<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 OCTOBER 3, 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 November 13, 1998 the Registrant had 18,322,152 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 October 3, 1998
Index to Quarterly Report on Form 10-Q
<TABLE>
<CAPTION>
Page
<S> <C>
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 13
Condition and Results of Operations.
Part II - Other Information. 19
</TABLE>
2
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the 13-week For the 39-week
Periods Ended Periods Ended
----------------------------- ----------------------------
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
(In millions, except per share amounts) 1998 1997 1998 1997
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Net sales, including leased and licensed department sales $ 815 $ 947 $ 2,428 $ 3,217
Direct response marketing revenues, including insurance 206 214 639 638
---------- ---------- ---------- ----------
Total Revenues 1,021 1,161 3,067 3,855
---------- ---------- ---------- ----------
Costs and expenses
Cost of goods sold, including net occupancy and
buying expense 683 805 1,986 2,872
Operating, selling, general and administrative expenses,
including benefits and losses of direct response
operations (Note 5) 457 533 1,342 1,645
Interest expense 16 17 44 103
---------- ---------- ---------- ----------
Total Costs and Expenses 1,156 1,355 3,372 4,620
---------- ---------- ---------- ----------
Loss before Reorganization Costs and Income Taxes (135) (194) (305) (765)
Reorganization Costs (Note 6) 21 582 95 582
---------- ---------- ---------- ----------
Loss before Income Taxes (156) (776) (400) (1,347)
Income Tax Expense (Benefit) (Note 7) 306 (161) 306 (375)
---------- ---------- ---------- ----------
Net Loss (462) (615) (706) (972)
Preferred Stock Dividend Requirements - - - 8
---------- ---------- ---------- ----------
Net Loss Applicable to Common Shareholders $ (462) $ (615) $ (706) $ (980)
========== ========== ========== ==========
Net Loss per Common Share (Note 8)
Class A $(12.53) $(17.17) $(19.18) $(27.37)
Class B (9.25) (11.99) (14.16) (19.12)
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 3, January 3,
(In millions) 1998 1998
----------- ----------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 104 $ 189
Short-term investments 1 1
Investments of insurance operations 357 358
-------- --------
Total cash and investments 462 548
Trade and other accounts receivable 283 234
Accounts and notes receivable from affiliates 10 6
-------- --------
Total Receivables 293 240
Merchandise inventories 1,124 1,120
Prepaid pension cost 393 366
Properties, plant and equipment, net of
accumulated depreciation and amortization 1,049 1,088
Direct response and insurance acquisition costs 521 559
Other assets 280 352
Deferred income taxes - 299
-------- --------
Total Assets $ 4,122 $ 4,572
======== ========
Liabilities
Short-term debt (Note 3) $ 443 $ 102
Trade accounts payable 441 442
Accrued liabilities and other obligations 742 736
Insurance policy claim reserves 243 241
Long-term debt 70 122
Liabilities subject to compromise (Note 4) 3,429 3,468
-------- --------
Total Liabilities 5,368 5,111
Commitments and Contingent Liabilities (Note 9)
Redeemable Preferred Stock 177 177
Shareholders' Deficit
Common stock 1 1
Capital in excess of par value 65 64
Retained deficit (1,357) (651)
Unrealized gain on marketable equity securities 7 9
Less: Treasury stock, at cost (139) (139)
-------- --------
Total Shareholders' Deficit (1,423) (716)
-------- --------
Total Liabilities and Shareholders' Deficit $ 4,122 $ 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 39-Week
Periods Ended
------------------------------
October 3, September 27,
(In millions) 1998 1997
------------ -------------
<S> <C> <C>
Cash flows used for operating activities:
Net loss $ (706) $ (972)
Adjustments to reconcile net loss to net cash used for operating
activities:
Provision for disposition of assets of Lechmere, Inc. - 280
Provision for closing of Montgomery Ward and Electric Avenue &
More Stores - 260
Net receipts of cash relating to disposition of assets of
Lechmere, Inc. and closing of Wards and Electric Avenue & More stores 44 104
Provision for reorganization costs 34 -
Depreciation and goodwill amortization 85 104
Amortization of direct response and insurance acquisition costs 177 184
Deferred income taxes 299 (375)
Provision for loss on sale of interest in ValueVision
International, Inc. Common stock - 23
Other 2 -
Changes in operating assets and liabilities:
Trade and other accounts receivable (49) (49)
Accounts and notes receivable from affiliates (4) (3)
Merchandise inventories (7) 254
Prepaid pension cost (27) (13)
Direct response and insurance acquisition costs (139) (156)
Other assets 25 3
Trade accounts payable 37 219
Accrued liabilities and other obligations (16) (33)
Insurance policy claim reserves 2 10
Liabilities subject to compromise (43) -
------------ -------------
Net cash used for operating activities (286) (160)
------------ -------------
Cash flows used for investing activities:
Purchase of investments of insurance operations (664) (517)
Sale of investments of insurance operations 663 528
Purchase of short-term investments (1) (85)
Sale of short-term investments 1 87
Capital expenditures (67) (47)
Disposition of properties, plants and equipment, net 1 5
------------ -------------
Net cash used for investing activities $ (67) $ (29)
------------ -------------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the 39-Week
Periods Ended
----------------------------
October 3, September 27,
(In millions) 1998 1997
---------- -------------
<S> <C> <C>
Cash flows provided by financing activities:
Borrowings under Post-Petition Loan and Guaranty Agreement, net $ 392 $ -
Restricted cash applied as payments under Long Term Credit
Agreement (14) -
Proceeds from (payments of) short-term borrowings, net (102) 409
Payments of long-term debt (1) (5)
Payments of obligations under capital leases (7) (5)
Cash dividends paid - (4)
----- -----
Net cash provided by financing activities 268 395
----- -----
Increase (decrease) in cash and cash equivalents (85) 206
Cash and cash equivalents at beginning of period 189 32
----- -----
Cash and cash equivalents at end of period $ 104 $ 238
===== =====
Supplemental disclosure of cash flow information:
Income taxes paid $ 5 $ -
Interest paid 33 69
Non-cash investing activity:
Change in unrealized gain on marketable equity securities $ (2) $ (2)
</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 net income (loss) plus
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 $463 million and $611 million for the quarterly
periods ended October 3, 1998 and September 27, 1997, respectively, and
$706 million and $974 million for the 39-week periods then ended,
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 February 26, 1999. Although management expects to file a plan of
reorganization in 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. Short-term Debt
On September 15, 1998, the Company received approval from the Bankruptcy
Court to permit Lechmere to lend Signature the funds to repay its
borrowings of $102 under a Credit Agreement between Signature and various
lenders, plus interest and other fees associated with the extension and
refinancing of such agreement. On September 30, 1998, Signature's loan
under the Credit Agreement was repaid from the $105 of funds advanced by
Lechmere to Signature. The Lechmere Loan to Signature, which accrues
interest at either the prime rate plus 1.75% or the LIBO rate plus 2.75%,
is secured by a pledge of stock of certain Signature subsidiaries and is
guaranteed by Wards. Such guarantee is subordinate to the DIP Facility. The
loan shall become immediately due upon the earliest of (i) upon demand;
(ii) the effective date of a plan of reorganization for the debtor
subsidiary; (iii) the conversion of the bankruptcy case from a Chapter 11
case to a Chapter 7 case under the Bankruptcy Code; (iv) the sale of all or
substantially all of Signature's assets, the merger or consolidation of
Signature with or into another entity, or the sale of more than 50% of an
interest in Signature to another entity; or (v) December 31, 1999.
