As filed with the Securities and Exchange Commission--subject to change.
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form S-2
REGISTRATION STATEMENT
Under the
SECURITIES ACT OF 1933
Ace Hardware Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State of Incorporation)
36-0700810
(I.R.S. Employer Identification No.)
2200 Kensington Court
Oak Brook, Illinois 60521
(708) 990-6600
(Address and telephone number of registrant's principal executive offices)
David W. League
Vice President, General Counsel
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, Illinois 60521
(708) 990-6600
(Name, address and telephone number of agent for service)
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of the Registration Statement
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. X
If the registrant elects to deliver its latest annual report to security-
holders, or a complete and legible facsimile thereof,
pursuant to Item 11(a)(1) of this form, check the
following box.
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum Amount
Title of Each Class Amount Offering Aggregate of Reg-
of Securities Being Price Offering istration
Being Registered Registered Per Share Price Fee
Class A Stock,
$1000 par value 1,500 shares $1,000 $1,500,000 $520
Class C Stock,
$100 par value 40,000 shares $ 100 $4,000,000 $1,380
This registration also includes unsold shares of Class A Stock and Class C
Stock previously registered under registration statement No. 33-46449 pursuant
to Rule 429 of Regulation C under the Securities Act of 1933.
The registration hereby amends this registration statement on such date or
dates may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
ACE HARDWARE CORPORATION
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K
Between Items in Part I of Form S-2 and the Prospectus
Item Number and Caption Heading in Prospectus
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus Inside Front and Outside
Back Cover Pages
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges Factors To Be Considered;
Summary
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Distribution Plan and
Offering Terms
9. Description of Securities to be Registered Outside Front Cover Page;
Description of Capital
Stock
10. Interests of Named Experts and Counsel Opinions of Experts
11. Information with Respect to the Registrant The Company's Business;
Properties; Index to
Financial Statements;
Selected Financial Data;
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations; Management.
12. Incorporation of Certain Information
by Reference Documents Incorporated by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Indemnification Obligations
of Company and S.E.C.
Position on Securities
Act Indemnification
PROSPECTUS
ACE HARDWARE CORPORATION
2200 Kensington Court
Oak Brook, Illinois 60521
(708) 990-6600
2,126 Shares Class A (Voting) Stock, $1,000 par value
92,750 Shares Class C (Non-Voting) Stock, $100 par value
Class A Stock is offered only in combination with Class C Stock to
retailers of hardware and related or similar merchandise in connection with
their initial business outlets that become members of the Company. Class C
Stock is also offered separately to such retailers in connection with each
additional business outlet that becomes a member of the Company.
(See "Distribution Plan and Offering Terms" herein)
There is no existing market for the Capital Stock offered hereunder,
and there is no expectation that any market will develop.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to
Public Commissions (5) Company
Class A Stock
Per share(1)(2) $ 1,000 None $ 1,000
Total $2,126,000 None $2,126,000
Class C Stock
Per Share(1)(3)(4)(6) $ 100 None $ 100
Total $9,275,000 None $9,275,000
(1) The shares are offered in a unit of $5,000 to each retail dealer,
with 1 share of Class A Stock being included only in the unit offered
to dealers having no retail business outlet that is already a member
of the Company.
(2) 1 share (with 40 shares of Class C Stock) to each retail dealer in
connection with such dealer's first retail business outlet which
becomes a member of the Company.
(3) 40 shares (with 1 share of Class A Stock) to each retail dealer for
such dealer's first member outlet.
(4) 50 shares to each member dealer for each of such dealer's retail
business outlets, over and above the first such outlet, which become
a member of the Company.
(5) There will be no underwriters. The subject stock will be offered for
sale directly by the Company. Applicants for new memberships are
charged $400 to defray estimated costs of processing their membership
applications. Assuming the sale of all of the stock offered hereunder,
and before deduction of approximately $28,000 estimated expenses in
connection with this offering, the total proceeds will be as shown
above.
(6) All of the shares of Class C Stock included in this offering have
been reserved for sale for cash but, unless the purchaser elects to
prepay the purchase price, such price is to be paid in bi-weekly
installments. However, the Company also intends to issue additional
authorized shares of Class C Stock each year to its member dealers as
a part of patronage dividends with respect to business done with
dealers in 1994 and subsequent years.
This offering is exempt from the registration provisions of the New
York Franchise/Disclosure Statute. The Company's agent for service of
process in connection with the offering pursuant to such exemption is C T
Corporation, 1633 Broadway, New York, New York 10019. See back cover page
regarding revocation rights of Florida purchasers.
REFERENCE IS MADE TO FACTORS TO BE CONSIDERED ON PAGE 2 OF THIS PROSPECTUS.
This is a continuous offering terminating not later than April 30, 1996.
The date of this Prospectus is ,1995
AVAILABLE INFORMATION
The Company is subject to the informational requirements of Section 15(d)
of the Securities Exchange Act of 1934. Accordingly, it files annual and
quarterly reports and other information with the Securities and Exchange
Commission. Such reports and other information can be inspected and copied
at the public reference facilities maintained by the Commission at 450 5th
Street, N.W., Judiciary Plaza, Washington, D. C. 20549, and copies of such
material can be obtained from the Public Reference Section of the Commission,
Washington, D. C. 20549 at prescribed rates. The material can also be
inspected and copied at the following Regional Offices of the Commission:
219 South Dearborn Street, Room 1204, Chicago, Illinois 60604; 26 Federal
Plaza, Room 1028, New York, New York 10278; and 5757 Wilshire Boulevard,
Suite 500 East, Los Angeles, California 90036.
REPORTS TO SECURITY HOLDERS
Within a reasonable time following the end of each calendar year, the
Company furnishes to its stockholders an annual report containing financial
information that has been examined and reported upon, with an opinion
expressed by, a certified public accounting firm.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1994 filed pursuant to Section 15(d) of the Exchange Act is incorporated
herein by reference. The Company will provide without charge to each person
to whom a Prospectus is delivered, upon written or oral request of such
person, a copy of any and all of the documents incorporated by reference in
the Registration Statement (other than exhibits to such documents unless such
exhibits are specifically incorporated by reference into the documents that
the Registration Statement incorporates). Requests for such copies should be
directed to David League, Vice President, General Counsel and Secretary, Ace
Hardware Corporation, 2200 Kensington Court, Oak Brook, Illinois 60521,
(708) 990-6600.
FACTORS TO BE CONSIDERED
Limitations on Value and Marketability of Stock
Although Ace Hardware Corporation ("the Company") is obligated to pay
patronage dividends to its stockholders in proportion to the respective
purchases of merchandise made by them from the Company, the payment of
dividends on shares of the Company's capital stock is prohibited and transfer
of the shares is limited so that no trading market for them exists. The
shares can be sold only to another retail hardware dealer whom the Company
has approved as a member for the retail outlet for which the shares were
purchased or to the Company which must repurchase the shares if said retail
outlet closes down or if its Company membership is otherwise terminated. (See
the heading "Description of Capital Stock".) However, no amounts to fund
repurchase of shares by the Company are expressly set aside for such purpose
and repurchases can be made only as permitted under the General Corporation
Law of Delaware. (See the heading "Summary," subheading "Repurchase of
Shares by Company".) Accordingly, except for the voting rights attached to
the Class A Stock, the stock has value to a purchaser thereof only in the
event of the liquidation of the Company or upon termination of the Company
membership for the retail outlet for which the stock has been purchased.
Income Tax Liability Incidental to Patronage Dividends
A purchaser of shares will be required to report as gross income for
federal income tax purposes the total amount of patronage dividends
distributed by the Company to such purchaser, including shares of Class C
Stock and patronage refund certificates distributed in the form of written
notices of allocation at their stated dollar amounts. Patronage refund
certificates are non-negotiable having a maturity date and bearing interest
2
at an annual rate to be determined by the Board of Directors prior to
issuance. Although a minimum of 20% of each recipient's total annual
patronage dividends is required to be paid in cash in all cases except those
in which the cash portion has been applied against indebtedness owed to the
Company by a stockholder whose Company membership has terminated and who has
not requested payment of such 20% minimum portion in cash, the cash portion
may be insufficient, depending upon the income tax bracket of each recipient,
to provide funds for the full payment of the federal income tax liability
incurred by the recipient with respect to such patronage dividends. (See the
heading "The Company's Business", subheading "Federal Income Tax Treatment of
Patronage Dividends".)
Sale of All Shares Offered Not Assured
Since the shares offered hereby are available for purchase only by
retailers of hardware and related merchandise with respect to particular
retail outlets for which a Company membership is approved, it is not certain
that all of the shares offered will be sold.
Company's First Lien Rights on Shares
The shares held by any purchaser, including any shares of Class C Stock
distributed as patronage dividends, will be subject to a first lien in favor
of the Company for the amount of any indebtedness payable to the Company by
such holder. (See the heading "Description of Capital Stock", subheading
"Other Restrictions and Rights".) Any patronage refund certificates which
are distributed as patronage dividends will also be subject to a similar first
lien. (See the heading "The Company's Business", subheading "Forms of
Patronage Dividend Distributions".)
Full Payment Required for Issuance of Shares
Unless a purchaser of shares chooses to prepay the purchase price of the
shares, the purchase price is to be paid by charges added to the purchaser's
bi-weekly billing statements from the Company for merchandise and services. A
purchaser will receive a certificate for each class of stock included in his
subscription for shares only upon the completion of payment of the purchase
price for the share or shares of that class. (See the heading "Distribution
Plan and Offering Terms".)
By-law Provisions Constitute a Legal Contract with the Company
It is provided in Article XXVI of the By-laws of the Company that said
By-laws shall constitute a legal contract between the Company and its
stockholders. A copy of the By-laws of the Company, as amended as of
September 20, 1994, is attached to this Prospectus as Appendix A. Those
By-law provisions having special significance with respect to the operations
of the Company include Sections 5 through 12 of Article XVI which set forth
limitations on the transfer of the Company's stock and the circumstances
under which shares thereof will be repurchased by the Company;) Article XXIV
entitled "Members' Patronage Dividends"; and Article XXV dealing with the
membership rights and obligations of the Company's dealers.
Documents Accompanying Prospectus
The Company's most recent annual report to security holders and Company's
current standard form of Membership Agreement accompany this Prospectus. (See
the heading "The Company's Business," subheading "Membership Agreement.")
SUMMARY
The Company and Its Business
The mailing address and telephone number of the Company's principal
executive offices are: 2200 Kensington Court, Oak Brook, Illinois 60521,
(708) 990-6600.
3
The Company is a wholesaler of hardware and related products, and
manufactures paint products. Sales of such products are made almost
exclusively to retail hardware dealers having Membership Agreements with the
Company entitling them to purchase merchandise and services from it and to
use the Company's marks as provided in the Membership Agreement. (See the
heading "The Company's Business," subheading "Membership Agreement.") The
number of retail business outlets for which Membership Agreements have been
executed as of December 31, 1994 were 4,940. (See the heading "The Company's
Business.")
Basic Distinctions Between Classes of Stock
The issued and outstanding shares of capital stock of the Company are
divided into three classes. Class A Stock is the only class of stock having
voting rights with respect to the election of directors and most other
matters. Class B Stock had been offered to retail dealers with respect to
each business outlet owned or controlled by them for which a membership was
granted by the Company on or before February 20, 1974, but the offering of
Class B Stock terminated on March 31, 1979 and no shares of such stock are
being offered by this Prospectus.
The Board of Directors has authority to redeem the whole or any part of
the outstanding shares of Class B Stock, or the whole or any part of the
outstanding shares of Class C Stock which have been issued to the Company's
member dealers in partial payment of their patronage dividend distributions
from the Company. In the event of the Company's liquidation, the outstanding
shares of Class B Stock and Class C Stock have priority over the outstanding
shares of Class A Stock in the distribution of the Company's net assets to
the extent of an amount equal to the total amount which the Company would
have been required to pay to purchase or redeem all of its outstanding shares
of Class B Stock and Class C Stock. If the net assets of the Company exceed
the total amount which the Company would have been required to pay for such
purpose, such excess is to be distributed in equal portions to each holder of
an outstanding share of Class A Stock up to an amount equal to the par value
of the Class A Stock.
Any net assets still remaining are to be distributed among the holders of
all three classes of issued and outstanding stock of the Company. Each share
of Class A Stock will participate in such distribution in the proportion which
the par value of such share bears to the sum of the total par value of the
outstanding shares of Class A Stock and the total amount which the Company
would have been required to pay to purchase or redeem all of its outstanding
shares of Class B Stock and Class C Stock. Each share of Class B Stock and
Class C Stock will participate in such distribution in the proportion which
the then applicable purchase or redemption prices thereof bear to the
aforementioned sum. (See the heading "Description of Capital Stock",
subheadings "Voting Rights","Liquidation Rights", and "Redemption Provisions.")
By virtue of express prohibitions contained in the Company's Certificate of
Incorporation and Bylaws, no dividends can be declared on any of the shares of
any class of stock of the Company. (See the heading "Description of Capital
Stock", subheading "Dividend Rights.")
Basic Features of Offering
The shares of the Company's stock being offered hereby are offered only to
approved retail and other dealers in hardware and related products who submit
applications for Ace Hardware Corporation memberships. The offering price for
each share of Class A Stock is $1,000 and the offering price for each share of
Class C Stock is $100.
The offering enables dealers in hardware or similar merchandise to obtain
membership in the Company. Membership entitles a dealer to use the Company's
marks as provided in the Membership Agreement, to purchase merchandise from
the Company under the various sales classes and programs described under the
4
heading "The Company's Business," and also to receive patronage dividends
based upon the dealer's purchases from the Company.
A dealer who applies for an initial Company membership must subscribe for
a combination of 1 share of Class A Stock plus 40 shares of Class C Stock. If
a membership is applied for with respect to an additional outlet owned or
controlled by the same dealer, the dealer must subscribe for 50 shares of
Class C Stock for such outlet. Any application for a membership must be
accompanied by a $400 payment constituting a handling charge to defray the
estimated cost of processing such application.
The shares subscribed for by a dealer are to be paid for by means of
charges to be added to the biweekly billing statements of the Company for
merchandise and services purchased from it by its dealers. The dealer shall
also have the right at any time to make prepayments on account of the purchase
price. For a detailed explanation of the offering reference is made to the
information set forth under the heading "Distribution Plan and Offering
Terms".
Repurchase of Shares by Company
Upon termination of the Ace Hardware Corporation membership for any retail
business outlet, all of the shares with respect to such outlet held by the
dealer must be sold back to the Company, unless the shares are to be
transferred to another party whom the Company agrees to accept as a member
dealer with regard to such outlet. In any repurchase of its shares, the
Company must pay a price equal to the $1,000 par value for Class A Stock, a
price which cannot be less than twice the $1,000 par value for Class B Stock,
and a price which cannot be less than the $100 par value for Class C Stock.
(See the heading "Description of Capital Stock", subheading "Other
Restrictions and Rights", paragraph (g).) A portion of the repurchase price
to be paid by the Company will be paid by means of an interest-bearing 4-year
installment note if the dealer's membership with the Company terminates in
either of two basic types of situations. Reference is made to the heading
"Description of Capital Stock", subheading "Other Restrictions and Rights",
paragraph (h), of this Prospectus and to Section 12 of Article XVI of the
By-laws, set forth in Appendix A of this Prospectus, for further details
concerning the situations in which part of such repurchase price will be paid
by means of an installment note and the terms and conditions which will be
applicable to such notes.
As of December 31, 1994 the number of outstanding shares of the Company's
stock is Class A stock - 3,924 shares, Class B stock - 3,248 shares and Class
C stock - 1,646,656 shares. As of the completion of this offering, assuming
that all Class A stock is sold, the number of outstanding shares of the
Company's stock will be Class A stock - 6,027 shares, Class B stock - 3,212
shares and Class C stock - 1,724,670 shares.
Under the applicable provisions of the General Corporation Law of Delaware,
however, the Company would be prohibited from repurchasing any of its shares
at any time when its assets are less than the amount represented by the
aggregate outstanding shares of its capital stock or would be reduced below
said amount as a result of a repurchase of its shares.
