<PAGE>
 
                                                                   10. (vii) (B)
                                        
                   GENERAL RELEASE AND AGREEMENT NOT TO SUE
                   ----------------------------------------
                                        
For and in consideration of the receipt of the following:

     (1)  Lump sum payment of $1,562,500.00 representing base salary through
          January 31, 2000;
     (2)  Lump sum payment of $500,000.00 representing guaranteed bonuses for
          1997 and 1998;
     (3)  Payment of $200,000.00 representing the retention plan payment through
          January 31, 1998;
     (4)  Continuation of executive health care coverage at the associate rate
          through January 31, 2000;
     (5)  Earned vacation in the amount of $57,692.32;
     (6)  Individual outplacement services with Mulligan & Associates paid by
          Wards or $20,000 in lieu of such services;
     (7)  Access to an executive office at the Wards Corporate Office for
          transitional use until January 31, 1998.

I hereby fully waive, release, and forever discharge Montgomery Ward & Co.,
Incorporated and any and all of its officers, directors, agents, employees,
shareholders, predecessors, successors, subsidiaries, attorneys and parent
company, (hereinafter collectively referred to as "the Company") from any and
all claims, demands, promises, or causes of action of any nature whatsoever
whether known or unknown, foreseen or unforeseen and whether or not in
litigation, which I may have or which could be asserted by another on my behalf
based on any action, omission, or event arising out of or in any way relating to
my employment and/or separation from employment at Montgomery Ward & Co.,
Incorporated including, but not limited to, claims for additional compensation
or benefits, tortious claims arising out of the employment relationship,
including but not limited to claims of defamation, claims of an express or
implied contract of employment, claims of any covenant of good faith and fair
dealing, causes of action arising under the Illinois Human Rights Act, causes of
action arising under the Age Discrimination in Employment Act, causes of action
arising under the 1991 Civil Rights Act, causes of action arising under the
Americans with Disabilities Act, causes of action arising under the Employee
Retirement Income Security Act, or any other claims and/or causes of action
arising under federal, state or local law, order or regulation and claims
growing out of any legal restrictions on the Company's right to terminate its
employees, or arising from common law.  Included in this Release are any and all
claims for future damages allegedly arising from the alleged continuation of the
effects of any past action, omission, or event.  I agree to waive any rights I
may have to reinstatement with the Company and further agree not to seek
reemployment with the Company.

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<PAGE>
 
I further agree not to sue or to institute any proceedings against the Company
based on any matter relating to my employment and/or separation from employment
or on any action, omission or event relating to the Company which could be the
subject of legal action brought before a court of law or administrative
tribunal.

I agree that I shall not, during the period December 31, 1997 through January
31, 2000, directly or indirectly own, manage, operate, join, control, be
employed by, or participate in the ownership, management, operation or control
of or be connected in any manner, including but not limited to holding the
positions of officer, director, shareholder, consultant, independent contract,
employee, partner, or investor, with any Direct Competitor (as defined below);
provided, however, that I may invest in stocks, bonds, or other securities of
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any corporation or other entity (but without participating in the business
thereof) if such stocks, bonds, or other securities are listed for trading on a
national securities exchange or NASDAQ and my investment does not exceed 1% of
the issued and outstanding shares of capital stock, or in the case of bonds or
other securities, 1% of the aggregate principal amount thereof issued and
outstanding.  "Director Competitor" for purposes of this release shall mean
Sears Roebuck and Co., or J.C. Penney or any Affiliate of them.

I further agree that I will not, at any time from December 31, 1997 through
January 31, 2000, directly or indirectly solicit or induce any of the employees
of the Company, including but not limited to employees of the holding company
and subsidiaries, to terminate their employment with the Company, including but
not limited to the holding company and subsidiaries.

I agree that I will not divulge to any person not employed by Montgomery Ward or
use for my own benefit or for the benefit of any person not employed by
Montgomery Ward any confidential information obtained while I was employed by
Montgomery Ward.  Confidential information shall include but not be limited to
any information either written or not written which was developed by or for
Montgomery Ward by its employees, consultants, agents or any other person
directly or indirectly employed by the Company, which information is not
publicly known and which would constitute a legally protectable interest under
applicable principles of law.  I also agree that I will not disparage or
otherwise provide negative information about the Company, its policies or
procedures, or its past or present Officers, Directors or other associates to
anyone.  In addition, I agree that the nature and terms of this General Release
and Agreement Not to Sue shall not be disclosed at any time to any persons other
than my spouse, attorney, tax advisor and state and federal taxing authorities.
I further agree that these individuals will be instructed to maintain the
confidentiality of the terms of this General Release and Agreement Not to Sue.
In the event of any violation of this paragraph of the Company may present this
General Release and Agreement Not to Sue to any court of competent jurisdiction
for the purposes of injunctive relief or other monetary relief.

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<PAGE>
 
Similarly, Montgomery Ward & Co., Incorporated agrees not to disclose the nature
and terms of this General Release and Agreement Not to Sue except as is
necessary to obtain approval of it, inform necessary Montgomery Ward & Co.,
Incorporated associates and officials with a "need to know," and for proper
documentation in its tax, legal, accounting and claims records.  The Company
further agrees not to disparage or otherwise provide negative information about
Donoho to anyone.

I agree to cooperate, be available, and testify on the Company's behalf, if the
Company requests, without requiring a subpeona in any and all claims and
lawsuits arising out of acts, occurrences, or decisions while I was employed of
which there is direct knowledge and to which the Company's attorneys believe my
testimony is necessary for the prosecution or defense of the claims.

This General Release and Agreement Not to Sue sets forth the entire agreement
between the Company and myself, and fully supersedes any and all prior
agreements of understandings pertaining to any all aspects of my employment with
Montgomery Ward & Co., Incorporated.

This General Release and Agreement Not to Sue is knowingly and voluntarily
executed for the good and valuable consideration set forth above.

I acknowledge that I have read this General Release and Agreement Not to Sue and
fully understand its provisions.  I further acknowledge that pursuant to the
Company's advice, I have had full opportunity to consult with legal counsel
prior to executing this General Release.  I also acknowledge that I have been
given twenty-one (21) days to consider the terms of this General Release and
Agreement Not to Sue and that I elect to waive the remaining days of that
period, if any.  I also understand that I have seven (7) days following the date
of execution I which to revoke this General Release and Agreement Not to Sue.  I
understand that this General Release shall not become effective or enforceable
until the revocation period has expired.  I am satisfied with the terms of this
General Release and Agreement Not to Sue and intend to be legally bound by the
same.



Date:  January 23, 1998                               /s/ Burnett Donoho
      ---------------------------                    ---------------------------
                                                     Burnett Donoho



Date:  January 23, 1998                               /s/ Robert A. Kasenter
      ---------------------------                    ---------------------------
                                                     Montgomery Ward & Co.,
                                                     Incorporated

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