8
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. 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>
October 3, January 3,
(In millions) 1998 1998
------------- ------------
<S> <C> <C>
Accounts payable $1,377 $1,372
Long Term Credit Agreement 603 603
Short Term Credit Agreement 442 456
Note Purchase Agreements 276 276
Other Long-term Debt 9 9
Obligations under capital leases 44 51
Lease and other contract rejection claims 106 104
Other liabilities 572 597
------------- ------------
$3,429 $3,468
============= ============
</TABLE>
The Company has $79 million of liabilities due Signature and Marinco which
have been eliminated in consolidation but are subject to compromise.
As a result of the bankruptcy filing, no principal or interest payments will
be made on any pre-petition debt without Bankruptcy Court approval or until a
reorganization plan defining the repayment terms has been approved. In June
1998, upon approval of the Bankruptcy Court, cash held in segregated accounts
by various banks, who were lenders to the Company under the Long Term Credit
Agreement and Short Term Credit Agreement, totaling $24 million was offset
against pre-petition debt ($14 million) and interest ($10 million) claims.
Contractual interest expense not recorded on certain pre-petition debt
totaled $31 million and $92 million for the 13-week and 39-week periods ended
October 3, 1998, respectively, and $28 million for the 13-week and 39-week
periods ended September 27, 1997.
5. Insurance, Benefits and Losses
Operating, selling, general and administrative expenses include benefits and
losses related to direct response marketing operations of $35 million and $38
million for the 13-week periods ended October 3, 1998 and September 27 1997,
respectively, and $100 million and $109 million for the 39-week periods then
ended, respectively.
9
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Reorganization Costs
Reorganization costs recorded in fiscal 1998 consisted of the following (in
millions):
<TABLE>
<CAPTION>
13-Week and
13-Week 39-Week 39-Week
Period Ended Period Ended Periods Ended
October 3, October 3, September 27,
1998 1998 1997
------------------ ------------------- --------------------
<S> <C> <C> <C>
Store closings $ - $ 26 $ 540
Interim Account Agreement Fees (Note10) 9 21 -
Professional fees 4 14 8
Distribution center closings 6 14 -
Other 4 25 36
Interest income (2) (5) (2)
------------------ ------------------- --------------------
$ 21 $ 95 $ 582
================== =================== ====================
</TABLE>
In June 1998, the Bankruptcy Court approved a motion filed by Wards to close
nine underperforming stores. The Company recorded a pre-tax charge of $26
million associated with the closing of these stores. In 1997, the Bankruptcy
Court approved motions filed by Wards to close 92 retail stores and
liquidation and outlet centers, as a result of the Company's decision to exit
its non-core retail business and close certain underperforming stores. The
Company recorded a pre-tax charge of $540 million associated with the closing
of these stores. The charges included losses and costs associated with the
liquidation of assets, lease rejection claims, severance payments, and other
related expenses.
Professional fees incurred consisted of consulting and legal fees for
bankruptcy activity and restructuring efforts on behalf of the Company and
Creditors' Committee.
Restructuring of distribution facilities includes expenses associated with
the closing and downsizing of facilities including the losses on liquidation
of assets, lease rejection claims, severance payments, and other related
expenses.
Other reorganization costs represent expenses associated with retention
bonuses not yet paid, the exit of certain product lines and other expenses.
10
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Income Taxes
The Company currently has tax benefits and credits exceeding $700 million. At
year-end 1997, management evaluated the realizability of the tax
carryforwards and established a valuation reserve based upon its tax planning
strategy of selling certain appreciated, non-operating assets, prior to
emerging from Chapter 11, to avoid the carryforwards expiring without being
used.
During the third quarter of 1998, management determined that the tax benefits
will more likely be realized through emergence from bankruptcy and the
related expected restructuring of liabilities. As a result of the foregoing,
as of October 3, 1998, the Company believes that it is appropriate to
increase its valuation reserve and has recorded income tax expense of $299 in
the third quarter, since the financial statements do not give effect to
adjustments that might result from a plan of reorganization. The impact of
the income tax charge has no effect on current or future years' operating
performance or cash flows.
8. 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
October 3, 1998 September 27, 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 $ (230) $ (232) $ (315) $ (300)
Weighted-average number of common
shares outstanding 18,322,152 25,000,000 18,322,247 25,000,000
Net loss per share $ (12.53) $ (9.25) $ (17.17) $ (11.99)
</TABLE>
<TABLE>
<CAPTION>
For the 39-Week For the 39-Week
Period Ended Period Ended
October 3, 1998 September 27, 1997
--------------------------------------- -------------------------------------
(In millions, except share and per
share amounts) Class A Class B Class A Class B
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net loss applicable to common
shareholders $(352) $(354) $(502) $(478)
Weighted-average number of common
shares outstanding 18,322,180 25,000,000 18,322,247 25,000,000
Net loss per share $ (19.18) $ (14.16) $ (27.37) $ (19.12)
</TABLE>
Basic and diluted earnings per share are the same for the 13-week and 39-week
periods ended October 3, 1998 and September 27, 1997, as all common stock
equivalents are antidilutive due to the net loss incurred during these
periods.
11
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. 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.
10. 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.
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 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 Directors a resolution for liquidation, or (f)
December 31, 1999.