The number of shares of stock repurchased by the Company and the price
per share paid by it during each of the past three calendar years were as
follows:
<TABLE>
<CAPTION>
Class of Stock
A B C
No. of Purchase No. of Purchase No. of Purchase Aggregate
Shares Price Shares Price Shares Price Cost
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1994 240 $1,000 168 $2,000 77,013 $100 $8,277,300
Year ended December 31, 1993 271 $1,000 164 $2,000 72,359 $100 $7,834,900
Year ended December 31, 1992 329 $1,000 152 $2,000 72,600 $100 $7,893,000
</TABLE>
5
Patronage Dividends and Income Tax Treatment Thereof
The Company operates on a cooperative basis with respect to purchases of
merchandise made from it by its member dealers who are either the owners of
shares of its capital stock or who are subscribers for shares which are being
paid for by charges added to the Company's bi-weekly billing statements for
merchandise purchased from it, and makes annual distributions of patronage
dividends to such dealers in proportion to the amount of purchases made by
each of them during the year. Reference is made to the table under the
heading "The Company's Business," subheading "Distribution of Patronage
Dividends" for information as to the percentages of sales of merchandise made
by the Company during the years 1992 through 1994 which were distributed as
patronage dividends. Under the Company's patronage dividend plan which is
currently in effect, a portion of such patronage dividends (which can never
be less than 20% nor more than 45% of the total annual patronage dividends
distributed to each eligible and qualifying dealer) will be paid in cash,
except that the portion of any patronage dividends which would otherwise
have been paid in cash to a dealer whose membership with the Company has
terminated will instead be applied against any indebtedness owing by such
dealer to the Company to the extent of such indebtedness unless a timely
request for the payment of the minimum 20% cash portion thereof is submitted
to the Company by the dealer. The entire remaining portion will be paid
in the form of shares of Class C Stock of the Company or non-negotiable
patronage refund certificates, or in a combination of Class C shares and
such patronage refund certificates. Those dealers whose volume of
purchases entitles them to larger total annual patronage dividend
distributions will receive larger percentages of their patronage
dividends in cash. (See the heading "The Company's Business",
subheadings "Distribution of Patronage Dividends", "Patronage
Dividend Determinations and Allocations", and "Forms of Patronage Dividend
Distributions.") The amount of patronage dividends allocated over the past
five fiscal years is set forth in Note (C) to Selected Financial Data.
The cash payments and the stated dollar amounts of shares of the Company's
Class C Stock and of any patronage refund certificates which are distributed
by the Company as a part of patronage dividends must all be taken into the
gross income of each of the recipients thereof for federal income tax purposes
in the taxable years in which they are received. (See the heading "The
Company's Business", subheading "Federal Income Tax Treatment of Patronage
Dividends.")
In the case of member dealers whose places of business are located in
foreign countries or Puerto Rico (except for unincorporated Puerto Rico
dealers owned by individuals having U.S. citizenship) who are subject to the
special 30% U.S. income tax imposed on nonresident alien individuals and
foreign corporations (not including certain Guam, American Samoa, Northern
Mariana Islands, or U.S. Virgin Islands corporations) receiving fixed or
determinable annual income from sources within the United States, the minimum
portion of the annual patronage dividends to be distributed in cash is 30%,
and that amount will be withheld by the Company for payment of the U.S.
income tax imposed on such dealers. (See the heading "The Company's
Business", subheadings "Forms of Patronage Dividend Distributions", and
"Federal Income Tax Treatment of Patronage Dividends.")
USE OF PROCEEDS
The proceeds to be received from the shares of stock of the Company
offered hereby will be used by the Company primarily for general working
capital purposes (including the purchase of merchandise to be resold by the
Company to its member dealers and the maintenance of adequate inventories of
such merchandise) and also for capital expenditures as required in order to
serve the retail business outlets having Membership Agreements with the
Company. The Company has no current specific plan for the proceeds or a
significant portion thereof. The Company has no plan if less than all shares
offered are sold, as the principal reason for the offering is to enable the
Company to accept new dealer outlets in accordance with the Company's
By-laws. See the heading "The Company's Business," subheadings "Patronage
Dividend Determinations and Allocations" and "Forms of Patronage Dividend
Distributions", for a description of the method by which the Company will
obtain most of the balance of its operating capital. (See the heading
"Factors to be Considered," subheading "Sale of All Shares Offered Not
Assured.")
6
DISTRIBUTION PLAN AND OFFERING TERMS
Offering Made Through Company Officers
Sales of each class of stock offered by the Company are made by the
officers of the Company to dealers whose applications for Ace memberships
have been accepted by the Company. The Company also employs approximately
163 field sales personnel including retail consultants, management and retail
development personnel whose duties include initial contact with potential new
retail dealer outlets and promotion of the Company's business and the dealer
services offered by it. The field sales personnel, however, do not and are
not empowered to accept new dealer outlets on behalf of the Company, nor are
they authorized to make sales of any shares of the stock offered by the
Company. Also, no commission, bonus or other separate compensation is to be
paid to any officer, field sales personnel, or other employee of the Company
in connection with the sale of its stock.
Limitation of Offering to Applicants for Ace Dealer Memberships
The offering of the Company's stock being made by this Prospectus is
limited to dealers in hardware or similar merchandise who submit membership
applications to the Company with respect to designated retail outlets which
are accepted by the Company. In connection with each such application with
respect to any retail outlet owned or controlled by a dealer, there must be
submitted to the Company:
1. A membership agreement executed by the applicant in the form
submitted by the Company;
2. A check in the sum of $400 in payment of a processing charge which
is imposed to defray the estimated cost of processing the application; and
3. An executed Subscription Agreement for the purchase of shares of the
Company's stock.
Offering Price and Terms of Payment
Each retail dealer who applies for Ace membership privileges with respect
to any retail business outlet must subscribe for shares of the Company's
stock having a total purchase price of $5,000. In the case of a dealer who
does not already have a Membership Agreement with the Company with respect to
any retail outlet, the shares to be subscribed for on behalf of such dealer's
first retail outlet will include 1 share of Class A Voting Stock at a price of
$1,000 per share plus 40 shares of Class C Non-voting Stock at a price of $100
per share. The shares of stock to be subscribed for by a dealer on behalf of
each additional retail outlet owned or controlled by the same dealer will
consist entirely of 50 shares of Class C Non-voting Stock at a price of $100
per share.
Unless the right of prepayment described below is exercised, the entire
purchase price of all shares of stock of the Company subscribed for by a
dealer for any retail business outlet owned or controlled by such dealer shall
be paid by means of a stock subscription payment charge to be added to such
outlet's bi-weekly billing statement from the Company in the amount of $40 or
in an amount equal to 2% of the purchase price of the merchandise and services
purchased by such outlet from the Company during each bi-weekly period (if
such percentage amount is greater than $40). Such charge shall be continued
until the full purchase price for all shares of the stock of the Company
subscribed for with respect to such outlet has been paid. Upon the acceptance
by the Company of the Membership Agreement and the Stock Subscription
Agreement executed by a dealer for a prospective member outlet, such outlet
will be entitled to participate in the patronage dividend distributions made
by the Company even though the full purchase price for the shares of stock
subscribed for has not yet been paid.
7
Right of Prepayment
All dealers subscribing for shares of any class of stock of the Company
shall also have the right at any time to pay all or any portion of the then
unpaid balance of the purchase price payable by them for the shares of any
class of the stock of the Company subscribed for by them with respect to any
member business outlet. However, no interest or other finance charge shall
accrue upon or be added to the unpaid balance so long as all payments are made
when the same are due in accordance with the terms described above.
Time of Issuance of Stock Certificates
Immediately upon the completion of the payment by a dealer of the full
purchase price of $1,000 for the 1 share of Class A Voting Stock of the
Company subscribed for by such dealer, a certificate for such share will be
issued to him. In the case of a dealer whose subscription for shares includes
1 share of Class A Stock, all payments made by him under his Stock
Subscription Agreement will be applied first toward the $1,000 purchase price
for such Class A Stock. No dealer shall have any voting rights until such
share of Class A Voting Stock has been issued to him. Certificates for the
shares of Class C Stock of the Company subscribed for by a dealer with respect
to any member business outlet owned or controlled by such dealer will be
issued to him only upon the completion of the payment by him of the full
purchase price of all of the Class C shares subscribed for by him with respect
to such outlet.
If any store or other business outlet with respect to which a dealer has
subscribed for shares of stock of the Company ceases to be a member business
outlet of the Company before such shares have been issued and paid for in
full, the amount paid in by such dealer on account of the purchase price of
such shares will thereupon be refunded to him.
Termination of Membership Upon Transfer or Repurchase of Shares
Unless the Company expressly consents at such time to the continuation of
such membership, the Ace Hardware Membership Agreement for any store or other
business outlet shall automatically be deemed to have terminated as of the
time when any of the shares of capital stock of the Company owned for such
outlet by a dealer (regardless of whether the shares were purchased by the
dealer or were received by him as patronage dividends) are transferred by him
to another eligible holder or are purchased from him by the Company.
Federal Income Tax Status of Class A and Class C Shares (See the Heading
"Opinions of Experts").
If the Ace Hardware Corporation membership for a particular business outlet
owned by a dealer who has only one member outlet is terminated, or if the
memberships for all of a dealer's business outlets having memberships with the
Company are terminated, and the shares of the Company's stock owned by such
dealer are then repurchased by the Company, such dealer's 1 share of Class A
Stock would be included among the shares so repurchased. Since the Class A
Stock can never be repurchased by the Company at a price other than the
$1,000 par value, no taxable income would be realized by a dealer upon the
Company's repurchase of his share of Class A Stock.
Upon the purchase by the Company of shares of Class C Stock previously sold
or distributed to a dealer, taxable income would be realized by such dealer
under the present provisions of the U.S. Internal Revenue Code to the extent
that the price to be paid by the Company for such shares is established by the
Board of Directors at some time in the future at a figure in excess of the
$100 par value offering price of the shares. Unless the dealer whose shares
of Class C Stock are purchased by the Company still owns shares of the
Company's stock in connection with one or more other outlets that are members
of the Company, the taxable income realized by such dealer at the time of the
Company's purchase of Class C shares from him would probably qualify for
capital gain treatment.
8
In the case of a dealer who continues to own shares of the Company's stock
for one or more other member outlets after his shares with respect to a member
outlet have been purchased or redeemed by the Company, the entire amount paid
to such dealer for the shares purchased by the Company might be treated under
applicable provisions of the Internal Revenue Code as a distribution
essentially equivalent to a dividend which would be taxable to the dealer as
ordinary income. In such case the income tax basis of the shares of the
Company's stock still held by such dealer would be increased by an amount
equal to the original basis of the shares purchased from him by the Company.
The provisions of Section 483 of the U.S. Internal Revenue Code may be
applicable to sales of the Company's stock to dealers who make payment for
said shares in periodic installments extending more than 1 year after the date
of the sale. In any such case, all payments which are due to be made by a
dealer more than 6 months after the date of the sale may be deemed to include
"unstated interest" which would be tax deductible by the dealer, but would
also reduce the cost basis of his shares.
"Unstated interest" constituting taxable income may be imputed under
Section 483 of the U.S. Internal Revenue Code to a dealer whose Company
membership is terminated and who receives a 4-year installment note (See the
heading "Description of Capital Stock," subheading "Other Restrictions and
Rights," subparagraph (h)) in partial payment of the repurchase price of his
Company stock if the sum of the total payments to be made to the dealer by
the Company with respect to such repurchase exceeds the sum of the present
values of such payments and the present values of any interest payments due
under the note. For this purpose, the present value of a payment is to be
determined by using a discount rate equal to the applicable Federal rate in
effect as of the date of the note, compounded semi-annually.
DESCRIPTION OF CAPITAL STOCK
Dividend Rights
The Company's Certificate of Incorporation and By-laws prohibit the
declaration of dividends on any of the shares of any class of stock of the
Company. However, the Company may distribute shares of its Class C Stock as
a part of the annual patronage dividends to be paid to its eligible and
qualifying dealers. (See the heading "The Company's Business," subheading
"Forms of Patronage Dividend Distributions," as well as Note 5 to Financial
Statements, and Note (B) to "Selected Financial Data.")
Voting Rights
All rights to vote and all voting powers are vested solely in the Class A
Stock, provided, however, that holders of shares of $1,000 par value Class B
Stock and shares of $100 par value Class C Stock shall be entitled to vote
separately as a class upon any proposed amendment to the Company's Certificate
of Incorporation which would increase or decrease the number of authorized
shares of such class, increase or decrease the par value of the shares of such
class, or alter or change the power, preferences or special rights of the
shares of such class so as to affect them adversely. Each holder of any class
of stock having the right to vote at any meeting of the stockholders of the
Company shall be entitled to one vote for every share of such stock standing
in the name of such holder on the books of the Company. Cumulative voting of
shares with respect to the election of directors or otherwise is expressly
prohibited.
Liquidation Rights
In the event of any liquidation or winding up of the affairs of the
Company, whether voluntary or involuntary, the net assets of the Company
shall be distributed among the holders of all classes of issued and
outstanding stock of the Company. In such event, there shall first be
distributed to the holders of outstanding shares of Class B Stock and Class C
Stock amounts equal to the total amounts which the Company would have been
required to pay to them to purchase or redeem all of their outstanding shares
of such stock in accordance with the purchase or redemption prices for said
shares as last determined by the Board of Directors, but if the net assets
9
are insufficient to pay such amounts to the holders of said shares, each
outstanding share of Class B Stock and each outstanding share of Class C
Stock shall share in the distribution of the Company's net assets in the
proportion which its purchase or redemption price bears to such total amount.
(See the subheading "Redemption Provisions" below). If the net assets exceed
said total amount, the excess is to be distributed in equal portions to each
holder of an outstanding share of Class A Stock, but the amount so distributed
to each holder of a share of Class A Stock cannot exceed such share's $1,000
par value. Any net assets still remaining are to be distributed among the
holders of all classes of issued and outstanding shares of stock of the
Company pursuant to the following procedure:
(a) there shall first be determined the sum of the total $1,000 par
value of all of the outstanding shares of Class A Stock and the total
amount which the Company would have been required to pay to purchase or
redeem all of its outstanding shares of Class B Stock and Class C Stock in
accordance with the purchase or redemption price thereof last determined
by the Board of Directors;
(b) each outstanding share of Class A Stock shall share in said
remaining net assets in the proportion which the $1,000 par value thereof
bears to the sum determined in the foregoing manner; and
(c) each outstanding share of Class B Stock and each outstanding share
of Class C Stock shall share in said remaining net assets in the proportion
which the purchase or redemption prices thereof last determined by the
Board of Directors bear to said sum.
Preemptive Rights
No stockholder of the Company shall, by reason of his holding shares of any
class of stock of the Company, have any preemptive or preferential right to
purchase or to subscribe to any shares of any class of the Company, now or to
be hereafter authorized, or any notes, debentures, bonds or other securities
convertible into or carrying options or warrants to purchase any shares of any
class, now or hereafter to be authorized.
Redemption Provisions
There are no redemption provisions applicable to any of the shares of Class
A Stock or to any of the shares of Class C Stock other than shares of Class C
Stock which have been issued to the Company's member dealers in partial
payment of their annual patronage dividends. The Company may, at the option
of its Board of Directors, redeem the whole or any part of the outstanding
shares of its Class B Stock or the whole or any part of the outstanding shares
of its Class C Stock which have been issued as patronage dividend
distributions. Such redemptions may be made at any time or from time to time.
The redemption price in each instance shall be determined by the Board of
Directors, but the redemption price to be paid for Class C Stock shall in no
event be less than the $100 par value of such stock and the redemption price
to be paid for Class B Stock shall at all times be no less than twice the
$1,000 par value of the Class B Stock and shall always be equal to twenty
times the per share price last established by the Board of Directors with
respect to purchases or redemptions by the Company of its Class C Stock.
Notice of any election to redeem shall be mailed to each holder of the class
of stock so to be redeemed at his address as it appears on the books of the
Company not less than 30 days prior to the date upon which the stock is to be
redeemed. In case less than all of the outstanding shares of Class B Stock
are redeemed, or in case less than all of the eligible outstanding shares of
Class C Stock are redeemed, the number of shares to be redeemed and the method
of effecting such redemption, whether by lot or prorata or otherwise, may be
determined by the Board of Directors.
