<PAGE>

                              RELATIONSHIP AGREEMENT

     This Relationship Agreement is being entered into as of the 10th day of
December by and among Bernard F. Brennan ("BFB"), Montgomery Ward Holding
Corp. ("HOLDING"), Montgomery Ward & Co., Incorporated (the "RETAILER") and
General Electric Capital Corporation ("GECC").  It is intended to implement
the understandings reached among the parties with respect to BFB's ongoing
relationship with Holding and the Retailer and to agree upon the further
actions that must be taken with respect to such understandings.

     NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties agree as follows:

1.   NEW CEO.  A new Chairman and Chief Executive Officer (the "NEW CEO")
     for the Retailer will be recruited and will report to the board of the
     Retailer.  The New CEO will have senior direct responsibility for the
     Retailer and such additional duties as are assigned from time to time
     by the board of the Retailer.

2.   NEW CEO SELECTION PROCESS.  BFB will be involved in the selection
     process for the New CEO as a member of a board subcommittee consisting of
     Denis J. Nayden, Silas Cathcart and BFB, but such subcommittee shall have
     the power to act by the vote of a majority of its members.

3.   PRO RATA DILUTION.  Shares of Holding stock or options for such shares
     will be issued or granted in order to attract and incentivize the New CEO
     and the management team for the Retailer.  Such stock and options will
     dilute equally all holders of all stock of Holding then outstanding on a
     fully diluted basis (taking into account all shares issuable upon
     outstanding options) up to maximum dilution of 15% in the aggregate.

4.   BFB TERMINATION OF EMPLOYMENT.  Pursuant to the understandings reached
     among the parties, upon the date of the appointment of an operating
     committee (members of which need not be directors of the Retailer) by the
     board of directors of the Retailer to report directly to such board of
     directors with respect to the direction of the day-to-day affairs,
     activities and operations of the Retailer ("TERMINATION DATE"), BFB's
     employment with Holding and each of its subsidiaries will be deemed
     terminated by Holding and each of such subsidiaries without cause for all
     purposes, including, without limitation, for purposes of Article III of
     the Stockholders' Agreement dated as of June 17, 1988 and amended and
     restated as of December 29, 1994 (the "STOCKHOLDERS AGREEMENT").  Effective
     on the Termination Date, BFB shall cease to be a director of each
     subsidiary of the Retailer that is not a Significant Ward Group Member (as
     defined in the Amendment Agreement referred to in paragraph 14 below (the
     "AMENDMENT AGREEMENT"), it being understood that he shall continue as a
     director of Holding, the Retailer and each Significant Ward Group Member
     to the extent set forth in the Stockholders Agreement as amended by the
     Amendment Agreement but shall not serve as chairman of the board of any
     such company other than Holding to

<PAGE>

     the extent set forth in paragraph 9 below.  The parties hereto agree to
     use their best efforts to cause the Termination Date to occur on the
     date of execution of this Agreement or as soon thereafter as is
     practicable, but in any event prior to the end of the seven day period
     referred to in paragraph 24 below.  BFB acknowledges that he has had a
     draft of the Agreement and notice of his termination of employment and
     the terms thereof for more than 21 days prior to the date hereof.