12
<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 third quarter of 1998 to the third quarter of 1997, as
well as the first nine months of 1998 to the first nine months 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
Third Quarter 1998 Compared with Third Quarter 1997
Consolidated total revenues (net sales and direct response marketing
revenues, including insurance) were $1,021, compared with $1,161 in the
third quarter 1997, decreasing by $140, or 12%. The $140 total revenue
decrease consisted of a $132 decrease in net sales (a 14% decrease) and a $8
decrease in direct marketing response revenues (a 4% decrease). Sales on a
comparable store basis increased approximately 3% after adjusting for the
closing of stores and the exit of certain product lines. The decrease in net
sales is attributable to the closing of nine retail stores in the third
quarter of 1998 and 101 retail stores and liquidation and outlet centers in
the second half of 1997, as a result of the Company's decision to exit its
non-core retail businesses and to close certain underperforming Wards retail
stores. These closed stores reported net sales of $137 in the third quarter
of 1997. The sales decrease was also caused by the Company's decision to
exit certain product offerings which reported sales of $16 in the third
quarter of 1997. The decrease in direct marketing response revenues was due
primarily to a decline in insurance and clubs membership revenues
attributable primarily to a decrease in active Wards private label credit
card accounts.
13
<PAGE>
MONTGOMERY WARD HOLDING CORP.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Third Quarter 1998 Compared with Third Quarter 1997 (continued)
Gross margin (net sales less cost of goods sold) dollars were $132, a
decrease of $10, or 7%, from the third quarter 1997. This decrease was due
to the gross margin impact of decreased sales of $30 and a decrease in the
gross margin rate on sales of $4, offset by decreased occupancy and other
margin-related expenses of $24 primarily related to the closed stores.
Operating, selling, general and administrative expenses decreased $76, or
14%, from the third quarter 1997. The decrease was due to decreased bad debt
expense of $30, decreased payroll costs primarily related to the closing of
the Wards and Electric Avenue & More stores of $20, decreased advertising
and other promotional costs of $15, 1997 operating, selling, general and
administrative costs incurred by Lechmere of $9, and a decrease in all other
costs of $9, offset by decreased product service income of $7.
Income tax expense of $306 was recorded for the third quarter of 1998 as
compared to a benefit of $161 for the third quarter of 1997. The third
quarter 1998 expense is due to the increase in the valuation reserve as
discussed in Note 7.
First Nine Months of 1998 Compared with First Nine Months of 1997
Consolidated total revenues (net sales and direct response marketing
revenues, including insurance) were $3,067, compared with $3,855 in the
first nine months of 1997, decreasing by $788, or 20%. The $788 total
revenue decrease consisted of a $789 decrease in net sales (a 25% decrease)
and a $1 increase in direct marketing revenues. Sales on a comparable store
basis decreased approximately 4% after adjusting for the closing of stores
and the exit of certain product lines. The decrease in net sales is
attributable to the closing of nine retail stores in the third quarter of
1998 and 101 retail stores and liquidation and outlet centers in the second
half of 1997, as a result of the Company's decision to exit its non-core
retail businesses and to close certain underperforming Wards retail stores.
These closed stores reported net sales of $631 in the first nine months of
1997. The sales decrease was also caused by the Company's decision to exit
certain product offerings which reported sales of $69 in the first nine
months of 1997. 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
six months of 1997 contributed to the 1998 year-to-date sales decrease.
Gross margin (net sales less cost of goods sold) dollars were $442, an
increase of $97, or 28%, from the first nine months of 1997. This increase
was due to an increase in the gross margin rate on sales of $226 and
decreased occupancy and other margin-related expenses of $90 primarily
related to the closed stores, offset by the gross margin impact of decreased
sales of $219. The improvement of 7 percentage points in the gross margin
rate in the first nine months of 1998 as compared to the first nine months
of 1997 was due the effects of the increase in the margin rates in all
categories of merchandise and the impact of closing Lechmere and Electric
Avenue & More stores, which historically reported lower gross margin rates,
as well as the negative impact of the aggressive markdowns strategy employed
in the first six months of 1997 to liquidate inventories.
14
<PAGE>
MONTGOMERY WARD HOLDING CORP.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
First Nine Months of 1998 Compared with First Nine Months of 1997 (continued)
Operating, selling, general and administrative expenses decreased $303, or
18%, from the first nine months of 1997. The decrease was primarily due to
decreased payroll costs primarily related to the closing of the Wards and
Electric Avenue & More stores of $93, the closing of the Lechmere stores of
$89, decreased advertising and other promotional costs of $72, write-downs of
investments and other unrealizable assets in the prior year of $42, increased
pension income of $11, decreased bad debt expense of $10, and a decrease in
all other costs of $13, offset by decreased product service income of $27.
Net interest expense decreased $59, or 57%, 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 nine
months of 1998, excluding pre-petition debt, decreased by approximately $600
as compared to the first nine months of 1997.
Income tax expense of $306 was recorded for the first nine months of 1998 as
compared to a benefit of $375 for the first nine months of 1997. See "Third
Quarter 1998 Compared with the Third Quarter 1997" for further discussion.
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 $286 for the first
nine months of 1998 compared to $160 for the first nine months of 1997, an
increase of $126. The higher cash usage is summarized as follows:
<TABLE>
<S> <C>
Cash impact of smaller operating loss $ 387
Decrease in cash received from facility closings (60)
Lower cash provided by inventory (261)
Lower cash provided by accounts payable (182)
All other cash from operations (10)
-----
$(126)
=====
</TABLE>
The lower cash provided by inventory was due to the significant amount of
discontinued merchandise sold in the first six months of 1997 as part of the
Company's effort to reduce discontinued merchandise. The lower cash provided
by accounts payable was due to the effects of the bankruptcy filing in the
third quarter of 1997.
15
<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 used for investing activities totaled $67 for the first nine months
of 1998, compared to $29 million for the first nine months of 1997. Capital
expenditures were $67 for the first nine months of 1998 compared to $47 for
the first nine months of 1997. The Company has capitalized $9 on the
remodeling of three stores in the first nine months of 1998. These stores,
unveiled in September 1998, will serve as the prototype for the remodeling of
future stores. In September and October 1998, these three stores reflected
sales increases over the prior year in excess of 30 percentage points above
the combined performance of the entire chain during these months. The Company
plans to spend $40 in 1999 related to the remodeling of stores.
Net cash provided by financing activities totaled $268 for the first nine
months of 1998, compared to $395 for the first nine months of 1997. The
Company had borrowed to the full extent of its financing facilities (excluding
the Seasonal Credit Agreement) prior to the Chapter 11 filing. Net borrowings
under the DIP facility were $392 in the first nine months of 1998. Signature
repaid its short-term borrowings of $102 with the funds loaned by Lechmere.
