year 1997 (after application by MWCC of certain incremental revenue
shared by MWCC with MW under the Credit Card Agreements) and (b) the payment by
MW in cash of the remaining portion of such amount;
NOW, THEREFORE, the parties hereto agree as follows:
Definitions
- -----------
1. Capitalized terms used herein which are not otherwise defined shall
have the meanings given to them in the Account-Related Agreement.
2. Unless otherwise specified, all references in this Interim
Amendment Agreement to MWCC, whether or not there is a specific reference to
Monogram, shall be deemed a reference both to Monogram, to the extent of
Monogram's involvement in and/or ownership of Accounts, and to MWCC. For
example, a reference to a sale by MWCC of all of its right, title and interest
in and to Accounts and Indebtedness owned by it shall mean a sale by MWCC and
Monogram of all of their right, title and interest in and to Accounts and
Indebtedness owned by them. All references to fiscal periods are the fiscal
periods followed by MWCC.
2
<PAGE>
3. The Credit Card Agreements shall be amended during the Interim Term
to incorporate the following definitions:
"Approval Order" shall mean an order, in a form reasonably acceptable
to MWCC and the Creditors' Committee entered by the Bankruptcy Court approving
this Agreement, it being understood that MW, MWCC and the Creditors' Committee
shall agree upon the form of any order proposed to the Bankruptcy Court and such
order shall not be deemed acceptable if approved by the Bankruptcy Court in a
form not substantially similar to the order submitted.
"Assumption Motion" shall have the meaning assigned to such term in
the fourth recital hereto.
"Bankruptcy Cases" shall have the meaning assigned to such term in the
third recital hereto.
"Bankruptcy Code" shall mean 11 U.S.C. (S)(S) 101-1330.
"Bankruptcy Court" shall have the meaning assigned to such term in the
third recital hereto.
"Creditors' Committee" shall mean the official committee of unsecured
creditors appointed in the Bankruptcy Cases.
"Debtors" shall have the meaning assigned to such term in the third
recital hereto.
"Interim Amendment Agreement Effective Date" shall have the meaning
assigned to such term in the eighth recital hereto.
"Interim Order" shall have the meaning assigned to such term in the
fifth recital hereto.
"Interim Stipulated Payment Obligation" shall mean, for the following
fiscal quarters, an amount equal to:
(a) for each month commencing
April, 1998 through June,
1998 $2.5 Million
3
<PAGE>
(b) for each month commencing
July, 1998 through
December, 1998 $3.0 Million
(c) for each month commencing
January, 1999 through
June, 1999 $2.5 Million
(d) for each month commencing
July, 1999 through
December, 1999 $2.0 Million
"Interim Term" shall have the meaning assigned to such term in
paragraph 6 hereof.
"January Order" shall have the meaning assigned to such term in the
seventh recital hereto.
"Portfolio Net Book Value" shall mean, on any date, an amount equal to
(a) the aggregate amount of all Indebtedness (other than written-off
Indebtedness) owned by MWCC, Monogram and Assignees as of the opening of
business of such day, less (b) the amount of all reserves on the books of MWCC,
Monogram and Assignees with respect to such Indebtedness as of the opening of
business on such day, such reserves to be determined by MWCC and Monogram in
their sole discretion, provided that such determinations shall be in accordance
with GAAP.
"Portfolio Sale" shall have the meaning assigned to such term in
paragraph 10 hereof.
"Specified MW Default" shall mean (a) an MW Default under Section
16.1(1) or 16.1(10) of the Bank Program Agreement or the Account-Related
Agreement to the extent such default results from a failure by MW to fulfill its
purchase obligations under Section 5.14(3)(iii) of the Bank Program Agreement
and/or Section 5.14(1) of the Account-Related Agreement, (b) unless MW is
insolvent with respect to its ability to pay its administrative claims, an MW
Default under Section 16.1(3) of the Bank Program Agreement and/or the Account-
Related Agreement to the extent such default results from a breach by MW of the
representation contained in Section 8.4 of the Bank Program Agreement or
Account-Related Agreement, (c) unless MW admits in writing, with the Creditors'
Committee's concurrence, its inability to pay, or the Bankruptcy Court
determines MW is unable to pay, its post-petition debts or MW makes a
general assignment for the benefit of creditors post-petition, an MW Default
under Section 16.1(5) of the Bank Program Agreement and/or the Account-Related
Agreement, and (d) unless holders of MW's indebtedness
4
<PAGE>
accelerate amounts owed post-petition or MW fails to meet scheduled payments on
such indebtedness post-petition, an MW Default under Section 16.1(9) of the Bank
Program Agreement and/or the Account-Related Agreement. For the avoidance of
doubt, if the unless clause in any of subsections (b), (c) or (d) applies, there
is no Specified MW Default.
