Exhibit 10.(i)(K)(1)
March 20, 1996
The Industrial Bank of Japan, Limited
Chicago Branch
227 W. Monroe Street
Suite 2600
Chicago, IL 60606
Re: Amendment to and Approval under the Term Loan Agreement
dated as of September 29, 1995 between Montgomery Ward &
Co., Incorporated and The Industrial Bank of Japan, Limited,
Chicago Branch (the "Term Loan Agreement").
Gentlemen:
This letter constitutes an agreement amending the Term Loan
Agreement in certain respects. All terms when capitalized and
used herein and not otherwise defined herein shall have the
meaning ascribed to such terms in the Term Loan Agreement.
The Company, GE Capital, MWCC and Monogram Credit Card Bank of
Georgia ("Monogram"), a subsidiary of GE Capital, intend to
replace the existing arrangements between MWCC and the Company
relative to the acquisition of receivables generated from the
sale of merchandise to the Company's customers as set forth in
the MWCC Receivables Purchase Agreement. Attached is a
Confidential Memorandum of Understanding, dated as of March 14,
1996, between the Company and GE Capital (the "Memorandum of
Understanding") outlining the new arrangement (the "Credit
Program"). The Credit Program will be formalized in an agreement
or agreements between Monogram and the Company (the "Monogram
Agreement"), an agreement or agreements between GE Capital and
the Company (the "GE Capital Agreement") and possibly an
agreement or agreements between MWCC and the Company (the "MWCC
Agreement"). GE Capital will guarantee the performances of the
respective obligations of Monogram and MWCC under the Monogram
Agreement and the MWCC Agreement, if any (collectively, the "GE
Capital Guaranties"). Upon the execution of the GE Capital
Agreement, the Monogram Agreement and the MWCC Agreement, if any
(together with the GE Capital Guaranties, collectively, the
"Retail Credit Program Agreement"), the existing MWCC Receivables
Purchase Agreement shall be terminated.
By the execution hereof, the Bank hereby approves (i) the
execution of the Retail Credit Program Agreement provided the
Retail Credit Program Agreement embodies in all material respects
the terms outlined in the Memorandum of Understanding except for
such changes in such terms or additions to such terms as the
Company may approve provided such changes or additions shall not
materially adversely affect the Bank and (ii) the termination of
the existing MWCC Receivables Purchase Agreement provided that
such termination is concurrent with the execution and effective
upon the effective date of the Retail Credit Program Agreement.
Within 30 days after the execution of the Retail Credit Program
Agreement and the termination of the existing MWCC Receivables
Purchase Agreement, the Company will deliver a copy of the Retail
Credit Program Agreement to the Bank certified as true and
correct by an Authorized Officer on behalf of the Company.
In consideration of the Bank's approval of the execution of the
Retail Credit Program Agreement and the termination of the
existing MWCC Receivables Purchase Agreement, the Company and the
Bank agree that effective upon the execution of the Retail Credit
Program Agreement and the termination of the MWCC Receivables
Purchase Agreement, on the terms set forth in this letter
agreement, the Term Loan Agreement is hereby amended as follows:
1. Section 1.1 of the Term Loan Agreement is amended by (i)
deleting the definition of the MWCC Receivables Purchase
Agreement, (ii) by substituting "Retail Credit Program
Agreement" for "MWCC Receivables Purchase Agreement" in the
definition of Material Litigation and (iii) by adding the
following definitions:
"GE Capital Parties" means GE Capital, Monogram and
MWCC.
"Monogram" means Monogram Retail Credit Card Bank of
Georgia, a subsidiary of GE Capital.
"Memorandum of Understanding" means the "Memorandum of
Understanding" as defined in that certain letter
agreement dated March 20, 1996 between the Company and
the Bank.
"Retail Credit Program Agreement" means the "Retail
Credit Program Agreement" as defined in that certain
letter agreement dated March 20, 1996 between the
Company and the Bank, as such Retail Credit Program
Agreement may be amended, modified or supplemented from
time to time in a manner which does not result in an
Event of Default under Section 13.1(i)."
"Seller Notes" means the Seller Notes as defined in and
issued pursuant to the Account Purchase Agreement
between the Company and MWCC dated as of June 24, 1988,
as amended (including any amendments thereto pursuant
to the Retail Credit Program Agreement), together with
the Loss Note referred to in the Memorandum of
Understanding and issued pursuant to the Retail Credit
Program Agreement.
2. Sections 11.1(i), 11.2(a) and 15.3(c) of the Term Loan
Agreement are each amended by substituting "Retail Credit
Program Agreement" for "MWCC Receivables Purchase Agreement"
wherever such term appears therein.