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 $443 and letters of credit
outstanding were $141 at October 3, 1998. The Company had $395 of borrowing
availability under the DIP Facility at October 3, 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.
16
<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)
On September 15, 1998, the Company received approval from the Bankruptcy Court
to permit Lechmere to lend Signature the funds to repay its borrowings of $102
under a Credit Agreement between Signature and various lenders, plus interest
and other fees associated with the extension and refinancing of such
agreement. On September 30, 1998, Signature's loan under the Credit Agreement
was repaid from the $105 of funds advanced by Lechmere to Signature. The
Lechmere Loan to Signature, which accrues interest at either the prime rate
plus 1.75% or the LIBO rate plus 2.75%, is secured by a pledge of stock of
certain Signature subsidiaries and is guaranteed by Wards. Such guarantee is
subordinate to the DIP Facility. The loan shall become immediately due upon
the earliest of (i) upon demand; (ii) the effective date of a plan of
reorganization for the debtor subsidiary; (iii) the conversion of the
bankruptcy case from a Chapter 11 case to a Chapter 7 case under the
Bankruptcy Code; (iv) the sale of all or substantially all of Signature's
assets, the merger or consolidation of Signature with or into another entity,
or the sale of more than 50% of an interest in Signature to another entity; or
(v) December 31, 1999.
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.
The Company intends to improve its financial condition and reduce its
dependence on borrowing by increasing its sales base, continuing to improve
its gross margin rates and controlling expenses. In addition, the financial
performance of the remaining retail stores will be reviewed on a continuing
basis and additional stores may be closed if warranted. Management has also
reevaluated the Company's merchandising, marketing, store operations and
logistics 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.
The Company began addressing Year 2000 date conversion issues in the fall of
1996 and has developed a plan to assess and remediate both information
technology ("IT") and non-IT systems. The Company's plan consists of two
phases. The assessment phase includes the inventory of all systems (IT and
non-IT) subject to the Year 2000 issue and developing a plan for addressing
the problem as related to each system. The remediation phase includes the
implementation of the identified changes required and testing of these changes
before implementation.
For IT systems, the Company has completed its assessment phase and the
remediation phase is 60% complete. The Company expects that a substantial
portion of the remediation effort will be completed by December 31, 1998 and
the remainder is expected to be completed in the first half of 1999. For non-
IT systems, the Company anticipates the assessment phase to be completed in
early 1999 and the remediation phase to be completed by September 30, 1999.
The Company is also in the process of assessing the Year 2000 readiness of its
suppliers and service providers and is participating in a National Retail
Federation survey of such providers.
17
<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)
For the first nine months of 1998, the Company had expensed $19 related to
Year 2000 readiness. Prior to 1998, the Company expensed $14. The Company
estimates an additional $13 will be expensed as incurred to become Year 2000
ready. In addition, the Year 2000 issue has accelerated the timing of an
estimated $19 of capital expenditures of which $12 has been capitalized
through the third quarter of 1998. No significant capital projects have been
delayed as a result of addressing the Year 2000 issue. Based on the Company's
plan, the remaining costs to be expended to become Year 2000 ready are not
expected to materially impact future cash flows.
The Company believes that its program will result in Year 2000 readiness.
However, due to the complexity of the issue, there can be no assurances given
that the Company's plan will be fully effective. The Company could experience
interruptions of business at some of its operations, including those caused
by, but not limited to, the inability of utility companies to provide
telecommunications and electrical services, the failure of financial
institutions to process transactions, and the inability of vendors to deliver
products on a timely basis. The Company is in the process of developing
contingency plans which are anticipated to be completed by September 30, 1999,
with respect to the Company's facilities and merchandise supply and
distribution networks.
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.
18
<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 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 Senior Preferred Stock on June 30, 1997. The holder of all
1,750 outstanding shares of the 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 Senior
Preferred Stock as of the date of filing of this report.
The redemption provisions of the 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.
19
<PAGE>
MONTGOMERY WARD HOLDING CORP.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
10.(i)(G)(6) Waiver 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 as of June 26,
1998.
10.(i)(G)(7) Waiver 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 as of September 2,
1998.
10.(i)(L)(7) Waiver, Amendment and Extension Agreement dated as of
July 31, 1998, 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)(Q) Promissory Note among Lechmere, Inc. and Signature
Financial/Marketing, Inc. dated September 30, 1998.
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: November 13, 1998
20
<PAGE>
Exhibit Index
-------------
10. (i) (G) (6) Waiver 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 as of June 26, 1998.
10. (i) (G) (7) Waiver 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 as of September 2, 1998.
10. (i) (L) (7) Waiver, Amendment and Extension Agreement dated as of July
31, 1998, 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) (Q) Promissory Note among Lechmere, Inc. and Signature
Financial/Marketing, Inc. dated September 30, 1998.
27. Financial Data Schedule.
<PAGE>
10.(i)(G)(6)
WAIVER TO
POST-PETITION LOAN AND GUARANTY AGREEMENT
WAIVER TO POST-PETITION LOAN AND GUARANTY AGREEMENT, dated as of June
26, 1998 (this "Waiver"), 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, the Waiver and
Second Amendment to Post-Petition Loan and Guaranty Agreement dated as of
February 20, 1998, and as further amended, supplemented or modified, the "Loan
Agreement"). The Borrower Representative and the Guarantors have requested that
the Lenders agree to waive, for the limited purposes set forth herein, 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 waive such provisions 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.
(b) Section headings in this Waiver are included herein for
convenience of reference only and shall not constitute a part of this Waiver for
any other purpose.
(c) No provision in this Waiver shall be interpreted or construed
against any Person because that Person or its legal representative drafted such
provision.
<PAGE>
SECTION 2. Waiver. As of the effective date of this Waiver, Lenders
hereby waive the provisions of Section 6.3 and 8.1(r) of the Loan Agreement, for
the limited purpose of permitting the Borrower Representative to enter into an
insurance premium financing arrangement with AFCO Credit Corporation or such
other insurance premium finance company that the Debtors select pursuant to that
certain order approving the Motion of Debtors and Debtors in Possession for an
Order, Pursuant to Section 364(c)(2) of the Bankruptcy Code, Authorizing Entry
Into Insurance Premium Financing Agreement, dated May 7, 1998.
