SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT ("Agreement") is made as of
the 29th day of December, 1995, by and between GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation ("Investor"),
MONTGOMERY WARD & CO., INCORPORATED, an Illinois corporation (the
"Company"), MONTGOMERY WARD HOLDING CORP., a Delaware corporation
("Holdings"), and BERNARD F. BRENNAN ("Brennan").
NOW, THEREFORE, in consideration of the mutual promises
set forth in this Agreement, the parties agree as follows:
1. Subscription for Shares.
The Company agrees to sell to Investor, and Investor
agrees to purchase from the Company, one-thousand seven hundred and
fifty (1,750) shares of Series B Senior Preferred Stock of the
Company (the "Shares"), issued pursuant to an Article of Amendment
to the Articles of Incorporation (the "Articles of Amendment") of
the Company as set forth in Exhibit A, (i) one-thousand (1,000)
shares of Series B Senior preferred Stock of the Company for an
aggregate purchase price of $98,250,000 and (ii) seven hundred and
fifty (750) shares of Series B Senior Preferred Stock of the
Company for an aggregate purchase price of $75,000,000.
2. Delivery and Payment.
Delivery of and payment for the Shares (the
"Closing") shall occur simultaneously with the execution and
delivery hereof. At the Closing:
(a) the Company shall execute and deliver to
Investor a certificate evidencing the Shares registered
in the name of Investor; and
(b) Investor shall pay to the Company, by wire
transfer to an account designated by the Company, an
amount equal to $173,250,000 for the Shares; and
(c) the Company shall deliver to Investor the
opinion of its counsel in the form of Exhibit B hereto.
3. Representations and Warranties of Investor.
Investor represents and warrants to the Company
(which representations and warranties shall survive the purchase
and sale of the Shares) that:
(a) Investor is a corporation duly organized,
validly existing and in good standing under the laws of
the State of New York and has all requisite corporate
power and authority to enter into and perform this
Agreement and to acquire the Shares.
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions
provided for herein have been duly authorized by all
necessary corporate action on the part of Investor. This
Agreement has been duly and validly executed and
delivered by Investor and constitutes the legal, valid
and binding obligation of Investor, enforceable against
Investor in accordance with its terms.
(c) This execution, delivery and compliance with
and performance of the terms and provisions of this
Agreement will not conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a
default (or an event which, with notice,, lapse of time,
or both, would constitute a default) under, or result in
any violation of, (i) the certificate of incorporation or
by-laws of Investor, (ii) any provision of any contract,
agreement, indenture, note, bond, loan agreement,
instrument, lien, conditional sales contract, mortgage,
license, franchise, insurance policy, commitment or other
binding understanding or arrangement ("Contract") to
which Investor is a party or by which it is bound, or
(iii) any order, judgment, decree, license, permit,
statute, law, rule or regulation of any governmental body
to which Investor is subject.
(d) Investor is acquiring the Shares solely for
investment for its own account and not for the benefit or
account of any other person or entity and not with a view
to the distribution of the Shares.
(e) Investor has had an opportunity to ask
questions and receive answers from the Company and its
representatives concerning the terms and conditions of
this Agreement and to obtain any additional information
which Investor has requested in order to adequately
evaluate the merits and risks of its investment therein.
(f) Investor understands that the Shares have not
been registered under the Securities Act of 1933 (the
"Act") or the securities laws of any other jurisdiction,
and that Investor must bear the economic risk of its
investment therein for an indefinite period of time
because the Shares cannot be offered for sale or sold
without compliance with the provisions of the Act and
applicable state blue sky or securities laws.
(g) Investor agrees that it will not sell, assign,
transfer or otherwise dispose of all or any part of the
Shares without complying with the provisions of the Act
and all applicable state blue sky or securities laws, or
any exemptions therefrom.
(h) Investor understands that no federal or state
agency has recommended or endorsed the purchase of the
Shares or made any determination or finding as to the
fairness of the provisions of this Agreement.
(i) Investor acknowledges that neither the Company
nor any person acting on its behalf has offered to sell
the Shares to it by means of any form of general
advertising.
(j) Investor is an "Accredited Investor, " as that
term is defined in Regulation D under the Act.
4. Representations and Warranties of the Company and
Holdings.