General Operations
- ------------------
4. Except to the extent inconsistent herewith or as otherwise
specifically provided herein, the terms and conditions of the Credit Card
Agreements shall continue in full force and effect and shall be fully binding on
the parties hereto in accordance with the Interim Order. Without limiting the
generality of the foregoing, during the Interim Term, MWCC and Monogram shall
not be entitled to (a) compel assumption of the Credit Card Agreements, or (b)
terminate the Credit Card Agreements, and shall not file pleadings or otherwise
request a hearing seeking such relief, except that (1) if there is an MW Default
(other than a Specified MW Default or as otherwise provided in paragraph 6(d))
under the Credit Card Agreements, MWCC and/or Monogram shall be entitled to file
and prosecute a motion seeking to compel assumption of, or to terminate, the
Credit Card Agreements and (2) if MW moves for assumption of the Credit Card
Agreements, MWCC and Monogram may (i) withdraw their consent to assumption at
any time prior to entry of such order, (ii) object to such assumption on any
grounds whatsoever or (iii) seek adequate assurance of future performance.
The parties further agree that (x) during the Interim Term, MWCC and Monogram
shall be paid post-petition by MW in respect of MW's share of Section 4 Net
Defaulted Indebtedness and Starter Card Account Net Defaulted Indebtedness
(irrespective of when the sales giving rise thereto occurred), (y) MWCC and
Monogram shall have administrative expense claims for, at least, any unpaid
amounts owed in respect of Section 4 Net Defaulted Indebtedness and Starter Card
Account Net Defaulted Indebtedness arising from sales that occurred post-
petition and (z) the parties fully reserve all of their rights and defenses as
to whether MWCC's and Monogram's claims for payment from MW with respect to
Section 4 Net Defaulted Indebtedness and Starter Card Account Net Defaulted
Indebtedness other than the indebtedness described in subsection (y) are
administrative expense claims, pre-petition unsecured claims or any other type
of claims, as to which MWCC and Monogram are, or are not, entitled to be paid on
a post-petition or on any other basis (irrespective of whether payments have in
fact been made in respect thereof after July 7, 1997). The parties by this
Interim Amendment Agreement also fully reserve all of their other rights and
defenses under the Credit Card Agreements, including, but not limited to, rights
and defenses in respect of sales tax recapture obligations.
Interim Stipulated Payment Obligations
- --------------------------------------
5. MW shall pay to MWCC in cash on or before the last Thursday of each
calendar month an amount equal to the Interim Stipulated Payment Obligation
specified for such calendar month. MW's obligation under this paragraph shall
survive any termination of this
5
<PAGE>
Interim Amendment Agreement and be paid by MW in accordance with the previous
sentence, except that: (a) if this Interim Amendment Agreement terminates
pursuant to paragraph 6(a) hereof, MW shall pay the Interim Stipulated Payment
Obligation in respect of each calendar month during the period through and
including the later of the month during which termination occurs and the month
of June, 1999, but shall have no obligation to pay the Interim Stipulated
Payment Obligation in respect of any calendar month after the later of the month
during which termination occurs and the month of June, 1999, (b) if this Interim
Amendment Agreement terminates pursuant to paragraph 6(d) hereof as a result of
a Monogram Default or MWCC Default, MW shall pay the Interim Stipulated Payment
Obligation in respect of each calendar month during the period through and
including the month during which such termination occurs, but MW shall have no
obligation to pay the Interim Stipulated Payment Obligation in respect of any
calendar month after the month during which such termination occurs and (c) if
this Interim Amendment Agreement terminates pursuant to paragraph 6(d) hereof as
a result of a Specified MW Default, MW shall pay the Interim Stipulated Payment
Obligation in respect of each calendar month during the period through and
including the month during which such termination occurs, but MW shall have no
obligation to pay the Interim Stipulated Payment Obligation in respect of any
calendar month after the month during which such termination occurs. In the
event that a termination described in subsection (a) occurs after June 1999 and
other than at the end of a calendar month or a termination described in
subsection (b) or (c) of the preceding sentence occurs at any time other than as
of the end of a calendar month, MW shall pay to MWCC in cash within three (3)
Business Days after such termination in respect of the month of termination an
amount equal to (i) the Interim Stipulated Payment Obligation for that month,
multiplied by (ii) a fraction the numerator of which is the number of days in
such month that have transpired prior to termination and the denominator of
which is the number of days in that month.