3. Section 13.1(i) of the Term Loan Agreement is amended to
read in its entirety as follows:
(i) Retail Credit Program Agreement. (i) An
amendment which materially adversely affects the Bank
shall be made to the Retail Credit Program Agreement
without the prior written consent of the Bank,
including, without limitation, any amendment to any
provision thereto which secures any Seller Notes (other
than as permitted by clause (ii) of this Section
13.1(i) or provides for the mandatory payment of such
Seller Notes on a date earlier than the date on which
such Seller Notes are payable as at March 14, 1996
(except as otherwise contemplated in the "Loss Note
Section" of the Memorandum of Understanding), or (ii)
any of the Seller Notes shall be secured by any
property or rights other than the receivables sold or
financed under the Retail Credit Program Agreement, and
collections and offset rights thereunder, or (iii) the
Retail Credit Program Agreement shall fail to remain in
full force and effect, or (iv) any default by the
Company under the Retail Credit Program Agreement
(after the expiration of any applicable grace period)
shall occur and be continuing which has not been waived
by the GE Capital Parties and which provides the GE
Capital Parties thereunder with the right to terminate
obligations of the GE Capital Parties to purchase
customer receivables thereunder from the Company and to
extend credit to the customers of the Company pursuant
thereto, or (v) the Company or the GE Capital Parties
shall give notice of termination or take any action to
terminate thereunder (other than the notice to
terminate the Retail Credit Program Agreement at the
expiration of the term thereof (or such term as
extended pursuant thereto) and other than a termination
by the Company pursuant to which a wind down or
transition of at least one year is provided).
4. Section 15.3 of the Term Loan Agreement is amended by
substituting "GE Capital Parties" for "MWCC".
Except as hereinabove expressly provided, all the terms and
provisions of the Term Loan Agreement shall remain in full force
and effect and all references therein and in any related
documents to the Term Loan Agreement shall henceforth refer to
the Term Loan Agreement as amended by this letter agreement.
This letter agreement shall be deemed incorporated into, and a
part of, the Term Loan Agreement.
This letter agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. This letter agreement shall be governed by and
construed in accordance with the law of the State of Illinois.
If the foregoing is acceptable, please evidence your agreement
thereto by your execution of the duplicate original hereof in the
space provided below and your returning the same to me at
Montgomery Ward & Co., Incorporated, 844 N. Larrabee, 5-3,
Chicago, IL 6067l.
MONTGOMERY WARD & CO., INCORPORATED
BY /S/ Carol J. Harms
Carol J. Harms
Vice President & Treasurer
ACCEPTED AND APPROVED:
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
CHICAGO BRANCH
By: /S/ Hiroaki Nakamura
Name: Hiroaki Nakamura
Title: Joint General Manager
Confidential
3/14/96
Montgomery Ward Credit Program
Memorandum of Understanding
Summarized below are the principal terms and conditions agreed to
by Montgomery Ward & Co., Incorporated (MW) and General Electric
Capital Corporation (GECC) pursuant to which the MW Credit
Program will be transferred to the Monogram Credit Card Bank of
Georgia (Bank) and thereafter serviced by the Bank. This
memorandum describes the basic business deal, but does not
include all the terms and conditions to be included in the
definitive documentation governing the arrangement.
Cardholder Terms & Conditions
*APR: A Fixed Annual Percentage Rate (APR) of 22.6%
will be charged on entire account balances
subject to standard 1/40th payment terms after
a trigger purchase except for:
Starter Cards (including Marginal
accounts) - 26%
Chairman s Cards presently at an APR of
either 14.9% or 16.9% - no change
Iowa - 19.8%, Wisconsin - 18.0% (both opt
out states)
California, Illinois, Montana, Oklahoma,
Maine, Wyoming, Arkansas, Alabama,
Alaska - only new purchases will be
billed at exported rates.
Foreign Accounts - no change
1/50th extended payment terms - applicable
1/40th APR less one (1) basis point
Home Improvement - no change
Trigger purchases will begin in May for
approximately 90% of card base; new APRs will
be effective with the next billing.
To the extent that new Signature product sales
can be identified, these purchases will be
treated as trigger purchases. Signature
renewals, product service renewal sales and any
insurance sales will not be considered trigger
purchases.
Dual Balance Acount Treatment
Prior to a trigger purchase, all dual balances
will continue to be billed as before. Upon the
trigger purchase, the entire balance will be
assessed at 22.6% except in California,
Illinois, Montana, Oklahoma, Wyoming, and
Arkansas where existing balances will be
collapsed to the lower APR. In Connecticut,
Minnesota, Pennsylvania, and South Dakota, APRs
lower than 18% will remain and any APRs at 18%
or above will increase to 22.6%.
*Late Fees: Trigger purchase required before assessment of
exported late fee.
Trigger purchases begin in April 1996 for
approximately 90% of cardholders, new fees will
be effective on May delinquent bills.