SECTION 3. 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 Waiver (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 4. Reference to this Waiver and Effect on Loan Documents.
(a) From and after the date hereof, 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 hereby.
(b) From and after the date of this Waiver, each reference in the
Loan Documents to the Loan Agreement shall mean and be a reference to the Loan
Agreement, as affected hereby.
(c) The Loan Agreement, the Notes and the other Loan Documents, as
affected 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 5. Effectiveness. This Waiver shall become effective upon
receipt by the Agent of executed counterparts of this Waiver from the requisite
number of Lenders that comprise the Requisite Lenders.
2
<PAGE>
SECTION 6. Governing Law; Binding Effect. In all respects, including
all matters of construction, validity and performance, this Waiver 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.
SECTION 7. Execution in Counterparts. This Waiver 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 8. Consent of Guarantors. By their execution and delivery of
this Waiver, each Guarantor hereby consents to all of the terms and provisions
of this Waiver and ratifies and confirms that each of the 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 Waiver has been duly executed as of the date first
written above.
BORROWER:
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Thomas J. Paup
--------------------------------------------
Name: Thomas J. Paup
Title: Executive Vice President and Chief
Financial Officer
GUARANTORS:
LECHMERE, INC.
By: /s/ Don Civgin
--------------------------------------------
Name: Don Civgin
Title: Vice President and Treasurer
3
<PAGE>
AMERICAN DELIVERY SERVICE COMPANY
By: /s/ Philip D. Delk
--------------------------------------------
Name: Philip D. Delk
Title: Vice President, Secretary and Assistant
Treasurer
CONTINENTAL TRANSPORTATION, INC.
By: /s/ Philip D. Delk
--------------------------------------------
Name: Philip D. Delk
Title: Vice President, Secretary and Assistant
Treasurer
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
4
<PAGE>
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
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
5
<PAGE>
GOODE FURNITURE COMPANIES, INC.
MONTGOMERY WARD SECURITIES, INC.
R M P DEVELOPMENT CORPORATION
By: /s/ G. Tad Morgan
--------------------------------------------
Name: G. Tad Morgan
Title: Secretary
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/ Paul M. Feehan
--------------------------------------------
Name: Paul M. Feehan
Title: Its Authorized Signatory
LENDERS:
THE CHASE MANHATTAN BANK
By: /s/ William P. Rindfuss
--------------------------------------------
Name: William P. Rindfuss
Title: Vice President
6
<PAGE>
BANK OF SCOTLAND
By: /s/ Annie Chin Tat
--------------------------------------------
Name: Annie Chin Tat
Title: Senior Vice President
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ Roger P. Tauchman
--------------------------------------------
Name: Roger P. Tauchman
Title: Vice President
BANKBOSTON RETAIL FINANCE INC.
(f/k/a GBFC, INC.)
By: /s/ Mary E. Abbott
--------------------------------------------
Name: Mary E. Abbott
Title: Assistant Vice President
PARIBAS
By: /s/ John J. McCormick, III
--------------------------------------------
Name: John J. McCormick, III
Title: Vice President
By: /s/ Edward Irwin
--------------------------------------------
Name: Edward Irwin
Title: Director
7
<PAGE>
CREDIT AGRICOLE INDOSUEZ
By: /s/ David Bouhl
--------------------------------------------
Name: David Bouhl, F.V.P.
Title: Head of Corporate Banking, Chicago
By: /s/ Katherine L. Abbott
--------------------------------------------
Name: Katherine L. Abbott
Title: First Vice President
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ Nicole Cangelosi
--------------------------------------------
Name: Nicole Cangelosi
Title: Assistant Secretary
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: Senior Vice President
FLEET NATIONAL BANK
By: /s/ Kevin J. Chamberlain
--------------------------------------------
Name: Kevin J. Chamberlain
Title: Vice President
8
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS L.P.
By:
--------------------------------------------
Name:
Title:
GREEN TREE FINANCIAL SERVICING CORPORATION
By:
--------------------------------------------
Name:
Title:
HELLER FINANCIAL, INC.
By: /s/ Albert J. Forzano
--------------------------------------------
Name: Albert J. Forzano
Title: Vice President
IBJ SCHRODER BUSINESS CREDIT CORP.
By:
--------------------------------------------
Name:
Title:
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
9
<PAGE>
LEHMAN COMMERCIAL PAPER, INC.
By:
--------------------------------------------
Name:
Title:
NATIONAL CITY COMMERCIAL FINANCE, INC.
By:
--------------------------------------------
Name:
Title:
STAR BANK, N.A.
By: /s/ Mike Ehlert
--------------------------------------------
Name: Mike Ehlert
Title: Vice President
10
<PAGE>
10. (i) (G) (7)
WAIVER TO
POST-PETITION LOAN AND GUARANTY AGREEMENT
WAIVER TO POST-PETITION LOAN AND GUARANTY AGREEMENT, dated as of
September 2, 1998 (this "Waiver"), 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, the Waiver and
Second Amendment to Post-Petition Loan and Guaranty Agreement dated as of
February 20, 1998, and as further amended, supplemented or modified, the "Loan
Agreement"). The Borrower Representative and the Guarantors have requested that
the Lenders agree to waive, for the limited purposes set forth herein, 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 waive such provisions 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.
(b) Section headings in this Waiver are included herein for
convenience of reference only and shall not constitute a part of this Waiver for
any other purpose.
(c) No provision in this Waiver 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 effective date of this Waiver, Lenders hereby waive the
provisions of Section 1.4 of the Loan Agreement, for the limited purpose of
permitting the Borrower Representative to pay certain prepetition real property
taxes and to compromise and settle governmental units' related claims pursuant
to that certain order approving the Motion of Debtors and Debtors in Possession
for an Order Authorizing Payment of Certain Prepetition Real Property Taxes and
Compromise and Settlement of Related Claims, dated July 24, 1998.
(b) Pursuant to an Order of this Court, dated August 14, 1997, the
Debtors sold substantially all of the assets of Lechmere, Inc. ("Lechmere"), a
wholly-owned debtor subsidiary, the proceeds from which sale (the "Proceeds")
were required to be kept in a segregated account. Signature Financial/Marketing,
Inc. ("Signature"), a wholly-owned affiliate of the Debtors, is seeking a new
credit facility. The Debtors are seeking to authorize Lechmere to loan the
Proceeds to Signature on a secured basis, with the Borrower Representative to
guarantee such loan subordinated to the Obligations.