The Company and Holdings represent and warrant to
Investor (which representations and warranties shall survive the
purchase and sale of the Shares) that:
(a) The Company and Holdings are corporations duly
organized, validly existing and in good standing under
the laws of the States of Illinois and Delaware,
respectively, and have all requisite corporate power and
authority (i) to carry on their respective businesses as
now being conducted, (ii) to own or lease all of the
properties owned or leased by them and (iii) to enter
into and perform this Agreement.
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions
provided for herein, including the authorization of the
Articles of Amendment, have been duly authorized by all
necessary corporate action on the part of the Company and
Holdings, including the consent of the Company's
stockholder. This Agreement has been duly and validly
executed and delivered by the Company and Holdings and
constitutes the legal, valid and binding obligation of
the Company and Holdings, enforceable against the company
and Holdings in accordance with its terms. The Articles
of Amendment has been duly filed with the Secretary of
State of the State of Illinois.
(c) Upon the issuance of the Shares to Investor in
accordance with the terms hereof, Investor will acquire
good and marketable title to the Shares, free and clear
of any lien, claim or encumbrance, and the Shares will be
validly issued, fully paid and non-assessable.
(d) The execution, delivery and compliance with and
performance of the terms and provisions of this Agreement
will not conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a
default (or an event which, with notice, lapse of time,
or both, would constitute a default) under, or result in
any violation of (i) the articles of incorporation of the
Company or the certificate of incorporation of Holdings
or the by-laws of either the Company or Holdings, (ii)
any provision of any Contract to which the Company or
Holdings is a party or is bound or (iii) any order,
judgment, decree, license, permit, statute, law, rule or
regulation of any governmental body (including applicable
federal and state securities laws) to which the Company
or Holdings is subject.
(e) Except as set forth on Schedule 1 hereto,
neither the Company nor any of its subsidiaries is a
party to any agreement or note relating to indebtedness
for money borrowed which specifically prohibits or limits
Distributions (as defined in Section 5 of the terms of
the Shares) on the Shares or which prohibits or limits
dividends or other distributions with respect to its
capital stock by an subsidiary of the Company to the
Company or to such subsidiary's parent company
(collectively, "Restricted Payments").
5. Covenants of Company
(a) The Company agrees that so long as the Shares
are outstanding, without the prior written consent of
Investor, it shall not, nor shall it permit any of its
subsidiaries to, amend, incur assume or enter into any
agreement or note relating to indebtedness for money
borrowed which would specifically prohibit or limit
Distributions on the Shares or Restricted Payments in a
manner more restrictive than the most restrictive
provision (other than a change of the date from which
consolidated net income is calculated and the related
"FAS 106 Adjustment Factor" or "FAS 106 Restricted
Payment Factor" set forth in the Restricted Payments
provisions of the agreements listed in Schedule 1)
contained in the agreements listed on Schedule 1 hereto.
With respect to any subsidiary of the Company, a
prohibition on Restricted payments by such subsidiary
that does not include the $50,000,000 "basket" contained
in the Restricted Payments provisions of the agreements
listed in Schedule 1 hereto shall not be deemed to
violate the covenant contained in this Section 5(a). The
provisions of this Section 5(a) shall not apply to any
limitation on Restricted Payments by a subsidiary that is
not a U.S. subsidiary or a subsidiary whose principal
business is dealing with, or the operation of, real
estate.
(b) Financial and Business Information
(i) Quarterly Information. The Company agrees
that so long as the Shares are outstanding, it will
deliver to Investor, as soon as practicable after the end
of each of the first three quarters of each fiscal year
of the Company and of Holdings, and in any event within
60 days thereafter, one copy of an unaudited consolidated
balance sheet of the Company as at the close of such
quarter, and the related unaudited consolidated
statements of income of the Company and of Holdings for
such quarter and, in the case of the second and third
quarters, for the portion of the fiscal year ending with
such quarter and the related unaudited consolidated
statements of cash flows of the Company and of Holdings
for the portion of the fiscal year ending with such
quarter, setting forth in each case in comparative form
the figures for the corresponding periods in the previous
fiscal year. Such financial statements shall be prepared
by the Company and Holdings in accordance with GAAP
(subject to normal year-end adjustments) and accompanied
by the certification of the Company's and Holdings' chief
executive officer, or chief financial officer or
treasurer, that such financial statements present fairly
in all material respects the consolidated financial
position, results of operations and cash flows of the
Company and Holdings as at the end of such quarter and
for such year-to-date period, as the case may be.