Other Restrictions and Rights
(a) There are no conversion rights, sinking fund provisions, or
liability to further calls or assessment by the Company in regard to any
of its shares of stock.
(b) As security for the payment of any indebtedness owing to the Company
by any stockholder or any subscriber for shares of the Company's stock, the
Company retains a first lien upon all shares of its stock held by each
10
stockholder and upon all amounts which have been paid to the Company
pursuant to a Stock Subscription agreement for shares to be issued upon the
completion of payment of the purchase price of the shares. The interest of
each holder of shares of the Company's stock in and to the shares issued to
such holder and the interest of each subscriber for shares of the Company's
stock in and to the funds paid to the Company by such subscriber shall at
all times be deemed to be offset by the amount of any indebtedness payable
to the Company by such holder or subscriber. In no event shall any
transfer of the shares owned by any stockholder or any transfer of the
stock subscription account of any subscriber for shares be made unless and
until the stockholder whose shares are being transferred or the subscriber
whose subscription account is being transferred is free from all
indebtedness to the Company. If an installment note would be issuable in
payment of a portion of the total purchase price to be paid by the Company
for shares of its capital stock held by a dealer for a retail outlet whose
Company membership is terminated in one of the situations described in
subparagraph (h) below, the cash portion of the purchase price of said
shares will be applied first toward any indebtedness payable to the Company
by such dealer and the portion of the purchase price which would otherwise
be paid by the issuance of an installment note will then be applied against
any such indebtedness which still remains.
(c) From and after the date on which shares of the Company's stock are
first issued to its member dealers who subscribe for such shares, ownership
of the shares of all classes of stock of the Company shall be limited to
approved retail or other dealers in hardware and related products having
membership agreements with the Company, and ownership of shares of Class B
Stock shall be limited to dealers having membership agreements with the
Company which were entered into on or before February 20, 1974. No
certificate representing any issued and outstanding share or shares of any
class of stock of the Company shall be pledged, mortgaged, hypothecated,
sold, assigned or transferred without the prior consent of the Board of
Directors of the Company. In the event that the Board of Directors shall
refuse to consent to any transfer or assignment of any certificate or
certificates representing any share or shares of issued and outstanding
stock of the Company of any class, then the Company shall have the right
and shall be obligated to purchase such stock from its owner at a price
determined in accordance with the provisions of subparagraph (g) below.
In no event shall any transfer or assignment of shares of any class of
stock of the Company be made to any transferee who is not eligible to be a
holder of such shares, that is, a dealer having a membership agreement
with the Company. In the case of a proposed transfer of ownership of a
store or other business outlet owned by a holder of shares of stock of the
Company to a transferee which the Company has accepted or is willing to
accept as a member Ace Hardware dealer, then the owner of such stock shall
have the option of either (i) selling or otherwise transferring to such
transferee such number of shares of stock of the Company of any class
which the Company would otherwise have been required to offer to such
transferee in connection with the membership granted to such transferee
with respect to such store or other business outlet, or (ii) selling such
shares to the Company. However, the following types of transfers of
ownership of a store or other business outlet will not be recognized for
purposes of determining the availability of the option of selling to the
Company shares of its capital stock: (i) any transfer which is not
complete, unconditional and irrevocable; (ii) any transfer to an entity in
which the transferor retains an ownership interest; or (iii) any transfer
to the spouse of the transferor.
(d) Subject to the Company's first lien and set-off rights as described
in subparagraph (b) above, in the event of the termination of the Company
membership granted for a retail hardware store or other business unit for
which shares of stock of the Company are held, the Company shall be
obligated to purchase such shares. The Company shall also be obligated to
refund all amounts which have been paid to it pursuant to a Stock
Subscription Agreement for the purchase of shares which have not as yet
been issued to the subscriber, subject only to the Company's first lien
and set-off rights as described in subparagraph (b) above. Termination of
the membership granted for a particular retail hardware store or other
business outlet shall include not only any termination pursuant to a formal
notice of termination given by either the Company or the holder of the
membership but shall also include each of the following situations which
shall be deemed to constitute such a termination:
11
(i) The closing down of the store or other business unit with
respect to which such shares of stock of the Company are held, unless
such store or other business unit is merely being moved, with the
Company's consent and approval, to another location or is being acquired
by another dealer which the Company has accepted or is willing to accept
as a member dealer for operation pursuant to the same membership at
another location;
(ii) The death of an individual holder of the shares of stock of the
Company held for such retail store or other business unit, or of a
member of a partnership which is a holder of such shares, except in a
case where the store or other business unit with respect to which such
shares are held continues, with the approval of the officers of the
Company (which approval shall not be unreasonably withheld), to be
operated under a membership from the Company by the decedent's estate
or by the person or persons to whom such shares are to be distributed
by the decedent's estate or by the successor or successors to the
decedent's interest in the partnership holding such shares (it being
immaterial for this purpose that, in connection with such continuation
of operation, the legal form of ownership of the member dealer has been
changed from an individual proprietorship or partnership to a
corporation or from a partnership to an individual proprietorship);
(iii) An adjudication of the insolvency of the dealer or of the store
or other business unit for which the shares of stock of the Company are
held, or the making of an assignment for the benefit of creditors or the
filing of a voluntary petition in bankruptcy or similar petition under
the U. S. Bankruptcy Code by or on behalf of such dealer or retail
business unit, or the filing of an involuntary petition in bankruptcy or
similar petition under the U.S. Bankruptcy Code against the dealer or
against said business unit.
(e) A transfer of shares of stock of the Company requiring the consent
of the Board of Directors shall not be deemed to have occurred upon the
death of a person who is the holder of shares of stock of the Company
jointly with one or more other persons under circumstances whereby ownership
of such shares passes automatically by operation of law to the surviving
holder or holders of such shares, nor shall the Company become obligated to
purchase such shares upon the death of such person unless the store or other
business outlet with respect to which such shares are held either (i) closes
down, or (ii) ceases to be operated under a membership from the Company.
(f) In any case where the holder or holders of 50% or more of the
outstanding voting stock of a corporation having a membership from the
Company for one or more business outlets, or the holder or holders of 50%
or more of the outstanding voting stock of a corporation owning 80% or more
of the outstanding stock of a corporation having such a membership, propose
to sell or otherwise transfer all of the shares of capital stock (both
voting and non-voting) of such corporation held by them, written notice of
such proposal shall be given to the Company. Upon the consummation of such
sale or transfer, the corporation whose shares have been sold or transferred
shall have the option of either retaining all the shares of the capital
stock of the Company then held by it with respect to each member business
outlet operated by it or of selling such shares to the Company and having
each Company membership held by it deemed to have been terminated by the
voluntary action of said corporation, in which case no business unit for
which said corporation has held a Company membership shall thereafter
operate as a member of the Company unless said corporation submits a new
application for a membership for such business unit and such application
is accepted by the Company. However, the following types of transfers of
ownership of shares of the capital stock of a corporation having a
membership from the Company will not be recognized for purposes of
determining the availability of the option of selling to the Company
shares of its capital stock: (i) any transfer which is not complete,
unconditional and irrevocable; (ii) any transfer to an entity in which
the transferor retains an ownership interest; or (iii) any transfer to the
spouse of the transferor.
12
(g) The price to be paid by the Company in connection with the purchase
by it of any shares of its stock shall be as follows:
(i) in the case of Class A Stock, the $1,000 par value of the
shares;
(ii) in the case of Class B Stock, an amount per share equal to the
per share price last established by the Board of Directors as the price
to be paid by the Company in the event of redemption of shares of its
Class B Stock (currently $2,000 per share), which price shall in no
event be less than twice the $1,000 par value of the Class B Stock and
shall also at all times be equal to twenty times the per share purchase
price last established by the Board of Directors with respect to
purchases by it of shares of its Class C Stock;
(iii) in the case of Class C Stock, an amount per share equal to the
per share price last established by the Board of Directors as the
purchase price to be paid by the Company for shares of its Class C Stock
(currently $100 per share), which price shall in no event be less than
the $100 par value thereof.
(h) In case of the purchase by the Company of the shares of its stock
held by a dealer for a business outlet whose Company membership is
terminated in either of the following situations, a portion of the
purchase price will be paid in the form of an installment note payable in
four equal annual installments plus accrued interest:
(i) voluntary termination of the membership by the dealer under
circumstances whereby the member outlet continues to engage in
substantially the same business and continues to be controlled to the
extent of more than 50% by the same person, partnership or corporation;
(ii) termination of the membership by the Company due to a
delinquency on the dealer's part in paying for goods or services
supplied by the Company or due to a default on the dealer's part in
performing some other obligation under his membership agreement with
the Company.
Even in the above situations, though, the portion of the total purchase
price represented by the amount actually paid in by the dealer under a Stock
Subscription Agreement for Class A Stock, Class B Stock and Class C Stock
will be paid in cash, and the entire remaining portion of the total purchase
price for the shares being purchased by the Company from the dealer will also
be paid in cash if such remaining portion is less that $5,000. Where such
remaining portion of the total purchase price is $5,000 or more in any of the
above situations, then only the amount actually paid in by the dealer under
the dealer's Stock Subscription Agreement will be paid in cash and the entire
remaining portion of the purchase price will be paid by means of an
installment note as described above. The interest rate on any such
installment note will be such rate as shall have been established by the
Company's Board of Directors for such purpose as of the date of the issuance
of the note, but the interest rate shall in no event be less than the latest
interest rate established for patronage refund certificates to be issued as a
part of the annual patronage dividends payable to the Company's dealers, nor
shall the interest rate ever be less than 6% per annum. After considering
the financial condition and requirements of the Company, the Company's Board
of Directors may authorize that payment be made in cash of all or any portion
of the total purchase price which would otherwise be payable by means of such
an installment note if the Board determines that the installment payment
method would impose an undue hardship on the dealer.
(i) There is no restriction on the repurchase or redemption of any of its
shares of stock by the Company in the event that the Company shall at any
time be in arrears in making any sinking fund installment payments which it
may hereafter incur an obligation to make. Since the Company is prohibited
from paying dividends on any of its shares of stock, there can be no
arrearage in the payment of any such dividends which would impose any
restriction on the repurchase or redemption of any of its shares of stock by
13
the Company. Under the General Corporation Law of Delaware, the Company
cannot repurchase any of its shares at any time when its assets are less than
the amount represented by the aggregate outstanding shares of its capital
stock or would be reduced below said amount as a result of a repurchase of
its shares.
OPINIONS OF EXPERTS
The validity of shares of stock of the Company offered hereby will be
passed upon for the Company by the Company's general counsel, David W. League.
The statements made under the heading "Distribution Plan and Offering Terms,"
subheading "Federal Income Tax Status of Class A and Class C Shares," as well
as those made under the subheading "Federal Income Tax Treatment of Patronage
Dividends" are also based upon his opinions. The firm of Gatenbey, Law &
League, of which Mr. League was previously a partner, has previously passed
upon legal questions relating to the effect upon the surplus or retained
earnings of the Company of the fact that, in the event of the involuntary
liquidation of the Company, shares of its Class B stock will have a preference
exceeding the par value of said shares in the distribution of the net assets
of the Company.
The financial statements of Ace Hardware Corporation as of December 31,
1994 and 1993 and for each of the years in the three-year period ended
December 31, 1994, included herein and elsewhere in the Registration Statement
have been included herein and in the Registration Statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
THE COMPANY'S BUSINESS
Ace Hardware Corporation was formally organized as a Delaware corporation
in 1964. In 1973, by means of a corporate merger, it succeeded to the
business of Ace Hardware Corporation, an Illinois corporation organized in
1928. Until 1973, the business now being engaged in by the Company had been
conducted by the Illinois corporation. The Company's principal executive
offices are located at 2200 Kensington Court, Oak Brook, Illinois 60521. Its
telephone number is (708) 990-6600.
The Company functions as a wholesaler of hardware and related products,
and manufactures paint products. Sales of the products distributed by it are
presently made primarily to individuals, partnerships or corporations who are
engaged in business as dealers in hardware or related items and who have
entered into Membership Agreements with the Company. The Membership
Agreements entitle members to purchase merchandise and services from the
Company and to use the Company's trademarks and trade names. (See the heading
"Factors To Be Considered," subheading "Documents Accompanying Prospectus,"
and the heading "The Company's Business" subheading "Membership Agreement").
The Company operates on a cooperative basis and distributes patronage
dividends to its eligible member dealers each year in proportion to the amount
of their annual purchases of merchandise from it. (See the subheading
"Distribution of Patronage Dividends").
At December 31, 1994 there were 4,940 retail business outlets with respect
to which such Membership Agreements had been entered into. Those States
having the largest concentration of member outlets are California
(approximately 10%), Texas (approximately 6%), Illinois and Florida
(approximately 5% each), Michigan (approximately 4%) and Georgia
(approximately 3%). States into which were shipped the largest percentages
of the merchandise sold by the Company in 1994 are California (approximately
11%), Illinois (approximately 9%), Florida and Texas (approximately 6% each)
and Michigan and Georgia (approximately 4% each). Less than 4% of the
Company's sales are made to outlets located outside of the United States or
its territories.
14
Information as to the number of the Company's member outlets during each
of the past three calendar years is set forth in the following table:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Member outlets at beginning of period 4,921 4,986 5,111
New member outlets 198 158 183
Member outlets terminated 179 223 308
Member outlets at end of period 4,940 4,921 4,986
Dealers having one or more member outlets at end of period 4,054 4,045 4,134
</TABLE>
The Company services its dealers by purchasing merchandise in quantity
lots, primarily from manufacturers, by warehousing substantial quantities of
said merchandise and by selling the same in smaller lots to the dealers. Most
of the products that the Company distributes to its dealers from its regional
warehouses are sold at a 10% markup. In 1994 warehouse sales accounted for
62% of total sales and bulletin sales accounted for 2% of total sales with
the balance of 36% representing direct shipment sales, including lumber and
building material.
The proportions in which the Company's total warehouse sales were divided
among the various general classes of merchandise sold by it during each of
the past three calendar years are as follows:
<TABLE>
<CAPTION>
Class of Merchandise 1994 1993 1992
<S> <C> <C> <C>
Paint, cleaning and related supplies 19% 19% 18%
Hand and power tools 14% 14% 15%
Electrical supplies 12% 12% 13%
Plumbing and heating supplies 16% 15% 15%
General hardware 13% 12% 12%
Housewares and appliances 6% 7% 7%
Garden, rural equipment and related supplies 11% 12% 11%
Sundry 9% 9% 9%
</TABLE>
The Company sponsors two major conventions annually (one in the Spring and
one in the Autumn) at various locations. Dealers and vendors are invited to
attend, and dealers generally place orders for delivery during the period
prior to the next convention. During the convention regular merchandise, new
merchandise and seasonal merchandise for the coming season are displayed to
attending dealers. Lawn and garden supplies, building materials and exterior
paints are seasonal merchandise in many parts of the country, as are certain
sundries such as holiday decorations.
Warehouse sales involve the purchase of merchandise from the Company that
is maintained in inventory by the Company at its warehouses. Direct shipment
sales involve the purchase of merchandise from the Company with shipment
directly from the vendors. Bulletin sales involve the purchase of merchandise
from the Company pursuant to special bulletin offers by the Company.
Direct shipment sales are orders placed by dealers directly with vendors,
using special purchase orders. Such vendors bill the Company for such orders,
which are shipped directly to dealers. The Company, in turn, bills the
ordering dealers at a markup. The markup on this category of sales varies
with invoice amounts in accordance with the following schedule and is
exclusive of sales under the LTL Plus program discussed below.
15
Invoice Amount Handling Charge (Markup)
$1,000.00 to $ 999.99 2.00% or $1.00 whichever is greater
$1,000.00 to $1,999.99 1.75%
$2,000.00 to $2,999.00 1.50%
$3,000.00 to $3,999.00 1.25%
$4,000.00 to $4,999.00 1.00%
$5,000.00 to $5,999.00 .75%
$6,000.00 to $6,999.00 .50%
$7,000.00 to $7,999.00 .25%
$8,000.00 and over .00%
Bulletin sales are made based upon notification from dealers of their
participation in special bulletins offered by the Company. Generally, the
Company will give notice to all members of its intention to purchase certain
products for bulletin shipment and then purchases only so many of such
products as the members order. When the bulletin shipment arrives at the
Company, it is not warehoused, but is broken up into appropriate quantities
and deliveried to members who placed orders. A 6% markup is generally applied
to this category of sales.