Late fee of $15 per late/missed payment to be
charged except for:
- California,Iowa,New Jersey,Wisconsin - $10
- Pennsylvania - $12
- Indiana - $14.50
- Missouri - $10 or $5 if payment less than
$25
- Texas, Puerto Rico - $0 (zero)
- Foreign Accounts - $0 (zero)
A "silent" five day grace period applies except
for:
- California, Indiana, Colorado, DC,
Oklahoma, Utah, Missouri, New Jersey - 10
days
- Iowa - 30 days
- Pennsylvania - 34 days
A "real" five day grace period in Wisconsin.
California, Maine, and Wyoming require pay down
of entire existing balance prior to assessing
an exported late fee.
*Payment Terms: Except for Starter Cards (including Marginal
accounts), scheduled payment terms will remain
unchanged at standard 1/40th, $10.00 minimum
and extended 1/50th, $10.00 minimum on big
ticket purchases (presently greater than $400
for initial purchases and $200 for add-on
purchases). Starter Cards (including
Marginal accounts) to remain at 1/40th, but
scheduled minimum payment will be increased
from $10.00 to $20.00.
(Bank policy requires 90% of minimum payment
due to prevent an account from becoming
delinquent or aging further. This represents
an increase from the current policy which
requires 50% of minimum payment due.)
Client Program Agreement
*Term: New 15-year with 10 year written termination
notice from date of contract execution.
(Effectively extending current expiration date
by five years, from December 31, 2006 to
December 31, 2011).
*Maximum
Investment: The maximum investment amount will be increased
from $6.0 Billion to $7.0 Billion.
Pricing: No change in non-promotional credit sales -
will continue to be settled at face amount
(zero discount).
No change in Starter Card monthly and annual
settlements - a 2.00% discount will continue to
be charged monthly in those states where the
billed APR is less than 26%. Also, no change
in either no interest/no payment promotions or
after-the-fact-free (AFF) promotions - will
continue to be billed at 17.14% annualized
rate. No interest/no payment promotions will
be billed monthly and AFF will be billed at
time of finance charge reversal.
No change in overlimit transactions - MW pays
certain incremental charges associated with
selected overlimit transactions.
*Promo Reserve: To comply with regulatory requirements that
Bank not carry any interest-free loans, MW will
provide advance funding to Bank for the purpose
of establishing a reserve equivalent to two
months of estimated promotional finance charge
revenues, which is expected to be approximately
$3.5MM. Currently, a two month lag exists
between the cardholder billing date and receipt
of settlement payments from MW. The two-month
reserve requirement will be reviewed and
adjusted semi-annually if necessary.
Money Costs: Current money cost pass-through provision will
continue to apply - no money cost pass-through
unless the blended rate exceeds 10% as
specified in the current contract.
*Operating Expenses: No change from current contract - all
operating expenses, with the exception of
marketing administration, credit merchandising,
and in-store credit services, will be borne by
Bank.
Incremental "Signature only" operating expenses
to be billed to Signature including 10% mark-up
per current Signature letter agreement.
*Credit Marketing
Expenses: MW will pay vendor invoices directly as
received. Monthly, Bank will credit MW for (a)
39 basis points of that month s credit sales
plus a flat payment of $416,667, less (b) the
lesser of five hundredths percent (.05%) of
the year-to-date credit sales or the year-to-
date actual credit merchandising expenses, reduced by the
amounts paid year-to-date through the previous month for
credit marketing administration expenses.
*Competitive
Credit Offerings: GECC will have the right of first
refusal on all new credit programs and products
(i.e., co-branded cards, affinity cards,
secondary sourcing, etc.)
Cross Marketing: Signature will continue to receive 100% of all
revenues generated from the sale of Signature
products and services. MW will continued to
received 100% of all revenues generated from
the billing statement insert programs.
*Revenue Sharing: Upon conversion of the MW Credit Program to
the Bank, incremental revenues resulting from
the exportation of APRs and late fees will be
realized by the Bank. Both MW and GECC agree
to share such incremental realized revenues, as
well as any incremental realized revenues that
may occur due to increases in APRs or late fees
in the future. Notwithstanding the above,
there exists several previously agreed to
revenue sharing arrangements between the
parties.
Going forward, a revenue sharing program will
be developed which retains all previously
agreed to revenue sharing arrangements.
All incremental revenues realized from the Bank
conversion (exportation of APRs and late fees)
will be applied in the following order:
(1)To cover both parties out-of-pocket Bank
conversion expenses
(2)To cover all parties incremental ongoing
expenses including costs as applicable to
comply with Section 106 of the Bank
Holding Company Act Amendments of 1970
(Section 106), FDIC insurance, bank
overhead assessment, increased
state income tax rate, and MW s potential
loss of sales tax recapture benefits
(3)To cover any litigation and judgment
expenses arising from legal actions
related to the Bank conversion
(4)To cover both parties current year
unrestricted losses above 5.00%, including layers of loss
rollbacks beginning in ' 97
(5) To cover MW s current year losses
between 3.9% and 5.00%
(6) To MW to pay off loss sharing note (due
date to be extended beyond 2/98)
(7) Remaining revenues shared 20% MW and 80%
GECC
Either State or Federal law changes may
impact expected incremental revenues. MW and
GECC agree that any additions or takeaways
will affect the total pool of revenue
available for sharing.