Interim Term
- ------------
6. This Interim Amendment Agreement shall become effective as of the
Interim Amendment Agreement Effective Date (it being understood that the
effectiveness of this Interim Amendment Agreement is conditioned upon entry of
an Approval Order). This Interim Amendment Agreement shall terminate on the
earliest of the following events: (a) upon entry by the Bankruptcy Court of an
order: (i) authorizing or directing MW to discontinue all or substantially all
of its retail operations (which order may be an order confirming a plan of
reorganization that provides for such discontinuance) or (ii) converting the
Bankruptcy Cases to cases under Chapter 7 of the Bankruptcy Code, (b) the date
upon which the Bankruptcy Court enters an order authorizing rejection of the
Credit Card Agreements pursuant to Section 365 of the Bankruptcy Code, (c) the
date upon which the Bankruptcy Court enters an order approving assumption of the
Credit Card Agreements pursuant to Section 365 of the Bankruptcy Code, (d) if
the non-defaulting parties elects to terminate this Interim Amendment Agreement,
the date upon which a Monogram Default, MWCC Default or MW Default occurs under
the Credit Card Agreements (as amended to include the obligations under this
Interim Amendment Agreement), provided that, for purposes of termination of this
Interim Amendment Agreement, (1) the filing of
6
<PAGE>
its Bankruptcy Case shall not constitute an MW Default, and (2) failure by MW to
make payments (including interest thereon) in respect of Seller Notes or Seller
Recourse Notes and the obligation to make payments in respect of Section 4 Net
Defaulted Indebtedness and Starter Card Account Net Defaulted Indebtedness for
Fiscal Year 1996 and 1997 through July 7, 1997, shall not constitute during the
Interim Term an MW Default, (e) consummation of a Portfolio Sale, or (f)
December 31, 1999. The period from the Interim Amendment Agreement Effective
Date through the earliest of the dates set forth in subsections (a) through (f)
is referred to as the "Interim Term".
January Order
- -------------
7. Upon entry of the Approval Order and execution of this Interim
Amendment Agreement, the January Order shall be superseded by the Approval Order
and this Agreement, except that the court's confidentiality order dated November
13, 1997 shall remain in effect with respect to all documents previously filed
under seal and any orders or portions of orders under seal including Exhibit 1
to the January Order. The foregoing notwithstanding, it is acknowledged and
agreed that all payments made by MW under the January Order prior to the date
hereof properly were made and are indefeasible.
Termination and Effects of Termination
- --------------------------------------
8. In the event that this Interim Amendment Agreement terminates in
accordance with paragraph 6 hereof, (a) this Interim Amendment Agreement shall
be of no further force or effect (except (i) to the extent otherwise provided
herein (including in respect to Interim Stipulated Payment Obligations, if any,
for periods specified in this Interim Amendment Agreement to occur after
termination in accordance with paragraph 5 hereof) and (ii) paragraphs 4(y) and
(z), the final sentence of paragraph 4 and paragraphs 7, 8, 9, 12 and 13 hereof
shall survive termination hereof), and (b) except as expressly contemplated
herein, all parties shall have the rights that they had prior to execution of
this Interim Amendment Agreement. In addition, if the Credit Card Agreements are
rejected, upon termination of this Interim Amendment Agreement, the provisions
of Section 15 of the Credit Card Agreements (the termination provisions of such
Agreements) shall not be effective.
9. The parties acknowledge and agree that the administrative expense
claims of Monogram and MWCC in respect of the Interim Term shall not exceed an
amount greater than the sum of (a) the amount of any unpaid Interim Stipulated
Payment Obligations, if any, payable hereunder, and (b) all other amounts that
are or may become due and payable under the Credit Card Agreements in respect of
the Interim Term (including, without limitation, unpaid amounts owed in respect
of Section 4 Net Defaulted Indebtedness and Starter Card Account Net Defaulted
Indebtedness which are or may become due and payable in respect of the Interim
Term). Other than in respect of the Interim Term, Monogram and MWCC fully
reserve all of their rights to claim that any amounts owed to them are
administrative expense claims as to which they are
7
<PAGE>
entitled to be paid on a post-petition basis, and the other parties reserve
their rights to contest such claims.