An additional markup of 3% is applied on the various categories of sales
of merchandise exported to certain dealers located outside of the United
States and its territories and possessions. Effective April 1995, a flat 2%
markup is applied to all direct shipments placed by all dealers located
outside of the United States.
The Company maintains inventories to meet only normal resupply orders.
Resupply orders are orders from members for merchandise to keep inventories
at normal levels. Generally, such orders are filled within one week of
receipt. Bulletin orders (which are in the nature of resupply orders) may be
for future delivery. The Company does not backlog normal resupply orders and,
accordingly, no significant backlog exists at any point in time.
The Company also has established special sales programs for lumber and
building materials products and for products assigned from time to time to an
"extreme competitive price sales" classification and for products purchased
from specified vendors for delivery to certain of the Company's dealers on a
direct shipment basis (LTL Plus Program). Under its lumber and building
materials ("LBM") program, the Company imposes no handling charge, markup or
national advertising assessment on direct shipment orders for such products.
The LBM program also enables the Company's dealers to purchase these products
at net invoice prices which pass on to them important cost savings resulting
from the Company's closely monitored lumber and building materials purchasing
procedures. Additionally, the LBM program offers dealers the opportunity to
order less than truckload quantities of many lumber and building materials
products at economical prices under the LTL warehouse redistribution procedure
which the Company has established with certain major vendors.
The Store Traffic Opportunity Program ("STOP") established by the Company
is a program under which certain stockkeeping units of specific products
assigned to an "extreme competitive price sales" classification are offered
for sale to its dealers for delivery from designated Company retail support
centers. Sales under this program are made without the addition of freight
charges and with such handling charge or markup (if any) of not more than 5%
as shall be specified for each item. The Company's officers have authority
to add items to, and to withdraw items from, the STOP program from time to
time and to establish reasonable minimum or multiple item purchase
requirements for the items offered under the program. No allocations or
distributions of patronage dividends are made with respect to sales under the
STOP program. Purchases under the STOP program are, however, deemed to be
warehouse purchases or bulletin purchases, as the case may be, for purposes
of calculating the form of patronage dividend distributions. (See the heading
"The Company's Business" subheading, "Forms of Patronage Dividend
Distributions").
16
The LTL Plus Program established by the Company is a program under which
full or partial truckloads of products are purchased by certain of the
Company's dealers from specified vendors for delivery to such dealers on a
direct shipment basis. No markup, handling charge or national advertising
assessment is imposed by the Company on sales under the LTL Plus Program, and
the maximum amount of patronage dividends allocated or distributed to the
Company's dealers with respect to their purchases of products in the LTL Plus
category is .5% of such sales. (See heading "The Company's Business,"
subheading "Patronage Dividend Determinations and Allocations".)
The Company, in addition to conducting semi-annual and other conventions
and product exhibits for its dealers, also provides them with numerous
special services (on a voluntary basis and at a cost to cover its related
expenses), such as inventory control systems, price and bin ticketing and an
electronic ordering system. In order for them to have on hand current pricing
and other information concerning the merchandise obtainable from the Company,
the Company further provides to each of its dealers either a catalogue
checklist service or a microfiche film service (whichever the dealer selects),
for either of which services the dealer must pay a monthly charge. The
Company also provides on a full participation basis videotapes and related
materials for educational and training programs for which dealers must pay an
established monthly charge. (See the heading "The Company's Business,"
subheading "Special Charges and Assessments.")
Through its wholly-owned subsidiary, Ace Insurance Agency, Inc., the
Company makes available to its dealers a Group Dealer Insurance Program under
which they can purchase a package of insurance coverages, including "all risk"
property insurance and business interruption, crime, liability and workers'
compensation coverages, as well as medical insurance coverage for their
employees. AHC Realty Corporation, another wholly-owned subsidiary of the
Company, provides the services of a broker to those dealers who desire to sell
or seek a new location for a presently owned store or to acquire an additional
store. Loss Prevention Services, Inc., a third wholly-owned subsidiary
provides security training and services for all dealers desiring security
assistance. In addition, the Company offers to its dealers retail computer
systems consisting of computer equipment, maintenance service and certain
software programs and services. These are marketed by the Company under its
registered service mark "PACE".
The Company manufactures paint and related products at a facility owned by
it in Matteson, Illinois and will begin manufacturing paint and related
products at a Chicago Heights, Illinois facility in mid 1995. These
facilities now constitute the primary source of such products offered for
sale by the Company to its dealers. It is operated as a separate Division of
the Company for accounting purposes. All raw materials used by the Company
to manufacture paint are purchased from outside sources. The Company has had
adequate sources of raw materials, and no shortages of any materials which
would materially impact operations are currently anticipated. The
manufacturing of paint is seasonal to the extent that greater paint sales are
found in the months of April through September. Historically, compliance with
federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment have not had any material
impact.
The Company's business, either in hardware wholesaling or paint
manufacturing activities is not dependent on any major suppliers and the
Company feels that any seasonal fluctuations do not have a significant impact
upon operations. For further discussion of the Company's business, see the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which appears following the "Notes to Financial
Statements" in this prospectus.
Special Charges and Assessments
The Company sponsors a national advertising program for which its dealers
are currently assessed an amount equal to 1.25% of their purchases (exclusive
of lumber, building materials, purchases of PACE computer systems (hardware
and software), less than truckload lumber and building material program
purchases and LTL Plus Program purchases (as described in previous paragraphs
under the heading "The Company's Business") from the Company during each
17
bi-weekly period with the current minimum annual assessment being $975.00
and with the maximum annual assessment being $4,750 for each member business
location of any one dealer which has become a member of the Company. The
total annual amount of advertising assessments payable by any one dealer is
also subject to a further maximum limit which is determined by multiplying
the number of such dealer's member retail store outlets serving the general
public by $4,750. In the case of a dealer whose place of business is located
outside the contiguous States of the United States, the Company's management
has authority to determine the extent, if any, to which such dealer shall be
required to pay the annual national advertising assessment based upon its
evaluation of the amount and nature of the television broadcasts received in
the dealer's area. The percentage of bi-weekly purchases to be assessed for
the Company's national advertising program and the amount of the maximum
annual assessment for such program are both subject to being changed from
time to time by action of the Board of Directors of the Company. The Company
also has the authority, effective January 1, 1993 to impose a regional
advertising assessment (for select geographic regions) not to exceed 2% of
annual purchases with the same minimum and maximum assessments imposed by the
National Advertising assessment.
Each dealer must pay a low volume service charge if the dealer's purchases
during the calendar year are less than the minimum purchase levels described
below. Minimum purchase levels and the amount of the low volume service
charge are subject to change from time to time by the Company's Board of
Directors. Presently, the low volume service charge is $30.00 and applies
beginning one (1) year after the granting of the membership, if the dealer's
purchases from the Company (exclusive of carload lumber purchases) are less
than $4,000.00 per bi-weekly billing period. If the dealer's purchases from
the Company reach $104,000 during the calendar year, then the dealer receives
credit on its next bi-weekly billing statement for all low volume service
charges imposed on that account earlier in the same calendar year, and the
account is not subject to any further low volume service charges for the rest
of the calendar year. The low volume service charge is not billed on a
bi-monthly basis to those accounts whose previous year's sales volume exceeded
the minimum purchases level for the previous year, but the full annual low
volume service charge will be billed at year end to those accounts if the
minimum purchase level to avoid imposition of the charge has not been met for
the current year. For the calendar year in which the first anniversary of
the store's membership occurs, the $104,000 purchase requirement is pro-rated
from the first billing statement after that anniversary through December 31,
if less than a full calendar year. An Ace store that falls below minimum
purchase levels may also be subject to termination.
A late payment service charge is added on any past due balance owing by a
dealer to the Company for purchases of merchandise and services or for the
purchase price of the capital stock of the Company subscribed for by the
dealer. The late payment service charge currently in effect is an amount
equal to .77% per bi-weekly statement period, except in Texas where the charge
is .384% and Georgia where the charge is .692%. A past due balance is created
whenever payment of the amounts shown as due on any such statement is not
received by the Company within 10 days following the date of the statement.
The percentage for determining the amount of the late payment service charge
may be changed from time to time by the Company.
Subscriptions to a retail training program consisting of video tapes and
related course materials (the "S.T.A.R. Program") are mandatory for all stores
located in the United States and U.S. Territories. The initial monthly
assessment imposed on such stores for such subscriptions is $14.50 for each
single store or parent store and $10.00 for each branch store. A single store
or parent store is an initial retail outlet for which a dealer owns, or has
subscribed for, one (1) share of Class A stock and forty (40) shares of Class
C stock of the Company. A branch store is an additional retail outlet for
which a dealer owns, or has subscribed for, fifty (50) shares of Class C stock
of the Company. (See Article XXV, Section 2 of the By-laws, set forth in
Appendix A). Branch stores may, upon request, be granted an exemption from
the monthly subscription fee.
18
Subscriptions to a Material Safety Data Sheet information service are also
mandatory for all stores located in the United States. The initial annual
assessment imposed on such stores for such subscriptions is $30.00 for each
single store or parent store and $15.00 for each branch store.
Trademark and Service Mark Registrations
The names "ACE HARDWARE" and "ACE" are used extensively by the Company and
by its member-dealers in connection with the promotion, advertising and
marketing of products and services sold by the Company. The Company holds the
following Trademark and Service Mark Registrations issued by the U.S. Patent
and Trademark Office for the marks used by it:
<TABLE>
<CAPTION>
Registration
Description of Mark Type of Mark Number Expiration Date
<S> <C> <C> <C>
"ACE HARDWARE" with
winged emblem design Service Mark 840,176 December 5, 2007
"ACE HARDWARE" with winged
emblem design Trademark 898,070 September 8, 2000
"WEATHER SHEDDER" Trademark 1,053,816 December 7, 1996
"THE HELPFUL HARDWARE MAN" Service Mark 1,055,741 January 4, 1997
"ACE IS THE PLACE WITH THE
HELPFUL HARDWARE MAN" Service Mark 1,055,743 January 4, 1997
"BRIGHT & EASY" Trademark 1,058,117 February 8, 1997
"THE PAINTIN' PLACE" Service Mark 1,138,654 August 12, 2000
"HARDWARE UNIVERSITY" with design Service Mark 1,180,539 December 1, 2001
"SUPER STRICKER" Trademark 1,182,330 December 15, 2001
"PACE" with design Service Mark 1,208,887 September 14, 2002
"ACE HARDWARE" with winged
emblem design Trademark 1,277,581 May 15, 2004
"ACE HARDWARE" in slanted
bar design Trademark 1,426,137 January 27, 2007
"ACE" in stylized
lettering design Service Mark 1,464,025 November 3, 2007
"ACE HARDWARE" in stylized
lettering design Service Mark 1,486,528 April 26, 2008
"ACE HARDWARE AND GARDEN
CENTER" in stylized
lettering design Service Mark 1,487,216 May 3, 2008
"FLO-SOFT" Trademark 1,532,900 April 14, 2009
"ACE NEW EXPERIENCE" in
stylized lettering design Trademark 1,554,322 September 5, 2009
"ACE SEVEN STAR" in
stylized lettering design Trademark 1,556,389 September 19, 2009
"ACE BEST BUYS" in
circle design Service Mark 1,560,250 October 10, 2009
"PACER" Trademark 1,570,820 December 12, 1999
"ACENET" Service Mark 1,574,019 December 26, 1999
"ACE IS THE PLACE" Service Mark 1,602,715 June 19, 2000
"LUB-E" Trademark 1,615,386 October 2, 2000
"Ace FIVE STAR"
in stylized lettering design Trademark 1,627,887 December 18, 2000
"ACE THREE STAR" in
stylized lettering design Trademark 1,631,237 January 15, 2001
"ACE PRO" Trademark 1,632,078 January 22, 2001
"ASK ACE" Service Mark 1,653,263 August 6, 2001
19
Christmas Elves design Trademark 1,669,306 December 24, 2001
"ACE 2000" Service Mark 1,682,467 April 7, 2002
"ACE" in stylized
lettering design Trademark 1,683,538 April 21, 2002
"HARMONY" in stylized
lettering design Trademark 1,700,526 July 14, 2002
"SEVEN STAR SATISFACTION GUARANTEED
QUALITY ACE PAINTS" with design Service Mark 1,705,321 August 4, 2002
"THE OAK BROOK COLLECTION"
in stylized lettering design Trademark 1,707,986 August 18, 2002
"ACE HARDWARE BROWN
BAG BONANZA" with design Service Mark 1,761,277 April 13, 2003
"ACE HARDWARE COMMITTED
TO A QUALITY ENVIRONMENT" design Service Mark 1,764,803 April 13, 2003
"THE OAK BROOK COLLECTION"
in stylized lettering design Trademark 1,783,335 July 20, 2003
"STORE 2000 THE
STORE OF THE FUTURE" Service Mark 1,811,032 December 14, 2003
"ENVIRO-CHOICE" Trademark 1,811,392 December 14, 2003
</TABLE>
Currently, the Company has a applications pending before the U.S. Patent
and Trademark Office for Registration of "ACE RENTAL PLACE" in stylized
lettering design for use in connection with the rental of equipment,
merchandise and supplies; "THE NEW AGE OF ACE" with design for business
consulting and retail store services; "CELEBRATIONS" for Christmas lights and
light fixtures and "GREAT FINISHES" for paints, paint-like coatings, primers,
lacquers, stains and varnishes. In addition, the Company also has service
mark applications pending for "ACE HOME CENTER," "HELPFUL HARDWARE FOLKS,"
Repeating "A" in stylized lettering design and Repeating "A" in stylized
lettering design with "ACE" in stylized lettering design for retail stores
services.
Competition
The competitive conditions in the wholesale hardware industry can be
characterized as intensive due to the fact that independent retailers are
required to remain competitive with discount stores and chain stores, such as
Wal-Mart, Home Depot, Menard's and Sears, and with other mass merchandisers.
The gradual shift of retail operations to high rent shopping center locations
and the trend toward longer store hours have also intensified pressures to
obtain low cost wholesale supply sources. The Company directly competes in
several U.S. markets with Cotter & Company, Servistar Corporation, Hardware
Wholesalers, Inc., Our Own Hardware Company, and United Hardware Distributing
Co., all of which companies are also dealer-owned wholesalers. Of the
aforementioned companies, only Cotter & Company, headquartered in Chicago,
Illinois, has a larger sales volume than the Company.
Employees
The Company employs 3,664 full-time employees, of which 1,083 are salaried
employees. Collective bargaining agreements, covering one truck drivers'
bargaining unit and four warehouse bargaining units are currently in effect
at certain of the Company's distribution warehouses. The Company's employee
relations with both union and non-union employees are considered to be good,
and the Company has experienced no significant employee-related work stoppage
in the past five years. All employees are covered either by negotiated or
non-negotiated employee benefit plans which include hospitalization, death
benefits and, with few exceptions, retirement benefits.
20
Limitations on Ownership of Stock
All of the issued and outstanding shares of capital stock of the Company
are owned by its dealers. Only approved retail and other dealers in hardware
and related products having Membership Agreements with the Company are
eligible to own or purchase shares of any class of the Company's stock.
No dealer, regardless of the number of member business outlets owned or
controlled by him, shall be entitled to own more than 1 share of Class A
Stock, which is the only class of voting stock which can be issued by the
Company. This ensures that each stockholder-dealer will have an equal voice
in the management of the Company. An unincorporated person or partnership
shall be deemed to be controlled by another person, partnership or corporation
if 50% or more of the assets or profit shares therein are owned (i) by such
other person, partnership or corporation or (ii) by the owner or owners of
50% or more of the assets or profit shares of another unincorporated business
firm or (iii) by the owner or owners of 50% or more of the capital stock of
an incorporated business firm. A corporation shall be deemed to be controlled
by another person, partnership or corporation if 50% or more of the capital
stock of said corporation is owned (i) by such person, partnership or
corporation or (ii) by the owner or owners of 50% or more of the capital
stock of another incorporated business firm or (iii) by the owner or owners
of 50% or more of the assets or profit shares of an unincorporated business
firm.
