GE Capital
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GAIL N. LANIK Montgomery Ward Credit
President & Chief General Electric Capital Corporation
Executive Officer 535 West Chicago Avenue, Suite 16-N,
Chicago, IL 60610
(312) 467-3460, Fx (312) 467-7863
January 23, 1996
Mr. John L. Workman
Executive Vice President & Chief Financial Officer
Montgomery Ward & Co., Incorporated
619 W. Chicago Ave. -- 8C
Chicago, IL 60671
Dear John:
In our recent discussion you conveyed that you were comfortable with all
of the terms for the Lechmere/Electric Avenue & More deal structure. Please
indicate your acceptance of the terms as set forth in the attached January
16, 1996 term sheet by signing below.
Your timely approval will be appreciated, please call if you have any
questions.
Sincerely, Agreed & Accepted By:
/s/ Gail N. Lanik /s/ John L. Workman
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Gail N. Lanik John L. Workman
Executive Vice President
& CEO
Attachment
LECHMERE/EA&M TERM SHEET -- JANUARY 16, 1996
TERM: Rolling 10 Year Termination Notice, coterminous with
the Montgomery Ward Company, Incorporated Account
Purchase Agreement
CONSUMER TERMS: Variable: Prime + 13.15%, 21.9% minimum (except
in opt-out state).
PAYMENT TERMS: 1/40th, $10 minimum; 1/50th, $10 minimum. Big
ticket program.
GUARANTEED ROE: [ ]* -- based on total equity participation
of 1/9; any shortfall paid yearly by Montgomery Ward;
ROE above [ ]* shared [ ]* GECC/[ ]*
Montgomery Ward. For the Lechmere portion only,
Montgomery Ward will not be responsible for ROE
shortfalls caused by the amortization of the initial
loss reserve (after year 1) related to the Lechmere
portfolio acquisition or the associated GECC legal
and conversion expenses.
GUARANTEED ROE
PAYMENT ADJUSTMENT:
(AFTER YEAR 1) If the ROE shortfall payment exceeds the "rolling loss
reserve", then Montgomery Ward is entitled
to a [ ]* credit of this reserve amount.
If the "rolling loss reserve" exceeds the shortfall
payment, then Montgomery Ward is entitled to a
[ ]* credit of the shortfall payment.
PRICING: Non-Promo: [ ]*
90 Day Skip Free: [ ]*
AFF with Pay: [ ]*
PROMO RESERVE: Montgomery Ward will provide advance funding to GECC
for the purpose of establishing a reserve equivalent
to 2 months of estimated promotional finance charge
revenues.
MONEY COSTS: Portfolio will be charged based on actual/assessed
interest expense incurred, using the debt profile
selected by GECC consistent with its ordinary funding
practices and including the initial 10 year funding
of approximately [ ]* million (at the 10 year
money rate at the time of purchase) of the Lechmere
receivable portfolio.
OPERATING EXPENSES: Pegged at [ ]* of average outstandings for
guaranteed ROE calculation. Adjustment will be made
for paper inflation using the appropriate wholesale
index and Postage inflation defined as the change in
the U.S. Postal Service 1st class rate when those
inflation indices exceed the CPI inflation rate on a
cumulative basis.
* Confidential treatment has been requested with respect to this information.
PROMOTIONAL FUNDING: Pormotional Pricing
Reimbursement: At year-end, GECC funds MW for
credit marketing programs based
on [ ]* of average
outstandings multiplied by the
weighted APR. (CAN BE APPLIED TO
OTHER CREDIT MARKETING PROGRAMS IF
NOT NEEDED FOR 0%/AFF PROMOTIONS.)
In addition, GECC will also provide promotional
funding equal to [ ]* of average outstandings
net of Credit Merchandiser/Administrative expense.
PREMIUM (LECHMERE): $3.1MM = $2.5MM - Original Upfront Premium
0.8 - Additional 1/2% Premium
(0.2) - Money Cost Adjustment for
1994 Pre-funding
PORTFOLIO PURCHASE
PRICE (LECHMERE): [ ]* of Outstandings, net of prepaid promotional
billing
INITIAL LOSS RESERVE:
(LECHMERE) FOR LECHMERE ONLY, MONTGOMERY WARD WILL BE
RESPONSIBLE FOR PAYING [ ]* OF THE INITIAL
PORTION OF THE RESERVE POSTING WHICH MUST BE RECOGNIZED
IN THE FIRST YEAR. GE WILL FORGIVE ROE BASED SHORTFALL
IN THE FIRST YEAR BEYOND THIS 50% PAYMENT.
LOSS SHARING: NET LOSS ANI
[ ]* [ ]* GECC
[ ]* [ ]* GECC/Montgomery Ward
[ ]* [ ]* GECC
CROSS MARKETING: Signature receives [ ]* of income.
LOSS RESERVES: SHARED [ ]* AT THE TIME RECEIVABLES ARE PURCHASED
FROM BANK.
RECEIVABLE REPURCHASE: Upon termination of the contract, Montgomery Ward will
have the right to repurchase the receivables on a
gross basis (before loss reserves).
* Confidential treatment has been requested with respect to this information.
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