Portfolio Sale
- --------------
10. At any time during the term of this Interim Amendment Agreement,
at MW's request (and subject to the rights of Monogram and MWCC under Section
15.3 of each of the Credit Card Agreements), MWCC shall sell to a third party
designated by MW all of its right, title and interest in and to Accounts and
Indebtedness (including written-off Accounts and Indebtedness) owned by it upon
payment to it of an amount equal to the Portfolio Net Book Value. Any such sale
shall be referred to herein as a "Portfolio Sale."
11. At MW's request, MWCC shall use commercially reasonable efforts to
cooperate in the orderly transfer of Accounts and Indebtedness to the purchaser
in respect of a Portfolio Sale, provided that MWCC shall be reimbursed for the
reasonable costs and expenses incurred by it in connection with such cooperation
and the Debtors may seek Bankruptcy Court approval of the payment of reasonable
costs and expenses if the Debtors, as opposed to the purchaser, intend to pay
such costs and expenses.
Disputes
- --------
12. All disputes that may arise between the parties with respect to
this Interim Amendment Agreement which, under the terms of the Credit Card
Agreements, would be resolved by the Marketing Committee (or, in the event the
Marketing Committee fails to resolve such issues, by arbitration conducted in
accordance with the terms of the Credit Card Agreements) shall be so resolved.
All other disputes arising under the Interim Amendment Agreement shall be
resolved by the Bankruptcy Court.
Miscellaneous
- -------------
13. All payments determined and due one party by the other pursuant to
this Interim Amendment Agreement shall be netted or otherwise offset against
each other. 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 is given effect such that only the net amount
shall be due and payable. This right of netting or offset is subject to the
parties' reservation of rights set forth in paragraph 4.
14. Upon the execution of this Interim Amendment Agreement, each
reference in the Credit Card Agreements during the Interim Term to "this
Agreement," "hereunder," "hereof," or words of like import, shall mean and be a
reference to the Credit Card Agreements as amended hereby. In the event of any
conflict between the terms of the Credit Card Agreements and the terms of this
Interim Amendment Agreement, the terms of this Interim Amendment Agreement
8
<PAGE>
shall prevail.
15. This Interim Amendment Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
amendatory instrument, and any of the parties hereto may execute this Interim
Amendment Agreement by signing any such counterpart.
IN WITNESS WHEREOF, MW, MONOGRAM and MWCC have executed this Interim
Amendment Agreement as of the date first set forth above.
MONTGOMERY WARD & CO.,
INCORPORATED
By: /s/ John Workman
----------------------------------
Name: John Workman
Title: Executive Vice President
MONOGRAM CREDIT CARD BANK OF
GEORGIA
By: /s/ Marc Sheinbaum
----------------------------------
Name: Marc Sheinbaum
Title: Director
MONTGOMERY WARD CREDIT
CORPORATION
By: /s/ Marc Sheinbaum
----------------------------------
Name: Marc Sheinbaum
Title: President & Chief Executive Officer
General Electric Capital Corporation, as guarantor of the obligations of MWCC
and Monogram under the Credit Card Agreements, hereby acknowledges the terms of
this Interim Amendment Agreement, and agrees that the Guaranties are not
invalidated by this Interim Amendment Agreement and that the Guaranties continue
in full force and effect in accordance with their terms with respect to the
Credit Card Agreements as so amended.
9
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Edward D. Stewart
----------------------------------
Name: Edward D. Stewart
Title: Executive Vice President
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> APR-04-1998
<CASH> 234
<SECURITIES> 354
<RECEIVABLES> 285
<ALLOWANCES> 0
<INVENTORY> 1,180
<CURRENT-ASSETS> 0
<PP&E> 1,910
<DEPRECIATION> (838)
<TOTAL-ASSETS> 4,643
<CURRENT-LIABILITIES> 0
<BONDS> 0
177
0
<COMMON> 1
<OTHER-SE> (826)
<TOTAL-LIABILITY-AND-EQUITY> 4,643
<SALES> 772
<TOTAL-REVENUES> 991
<CGS> 625
<TOTAL-COSTS> 625
<OTHER-EXPENSES> 447
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> (110)
<INCOME-TAX> 0
<INCOME-CONTINUING> (110)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (110)
<EPS-PRIMARY> (2.99)
<EPS-DILUTED> (2.19)
</TABLE>