5.   PAYMENT OF LOAN AMOUNT.  Holding shall loan $12.5 million in cash (the
     "LOAN AMOUNT") to BFB on or after the Termination Date on the last to
     occur of (i) the execution by BFB of the Amendment Agreement, (ii) the
     expiration of the seven day period referred to in paragraph 24 below
     without BFB having revoked this Agreement and (iii) the Termination
     Date.  The Loan Amount shall be paid by wire transfer of immediately
     available funds to an account designated by BFB.  No interest shall
     accrue on or be payable with respect to the Loan Amount.  Holding's sole
     recourse for the repayment of the Loan Amount shall be the Holding stock
     owned by BFB and his Permitted Transferees on the date hereof and any
     Holding stock issued with respect thereto in any stock split, stock
     dividend or other recapitalization (the "BFB HOLDING STOCK") and the
     Proceeds Amount and neither BFB nor any of his Permitted Transferees
     shall pledge any shares of the BFB Holding Stock other than one or more
     pledges of up to 50% of the BFB Holding Stock solely for the purpose of
     obtaining one or more loans to be used solely for the purpose of
     financing one or more charitable contributions ("CHARITY LOANS"), so
     long as the aggregate amount of the Charity Loans never exceeds at any
     one time $10 million.  The lesser of the Loan Amount or any Proceeds
     Amount shall be repaid to Holding without interest within five business
     days after BFB or any of his Permitted Transferees sells any Holdings
     stock or receives any proceeds with respect to such stock other than as
     a result of a Charity Loan; provided, however, that if such sale is to
     Holding pursuant to a sale of BFB Holding Stock under Article III of the
     Stockholders Agreement or any successor provision, (a) BFB or his
     Permitted Transferees shall be deemed to have tendered to Holding a
     portion of any promissory notes issued to them as payment for the Put
     price equal to the lesser of the face amount of such notes or the then
     outstanding balance of the Loan Amount, and such amount shall be
     applied, to such extent, to reduce the Loan Amount and (b) BFB and his
     Permitted Transferees shall be entitled to keep 25% of the total amount
     of any Put payment (i.e., the cash portion of any Put payment) and shall
     not be obligated to repay the Loan Amount with such amount; provided,
     further, that in no event shall BFB be required to repay an amount in
     excess of the Proceeds Amount; and provided, further, that the Loan
     Amount, if not paid sooner, shall be due and payable on the last to
     occur of the deaths of each of BFB, his wife and his children.

     The term "Proceeds Amount" shall mean the amount paid in cash (whether
     upon sale of such stock or upon payments under any notes issued in
     respect of such stock) for BFB Holding Stock until the Loan Amount is
     reduced to zero, or in the event that the consideration for the BFB
     Holding Stock is stock or other securities, the Fair Market Value of any
     such stock or securities received in the disposition of BFB Holding
     Stock;


                                    -2-

<PAGE>

     provided, however, that if BFB Holding Stock is sold for stock or other
     securities in a transaction approved by the board of directors of
     Holding or in a transaction in which more than 50% of all of the common
     capital stock of Holding is sold in exchange for stock or other
     securities (a "SALE OF THE COMPANY"), then there shall be no Proceeds
     Amount as a result thereof and the stock or other securities received by
     BFB or his Permitted Transferees in the Sale of the Company shall be
     deemed to be BFB Holding Stock such that upon its sale it will give rise
     to a Proceeds Amount.

     If BFB desires to make a gift of any shares of BFB Holding Stock to a
     charity or educational institution, Holding and GECC agree to discuss
     and cooperate in good faith to structure such a gift so long as such a
     gift can be done on terms that are acceptable to each of BFB, Holding
     and GECC.

     The term "PERMITTED TRANSFEREES" shall have the meaning assigned in the
     Stockholders Agreement.

     The term "FAIR MARKET VALUE" shall mean as to any security the average
     of the closing prices of such security's sales on all domestic
     securities exchanges on which such security may at the time be listed,
     or, if there have been no sales on any such exchange on any day, the
     average of the highest bid and lowest asked prices on all such exchanges
     at the end of such day, or, if on any day such security is not so
     listed, the average of the representative bid and asked prices quoted in
     the Nasdaq System as of 4:00 P.M., New York time, on such day, or, if on
     any day such security is not quoted in the Nasdaq System, the average of
     the highest bid and lowest asked prices on such day in the domestic
     over-the-counter market as reported by the National Quotation Bureau,
     Incorporated, or any similar successor organization, in each such case
     averaged over a period of 21 days consisting of the day as of which
     "Fair Market Value" is being determined and the 20 consecutive business
     days prior to such day; provided that if such security is listed on any
     domestic securities exchange the term "business days" as used in this
     sentence means business days on which such exchange is open for trading.
     If at any time such security is not listed on any domestic securities
     exchange or quoted in the Nasdaq System or the domestic over-the-counter
     market, the "Fair Market Value" shall be the fair value thereof
     determined jointly by Holding and BFB; provided that if they fail to
     reach an agreement within 30 days, such fair value shall be determined
     by an appraiser jointly selected by Holding and BFB.  The determination
     of such appraiser shall be final and binding on the parties and the fees
     and expenses of such appraiser shall be paid by Holding.