(c) As of the effective date of this Waiver, Lenders hereby waive the
provisions of Sections 6.8 and 6.9 of the Loan Agreement as to Lechmere, and the
provisions of Sections 6.2 and 6.8 of the Loan Agreement as to the Borrower
Representative, for the limited purpose of permitting Lechmere to loan the
Proceeds to Signature on a secured basis, with the Borrower Representative to
guarantee the loan, subordinate only to the Loan Agreement, pursuant to that
certain order approving the Motion of Debtors and Debtors in Possession for an
Order Modifying Prior Order of Court and Authorizing Lechmere, Inc. to Loan
Money to Signature Financial/Marketing, Inc. Pursuant to Section 345 of the
Bankruptcy Code, dated August 13, 1998.
SECTION 3. 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 Waiver (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 4. Reference to this Waiver and Effect on Loan Documents.
(a) From and after the date hereof, 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 hereby.
(b) From and after the date of this Waiver, each reference in the Loan
Documents to the Loan Agreement shall mean and be a reference to the Loan
Agreement, as affected hereby.
2
<PAGE>
(c) The Loan Agreement, the Notes and the other Loan Documents, as
affected 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 5. Effectiveness. This Waiver shall become effective upon
receipt by the Agent of executed counterparts of this Waiver from the requisite
number of Lenders that comprise the Requisite Lenders.
SECTION 6. Governing Law; Binding Effect. In all respects, including
all matters of construction, validity and performance, this Waiver 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.
SECTION 7. Execution in Counterparts. This Waiver 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 8. Consent of Guarantors. By their execution and delivery of
this Waiver, each Guarantor hereby consents to all of the terms and provisions
of this Waiver and ratifies and confirms that each of the 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 Waiver has been duly executed as of the date
first written above.
BORROWER:
MONTGOMERY WARD & CO., INCORPORATED
By: /s/ Thomas J. Paup
--------------------------------------------
Name: Thomas J. Paup
Title: Executive Vice President and Chief
Financial Officer
3
<PAGE>
GUARANTORS:
LECHMERE, INC.
By: /s/ Don Civgin
--------------------------------------------
Name: Don Civgin
Title: Vice President and Treasurer
AMERICAN DELIVERY SERVICE COMPANY
By: /s/ Philip D. Delk
--------------------------------------------
Name: Philip D. Delk
Title: Vice President, Secretary and Assistant
Treasurer
CONTINENTAL TRANSPORTATION, INC.
By: /s/ Philip D. Delk
--------------------------------------------
Name: Philip D. Delk
Title: Vice President, Secretary and Assistant
Treasurer
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
4
<PAGE>
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
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
5
<PAGE>
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
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/ Paul M. Feehan
--------------------------------------------
Name: Paul M. Feehan
Title: Its Authorized Signatory
6
<PAGE>
LENDERS:
THE CHASE MANHATTAN BANK
By: /s/ William P. Rindfuss
--------------------------------------------
Name: William P. Rindfuss
Title: Vice President
BANK OF SCOTLAND
By: /s/ Annie Chin Tat
--------------------------------------------
Name: Annie Chin Tat
Title: Senior Vice President
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/ Mary E. Abbott
--------------------------------------------
Name: Mary E. Abbott
Title: Assistant Vice President
PARIBAS
By: /s/ John J. McCormick III
--------------------------------------------
Name: John J. McCormick III
Title: Vice President
By: /s/ Duane Helkowski
--------------------------------------------
Name: Duane Helkowski
Title: Vice President
7
<PAGE>
CREDIT AGRICOLE INDOSUEZ
By: /s/ David Bouhl
--------------------------------------------
Name: David Bouhl, F.V.P.
Title: Head of Corporate Banking, Chicago
By: /s/ Dean Balice
--------------------------------------------
Name: Dean Balice
Title: Senior Vice President, Branch Manager
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ Nicole Cangelosi
--------------------------------------------
Name: Nicole Cangelosi
Title: Assistant Secretary
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: Senior Vice President
FLEET NATIONAL BANK
By: /s/ Kevin J. Chamberlain
--------------------------------------------
Name: Kevin J. Chamberlain
Title: Vice President
8
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: /s/ Thomas R. Hudson, Jr.
--------------------------------------------
Name: Thomas R. Hudson, Jr.
Title: Authorized Signatory
GREEN TREE FINANCIAL SERVICING CORPORATION
By: /s/ Christopher A. Gouskos
--------------------------------------------
Name: Christopher A. Gouskos
Title: Senior Vice President
HELLER FINANCIAL, INC.
By: /s/ Albert J. Forzano
--------------------------------------------
Name: Albert J. Forzano
Title: Vice President
IBJ SCHRODER BUSINESS CREDIT CORP.
By:
--------------------------------------------
Name:
Title:
JACKSON NATIONAL LIFE INSURANCE COMPANY
By: PPM FINANCE, INC.
Its Attorney-in-fact
By:
--------------------------------------------
Name:
Title:
9
<PAGE>
LEHMAN COMMERCIAL PAPER, INC.
By:
--------------------------------------------
Name:
Title:
NATIONAL CITY COMMERCIAL FINANCE, INC.
By: /s/ Mark Hanak
--------------------------------------------
Name: Mark Hanak
Title: Assistant Vice President
STAR BANK, N.A.
By: /s/ Mike Ehlert
--------------------------------------------
Name: Mike Ehlert
Title: Vice President
10
<PAGE>
10 (i) (L) (7)
WAIVER, AMENDMENT AND
EXTENSION AGREEMENT
THIS WAIVER, AMENDMENT AND EXTENSION AGREEMENT ("Agreement"), dated as of
July 31, 1998, 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, and as
further amended or modified as of December 23, 1996, March 27, 1997, July 15,
1997, August 29, 1997, and January 31, 1998 (as heretofore amended or modified,
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 desires to extend the Maturity Date of the Credit
Agreement from July 31, 1998 to September 30, 1998;
Now, Therefore, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
WAIVER, AMENDMENT AND EXTENSION
1.1 The Banks hereby waive an Event of Default (the "Specified Default")
arising solely by reason of the failure of the Borrower on July 31, 1998,
through the Effective Date of this Agreement to pay in full all Notes and other
Obligations.
1.2 The Maturity Date is hereby extended by substituting "September 30,
1998" for "July 31, 1998" in the definition of Maturity Date as set forth in
Section 1.1 of the Credit Agreement.