Distribution of Patronage Dividends
The Company operates on a cooperative basis with respect to purchases of
merchandise made from it by those of its dealers who have become "members" of
the Company as described below and in the Company's By-laws. In addition, the
Company operates on a cooperative basis with respect to all dealers who have
subscribed for shares but who have not as yet become "members" by reason of
the fact that the payments made by them on account of the purchase price of
their shares have not yet reached an amount equal to the $1,000 purchase price
of 1 share of Class A Voting Stock. All member dealers falling into either of
the foregoing classifications are entitled to receive patronage dividend
distributions once each year from the Company in proportion to the amount of
their annual purchases of merchandise from it.
The patronage dividends distributed on wholesale warehouse, bulletin and
direct shipment sales made by the Company and on total sales of products
manufactured by the Paint Division represented the following percentages of
each of said categories of sales during each of the past three calendar years:
1994 1993 1992
Warehouse Sales 4.64117% 4.94434% 5.26838%
Bulletin Sales 2.0% 2.0% 2.0%
Direct Shipment Sales 1.0% 1.0% 1.0%
Paint Sales 8.2205% 7.9389% 8.9440%
In addition to the dividends described above, patronage dividends are
calculated separately and distributed on sales of lumber products, building
material products and less-than-truckload (LTL) sales of lumber and building
material products. Patronage dividends equal to .4073%, .1763% and .1260% of
the total sales of these products (calculated separately by each of these
three sales categories) were distributed to the Company's dealers who
purchased these products in 1994, 1993 and 1992 respectively. Under the LTL
Plus Program, patronage dividends are also calculated separately on sales of
full or partial truckloads of products purchased by eligible dealers from
specified vendors (see discussion of LTL Plus Program under the heading "The
Company's Business.") The maximum amount of patronage dividends allocable to
LTL Plus sales is .5% of such sales. The LTL Plus Program dividend was .5%,
of such sales for 1994, 1993 and 1992.
Patronage Dividend Determinations and Allocations
The amounts distributed by the Company as patronage dividends consist of
its gross profits on business done with dealers who qualify for patronage
dividend distributions after deducting from said gross profits a proportionate
21
share of the Company's expenses for administration and operations. Such gross
profits consist of the difference between the price at which merchandise is
sold to such dealers and the cost of such merchandise to the Company. All
income and expenses associated with activities not directly related to
patronage transactions are excluded from the computation of patronage
dividends. Generally these include profits on business done with dealers who
do not qualify for patronage dividend distributions and any income (loss)
realized by the Company from the disposition of property and equipment
(except that, to the extent that depreciation on such assets has been deducted
as an expense during the time that the Company has been operating on a
cooperative basis and is recaptured in connection with such a disposition,
the income derived from such recapture would be included in computing
patronage dividends).
The By-laws of the Company provide that, by virtue of a dealer being a
"member" of the Company (that is, by virtue of his ownership of 1 share of
Class A Voting Stock), he will be deemed to have consented to include in his
gross income for federal income tax purposes for the dealer's taxable year in
which they are received by him all patronage dividends distributed to him by
the Company in connection with his purchases of merchandise from the Company.
A dealer who has not yet paid an amount which at least equals the $1,000
purchase price of the 1 share of Class A Voting Stock subscribed for by him
will also be required to include all patronage dividends distributed to him
by the Company in his gross income for federal income tax purposes in the
year in which they are received by him. This is required by virtue of a
provision in the Subscription Agreement executed by him under which he
expressly consents to take all such patronage dividends into his gross income
for such purposes. The amount of the patronage dividends which must be
included in a dealer's gross income includes both the portion of such
patronage dividends received by him in cash or applied against indebtedness
owing by him to the Company in accordance with Section 7 of Article XXIV of
the Company's By-laws and the portion or portions thereof which he receives
in shares of Class C Nonvoting Stock of the Company or in patronage refund
certificates.
Patronage dividends on each of the Company's three basic categories of
sales (warehouse sales, bulletin sales and direct shipment sales) are
allocated separately, as are patronage dividends under the LTL Plus Program.
However, the maximum amount of patronage dividends allocable to the LTL Plus
Program is an amount no greater than .5% of such sales, the maximum amount of
patronage dividends allocable to direct shipment sales exclusive of LTL Plus
Program sales is an amount equal to 1% of such sales and the maximum amount
of patronage dividends allocable to bulletin sales is an amount equal to 2%
of that category of sales. All remaining patronage dividends resulting from
sales made under these programs are allocated by the Company to warehouse
sales. The Company feels that this allocation procedure provides a practical
and understandable method for the distribution of these patronage dividends
in a fair and equitable manner.
Sales of lumber and building materials products are not included as part of
warehouse sales, bulletin sales, or direct shipment sales for patronage
dividend purposes. Patronage dividends are calculated separately and
distributed to the Company's dealers with respect to their purchases within
each of three sales categories involving these types of products. These three
categories are (a) lumber products (other than less-than-truckload sales); (b)
building materials products (other than less-than-truckload sales); and (c)
less-than-truckload ("LTL") sales of lumber and building material products.
Patronage dividends are also calculated separately and distributed to the
Company's dealers for full and partial truckloads of products purchased under
the LTL Plus program. (See the heading "The Company's Business", discussion
of LTL Plus program, and the subheading "Forms of Patronage Dividend
Distributions", subparagraphs 2(a)-(b).)
Any manufacturing profit realized on intracompany sales of the products
manufactured by the Company's Paint Division is allocated among and
distributed as patronage dividends to those member dealers who are eligible to
receive patronage dividends from the Company in proportion to their respective
22
annual dollar purchases of paint and related products manufactured by said
Division. The earnings realized by the Company on wholesale sales of such
products made by it to its member dealers are distributed as patronage
dividends to all of its dealers who are eligible to receive patronage
dividends from it as part of the patronage dividends which they receive each
year with respect to the basic patronage dividend categories established for
warehouse sales, bulletin sales, and direct shipment sales. Under Section 8
of Article XXIV of the Company's By-laws, if the Paint Division's
manufacturing operations for any year result in a net loss, rather than a
profit, to the Paint Division, such loss would be netted against the earnings
realized by the Company from its other activities during the year, with the
result that the earnings available from such other activities for distribution
as patronage dividends for such year would be correspondingly reduced.
Forms of Patronage Dividend Distributions
Patronage dividend distributions will be made to the eligible and qualified
member dealers of the Company in cash, shares of the Company's Class C stock
and patronage refund certificates in accordance with the following plan which
has been adopted by the Company's Board of Directors with respect to
purchases of merchandise made by such dealers from the Company on or after
January 1, 1995, and which will continue to be in effect until such time as
the Board of Directors, in the exercise of their authority and discretion
based upon business conditions from time to time and the requirements of the
company, shall determine that such plan should be altered or amended:
1. With respect to each store owned or controlled by each eligible
and qualifying dealer, such dealer shall receive a minimum cash
distribution determined as follows:
(a) an amount equal to 20% of the first $5,000 of the total
patronage dividends allocated for distribution each year
to such dealer in connection with the purchases made for
such store;
(b) an amount equal to 25% of the portion of the total
patronage dividends allocated for distribution each year
to such dealer for such store which exceeds $5,000 but
does not exceed $7,500;
(c) an amount equal to 30% of the portion of the total
patronage dividends allocated for distribution each year
to such dealer for such store which exceed $7,500 but
does not exceed $10,000;
(d) an amount equal to 35% of the portion of the total
patronage dividends allocated for distribution each year
to such dealer for such store which exceeds $10,000 but
does not exceed $12,500;
(e) an amount equal to 40% of the portion of the total
patronage dividends allocated for distribution each
year to such dealer for such store which exceeds
$12,500.
2. The portion of the total annual distribution allocated to any
such dealer for each store owned or controlled by such dealer
in excess of the amount to be distributed to such dealer for
such store in cash shall be distributed to him each year in
the form of shares of Class C Non-voting Stock of Ace Hardware
Corporation (par value $100 per share), valued at the par
value thereof, until the total par value of all shares of all
classes of capital stock of the corporation held by such dealer
with respect to such store equals the greater of:
(a) $20,000; or
(b) a sum equal to the total of the following categories of
purchases made by such dealer for such store during the
most recent calendar year:
(i) 15% of the volume of warehouse (including STOP
and excluding Ace manufactured paint and related
products) and bulletin purchases, plus
(ii) 15% of the volume of Ace manufactured paint and
related products purchases, plus
(iii) 3% of the volume of drop-shipment or direct
purchases (excluding Ace manufactured paint and
related products), plus
23
(iv) 4% of the volume of lumber and building material
(excluding LTL) purchases, plus
(v) 4% of the volume of LTL Plus purchases;
provided, however, that no fractional shares of Class C
Non-voting Stock shall be issued to any dealer and that any
amount which would have otherwise been distributable as a
fractional share of such stock shall instead be distributed to
such dealer in cash.
3. The portion of the total patronage dividends allocated each
year to any such dealer for each store owned or controlled by
such dealer which exceeds the sum of (a) the amount to be
distributed to such dealer for such store in cash pursuant to
Paragraph 1., above and (b) any amount to be distributed to
him in the form of shares of Class C Non-voting Stock of Ace
Hardware Corporation (par value $100 per share) pursuant to
Paragraph 2. above shall be distributed to such dealer in cash;
provided, however, that in no event shall the total amount
distributed under this plan to any such dealer for any such
store in cash exceed 45% of the total patronage dividends
allocated for such store for such year, and to the extent that
any distribution to be made to any such dealer for any store
pursuant to this Paragraph 3. would otherwise cause the total
cash distribution to such dealer for such store to exceed 45%
of the total patronage dividends allocated for such store for
such year, the distribution to be made under this Paragraph 3.
shall instead be made in the form of a non-negotiable patronage
refund certificate having such a maturity date and bearing
interest at such an annual rate as shall be determined by the
Board of Directors prior to the issuance thereof.
Patronage dividend distributions will be made to the eligible and qualified
member dealers of the Company in cash, shares of the Company's Class C stock
and patronage refund certificates in accordance with the following plan which
has been adopted by the Company's Board of Directors with respect to purchases
of merchandise made by such dealers from the Company on or after January 1,
1993, through and including December 31, 1994:
1. With respect to each store owned or controlled by each eligible
and qualifying dealer, such dealer shall receive a minimum cash
distribution determined as follows:
(a) an amount equal to 20% of the first $5,000 of the total
patronage dividends allocated for distribution each year
to such dealer in connection with the purchases made for
such store;
(b) an amount equal to 25% of the portion of the total
patronage dividends allocated for distribution each year
to such dealer for such store which exceeds $5,000 but
does not exceed $7,500;
(c) an amount equal to 30% of the portion of the total
patronage dividends allocated for distribution each year
to such dealer for such store which exceed $7,500 but
does not exceed $10,000;
(d) an amount equal to 35% of the portion of the total
patronage dividends allocated for distribution each year
to such dealer for such store which exceeds $10,000 but
does not exceed $12,500;
(e) an amount equal to 40% of the portion of the total
patronage dividends allocated for distribution each
year to such dealer for such store which exceeds
$12,500.
2. The portion of the total annual distribution allocated to any
such dealer for each store owned or controlled by such dealer
in excess of the amount to be distributed to such dealer for
such store in cash shall be distributed to him each year in the
form of shares of Class C Non-voting Stock of Ace Hardware
Corporation (par value $100 per share), valued at the par value
thereof, until the total par value of all shares of all classes
of capital stock of the corporation held by such dealer with
respect to such store equals the greater of:
(a) $20,000; or
24
(b) a sum equal to the total of the following categories of
purchases made by such dealer for such store during the
most recent calendar year:
(i) 13% of the volume of warehouse (including STOP
and excluding Ace manufactured paint and
related products) and bulletin purchases, plus
(ii) 10% of the volume of Ace manufactured paint and
related products purchases, plus
(iii) 3% of the volume of drop-shipment or direct
purchases (excluding Ace manufactured paint and
related products), plus
(iv) 4% of the volume of lumber and building material
(excluding LTL) purchases, plus
(v) 4% of the volume of LTL Plus purchases;
provided, however, that no fractional shares of Class C
Non-voting Stock shall be issued to any dealer and that any
amount which would have otherwise been distributable as a
fractional share of such stock shall instead be distributed to
such dealer in cash.
3. The portion of the total patronage dividends allocated each
year to any such dealer for each store owned or controlled by
such dealer which exceeds the sum of (a) the amount to be
distributed to such dealer for such store in cash pursuant to
Paragraph 1. above and (b) any amount to be distributed to him
in the form of shares of Class C Non-voting Stock of Ace
Hardware Corporation (par value $100 per share) pursuant to
Paragraph 2. above shall be distributed to such dealer in cash;
provided, however, that in no event shall the total amount
distributed under this plan to any such dealer for any such
store in cash exceed 49.9% of the total patronage dividends
allocated for such store for such year, and to the extent that
any distribution to be made to any such dealer for any store
pursuant to this Paragraph 3. would otherwise cause the total
cash distribution to such dealer for such store to exceed 49.9%
of the total patronage dividends allocated for such store for
such year, the distribution to be made under this Paragraph 3.
shall instead be made in the form of a non-negotiable
patronage refund certificate having such a maturity date and
bearing interest at such an annual rate as shall be determined
by the Board of Directors prior to the issuance thereof.
With certain modifications, the above Plans are applied separately in
determining the form in which patronage dividends accrued with respect to
sales of lumber and building materials products are distributed. In this
connection the combined patronage dividends allocated annually to a store
from (a) sales of lumber products (other than LTL sales) to the store, (b)
sales of building materials (other than LTL sales) to the store, and (c) LTL
sales to the store are used in determining the minimum cash distribution
percentages to be applied under Paragraph 1 of the above Plans. A store's
patronage dividends from any other sales category with respect to which
patronage dividends are distributed by the Company are not taken into account
in determining either the minimum portion or any additional portion of the
store's patronage dividends derived from its purchases of lumber and building
materials products which is to be distributed in cash. Also, Paragraphs 2
and 3 of the above Plans are applied separately to patronage dividends on
lumber and building materials sales and the requirements of Paragraph 2 of
the Plans shall not be deemed to have been complied with in the cases of (a)
purchases of lumber products (other than LTL purchases) or (b) purchases of
building materials products (other than LTL purchases) until the store's
holdings of Class C Non-voting Stock of the Company resulting from patronage
dividends on the Company's sales to it within the particular one of those two
sales categories for which a patronage dividend distribution is to be made
equal 4% of the volume of the store's purchases within such category during
the most recent calendar year. However, no such special Class C Stock
requirement applies to patronage dividends accrued on LTL purchases.
Notwithstanding the provisions of the above-described Plans, however, under
Section 7 of Article XXIV of the Company's By-laws the portion of any
patronage dividends which would otherwise be distributable in cash with
respect to a retail dealer outlet which is a member of the Company will
25
instead be applied against any indebtedness owing by the dealer to the
Company to the extent of such indebtedness in any case where the membership
for such outlet is cancelled or terminated prior to the distribution of such
patronage dividends except that an amount equal to 20% of the dealer's total
annual patronage dividends for such outlet will be paid in cash if a timely
request for the payment of such amount in cash is submitted to the Company by
the dealer.
Because of the requirement of the U.S. Internal Revenue Code that the
Company withhold 30% of the annual patronage dividends distributed to member
dealers of the Company whose places of business are located in foreign
countries or Puerto Rico (except in the case of unincorporated Puerto Rico
dealers owned by individuals who are U.S. citizens and certain dealers
incorporated in Guam, American Samoa, the Northern Mariana Islands, or the
U.S. Virgin Islands, if less than 25% of its stock is owned by foreign
persons, and at least 65% of the Corporation's gross income for the last
three years has been effectively connected with the conduct of a trade or
business in such possession or in the United States), the cash portion of the
annual patronage dividends of such dealers shall in no event be less than 30%.
It is anticipated that the terms of any patronage refund certificates
issued pursuant to Paragraph 3. of the foregoing Plans would include
provisions giving the Company a first lien thereon for the amount of any
indebtedness owing to it at any time by the owner of any such certificate and
provisions subordinating the certificates to all the rights and claims of
secured, general and bank creditors against the Company. It is further
anticipated that all such patronage refund certificates will have maturity
dates which will be no later than five years from the dates of issuance
thereof.