6.   CONSULTING ARRANGEMENT.  From and after the Termination Date through the
     earlier of the fifth anniversary of the Termination Date or the date
     (the "STOCK LIQUIDATION DATE") on which BFB and his Permitted
     Transferees no longer own any BFB Holding Stock (the "CONSULTING
     PERIOD"), BFB shall be available from time to time at mutually
     acceptable times and places (and for up to 20 hours per month) to advise
     Holding and the Retailer with respect to strategic issues, planning,
     acquisitions, merchandising


                                    -3-

<PAGE>

     strategies and operational issues.  As payment for BFB's commitment to
     provide such services and devote his time to enhance the value of
     Holding and the Retailer, in lieu of any severance payment that might
     otherwise be payable to BFB, from and after the Termination Date, the
     Retailer and Holding shall be jointly and severally obligated to make an
     annual cash consulting payment to BFB of $1.5 million payable in
     substantially equal installments in arrears not less frequently
     than semi-monthly until the end of the Consulting Period.  The payments
     shall be made regardless of whether BFB dies or becomes disabled and
     regardless of the extent to which Holding and the Retailer request BFB
     to perform the services outlined in this paragraph 6.

7.   CONSEQUENCES OF CERTAIN COMPETITIVE ACTIVITIES.  The parties agree that
     nothing in this Agreement or the agreements and instruments contemplated
     hereby or any other agreements, arrangements or relationships between or
     among BFB and the other parties hereto shall limit in any way the right
     of BFB to make any investment or participate in any business (as an
     employee, director, consultant, advisor or otherwise) of any kind
     whatsoever with the exception that if BFB becomes an employee or director
     of, or paid consultant or advisor to, Sears, Roebuck & Co., J.C. Penny
     Company, Inc., Wal-Mart Stores, Inc., Kmart Corporation or Dayton Hudson
     Corporation, he shall notify Holding of his taking such position and,
     regardless of whether he so notifies Holding, shall cease to be the
     chairman of the board of Holding and shall forfeit his right to any
     payment under paragraph 6 hereof which would accrue after the date of
     such employment and the right to any benefits under paragraph 10 hereof
     which would accrue after the date of such employment.

8.   MAINTENANCE OF LIFE INSURANCE.  Holding and the Retailer agree that
     until the fifth anniversary of the date hereof, they shall pay all
     premiums payable with respect to, and take all actions necessary to keep
     in full force and effect, at their respective present face values, those
     certain life insurance policies which are the subject of, and are
     identified in, that certain Split Dollar Agreement dated November 28,
     1995 between the Brennan 1995 Irrevocable Trust and Holding and keep in
     full force and effect and fully perform all of Holding's obligations
     under such Split Dollar Agreement.

9.   CHAIRMAN OF BOARD.  From and after the Termination Date through the
     earlier of the Stock Liquidation Date, the fifth anniversary of the
     Termination Date or the date BFB otherwise ceases to hold such office
     (including pursuant to paragraph 7 above or as a result of his voluntary
     resignation from such office), BFB shall serve as the non-employee
     Chairman of the board of Holding.  Holding and the Retailer shall
     promptly reimburse BFB for any expenses reasonably incurred by him in
     connection with his service in such capacity.

10.  CONTINUING BENEFITS.  From and after the Termination Date through the
     fifth anniversary of the Termination Date, Holding and the Retailer
     shall provide BFB the following:


                                    -4-

<PAGE>

     a.  Appropriate office space, parking and furnishings for BFB in the
         United States city of BFB's choice (but outside of the Retailer's
         corporate complex);

     b.  Reasonable operating expenses for such offices for utilities,
         telephone, supplies, postage and other customary expenses (all of
         which shall be paid directly by the Retailer);

     c.  Continued use of corporate jet aircraft, when available in
         accordance with the scheduling practices in effect as of the date
         hereof for business use and for personal use (subject to
         reimbursement by BFB for such personal use in accordance with the
         Retailer's customary reimbursement policies), it being understood
         that (i) business use shall mean any travel by BFB at the request of
         the board of directors of Holding or the Retailer or by the CEO of
         the Retailer and (ii) BFB's personal use of such aircraft shall not
         exceed 30 flight hours during any year, treating each anniversary of
         the Termination Date as the termination of a year for such purpose
         unless such aircraft is made available to him by Holding for more
         than 30 flight hours and he agrees to pay the actual out-of-pocket
         per hour charge to Holding or the Retailer for all such hours over
         30;

     d.  Continuation of all executive benefits and perquisites, including
         health care, pension and dental coverage as such may apply from time
         to time to senior executives of the Retailer; and

     e.  A full time administrative assistant of BFB's choice (such assistant
         to be employed by the Retailer and to receive compensation and
         benefits consistent with competitive executive assistant pay levels).