*Loss Sharing: No change from current program agreement
except that losses over 8.0%, if any, are
included in the revenue sharing application
(item #4). However, Bank write-off policy
requires that accounts be written off at 7
payments due rolling 8 payments due (6 months
past due). Currently, MWCC writes off at 14
payments due rolling 15 payments due (13
months past due).
To spread out the effect of conforming with
Bank write-off policy, for contractual loss
sharing purposes, write-off timing will be
accelerated as follows:
Write-off At:
1996 14 Due Rolling 15 (no
change)
1997 11 Due Rolling 12
1998 9 Due Rolling 10
1999 8 Due Rolling 9
2000 & Beyond 7 Due Rolling 8
In any event, finance charges and late fees
will no longer be assessed on accounts once
those accounts have rolled 8 payments due.
CSP insurance may be assessed. If CSP
insurance is assessed, the Signature Group
agrees to pay 100% of related incremental
losses.
Starter Card losses will be shared as in the
current agreement. However, MW will make a
minimum annual cash payment to GECC equal to
MW s share of Starter Card losses beginning
in 1997 (see Loss Note below).
*Loss Note: The term of the note will be extended from
February, 1998 to February, 2003. MW will
continue to pay interest on the note annually
and may continue to add to the note during
the 1996 transition year. Notwithstanding
prior contractual agreements, MW agrees to
apply its share of revenues from the 1992
rate increases in Texas, Florida, and
Washington to the note balance, as well as
the late fee increases effective 2/95 and
10/95, including MW s share of incremental
late fees generated during the entire year of
1996. In addition, MW will pay towards the
note at the end of 1996 the greater of $25
million or its share of Starter Card losses.
In each of the years 1997 through 2000, MW
will pay the amount specified below, plus its
share of Starter Card losses. In all years
beyond 2000, MW will continue to pay cash
equivalent to its share of Starter Card
losses, and any non-Starter Card loss sharing
greater than the incremental revenues per the
revenue sharing application (items #4 & #5).
Any incremental revenues per the revenue
sharing application (item #6) will be applied
towards the note balance. Based upon current
projections, this payment application will
pay off the note by 2002. MW will pay any
remaining note balance in February, 2003 in
cash.
Required Note Payment:
1997 $28MM
1998 $24MM
1999 $23MM
2000 $17MM
*Out-of-Pocket Bank
Conversion Expenses: All one-time, non-recurring conversion
expenses incurred by either party will be
funded with incremental revenues generated
from the exportation of
APRs and late fees per the revenue sharing
application (item #1). Such expenses will
include legal expenses, systems programming
expenses, cardholder notification costs,
obsolescence costs (MWCC stationery, card
carriers, etc.) and any operations-related
relocation/transfer expenses.
*Incremental Ongoing
Expenses: All incremental ongoing expenses associated
with the Bank conversion incurred by either
party will be funded with incremental
revenues generated from the exportation of
APRs and late fees per the revenue sharing
application (item #2). Such expenses will
include any costs to comply with Section 106,
Bank s FDIC insurance and overhead, GECC s
increased state income taxes, and MW's
potential loss of sales tax recapture
benefits.
* Denotes change from current Program Agreement.
Notwithstanding the above, Montgomery Ward Credit Corporation
(MWCC) will continue to purchase accounts and related
indebtedness from MW up to and including the date of the transfer
(currently targeted for April 1, 1996). Thereafter, the Bank
will extend credit directly to MW cardholders.
This memorandum reflects the terms and conditions upon which the
MW Credit Program will be transferred to the Bank. It is not
intended to be all inclusive and the transactions contemplated
hereby are subject to the receipt of all necessary approvals and
the negotiation, execution and delivery of final documentation
acceptable to both parties and their respective counsel. GECC
will guarantee the Bank s performance in the same manner as it
did for MWCC under the existing MW Credit Program.
It is understood that this memorandum contains confidential
information that should not be disclosed other than to those who
have a specific need to know, including those whos approval is
required to allow for the completion of the transaction.
General Electric Capital Corporation
/S/ GAIL N. LANIK
Name: Gail N. Lanik
Date: March 14, 1996
Agreed to and Accepted by:
Montgomery Ward & Co., Incorporated
/S/ JOHN L. WORKMAN
Name: John L. Workman
Date: March 15, 1996