(ii) Annual Information. The Company agrees
that so long as the Shares are outstanding, it will
delivery to Investor as soon as practicable after the end
of each fiscal year of the Company and Holdings, and in
any event within 105 days thereafter, one copy of:
1. an audited consolidated balance sheet
of the Company and of Holdings as at the end of such
year; and
2. audited consolidated statements of
income, shareholders' equity and cash flows of the
Company and of Holdings for such year;
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all prepared in
accordance with GAAP, and which audited financial statements shall
be accompanied by an opinion thereon of the independent certified
public accountants regularly retained by the Company and Holdings,
or of any other firm of independent certified public accountants of
recognized national standing selected by the Company.
6. Covenants of Investor, Holdings and Brennan relating
to Board Representation. Investor, Holdings and Brennan agree to
use their best efforts to take such action as is necessary to
provide that, if Investor has the right, pursuant to Section 6(b)
of the terms of the Shares, to elect a director to the Board of
Directors of the Company, Investor shall also have the right to
elect, in accordance with the terms of such Section 6(b), one
additional member to the board of directors of Holdings and the
number of directors constituting the board of directors of Holdings
shall be increased in order to provide one vacancy for such
additional member, including, without limitation, amendments to
that certain Stockholders Agreement dated as of June 17, 1988 among
Holdings and certain of its stockholders, as amended and restated
to date, and the by-laws of Holdings, to permit the foregoing.
7. Status of Dividends and Tax Indemnity
(a) Reporting. The parties hereto intend that (i) the
dividends paid for deemed paid (including any indemnification
payments hereunder that may be so treated) with respect to the
Shares ("Dividends") shall be treated as dividends for federal
income tax purposes and (ii) Investor shall be entitled to the
dividends received deduction under Section 243 (a) (1) of the Code
and any dividends received deduction provided under any state or
local income tax law in effect as of December 1, 1995 (the
"Dividends Received Deduction") with respect to the Dividends. In
accordance with such intent, Holdings and the Company agree that
neither they nor any affiliate, directly or indirectly, will take
any action or file any returns or other documents inconsistent with
such intent and that they and each affiliate will file such
returns, take such action, and execute such documents consistent
with such intention as in Investor's view may be reasonable and
necessary to facilitate the accomplishment of the parties'
expressed intentions.
(b) Indemnification. if at any time, for any reason or
under any circumstances (including a change in law or the absence
of sufficient "earning and profits") other than an act or failure
to act of Investor, Investor loses the right to claim, does not
claim (as the result of a good faith and reasonable determination
based upon a written opinion of Investor's tax counsel, a copy of
which shall be delivered to Holdings and the Company, that such
claim is not properly allowable) or there shall be disallowed, all
or any portion of the Dividends Received Deduction with respect to
the Dividends (such events collectively referred to hereafter as a
"Disallowance"), then Holdings and the Company jointly and
severally agree to pay to Investor,
(i) within 30 days following the Notice Date (as defined
below), an amount which will on an After-Tax Basis (as defined
below), taking into account any penalties, interest or additions to
tax payable by virtue of the Disallowance, preserve (but not do
more than preserve) the Net After-Tax Return (as defined below)
with respect to the Dividends to which the Disallowance applies,
and
(ii) on each Dividend payment date (if any) following the
Notice Date, an amount which will on an After-Tax Basis, taking
into account any penalties, interest or additions to tax payable by
virtue of the Disallowance, preserve (but not do more than
preserve) the Net After-Tax Return with respect to the Dividends
payable on such Dividend payment dates.
Nothing herein shall be construed to provide indemnity for taxes
(including penalties, interest or additions to tax) to the extent
such taxes (including penalties, interest or additions to tax) do
not result from the Disallowance. Holdings and the Company further
jointly and severally agree to reimburse Investor for all of its
reasonable attorneys fees incurred in enforcing its rights to
indemnification hereunder.
(c) Cooperation and Examination. Holdings and the
Company will cooperate with and support Investor, as Investor shall
reasonably request, in any audit or other proceedings challenging
or contesting Investor's entitlement to the Dividends Received
Deduction with respect to the Dividends. In the event that
Investor is notified formally of any audit, examination or
proceeding by any taxing authority with respect to the availability
of the Dividends Received Deduction with respect to the Dividends
(the "Dividend Issue"), Investor will promptly notify Holdings and
the Company of such audit, examination or proceeding.