11.  CONTINUATION OF LIABILITY INSURANCE AND INDEMNIFICATION.  For a period
     of six years after the last day on which BFB or any of his board
     designees serves as a director of Holding, the Retailer or any of their
     subsidiaries, Holding and the Retailer shall (and shall cause each such
     subsidiary to) retain in full force and effect to the extent permitted
     by applicable law all indemnification and limitation of liability
     provisions (and all related liability insurance to the extent available
     at commercially reasonable rates) currently in effect with respect to
     officers and directors of Holding, the Retailer or such subsidiaries.
     The parties acknowledge that BFB and his board designees shall have
     these indemnification rights as a matter of contract.

12.  TAX GROSS UP.  In the event that any portion of any payment made to BFB
     under paragraphs 5 or 6 above is treated as an excess parachute payment
     under Section 4999 of the Internal Revenue Code or any state or local
     equivalent other than as a result of any change of control transaction
     caused by BFB or his Permitted Transferees, the Retailer will transfer
     an additional payment to BFB sufficient to place BFB in the same after
     tax economic position that he would have been in if Section


                                    -5-

<PAGE>

     4999 had not applied to any such payment and no gross up payment had been
     made hereunder. GECC and BFB hereby, in their capacities as stockholders
     of Holding, approve the payments to be made under paragraphs 5 and 6.
     In addition, Holding, in its capacity as the sole stockholder of the
     Retailer, hereby approved such payments.

13.  LEGAL FEES AND EXPENSES. In recognition of the fact that BFB had to
     restain special counsel in connection with the negotiation and execution
     of this Agreement and the Amendment Agreement, that such negotiation
     took place in the context of a dispute regarding certain prior actions
     and agreements for which BFB had to prepare to defend his position and
     that BFB's counsel has taken responsibility for drafting initial drafts
     of, and revising all subsequent drafts of, this Agreement and the Amendment
     Agreement, Holding and the Retailer shall pay all of the fees and
     expenses of counsel incurred by BFB in connection with the negotiation
     and execution of the relationship set forth herein up to an aggregate
     amount of $100,000.

14.  AMENDMENTS TO STOCKHOLDERS AGREEMENT, CHARTER AND BYLAWS. The
     Stockholders Agreement shall be amended pursuant to the Amendment Agreement
     being executed on the date hereof and the parties shall take whatever
     action is necessary to amend the charter and bylaws of Holding and the
     Retailer to be consistent with the Stockholders Agreement as so amended.

15.  NO SET-OFF RIGHTS. The obligations of Holdings, the Retailer and GECC
     hereunder, including, without limitation, payment obligations, shall not
     be affected by any set-off, counterclaim, recoupment, defense or other
     claim, right or action which any or all may have against BFB or others
     other than the right of Holding and the Retailer to set off, on a dollar-
     for-dollar basis, payments due hereunder to BFB or his Permitted
     Transferees in response to a failure by BFB to make any payments he is
     obligated to make to Holding or the Retailer hereunder. In no event shall
     BFB be obligated to seek employment or take any other action by way of
     mitigation of the amounts payable to BFB under this Agreement and such
     amounts shall not be reduced whether or not BFB obtains any such
     employment.

16.  DISPARAGING REMARKS. BFB agrees, subject to any obligations under
     applicable law, that he will not make or cause to be made any disparaging
     or inimical statements intended by him for publication in the media about
     GECC, Holding or the Retailer, of any of their respective affiliates,
     agents, officers, directors or employees. GECC, Holding and the Retailer
     agree, subject to any obligations under applicable law, not to, and to
     cause their respective affiliates, agents, officers, directors and
     employees not to make or cause to be made any disparaging or inimical
     statements intended by any of them for publication in the media about BFB.