1.3 Section 2.12 of the Credit Agreement is amended to read in its entirety
as follows:
2.12 Extension Fee. Concurrent with the execution by each Bank of
the Waiver, Amendment and Extension Agreement dated as of July 31,
1998 ("Extension Agreement") among the Banks and the Borrower, the
Borrower agrees to pay directly
<PAGE>
to each Bank in immediately available funds a fee equal to 1/8th% of
the aggregate outstanding principal amount of the Loans then
outstanding from each Bank (it being understood that such fee shall be
retained by such Bank regardless of whether the Extension Agreement
becomes effective).
1.4 The waiver, amendment and extension contained herein are limited
precisely to their terms and shall not constitute a waiver, amendment or other
modification generally or for any other purpose.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Agents and the Banks as
follows:
1.5 No Default. No Default or Event of Default has occurred and is
continuing, other than the Specified Default, or will exist after giving effect
to this Agreement.
1.6 Due Execution. The execution, delivery and performance of this
Agreement, (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.
1.7 Validity. The Credit Agreement as extended by this Agreement
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
<PAGE>
1.8 Credit Agreement. All representations and warranties of the Borrower
contained in Article 5 (except Section 5.11(b) of the Credit Agreement) are true
and correct as of the date hereof with the same effect as though made on the
date hereof. Since December 31, 1995, there has not occurred any event which
(i) materially impairs the ability of the Borrower to perform its obligations
under any Loan Document or to avoid, after the Effective Date hereof, any Event
of Default, or (ii) materially adversely effects the legality, validity, binding
effect or enforceability against the Borrower of any Loan Document.
ARTICLE III
GENERAL
1.9 Expenses. The Borrower agrees to pay all fees and expenses of each of
the Agents and the Banks (including all legal fees and related expenses of
separate counsel for each of the Banks and the Agents) in connection with the
preparation, execution and delivery of this Agreement.
1.10 Effectiveness. This Agreement shall become effective on the date (the
"Effective Date") on which the Administrative or Collateral Agent shall have
received each of the following:
(1) Agreements. Counterparts of this Agreement, whether on the same or
different counterparts, executed by the Borrower, the Subsidiary
Guarantors, and the Pledgors, as appropriate, and by 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);
(2) MW Court Order. The entry of an order by the United States Bankruptcy
Court, District of Delaware, In Re Montgomery Ward Holding Corp., a
Delaware corporation, et al., Case No. 97-1409 (PJW) substantially in
the form attached hereto as Exhibit X, or the written waiver of this
requirement by the Banks; and
(3) Agreement Fee. Evidence of payment from the Borrower to each Bank of
the fees provided for in Section 2.12 of the Credit Agreement as herein
amended and the payment of expenses provided in Section 3.1 of this
Agreement.
1.11 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
<PAGE>
1.12 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 extended by this
Agreement. This Agreement shall be deemed incorporated into, and a part of, the
Credit Agreement.
1.13 Successors. This Agreement shall be binding upon and inure to the
benefit of, the parties hereto and their respective successors and assigns.
1.14 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
1.15 Counterparts. This Agreement 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.
Dated at Chicago, Illinois as of the date, month and year first above
written but executed and delivered on or after September 8, 1998.
Signature Financial/Marketing, Inc.
By: /s/ John B. Euwema
--------------------------------
Name: John B. Euwema
Title:
ACCEPTED AND APPROVED:
The Bank of New York, in its
individual capacity and in its
capacity as Documentation Agent
By: /s/ Albert R. Taylor
--------------------------------
Name: Albert R. Taylor
Title: Vice President
4
<PAGE>
The Bank of Nova Scotia, in its
individual capacity, in its capacity
as Administrative Agent and in its
capacity as Collateral Agent
By: /s/ D.N. Gillespie
-----------------------------------
Name: D.N. Gillespie
Title: Assistant General Manager
REAFFIRMATION OF 1996 GUARANTY:
Each Guarantor hereby confirms and agrees that (i) its Guaranty dated as of
September 27, 1996, as heretofore reaffirmed from time to time, is, and shall
continue to be in full force and effect and is hereby ratified and confirmed in
all respects, as applied to the Credit Agreement as modified above; (ii) to the
extent the liability of any Guarantor under its Guaranty is limited by
applicable law, such Guarantor shall be nonetheless liable under its Guaranty to
the maximum extent permitted by applicable law, and (iii) to the extent that a
Guarantor shall have paid more than its proportionate share of any payment made
under its Guaranty, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor which has not paid its
proportionate share of such payment (it being understood that (a) such
Guarantor's right of contribution shall be subordinated to the obligations of
such Guarantor to the Banks and shall not be paid until all of the Obligations
under the Credit Agreement have been indefeasibly paid in full, and (b) the
provisions of this clause (iii) shall in no respect limit the obligations and
liabilities of any Guarantor to the Banks, and each Guarantor shall remain
liable to the Banks for the full amount guaranteed by such Guarantor under its
Guaranty).
5
<PAGE>
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.
AM Industries, Inc. (formerly known as
Amoco Motor Club, Inc.)
By: /s/ John B. Euwema
----------------------------------------
Name: John B. Euwema
Title:
REAFFIRMATION OF 1998 GUARANTY:
Each Guarantor hereby confirms and agrees that its Guaranty dated as of
January 31, 1998, as heretofore reaffirmed from time to time, is, and shall
continue to be in full force and effect and is hereby ratified and confirmed in
all respects, as applied to the Credit Agreement as modified above.
Montgomery Ward Auto Club, Inc.
Greater California Dental Plan
Signature Dental Plan of Florida, Inc.
Ocoma Industries, Inc.
Signature's Nationwide Auto Club, Inc.
Signature Agency, Inc.
Signature Agency - Wyoming, Inc.
AEC Signature Industries, Limited
By: /s/ John B. Euwema
----------------------------------------
Name: John B. Euwema
Title:
6
<PAGE>
REAFFIRMATION OF PLEDGE AGREEMENT:
Each Pledgor hereby confirms and agree that each Pledge Agreement, dated as
of January 31, 1998, that each Pledgor is a party to, as heretofore reaffirmed
from time to time, is and shall continue to be in full force and effect and is
hereby ratified and confirmed, in all respects, as applied to the Credit
Agreement as modified above.
Signature Financial/Marketing, Inc.
Montgomery Ward Enterprises, Inc.