Subject to the requirement that Investor shall proceed reasonably
and in good faith and keep Holdings and the Company informed on
matters relating to the Dividend Issue, Investor shall have
exclusive control and responsibility to conduct any audit,
examination, proceeding or litigation with respect to the Dividend
Issue. Investor shall diligently pursue the Dividend Issue;
provided, however, that Investor shall have sole discretion to
compromise, settle or resolve the Dividend Issue.
(d) Additional Definitions. For purposes of this
Section 7:
(i) "Code" shall mean the Internal Revenue Code of 1986,
as amended as of December 1, 1995.
(ii) Amounts paid on an "After-Tax Basis" shall mean
amounts which, when reduced by the increase (but only by the
increase) in federal, state and local income taxes payable by
the recipient with respect thereto, shall equal the amount in
respect of which such amount is paid.
(iii) The "Net After-Tax Return" (A) shall be determined
both with respect to the Dividends and the proceeds from any
disposition of the Shares ("Disposition"), including any sale,
redemption or exchange of the Shares and any distribution that
is deemed to be a sale or exchange under Section 301(c)(3) of
the Code, (B) with respect to Dividends, shall be computed as
if such Dividends were subject to federal, state and local
income taxes at the highest marginal rates to which the
recipient would be subject, such Dividends were treated as
dividends within the meaning of Section 316(a) of the Code,
and the Dividends Received Deduction was available with
respect to such Dividends and (C) with respect to proceeds
from any Disposition, shall be computed as if such proceeds
were subject to federal, state and local income tax at the
highest marginal rate applicable to such Disposition by the
recipient. For this purpose, the highest marginal rates shall
be determined without regard to the tax rate or tax benefit
make-up or phase-out provisions of applicable law, such as the
last two sentences of Section 11(b) of the Code.
(iv) The "Notice Date" shall mean the date (or dates) on
which Investor gives notice to Holdings and the Company of a
Disallowance, which notice shall state the nature of the
Disallowance and the claim for indemnity and shall provide a
computation of the indemnity payable to Investor, but in no
event more than 30 days prior to the earlier of (A) the
payment of any additional federal, state or local income taxes
(including any interest, penalties or additions to tax) as a
result of such Disallowance, (B) the filing of a return or the
acceptance of an audit report, closing agreement or other
settlement or determination in which such Disallowance is
reflected or (C) in the case that a Disallowance results from
the fact that all or any portion of the Dividends constituted
a distribution under Section 301(c)(2) of the Code, a sale or
redemption of all or part of the Shares the basis of which was
reduced as a result of the Disallowance.
(e) Transferees. The rights of any indemnity provided
in this Section 7 shall inure to the benefit of any transferee of
all or a portion of the Shares that is a corporation entitled to
claim the Dividends Received Deduction with respect to the
Dividends, and shall be applied by substituting the name of such
transferee in lieu of "Investor" wherever it appears in this
Section.
Section 8. Exchange Option
(a) For a period of 180 days after the date hereof,
Investor shall have the option, upon written notice to Holdings and
the Company, to cause Holdings to issue to Investor, preferred
stock of Holdings with terms substantially identical to the Shares
in the same stated amount of the Shares and with a maturity of six
years and six months from the date of this Agreement (the "Exchange
Preferred"), in exchange for the Shares.
(b) If the proposed legislation to reduce the dividends
received deduction referred to in President Clinton's Seven-Year
Balanced Budget Proposal released December 7, 1995 or any similar
legislation (the "Clinton Bill") is enacted into law by December
31, 1996, Holdings shall have the option for a period of 60 days
after the date the Clinton Bill is so enacted, upon written notice
to Investor, to issue to Investor the Exchange Preferred in
exchange for the Shares.
(c) If either Investor or Holdings elects to exercise
their respective options referred to in Sections 8(a) or (b) above,
Investor, Holdings, the Company and Brennan agree to use their best
efforts to effect such exchange as soon as possible after the date
of exercise. The provisions of this Section 8 shall apply to
Investor and its successor and assigns. For purposes of Sections
5 and 7 of this Agreement, all references to "Shares" shall mean
the shares of Series B Senior Preferred Stock of the Company, or,
if the exchange referred to in this Section 8 occurs, the Exchange
Preferred, and references therein to the Company shall also be
deemed to refer to Holdings.