17.  WAIVER BY GECC, HOLDING AND THE RETAILER. Effective on the date hereof
     GECC, Holding and the Retailer, on behalf of themselves and each of their
     affiliates and their respective successors (collectively, the "RELEASING
     COMPANIES"), hereby waive and


                                     -6-

<PAGE>

     release any and all claims any of them has or may have (in any capacity,
     including as a stockholder) against BFB and his estate for obligations or
     liabilities (whether known or unknown, accrued, absolute, contingent,
     unliquidated or otherwise, whether due or to become due and regardless
     of when asserted) arising out of or relating to BFB's status as an
     employee, director or stockholder of Holding, the Retailer or any of
     their affiliates or the termination of his employment or any transaction
     entered into or occurring at or prior to such date, or out of any action
     or inaction or any state of facts existing or event occurring at or
     prior to such date, of any nature whatsoever, other than any claims
     against BFB for expenses incurred by Holding or any of its subsidiaries
     on BFB's behalf for which he has customarily reimbursed Holding or its
     subsidiaries in the ordinary course.

18.  WAIVER BY BFB. Effective on the date hereof BFB hereby waives and
     releases any and all claims he has or may have (in any capacity including
     as a stockholder) against any of the Releasing Companies (including their
     respective officers, directors and employees to the extent acting in such
     capacity) for obligations or liabilities (whether known or unknown,
     accrued, absolute, contingent, unliquidated or otherwise, whether due or
     to become due and regardless of when asserted) arising out of or relating
     to BFB's status as an employee, director or stockholder of Holding, the
     Retailer or any of their affilates or the termination of his employment or
     any transaction entered into or occurring at or prior to such date, or out
     of any action or inaction or any state of facts existing or event occurring
     at or prior to such date, of any nature whatsoever (including any such
     obligations or liabilities arising under Title VII or the Civil Rights Act
     of 1964. as amended, the Americans With Disabilities Act, the Age
     Discrimination in Employment Act of 1974, as amended by various
     congressional enactments, including the Older Workers Benefit Protection
     Act of 1990, any state or local laws or regulations similar to any of the
     foregoing and any common law claims or causes of action), other than any
     claims against any of the Releasing Companies (i) for indemnification or
     insurance coverage under the charter or bylaws of, or any contract with,
     Holding, the Retailer or any of their affilates or successors, (ii) against
     Holding, the Retailer or any of their affilates or successors arising out
     of any rights (that are now vested or will become vested in the future
     notwithstanding the termination of BFB's employment) under written employee
     benefit, retirement or compensation plans or arrangements (including
     accrued salary and vacation), whether applying to BFB or to employees of
     the Retailer generally, other than any claims for severance payments
     which are hereby specifically waived and released by BFB and (iii) any
     claims by BFB for reimbursement of expenses incurred by him for which he
     has customarily been reimbursed by Holding or its subsidiaries in the
     ordinary course.

19.  NO STRICT CONSTRUCTION. Each of the parties hereto have been represented
     by counsel and has participated in the drafting of this Agreement and the
     agreements contemplated hereby and the language used in this Agreement
     shall be deemed to be the language chosen by the parties hereto to
     express their mutual intent, and no rule


                                     -7-

<PAGE>

     of strict construction or rule of presumption against the drafting party
     will be applied against any person.

20.  NO CIRCUMVENTION. Where any provision in this Agreement refers to action
     to be taken by any person, or which such person is prohibited from
     taking, such provision shall be applicable whether the action in question
     is taken directly or indirectly by such person (including indirectly
     through any subsidiary or through any transaction or series of
     transactions, or through any scheme, artifice, device or contrivance,
     no matter how structured or labeled). The parties agree that the waivers
     and releases in paragraphs 17 and 18 above shall not in any way limit
     any party's ability to enforce the terms and provisions of this
     Agreement, the Stockholders Agreement or the Amendment Agreement.