In order to aid the Company's dealers in acquiring and installing
standardized exterior signs identifying the retail stores operated by them
as member outlets supplied by the Company, the Board of Directors of the
Company has authorized a program under which a dealer may borrow from the
Company within a range of $100 to $20,000 the funds required for such purpose.
A dealer who obtains a loan under this program may either repay the loan in
twelve substantially equal payments billed on such dealer's regular bi-weekly
billing statement, or may execute a direction to have the portion of the
dealer's annual patronage dividends which would otherwise be distributed
under the above plan in a form other than cash from no more than the next
three annual distributions of such dividends applied toward payment of the
principal and interest on the loan.
In order to aid the Company's dealers in acquiring and installing PACE and
PAINTMAKER computer systems purchased from the Company, the Board of Directors
of the Company has also authorized programs under which the Company will
finance, for qualified dealers (but not to exceed 80% of the cost of any
system), in the case of a PAINTMAKER computer, within the range of $1,000 to
$15,000 repayable over a period of three (3) years, and in the case of a PACE
computer, within the range of $5,000 to $50,000 repayable over a period of
five (5) years, for such purpose. Dealers who obtain financing from the
Company for these purposes direct the Company, during the financing term, to
first apply toward the principal and interest due on such balances, the
patronage dividends which would otherwise be payable in the form of patronage
refund certificates for each year, and then to apply the patronage dividends
which would otherwise be payable for the same year in the form of the
Company's Class C stock.
The aforementioned signage and computer financing programs may be revised
or discontinued by the Board at any time.
Federal Income Tax Treatment of Patronage Dividends (See Previous Heading
"Opinions of Experts")
Both the shares of Class C Non-voting Stock and the patronage refund
certificates used by the Company to pay patronage dividends that accrue to
its eligible and qualifying dealers constitute "qualified written notices of
allocation" within the meaning of that term as used in Sections 1381 through
1388 of the U.S. Internal Revenue Code, which specifically provide for the
26
income tax treatment of cooperatives and their patrons and which have been in
effect since 1963. The stated dollar amounts of such qualified written
notices of allocation must be taken into the gross income of each of the
recipients thereof for the taxable years in which such written notices of
allocation are received, notwithstanding the fact that the stated dollar
amounts may not be received in such taxable years.
In order for the Company to receive a deduction from its gross income for
federal income tax purposes for the amount of any patronage dividends paid by
it to a patron (that is, to one of its eligible and qualifying dealers) in
the form of qualified written notices of allocation, it is necessary that the
Company pay (or apply against indebtedness owing to the Company by such
patron in accordance with Section 7 of Article XXIV of the Company's By-laws)
not less than 20% of the total patronage dividends distributable to such
patron in cash and that the patron consent to having the written notices of
allocation, at their stated dollar amounts, included in his gross income for
the taxable year in which they are received by him. It is also required
under the Code that any patronage dividend distributions deducted by the
Company on its federal income tax return with respect to business done by it
with patrons during the year for which such deduction is taken must be made
to the Company's patrons within 8 months after the end of such year.
Dealers who have become "members" of the Company by owning 1 share of
Class A Voting Stock are deemed under the U.S. Internal Revenue Code to have
consented to take any written notices of allocation distributed to them into
their gross income by their act of obtaining or retaining membership in the
Company and by having received from the Company a written notification of the
By-law provision providing that membership in the Company constitutes such
consent. In accordance with another provision in the Internal Revenue Code,
nonmember dealers who have subscribed for shares of the Company's stock will
also be deemed to have consented, by virtue of the consent provisions included
in their Subscription Agreements, to take any written notices of allocation
distributed to them into their gross income.
A dealer receiving a patronage refund certificate as part of the dealer's
patronage dividends in accordance with the last clause of Paragraph 3 of the
patronage dividend distribution plans previously described under the heading
"The Company's Business," subheading, "Forms of Patronage Dividend
Distributions," may be deemed to have received interest income in the form of
an original issue discount to the extent of any excess of the face amount of
the certificate over the present value of the stated principal and interest
payments to be made by the Company under the terms of the certificate. Such
income would be taxable to the dealer ratably over the term of the certificate
under Section 7872(b) (2) of the U.S. Internal Revenue Code. The present
value for this purpose is to be determined by using a discount rate equal to
the applicable Federal rate in effect as of the day of issuance of the
certificate, compounded semi-annually.
The Company will be required to withhold for federal income tax on the
total patronage dividend distribution which is made to a payee who has not
furnished his taxpayer identification number to the Company or as to whom the
Company has notice of the fact that the number furnished to it is incorrect.
A cooperative organization may also be required to withhold on the cash
portion of each patronage dividend distribution made to a payee who becomes a
member of the cooperative if the payee fails to certify to the cooperative
that he is not subject to backup withholding. It is the opinion of counsel
for the Company that this provision is not applicable to any patronage
dividend distribution to a payee unless 50% or more of the total distribution
is made in cash. Since all of the Company's patronage dividends for a given
year are distributed at the same time and the Company's currently effective
patronage dividend plan does not permit any store which is a member of the
Company to receive more than 49.9% of its patronage dividends for the year in
the form of cash, it is said counsel's further opinion that such a
certification failure would ordinarily have no effect on the Company or any
of its dealers.
Patronage dividends distributed by a cooperative organization to its
patrons who are located in foreign countries or certain U.S. possessions have
been held to constitute fixed or determinable annual or periodic income on
27
which such patrons are required to pay a tax of 30% of the amount received in
accordance with the provisions of Sections 871(a)(1)(A) and 881(a) (1) of the
Internal Revenue Code, as do patronage dividends distributed to patrons which
are incorporated in Puerto Rico or who reside in Puerto Rico but have not
become citizens of the United States. With respect to its dealers who are
subject to such 30% tax, the Company is also obligated to withhold from their
patronage dividends and pay over to the U.S. Internal Revenue Service an
amount equal to the tax. The foregoing provisions do not apply to a
corporation organized in Guam, American Samoa, the Northern Mariana Islands,
or the U.S. Virgin Islands if less than 25% of its stock is owned by foreign
persons and at least 65% of its gross income for the last three years has been
effectively connected with the conduct of a trade or business in such
possession or in the United States.
The 20% minimum portion of the patronage dividends to be paid in cash to a
patron with respect to whom the Company is neither required to withhold 30% of
his total patronage dividend distribution nor permitted to apply such minimum
portion against indebtedness owing to it by him may be insufficient, depending
upon the income tax bracket of each individual patron, to provide funds for
the full payment of the federal income tax for which such patron will be
liable as a result of the receipt of the total patronage dividends distributed
to him during the year, including cash, patronage refund certificates and/or
Class C Non-voting Stock.
In the opinion of the Company's management, payment in cash of not less
than 20% of the total patronage dividends distributable each year to the
Company's eligible and qualifying dealers will not have a material adverse
effect on the operations of the Company or its ability to obtain adequate
working capital for the normal requirements of its business.
Membership Agreement
In addition to signing a Subscription Agreement for the purchase of shares
of the Company's stock, each retail dealer who applies to become an Ace dealer
(excluding firms which are "International Retail Merchants" as discussed
below under the subheading "International Retail Merchants") must sign the
Company's customary Membership Agreement. A payment of $400 must accompany
the signed Membership Agreement to defray the Company's estimated costs of
processing the membership application. If the application is accepted, copies
of both the Membership Agreement and the Stock Subscription Agreement, signed
on behalf of the Company to evidence its acceptance, are forwarded to the
dealer. No royalties are payable at any time by a dealer for an outlet which
the Company accepts for affiliation into its dealer network. Membership may
be terminated upon various notice periods and for various reasons (including
voluntary termination by either party) as prescribed in the Membership
Agreement, except to the extent that special laws or regulations applicable
to specific locations may limit the Company's right to terminate memberships,
or may prescribe greater periods of advance notice under particular
circumstances.
International Retail Merchants
In 1989, the Company's Board of Directors authorized the Company to
affiliate International Retail Merchants, who operate retail businesses
outside the United States, its territories and possessions. International
Retail Merchants do not sign the Company's regular Membership Agreement but
may, depending on the circumstances, be granted a license to use certain of
the Company's trademarks and service marks. They do not sign stock
subscription agreements or become shareholders of the Company, nor do they
receive distribution of patronage dividends. As of December 31, 1994, 1993
and 1992, International Retail Merchant volume accounted for less than 4%
of the Company's total sales in each such year.
28
PROPERTIES
The Company's general offices are located at 2200 Kensington Court, Oak Brook,
lllinois 60521. Information with respect to the Company's principal
properties follows:
<TABLE>
<CAPTION>
Square Feet Owned Lease
of facility or Expiration
Location (Land in Acres) Leased Date
General Offices:
<S> <C> <C> <C>
Oak Brook, Illinois 206,030 Leased September 30, 2009
Oak Brook, Illinois (1) 70,508 Owned
Distribution Warehouses:
Lincoln, Nebraska 346,000 Leased December 31, 1996
Arlington, Texas 313,000 Leased July 31, 1996
Perrysburg, Ohio 396,000 Leased November 1, 2004
Tampa, Florida 391,760 Owned
Harmans, Maryland 277,000 Owned
Yakima, Washington 502,400 Owned
Maumelle, Arkansas 585,500 Owned
LaCrosse, Wisconsin 363,000 Owned
Bloomfield, Connecticut 449,820 Owned
Huntersville, North Carolina 354,000 Owned
Rocklin, California 470,000 Owned
Gainesville, Georgia 478,000 Owned
Prescott Valley, Arizona 633,000 Owned
Princeton, Illinois 1,080,000 Owned
Carol Stream, Illinois (2) 250,000 Leased September 30, 1999
Chicago, Illinois (3) 18,168 Leased May 31, 1997
Print Shop Facility:
Downers Grove, Illinois 41,000 Leased January 31, 1998
Paint Manufacturing Facility:
Matteson, Illinois 356,000 Owned
Chicago Heights, Illinois (4) 194,000 Owned
Other Property (Land):
Aurora, Illinois 72 acres Owned
LaCrosse, Wisconsin (5) 3 acres Owned
</TABLE>
(1) Includes 35,254 square feet leased to tenant until July 31, 1996.
The subject property is adjacent to the Company's general offices.
(2) This facility was leased by the Company in October, 1994, for use as
a bulk merchandise redistribution center.
(3) This facility was leased by the Company in June, 1994 for use as a
freight consolidation center.
(4) This facility was purchased by the Company in December, 1994 and is
currently being remodeled. The Company anticipates that
production will commence the second quarter of 1995.
(5) This land is adjacent to the Company's LaCrosse, Wisconsin warehouse.
The Company also leases a fleet of transportation equipment for the
primary purpose of delivering merchandise from the Company's warehouses to
its dealers.
29
THIS PAGE INTENTIONALLY
LEFT BLANK
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report 32
Balance Sheets as of December 31, 1994 and 1993 33
Statements of Earnings for the three years in the period
ended December 31, 1994 35
Statements of Member Dealers' Equity for the three years
in the period ended December 31, 1994 36
Statements of Cash Flows for the three years in the period
ended December 31, 1994 37
Notes to Financial Statements 38
31
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ace Hardware Corporation:
We have audited the balance sheets of Ace Hardware Corporation as of
December 31, 1994 and 1993, and the related statements of earnings, member
dealers' equity, and cash flows for each of the years in the three-year
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ace Hardware Corporation
at December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1994
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
January 31, 1995
32
<TABLE>
ACE HARDWARE CORPORATION
BALANCE SHEEET
December 31, 1994 and 1993
ASSETS
<CAPTION>
1994 1993
(000's omitted)
<S>
Current assets: <C> <C>
Cash $ 4,868 $ 4,142
Receivables:
Dealers 228,584 183,493
Others 32,377 29,831
260,961 213,324
Less Allowance for doubtful receivables (1,350) (720)
Net receivables 259,611 212,604
Inventories (Note 2) 270,391 263,576
Prepaid expenses and other current assets 6,810 6,869
Total current assets 541,680 487,191
Property and equipment (Notes 4 and 9):
Land 14,219 13,673
Buildings and improvements 135,252 131,794
Warehouse equipment 48,947 47,146
Office equipment 53,965 48,842
Manufacturing equipment 12,165 12,012
Transportation equipment 14,557 12,508
Leasehold improvements 10,925 6,553
Construction in progress 7,561 2,319
297,591 274,847
Less accumulated depreciation and amortization (120,493) (108,710)
Net property and equipment 177,098 166,137
Other assets 6,703 14,160
$ 725,481 $ 667,488
See accompanying notes to financial statements.
</TABLE>
33
<TABLE>
ACE HARDWARE CORPORATION
BALANCE SHEETS
December 31, 1994 and 1993
LIABILITIES AND MEMBER DEALERS' EQUITY
<CAPTION>
1994 1993
(000's omitted)
<S>
Current Liabilities: <C> <C>
Current installments of long-term debt (Note 4) $ 7,369 $ 10,707
Short-term borrowings (Note 3) 30,000 38,500
Accounts payable 293,088 234,190
Patronage dividends payable in cash (Note 5) 27,302 25,766
Patronage refund certificates payable (Note 5) 1,315 11,059
Accrued expenses 38,627 33,682
Total current liabilities 397,701 353,904
Long-term debt (Note 4) 64,287 71,286
Patronage refund certificates payable (Note 5) 63,666 56,270
Member dealers' equity (Notes 5 and 8):
Class A Stock of $1,000 par value 3,924 3,946
Class B Stock of $1,000 par value 6,499 6,499
Class C Stock of $100 par value 164,666 153,155
Class C Stock of $100 par value, issuable to dealers for
patronage dividends 21,766 19,064
Additional stock subscribed, net 555 613
Retained earnings 5,624 5,622
Contributed capital 3,295 3,295
206,329 192,194
Less: Treasury stock, at cost (6,502) (6,166)
Total member dealers' equity 199,827 186,028
Commitments (Notes 6 and 9) -- --
$ 725,481 $ 667,488
See accompanying notes to financial statements.
</TABLE>
34
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF EARNINGS
<CAPTION>
Year Ended December 31,
1994 1993 1992
(000's omitted)
<S> <C> <C> <C>
Net sales $ 2,326,115 $ 2,017,763 $ 1,870,625
Cost of sales 2,158,896 1,867,326 1,723,017
Gross Profit 167,219 150,437 147,608
Operating expenses:
Warehouse and distribution 29,379 31,650 32,291
Selling, general and administration 63,515 54,378 48,451
Total operating expenses 92,894 86,028 80,742
Operating income 74,325 64,409 66,866
Interest expense (Note 11) (12,035) (9,798) (8,380)
Other income, net (Note 11) 3,716 2,909 2,852
Income taxes (Note 7) (1,484) (428) (571)
Net earnings 64,522 57,092 60,767
Retained earnings at beginning of year 5,622 7,553 9,993
Net earnings 64,522 57,092 60,767
Patronage Dividends (Notes 5 and 8) (64,520) (59,023) (63,207)
Retained earnings at end of year $ 5,624 $ 5,622 $ 7,553
See accompanying notes to financial statements.