9. Amoco.
If for any reason the acquisition by the Company or a
subsidiary thereof of the stock of Amoco Enterprises, Inc. has not
been consummated by the opening of business on January 2, 1996, the
Company shall, on January 2, 1996, redeem the 1000 Shares purchased
by Investor pursuant to subsection (i) of Section 1 of this
Agreement for a purchase price equal to $98,250,000 plus accrued
dividends thereon.
10. Miscellaneous.
(a) Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Agreement shall be sufficiently
given or made if in writing and either delivered in person with
receipt acknowledged or sent by registered or certified mail,
return receipt requested, postage prepaid, or by telecopy and
confirmed by telecopy answerback, addressed as follows:
(i) If to the Company, Holdings or Brennan, at:
1 Montgomery Ward Plaza
Chicago, Illinois 60671-0042
Attention: Spencer H. Heine
Telecopy Number: (312) 467-3064
(ii) If to Investor, at:
105 West Madison Street
Suite 1600
Chicago, Illinois 60602
Attention: Account Manager, Montgomery Ward
Telecopy Number: (312) 419-5992
or at such other address as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may
be waived in writing by the party entitled to receive such notice.
Every notice, demand, request, consent, approval, declaration,
delivery or other communication hereunder shall be deemed to have
been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by
telecopy answerback, or three (3) Business Days after the same
shall have been deposited in the United States mail.
(b) The Company shall reimburse Investor for all of its
out-of-pocket expenses (including reasonable attorneys' fees)
incurred by it in connection with this Agreement and the
transactions contemplated hereby.
(c) This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York,
without regard to the principles thereto relating to conflict of
laws.
(d) The rights and obligations of the Company, Holdings
and Brennan under this agreement may not be assigned without the
written consent of Investor. The rights and obligations of
Investor hereunder may not be assigned without the consent of the
Company, except as provided in Section 7(e), and except that there
shall be no restriction on Investor's right to sell, assign or
otherwise transfer the Shares, subject to compliance with Section
3(g) hereof.
(e) This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their respective successors
and permitted assigns.
(f) This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of
which shall constitute a single instrument.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
GENERAL ELECTRIC CAPITAL CORPORATION
By:
Name: William Brasser
Title: Duly Authorized Signatory
MONTGOMERY WARD & CO., INCORPORATED
By:
Name: John Workman
Title: Executive Vice President
and Chief Financial Officer
MONTGOMERY WARD HOLDING CORP.
By:
Name: John Workman
Title: Executive Vice President
and Chief Financial Officer
Bernard F. Brennan, solely as to
Sections 6 and 8 of this Agreement
and only for so long as he shall be
an "Affiliate" (as defined under the
Act) of the Company and Holdings,
provided that he shall be deemed an
Affiliate as long as he is a
director, and, in all events, he
agrees to vote all voting shares
that he is entitled to vote to
effectuate such sections.
SCHEDULE 1
1. Long Term Credit Agreement dated as of September 15, 1994
among the Company, various banks, The First National Bank of
Chicago, as Documentary Agent, The Bank of Nova Scotia, as
Administrative Agent, The Bank of New York, as Negotiated Loan
Agent, and Bank of America National Trust and Savings
Association, as Advisory Agent.
2. Short Term Credit Agreement dated as of September 15, 1994
among the Company, various banks, The First National Bank of
Chicago, as Documentary Agent, The Bank of Nova Scotia, as
Administrative Agent, The Bank of New York, as Negotiated Loan
Agent, and Bank of America National Trust and Savings
Association, as Advisory Agent.
3. Term Loan Agreement dated as of September 29, 1995 between the
Company and The Industrial Bank of Japan, Limited, Chicago
Branch.
4. Note Purchase Agreement dated as of July 11, 1995 between the
Company and various institutional investors.
5. Note Purchase Agreement dated as of March 1, 1993 between the
Company and various institutional investors.
6. Purchase and Master Lease Agreement, dated as of March 15,
1995, among Lessors referred to therein, the Company,
Lechmere, Inc., and Sumitomo Bank Leasing and Finance, Inc.,
as agent for Lessors;
7. Purchase and Master Lease Agreement, dated as of January 13,
1995, among the Lessors referred to therein, the Company,
Lechmere, Inc., and Credit Lyonnais, Chicago Branch, as agent
for the Lessors.