21.  COUNTERPARTS; DELIVERY BY FACSIMILE. This Agreement may be executed in
     two or more counterparts, any one of which need not contain the
     signatures of more than one party, but all of such counterparts taken
     together shall constitute one and the same instrument. This Agreement
     and any amendments hereto, to the extent delivered by means of a
     facsimile machine, shall be treated in all manner and respects as an
     original agreement and shall be considered to have the same binding
     legal effect as if it were the original signed version thereof delivered
     in person. At the request any party hereto, each other party hereto
     shall re-execute original forms thereof and deliver them to all other
     parties. No party hereto shall raise the use of a facsimile machine
     or the fact that any signature was transmitted or communicated through
     the use of a facsimile machine as a defense to the formation of a
     contract and each such party forever waives any such defense.

22.  GOVERNING LAW. The internal law, not the law of conflicts, of the State
     of Illinois will govern all questions concerning the construction,
     validity and interpretation of this Agreement and the performance of the
     obligations imposed by this Agreement.

23.  SUCCESSORS. This Agreement shall be binding on Holding, the Retailer and
     GECC and their respective successors in interest and on BFB and, to the
     extent set forth herein, on his Permitted Transferees. Each of Holdings
     and the Retailer will require any proposed successor (whether by
     purchase, merger, consolidation, spin off or otherwise) to all or
     substantially all of its business and/or assets to, as a condition to
     such succession, assume expressly and agree to perform this Agreement
     (including, without limitation, the obligations under this paragraph) in
     the same manner and to the same extent as Holdings and the Retailer
     would be required to perform this Agreement if no such succession had
     taken place.

24.  RIGHT OF BFB TO REVOKE. BFB may revoke this Agreement in writing within
     seven days of signing it. If BFB revokes this Agreement, he shall give
     written notice to GECC and to Holding and all of the provision hereof
     shall be void and unenforceable.


                                     -8-

<PAGE>

25.  NOTICES. All notices, requests, demands, claims, and other communications
     hereunder shall be in writing. Any notice, request, demand, claim or
     other communication hereunder shall be deemed duly given (i) when
     delivered, if personally, delivered, (ii) when receipt is electronically
     confirmed, if faxed or (iii) one day after deposit with a reputable
     overnight courier, in each case addressed to the intended recipient as
     set forth below:

                       If to Holding or the Retailer:
                       ------------------------------

                       Montgomery Ward Holding Corp.
                       Montgomery Ward & Co., Incorporated
                       Montgomery Ward Plaza
                       Chicago, IL 60671
                       Attention: General Counsel
                       Telecopy #: (312) 467-3545

                       with a copy (which shall not constitute notice)
                       -----------------------------------------------
                       to:
                       ---

                       Altheimer & Gray
                       10 South Wacker Drive
                       Chicago, IL 60606
                       Attention: Myron Lieberman
                                  Peter Lieberman
                       Telecopy #:(312) 715-4150

                       If to GECC:
                       -----------

                       General Electric Capital Corporation
                       260 Long Ridge Road
                       Stamford, CT 06927
                       Attention: Edward Stewart
                                  Brian McAnaney
                       Telecopy #: (203) 357-6487

                       with a copy (which shall not constitute notice) to:
                       ---------------------------------------------------

                       Weil, Gotshal & Manges LLP
                       767 Fifth Avenue
                       New York, NY 10153
                       Attention: Ted S. Waksman
                       Telecopy #: (212) 310-8007


                                     -9-

<PAGE>


                       If to BFB:
                       ----------

                       Bernard F. Brennan
                       568 West Hawthorne Place
                       Chicago, IL 60657
                       Telecopy #: (312) 477-7919

                       with a copy (which shall not constitute notice) to:
                       ---------------------------------------------------

                       Kirkland & Ellis
                       200 East Randolph Drive
                       Chicago, IL 60601
                       Attention: Frank Cicero, Jr., P.C.
                                  Mark B. Tresnowski
                                  Telecopy #: (312) 861-2200

       IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

                                       Montgomery Ward Holding Corp.

                                       By:
                                            ------------------------------
                                       Its:
                                            ------------------------------



                                       Montgomery Ward & Co., Incorporated

                                       By:
                                            ------------------------------
                                       Its:
                                            ------------------------------


                                       General Electric Capital Corporation

                                       By:
                                            ------------------------------
                                       Its:
                                            ------------------------------



                                       -----------------------------------
                                       Bernard F. Brennan



                                     -10-