By: /s/ John B. Euwema
-----------------------------------
Name: John B. Euwema
Title:
7
<PAGE>
10.(i)(Q)
PROMISSORY NOTE
$104,901,996.93
Chicago, Illinois
September 30, 1998
FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged,
Signature Financial/Marketing, Inc., a Delaware corporation ("Maker"), hereby
promises to pay to the order of Lechmere, Inc., a Massachusetts corporation
("Payee"), in lawful money of the United States at such location as Payee may
designate from time to time in writing, the principal sum of $104,901,996.93,
together with interest from the date hereof on the unpaid principal balance
hereof at the interest rate(s) set forth below. Accrued interest on amounts owed
under this Note shall be due and payable at the Maker's election either (i)
monthly in arrears for interest payments computed at the Prime Rate or (ii) on
the last day of each Interest Period for interest payments computed at the LIBO
Rate. Principal of this Note shall be due and payable on demand. The amount of
all principal and accrued interest shall be maintained on and ascertained from
the records of the Payee which shall constitute presumptive evidence of such
amounts.
The terms set forth below shall have the following meanings:
Bankruptcy Code means Title 11 of the United States Code (11 U.S.C.
(S)(S) 101 et seq.), as amended from time to time, and any successor statute.
Interest Period means, for any LIBO Rate election, the period
commencing on the date of such election and ending either one month, two months
or three months thereafter.
LIBO Rate means an interest rate per annum determined by the Payee to
be the average (rounded upward to the nearest whole multiple of one-sixteenth of
one percent (0.0625%) per annum if such average is not such a multiple) of the
rates per annum at which deposits in dollars are offered by the principal office
of Citicorp USA, Inc. in London, England to major banks in the London interbank
market at approximately 11:00 a.m. (London time) on the date the Maker elects
the LIBO Rate to be applied to all or a portion of the outstanding principal
owed under this Note for such LIBO Rate Interest Period for a period equal to
such LIBO Rate Interest Period.
Prime Rate means the fluctuating rate of interest established by
Citicorp USA, Inc. from time to time, at its discretion, whether or not such
rate shall be otherwise published. The Prime Rate is established by Citicorp
USA, Inc. as an index and may or may not at any time be the best or lowest rate
charged by Citicorp USA, Inc.
<PAGE>
Wards Bankruptcy Case means the case entitled In re Montgomery Ward
Holding Corp., a Delaware corporation et al., Case No. 97-1409 PJW, Chapter 11,
filed in the United States Bankruptcy Court for the District of Delaware on July
7, 1997, and any case consolidated therewith.
The unpaid principal balance under this Note will bear interest at
either: (x) a rate per annum equal at all times during the applicable Interest
Period to the sum of (i) the LIBO Rate for such Interest Period plus (ii) 2.75%
or (y) a rate per annum equal at all times during a one month period to the sum
of (i) the Prime Rate for such month plus (ii) 1.75%.
Maker shall give the Payee at least three business days notice prior
to the expiration of each month or each Interest Period, as the case may be,
electing either the Prime Rate or the LIBO Rate with respect to the next
succeeding month or Interest Period, as the case may be. Notwithstanding the
foregoing, Maker shall have the right to convert from the Prime Rate to the LIBO
Rate at any time so long as Maker gives the Payee at least three business days
notice.
Maker shall have the right to prepay the principal amount of this
Note, in whole or in part, at any time, without premium or penalty. All partial
prepayments shall be applied first to accrued interest under this Note and then
to the principal.
Maker shall be in default under this Note upon the occurrence of any
of the following events of default (an "Event of Default"):
(a) default in the payment of any installment of the principal of or
interest on this Note, which default continues unremedied for a period of five
business days after notice of default shall have been received by Maker from
Payee;
(b) any default in the performance by Maker of any condition or
covenant contained in this Note, which default continues unremedied for a period
of ten days after the date on which written notice thereof is given to Maker by
Payee; and
(c) the dissolution, voluntary or involuntary bankruptcy, insolvency,
or appointment of a receiver of any party of the property of Maker.
Upon the occurrence of an Event of Default, and at any time thereafter
as long as such Event of Default shall be continuing, Payee may declare all
liabilities and obligations of Maker to Payee immediately due and payable and
the same shall thereupon become immediately due and payable without any further
action on the part of Payee.
Notwithstanding anything stated herein to the contrary, all
liabilities and obligations of Maker to Payee under this Note will be
immediately due and payable upon the earlier of (i) the effective date of a plan
of reorganization for Payee; (ii) the conversion of the Wards Bankruptcy Case
from a Chapter 11 case to a Chapter 7 case under the Bankruptcy Code; (iii) (x)
the sale of all or substantially all of Maker's assets, (y) the merger or
consolidation of Maker with or into another entity, or (z) the sale of more than
50 percent of an interest in Maker to another entity; or (iv) December 31, 1999.
2
<PAGE>
This Note shall bind Maker and its successors and assigns, and the
benefits hereof shall inure to the benefit of Payee and its successors and
assigns. All references herein to the "Maker" and "Payee" shall be deemed to
apply to the Maker and Payee, respectively, and to their respective successors
and assigns.
This Note is a Demand Note and the Maker waives presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default and enforcement of this Note.
This Note is non-negotiable and Payee shall not negotiate, sell,
convey, assign or in any other way transfer any of its rights, claims or
benefits under this Note.
This Note and any other documents delivered in connection herewith and
the rights and obligations of the parties hereto and thereto shall for all
purposes be governed by, and construed and enforced in accordance with, the
substantive law of the State of Illinois, without regard to its conflicts of law
principles.
Signature Financial/Marketing, Inc.
By: /s/ John B. Euwema
-----------------------------------
Name: John B. Euwema
Title: Senior Vice President, Secretary and
General Counsel
3
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> OCT-03-1998
<CASH> 104
<SECURITIES> 358
<RECEIVABLES> 293
<ALLOWANCES> 0
<INVENTORY> 1,124
<CURRENT-ASSETS> 0
<PP&E> 1,915
<DEPRECIATION> (866)
<TOTAL-ASSETS> 4,122
<CURRENT-LIABILITIES> 0
<BONDS> 0
177
0
<COMMON> 1
<OTHER-SE> (1,424)
<TOTAL-LIABILITY-AND-EQUITY> 4,122
<SALES> 2,428
<TOTAL-REVENUES> 3,067
<CGS> 1,986
<TOTAL-COSTS> 1,986
<OTHER-EXPENSES> 1,342
<LOSS-PROVISION> 95
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> (400)
<INCOME-TAX> 306
<INCOME-CONTINUING> (706)
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<CHANGES> 0
<NET-INCOME> (706)
<EPS-PRIMARY> (19.18)
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</TABLE>