</TABLE>
35
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF MEMBER DEALERS' EQUITY
Three Years Ended December 31, 1994
(000's omitted)
<CAPTION>
Class C
Stock
Issuable to
Dealers for Additional
Class A Class B Class C Patronage Stock
Stock Stock Stock Dividends Subscribed*
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991 $ 4,165 $ 6,499 $ 130,083 $ 14,841 $ 1,069
Net earnings -- -- -- -- --
Net payments on subscriptions -- -- -- -- 1,302
Stock issued 224 -- 16,191 (14,841) (1,574)
Stock repurchased -- -- -- -- --
Stock retired (329) -- (7,260) -- --
Stock issuable as patronage dividends -- -- -- 20,301 --
Patronage dividends payable -- -- -- -- --
Balance at December 31, 1992 $ 4,060 $ 6,499 $ 139,014 $ 20,301 $ 797
Net earnings -- -- -- -- --
Net payments on subscriptions -- -- -- -- 1,049
Stock issued 157 -- 21,377 (20,301) (1,233)
Stock repurchased -- -- -- -- --
Stock retired (271) -- (7,236) -- --
Stock issuable as patronage dividends -- -- -- 19,064 --
Patronage dividends payable -- -- -- -- --
Balance at December 31, 1993 $ 3,946 $ 6,499 $ 153,155 $ 19,064 $ 613
Net earnings -- -- -- -- --
Net payments on subscriptions -- -- -- -- 1,394
Patronage financing deductions -- -- -- (1,086) --
Stock issued 218 -- 19,212 (17,978) (1,452)
Stock repurchased -- -- -- -- --
Stock retired (240) -- (7,701) -- --
Stock issuable as patronage dividends -- -- -- 21,766 --
Patronage dividends payable -- -- -- -- --
Balance at December 31, 1994 $ 3,924 $ 6,499 $ 164,666 $ 21,766 $ 555
</TABLE>
(Table Continued on following page)
<TABLE>
* Additional stock subscribed is comprised of the following amounts at December 31, 1992, 1993 and 1994:
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Class A Stock . . . . . . . . . $ 185 $ 223 $ 291
Class B Stock . . . . . . . . . -- -- --
Class C Stock . . . . . . . . . 2,184 1,952 2,180
2,369 2,175 2,471
Less unpaid portion . . . . . . 1,572 1,562 1,916
$ 797 $ 613 $ 555
</TABLE>
<TABLE>
<CAPTION>
Retained Contributed Treasury
Earnings Capital Stock Total
<S> <C> <C> <C> <C>
Balance at December 31, 1991 $ 9,993 $ 3,295 $ (5,534) $ 164,411
Net earnings 60,767 -- -- 60,767
Net payments on subscriptions -- -- -- 1,302
Stock issued -- -- -- --
Stock repurchased -- -- (7,893) (7,893)
Stock retired -- -- 7,589 --
Stock issuable as patronage dividends -- -- -- 20,301
Patronage dividends payable (63,207) -- -- (63,207)
Balance at December 31, 1992 $ 7,553 $ 3,295 $ (5,838) $ 175,681
Net earnings 57,092 -- -- 57,092
Net payments on subscriptions -- -- -- 1,049
Stock issued -- -- -- --
Stock repurchased -- -- (7,835) (7,835)
Stock retired -- -- 7,507 --
Stock issuable as patronage dividends -- -- -- 19,064
Patronage dividends payable (59,023) -- -- (59,023)
Balance at December 31, 1993 $ 5,622 $ 3,295 $ (6,166) $ 186,028
Net earnings 64,522 -- -- 64,522
Net payments on subscriptions -- -- -- 1,394
Net payments on patronage
financing programs -- -- -- (1,086)
Stock issued -- -- -- --
Stock repurchased -- -- (8,277) (8,277)
Stock retired -- -- 7,941 --
Stock issuable as patronage dividends -- -- -- 21,766
Patronage dividends payable (64,520) -- -- (64,520)
Balance at December 31, 1994 $ 5,624 $ 3,295 $ (6,502) $ 199,827
See accompanying notes to financial statements.
</TABLE>
36
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF CASH FLOWS
Year Ended December 31,
<CAPTION>
(000's omitted)
Operating Activities: 1994 1993 1992
<S> <C> <C> <C>
Net earnings $ 64,522 $ 57,092 $ 60,767
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation 16,954 16,156 14,817
Loss on sale of property and equipment 175 460 507
Increase in accounts receivable, net (47,007) (18,880) (32,783)
Increase in inventories (6,815) (50,099) (2,091)
(Increase) Decrease in prepaids and other current assets 59 (352) (632)
Increase (Decrease) in accounts payable and accrued expenses 63,843 58,087 (2,237)
Net Cash Provided by Operating Activities 91,731 62,464 38,348
Investing Activities:
Purchase of property, plant and equipment (28,277) (16,346) (34,582)
Proceeds from sale of property and equipment 187 238 83
(Increase) Decrease in other assets 7,457 (1,991) (3,831)
Net Cash Used in Investing Activities (20,633) (18,099) (38,330)
Financing Activities:
(Payments of) Proceeds from short-term borrowings (8,500) (17,500) 34,000
Proceeds from Notes Payable -- 30,000 20,000
Principal payments on long-term debt (10,337) (1,092) (16,170)
Payment of cash portion of patronage dividend (25,766) (27,538) (26,864)
Payments of Patronage refund certificates
and patronage financing deductions (18,886) (19,451) (9,182)
Proceeds from sale of common stock 1,394 1,049 1,302
Repurchase of common stock (8,277) (7,835) (7,893)
Net Cash Used by Financing Activities (70,372) (42,367) (4,807)
Increase (Decrease) in Cash and Cash Equivalents 726 1,998 (4,789)
Cash and Cash Equivalents at beginning of year 4,142 2,144 6,933
Cash and Cash Equivalents at end of year $ 4,868 $ 4,142 $ 2,144
See accompanying notes to financial statements.
</TABLE>
37
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) The Company and Its Business
The Company operates as a wholesaler of hardware and related products,
and manufactures paint products. As a dealer-owned cooperative, the Company
distributes substantially all of its patronage sourced earnings in the form
of patronage dividends to its member dealers based on their volume of
merchandise purchases.
(b) Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
(c) Receivables
Receivables from dealers include amounts due from the sale of merchandise
and special equipment used in the operations of dealers' businesses. Other
receivables are principally amounts due from suppliers for promotional and
advertising allowances.
(d) Inventories
Inventories are valued at the lower of cost or net realizable value.
Cost is determined using the last-in, first-out method on substantially all
inventories.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
and amortization. Expenditures for maintenance, repairs and renewals of
relatively minor items generally are charged to earnings. Significant
improvements or renewals are capitalized.
Depreciation expense is computed on both straight-line and accelerated
methods based on estimated useful lives as follows:
Useful Life Principal
Years Depreciation Method
Buildings and improvements 10-40 Straight line
Warehouse equipment 5-10 Sum of years
Office equipment 3-10 Various
Manufacturing equipment 3-20 Straight line
Transportation equipment 3-7 Straight line
Leasehold improvements are generally amortized on a straight-line basis
over the term of the respective leases.
(f) Retirement Plans
The Company has retirement plans covering substantially all non-union
employees. Costs with respect to the noncontributory pension plans are
determined actuarially and consist of current costs and amounts to amortize
prior service costs and unrecognized gains and losses. The Company
contribution under the profit sharing plan is determined annually by the
Board of Directors.
(g) Reclassifications
Certain financial statement reclassifications have been made to prior year
amounts to conform to comparable classifications followed in 1994.
38
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
(2) Inventories
Inventories consist primarily of merchandise inventories. Substantially
all of the Company's inventory is valued on the last-in, first-out (LIFO)
method; the excess of replacement cost over the LIFO value of inventory was
approximately $65,052,000 and $63,615,000 at December 31, 1994 and 1993,
respectively. Indirect costs, consisting primarily of warehousing costs,
are absorbed as inventory costs rather than period costs.
(3) Short-Term Borrowings
Short-term borrowings were utilized during 1994 and 1993. The maximum
amount outstanding at any month-end during the period was $115,500,000 in
1994 and $91,000,000 in 1993. The interest rate effective as of December 31,
1994 and 1993 was 6.5% and 3.6%, respectively. Short term borrowings
outstanding as of December 31, 1994 and 1993 were $30,000,000 and $38,500,000,
respectively. At December 31, 1994 the Company has available a revolving
credit facility with a group of banks providing for $100 million in committed
lines and $50 million in uncommitted lines. The aggregate unused line of
credit available at December 31, 1994 and 1993 was $120,000,000 and
$69,000,000, respectively. At December 31, 1994, the Company had no
compensating balance requirements. Aggregate compensating balances (not
legally restricted) at December 31, 1993 were $600,000.
(4) Long-Term Debt
Long-term debt is comprised of the following:
<TABLE>
December 31,
<CAPTION>
1994 1993
(000's omitted)
<S> <C> <C>
Industrial Development Revenue and Variable Rate Bonds:
$125,000 payable quarterly through December 1, 1996 with interest
at 65% of the prime rate $ 1,000 $ 1,500
$8,250,000 due on February 1, 1994 with interest payable monthly
beginning September 1, 1988 at variable rates ranging from
1.95% to 4.95% -- 8,250
Notes Payable:
$20,000,000 due in quarterly installments of $540,500 commencing
July 1, 1994 with interest payable quarterly beginning
January 1, 1992 at a fixed rate of 8.74% 18,919 20,000
$20,000,000 due in quarterly installments of $952,400 commencing
January 1, 1995 with interest payable quarterly beginning
October 1, 1992 at a fixed rate of 6.89% 20,000 20,000
$30,000,000 due in semi-annual installments of $2,000,000 commencing
June 22, 2001 with interest payable quarterly beginning
December 22, 1993 at a fixed rate of 6.47% 30,000 30,000
Liability under capitalized leases (see Note 9) 726 1,197
Installment notes with maturities through 1998 with various
interest rates 1,011 1,046
71,656 81,993
Less current installments 7,369 10,707
$64,287 $71,286
</TABLE>
39
ACE HARDWARE CORPORATION
NOTES TO FINANCIALSTATEMENTS-(Continued)
Prime interest rates in effect ranged from 6.0% to 8.5% in 1994 and were
6.0% in 1993.
Aggregate maturities of long-term debt are $7,369,000, $7,060,000,
$6,131,000, $6,064,000 and $5,972,000 in 1995 through 1999, respectively.
The fair value of the Company's debt based upon discounting of future
cash flows does not materially vary from the carrying value of such debt as
of December 31, 1994.
(5) Patronage Dividends and Refund Certificates Payable
The Company operates as a cooperative organization and has paid or will
pay patronage dividends to member dealers on the portion of earnings derived
from business done with such dealers. Patronage dividends are allocated in
proportion to the volume of purchases by member dealers during the period.
The amount of patronage dividends to be remitted in cash depends upon the
level of dividends earned by each member outlet, varying from 20% on the
total dividends under $5,000 and increasing by 5% on total dividends for
each subsequent $2,500 earned to a maximum of 40% on total dividends
exceeding $12,500. All amounts exceeding the cash portions will be
distributed in the form of Class C $100 par value stock, to a maximum based
upon the current year's purchase volume or $20,000 whichever is greater, and
thereafter in a combination of additional cash and patronage refund
certificates having maturity dates and bearing interest as determined by the
Board of Directors. A portion of the dealer's annual patronage dividends
distributed under the above plan in a form other than cash can be applied
toward payment of principal and interest on any balances outstanding for
approved exterior signage and computer equipment financing.
The patronage dividend composition for 1994, 1993 and 1992 follows:
<TABLE>
<CAPTION>
Subordinated Class Patronage Total
Cash Refund C Financing Patronage
Portion Certificates Stock Deductions Dividend
(000's omitted)
<S> <C> <C> <C> <C> <C>
1994 $27,302 $ 9,920 $21,766 $5,532 $64,520
1993 25,766 12,728 19,064 1,465 59,023
1992 27,538 14,598 20,301 770 63,207
</TABLE>
Patronage dividends are allocated on a calendar year basis with issuance
in the following year.
The patronage refund certificates outstanding at December 31, 1994 are
payable as follows:
<TABLE>
<CAPTION>
Interest
January 1, Amount Rate
(000's omitted)
<S> <C> <C>
1995 $ 1,315 7.0%
1996 12,868 7.0
1997 14,570 6.25
1998 14,227 6.0
1999 12,081 6.0
2000 9,920 7.0
</TABLE>
40
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
On January 1, 1994 the Company prepaid a portion of the patronage refund
certificates payable on January 1, 1995 and accordingly, these certificates
are classified as current liabilities in the December 31, 1993 balance sheet.
The remaining patronage refund certificates payable on January 1, 1995 will
be paid in January 1995.
(6) Retirement Plans
The Company has defined benefit pension plans covering substantially all
non-union employees. Benefits are based on years of service, highest average
compensation (as defined) and the related profit sharing and primary social
security benefit. Contributions to the plan are based on the Entry Age
Normal, Frozen Initial Liability actuarial funding method and are limited to
amounts that are currently deductible for tax reporting purposes. As of
December 31, 1994, plan assets were held primarily in group annuity and
guaranteed interest contracts, equities and mutual funds.
Pension income for the years 1994, 1993 and 1992 included the following
components:
<TABLE>
<CAPTION>
1994 1993 1992
(000's omitted)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 323 $ 292 $ 338
Interest cost on projected benefit obligation 805 752 722
Actual return on plan assets (121) (1,104) (975)
Net amortization and deferral (1,073) (169) (313)
Net periodic pension income $ (66) $ (229) $ (228)
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the Company's Balance Sheet at December 31, 1994 and 1993
(September 30th measurement date):
<TABLE>
<CAPTION>
1994 1993
(000's omitted)
<S> <C> <C>
Accumulated benefit obligation, including vested
benefits of $10,919,000 and $8,500,000 $11,384 $ 9,515
Plan assets at fair value $13,654 $14,023
Projected benefit obligation for service rendered to date 12,364 10,897
Plan assets in excess of projected benefit obligation $ 1,290 $ 3,126
Unrecognized net (gain) loss from past experience
different from that assumed and effects of changes
in assumptions 3,361 1,544
Remaining unrecognized net asset being amortized
over participants average remaining service period (1,983) (2,148)
Prepaid pension cost included in other assets $ 2,668 $ 2,522
</TABLE>
41
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.0% in 1994 and 7.5%
in 1993. The related expected long-term rate of return was 8.0% in 1994 and
8.5% in 1993. The rate of increase in future compensation was projected
using actuarial salary tables plus 1% in 1994 and using a rate of 6% in 1993.
The Company also participates in several multi-employer plans covering
union employees. Amounts charged to expense and contributed to the plans
totaled approximately $282,000, $275,000, and $426,000 in 1994, 1993 and
1992, respectively.
The Company's profit sharing plan contribution for the years ended 1994,
1993, and 1992 was approximately $9,381,000, $8,690,000 and $7,374,000,
respectively.
The Company has no significant post-retirement benefit
liabilities as defined under Financial Accounting Standard No. 106.
(7) Income Taxes
As a cooperative, the Company distributes substantially all of its
patronage sourced earnings to its members in the form of patronage dividends.
The 1994, 1993 and 1992 provisions for federal income taxes were $924,000,
$141,000 and $162,000, respectively, and for state income taxes were
$560,000, $287,000 and $409,000, respectively.
The Company made tax payments of $1,428,000, $357,000, and $728,000 during
1994, 1993 and 1992, respectively.
(8) Member Dealers' Equity
The Company's founders for many years contemplated that the ownership of
the Company would eventually be with the Company's member dealers. Prior to
November 30, 1976, dealers deposited monies to the Ace Dealer's Perpetuation
Fund for the purpose of accumulating funds for the purchase of stock when
such ownership became available. The Company registered its stock with the
Securities and Exchange Commission on October 1, 1976 and existing dealers
who subscribed for stock applied their deposits toward payment of such
shares. The small number of dealers who did not subscribe for shares had
their respective deposits refunded during 1977.
42
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
The Company's classes of stock are described below:
<TABLE>
<CAPTION>
Number of Shares
at December 31,
1994 1993
<S> <C> <C>
Class A Stock, voting, redeemable at par value --
Authorized 10,000 10,000
Issued and outstanding 3,924 3,946
Class B Stock, nonvoting, redeemable at not less than
twice par value --
Authorized 6,500 6,500
Issued 6,499 6,499
Outstanding 3,248 3,416
Treasury stock 3,251 3,083
Class C Stock, nonvoting, redeemable at not less than
par value --
Authorized 2,000,000 2,000,000
Issued and outstanding 1,646,656 1,531,549
Issuable as patronage dividends 217,658 190,635
Additional Stock Subscribed:
Class A Stock 291 223
Class B Stock -- --
Class C Stock 21,800 19,520
</TABLE>
At December 31, 1994 and 1993 there were no common shares reserved for
options, warrants, conversions or other rights; nor were any options granted
or exercised during the two years then ended.
Member dealers may subscribe for the Company's stock in various prescribed
combinations. Only one share of Class A Stock may be owned by a dealer with
respect to the first member retail outlet controlled by such dealer. Only
four shares of Class B Stock may be owned by a dealer with respect to each
retail outlet controlled by such dealer, but only if such outlet was a member
of the Company on or before February 20, 1974. An appropriate number of
shares of Class C Stock must be included in any subscription by a dealer in
an amount to provide that such dealer has a par value of all shares
subscribed for equal to $5,000 for each retail outlet. Unregistered shares
of Class C Stock are also issued to dealers in connection with patronage
dividends. No dividends can be declared on any shares of any class of the
Company's Stock.
Upon termination of the Company's membership agreement with any retail
outlet, all shares of stock of the Company, held by the dealer owning or
controlling such outlet, must be sold back to the Company, unless a transfer
of such shares is made to another party accepted by the Company as a member
dealer with respect to the same outlet.
A Class A share is issued to a member dealer only when the share
subscribed has been fully paid. Class B and Class C shares are only issued
when all such shares subscribed with respect to a retail outlet have been
fully paid. Additional Stock Subscribed in the accompanying statements
represents the par value of shares subscribed, reduced by the unpaid portion.
43
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
All shares of stock are currently issued and repurchased at par value,
except for Class B Stock which is repurchased at twice its par value, or
$2,000 per share. Upon retirement of Class B shares held in treasury, the
excess of redemption price over par is allocated equally between contributed
capital and retained earnings.
Transactions during 1993 and 1994 affecting treasury shares follow:
<TABLE>
<CAPTION>
Shares Held in Treasury
Class A Class B Class C
<S> <C> <C> <C>
Balance at December 31, 1992 -- 2,919 --
Stock issued -- -- --
Stock repurchased 271 164 72,359
Stock retired (271) -- (72,359)
Balance at December 31, 1993 -- 3,083 --
Stock issued -- -- --
Stock repurchased 240 168 77,013
Stock retired (240) -- (77,013)
Balance at December 31, 1994 -- 3,251 --
</TABLE>
(9) Commitments
Leased property under capital leases is included under "Property and
Equipment" in the balance sheets as follows:
<TABLE>
<CAPTION>
December 31,
(000's omitted)
1994 1993
<S> <C> <C>
Buildings and improvements $ 3,422 $ 3,422
Data processing equipment 723 723
Less: Accumulated depreciation and amortization (3,609) (3,291)
$ 536 $ 854
</TABLE>
44
ACE HARDWARE CORPORATION
NOTES TO FINANCIALSTATEMENTS-(Continued)
The Company rents buildings and warehouse, office and certain other
equipment under operating and capital leases. At December 31, 1994 annual
minimum rental commitments under leases that have initial or remaining
noncancelable terms in excess of one year were as follows:
Year Ending Capital Operating
December 31, Leases Leases
(000's omitted)
1995 $502 $ 9,421
1996 271 7,746
1997 -- 5,768
1998 -- 4,502
1999 -- 3,448
Thereafter -- 24,780
Total minimum lease payments $773 $55,665
Less amount representing interest 47
Present value of total minimum lease payments $726
All leases expire prior to 2010. Under certain leases, the Company pays
real estate taxes, insurance and maintenance expenses in addition to rental
expense. Management expects that in the normal course of business, leases
that expire will be renewed or replaced by other leases. Rent expense was
approximately $21,814,000, $21,444,000 and $21,073,000 in 1994, 1993 and
1992, respectively. Rent expense includes $4,382,000, $4,282,000 and
$3,706,000 in contingent rentals paid in 1994, 1993 and 1992, respectively,
primarily for transportation equipment mileage.
(10) Supplementary Income Statement Information
Gross media expense, prior to income offsets from dealers and suppliers,
amounting to $52,185,000, $48,293,000 and $47,813,000 were charged to
operations in 1994, 1993, and 1992, respectively.
(11) Interest Expense and Other Income, Net
Capitalized interest totaled $213,000, $29,000 and $836,000 in 1994, 1993
and 1992, respectively. Interest paid was $13,518,000, $10,670,000 and
$9,149,000 in 1994, 1993 and 1992, respectively.
45
Item 6. Selected Financial Data
<TABLE>
SELECTED FINANCIAL DATA
Income Statement Data:
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990
(000's omitted)
<S> <C> <C> <C> <C> <C>
Net sales $2,326,115 $2,017,763 $1,870,625 $1,704,203 $1,625,029
Cost of sales 2,158,896 1,867,326 1,723,017 1,569,871 1,497,147
Gross profit 167,219 150,437 147,608 134,332 127,882
Total expenses 102,697 93,345 86,841 75,175 67,470
Net earnings $64,522 $57,092 $60,767 $59,157 $60,412
Patronage dividends (Notes A, B, 5 and 8) $64,520 $59,023 $63,207 $57,729 $57,519
</TABLE>
<TABLE>
Balance Sheet Data:
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990
(000's omitted)
<S> <C> <C> <C> <C> <C>
Total assets $725,481 $667,488 $594,676 $540,953 $479,202
Working capital 143,979 133,287 103,952 105,899 92,376
Long-term debt 64,287 71,286 51,696 38,737 22,521
Patronage refund certificates payable, long-term 63,666 56,270 55,389 58,559 52,134
Member dealers' equity 199,827 186,028 175,681 164,411 154,563
</TABLE>
(A) The Company operates as a cooperative organization, and pays patronage
dividends to member dealers on earnings derived from business done with such
dealers. It is the practice of the Company to distribute substantially all
patronage sourced earnings in the form of patronage dividends.
(B) The form in which patronage dividends are to be distributed can only be
determined at the end of each year when the amount distributable to each of
the member dealers is known. For the five years ended December 31, 1994,
patronage dividends were payable as follows:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
(000's omitted)
<S> <C> <C> <C> <C> <C>
In cash $ 27,302 $ 25,766 $ 27,538 $ 26,864 $ 26,462
In patronage refund certificates payable 9,920 12,728 14,598 15,176 13,597
In Class C Stock 21,766 19,064 20,301 14,841 16,322
In patronage financing deductions 5,532 1,465 770 848 1,138
Total patronage dividends $ 64,520 $ 59,023 $ 63,207 $ 57,729 $ 57,519
</TABLE>
(C) Numbered notes refer to Notes to Financial Statements, beginning on
page 38.
46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's ability to generate cash adequate to meet its needs
("liquidity") results from internally generated funds, short-term lines of
credit and long-term financings (see Notes 3 and 4 to the financial
statements). These sources have been sufficient to finance the Company's
seasonal and other working capital requirements and its capital expenditure
programs.
In the second quarter of 1994, the Company established an unsecured
revolving credit facility with a group of banks. The Company had unused
unsecured lines of credit of $120.0 million at December 31, 1994. Any
borrowings under these lines of credit would bear interest at the prime
rate or less. Long-term financings are arranged as determined necessary to
meet the Company's capital or other requirements, with principal amount,
timing and form dependent on prevailing debt markets and general economic
conditions.
Capital expenditures for new and improved facilities were $28.3, $16.3
and $34.6 million in 1994, 1993 and 1992, respectively. During 1994, the
Company financed the $28.3 million of capital expenditures out of current
and accumulated internally generated funds, and short-term borrowings.
1995 capital expenditures are anticipated to be approximately $44.3 million
primarily for a new distribution facility and improvements to existing
facilities.
As a cooperative, the Company distributes substantially all of its
patronage source earnings to its members in the form of patronage
dividends, which are deductible for income tax purposes (see headings
"Patronage Dividend Determinations And Allocations" and "Federal Tax
Treatment of Patronage Dividends").
The Company expects that existing and new internally generated funds,
along with established lines of credit and long-term financings, will
continue to be sufficient to finance the Company's patronage dividend and
capital expenditure programs.
Operations-1994 Compared to 1993
Net sales increased 15.3% in 1994 primarily due to increases in volume
from existing dealers and increased International sales. Sales of basic
hardware and paint merchandise (including warehouse, bulletin, and direct
shipments) increased 13.5%. Increased advertising activity fueled strong
1994 promotional increases, particularly in the warehouse sales categories.
Lumber and building material sales experienced higher percentage increases
in 1994 as sales efforts were accelerated. Net dealer outlets increased in
1994 as set forth on page 15 partially reversing previous year declines.
Targeted sales efforts on new store development and conversions to the Ace
program and increased emphasis on dealer retail success resulted in
positive 1994 dealer growth.
Gross profit increased $16.8 million or 11.2% vs. 1993 due primarily
to the strong sales results in the basic sales categories and strong
manufacturing profits. As a percent of sales, however, gross profit
declined due to continued growth of competitively priced and promotional
items within the overall sales mix. Upfront rebates through reduced
handling charges and low upfront pricing programs and discounts have
accelerated and reduced gross profit as a percent of sales.
Warehouse and distribution expenses decreased by $2.3 million or 7.2%,
and as a percent of sales due to increased traffic revenues and reduced
building and operating costs due to the replacement of a facility in
1993.
47
Selling, general, and administration expenses increased by $9.1
million or 16.8% and as a percent of sales due to reduced net advertising
income, increased personnel costs for field retail support and increased
marketing costs. Increases within these expense categories are directly
related to retail support of Ace dealers.
Interest expense increased $2.2 million in 1994 due to increased
borrowing levels to fund the sales growth and increased interest rates.
The use of both short-term borrowings and long-term financing is expected
to continue to fund planned capital expenditures (see liquidity and
capital resources and Notes 3 and 4 to the financial statements).
Other income increased $807,000 or 27.7% in 1994 due to increased
interest income related to dealer financing programs and 1993 losses on
asset disposals at a replaced facility which did not re-occur in 1994.
Operations-1993 Compared to 1992
Net sales increased 7.9% in 1993 primarily due to increases in volume
from existing dealers. Sales of basic hardware and paint merchandise
(including warehouse, bulletin, and direct shipments) increased 6.8%.
Lumber and building material sales experienced a higher percentage increase
in 1993. Net dealer outlets decreased as set forth on page 15 as a result
of increased sales and marketing efforts with existing dealers and
increased competition.
Gross profit increased $2.8 million or 1.9% vs. 1992 due primarily to
higher net merchandise discounts and allowances. Gross profit decreased as
a percent of sales, however, due to reduced handling charges on
competitively priced items and shifts in the Company's sales mix.
Warehouse and distribution expenses decreased by $641,000 or 2.0% due
to decreased building rental and facility costs and increased levels of
warehousing costs absorbed into cost of sales, partially offset by
increased personnel and equipment costs and traffic freight subsidies.
Selling, general, and administration expenses increased by $5.9 million
or 12.2% due to higher personnel costs and marketing expenses partially
offset by higher advertising and retail support income.
Interest expense increased $1.4 million in 1993 despite lower interest
rates due to increased borrowing levels resulting from the financing of
planned capital expenditures and increased inventory levels.
Inflation and Changes in Prices
The Company's business is not generally governed by contracts that
establish prices substantially in advance of the receipt of goods or
services. As vendors increase their prices for merchandise supplied to the
Company, the Company increases the price to its dealers in an equal amount
plus the normal handling charge on such amounts. In the past, these
increases have provided adequate gross profit to offset the impact of
inflation on operating expenses.
48
MANAGEMENT
The directors and the executive officers of the Company are:
Name Age Position(s) Held
Jennifer C. Anderson 44 Director
Michael C. Bodzewski 45 Vice President-Merchandising
Lawrence R. Bowman 48 Director
David F. Hodnik 47 President and Chief Operating Officer
Paul M. Ingevaldson 49 Vice President-Corporate Strategy and
International Business
Mark Jeronimus 46 Director
Howard J. Jung 47 Director
Rita D. Kahle 38 Vice President-Finance
John E. Kingrey 51 Director
Richard E. Laskowski 53 Chairman of the Board and Director
David W. League 55 Vice President-General Counsel
William A. Loftus 56 Senior Vice President-Retail Operations
and Marketing
David F. Myer 49 Vice President-Retail Support and New
Business
Fred J. Neer 55 Vice President-Human Resources
Ray W. Osborne 58 Director
Roger E. Peterson 57 Chief Executive Officer (CEO)
Donald L. Schuman 56 Vice President-Information Systems
Jon R. Weiss 59 Director
Don S. Williams 53 Director
James R. Williams 47 Director
The primary type of business in which each director has been engaged during
the past 5 years is that of the operation of one or more retail hardware
stores.
The By-laws of the Company provide that its Board of Directors shall be
comprised of such number of persons, not less than 9 and not greater than 12,
as shall be fixed from time to time by the Board of Directors. A minimum of
9 of the directors shall be dealer directors. A maximum of two of the
directors may be non-dealer directors. A person shall be eligible for
election or appointment as a non-dealer director without regard to whether
or not such person is the owner of a retail business organization which is a
stockholder of Ace Hardware Corporation, or an executive officer, general
partner or general manager of such a retail business organization. The
By-laws also provide for three classes of directors who are to be elected
for staggered 3-year terms.
The By-laws provide that no person is eligible to serve as a dealer
director unless such person is either the owner of a retail business
organization holding stock in the Company or an executive officer, general
partner or general manager of such a retail business organization. Regional
dealer directors are elected from geographic regions of the United States
established by the Board in accordance with Article IV, Section 1 of the
Company's By-laws. (See Appendix A). If the Board determines that all
regions have representation by regional dealer directors and the maximum
number of directors would not thereby be exceeded, then dealer directors
at large may also be elected.
The current geographic composition of each of the regions established by
the Board of Directors for the election of directors pursuant to the
applicable By-law provisions is as follows:
Region 1 - Maine, New Hampshire, Vermont, Massachusetts, Connecticut, Rhode
Island, New York, Pennsylvania, New Jersey;
49
Region 2 - Delaware, Maryland, Virginia, West Virginia, Kentucky, Tennessee,
North Carolina, South Carolina, District of Columbia;
Region 3 - Alabama, Mississippi, Georgia, Florida;
Region 4 - Ohio, Indiana, Illinois;
Region 5 - Iowa, Missouri, Nebraska, Kansas, Colorado;
Region 6 - Arkansas, Louisiana, Oklahoma, Texas;
Region 7 - Alaska, Washington, Oregon, Idaho, Montana, Wyoming, Utah;
Region 8 - Arizona, New Mexico, Nevada, California, Hawaii;
Region 9 - Michigan, Minnesota, North Dakota, South Dakota, Wisconsin.
In accordance with the applicable procedure established by the By-laws,
the following directors have been selected as nominees for reelection at the
annual stockholders meeting to be held on June 5, 1995 as directors of the
classes, from the regions, and for terms as indicated below:
Nominee Class Region Term
Richard E. Laskowski Third 4 3 years
James R. Williams Third 5 3 years
Lawrence R. Bowman Third 7 3 years
The person named below has been selected as the nominee for election to
the Board for the first time at the 1995 annual meeting as a non-dealer
director of the class, and for the term indicated:
Nominee Age Class Region Term
Roger E. Peterson 57 Third None 3 years
Reference should be made to Article IV of the copy of the By-laws in
Appendix A for information concerning the qualifications required for
membership on the Board of Directors, the terms of directors, the limitations
on the total period of time for which a director may hold office, the
procedure established for the designation of Nominating Committees to select
certain persons as nominees for election to the Board of Directors, and the
procedure for filling vacancies on the Board for the remaining portion of
unexpired terms.
INDEMNIFICATION OBLIGATIONS OF COMPANY AND
S.E.C. POSITION ON SECURITIES ACT INDEMNIFICATION
Under Article EIGHTH (b) of the restated Certificate of Incorporation of
the Company, and Article XV, Section 1 of the By-laws of the Company, persons
serving as directors, officers, employees or agents of or at the request of
the Company are required to be indemnified by the Company against all
expenses, liabilities and losses (including attorneys' fees, judgments,
fines, excise taxes, or penalties under the U.S. Employee Retirement Income
Security Act, as amended, and amounts paid or to be paid in settlement)
reasonably incurred or suffered by them in connection with any action, suit
or proceeding (whether civil, criminal, administrative or investigative)
instituted or threatened to be instituted against them by reason of their
service in any of the aforementioned capacities on behalf of the Company or
at its request. The same section of the restated Certificate of Incorporation
also authorizes the advancement of litigation expenses to any such person
without specific approval of the Board of Directors in each specific case
under certain circumstances.
50
Also, Article EIGHTH (a) of the restated Certificate of Incorporation
provides that a director of the Company shall not be personally liable to the
Company or to its stockholders for monetary damages arising solely out of
such director's breach of fiduciary duty as a director. This provision does
not affect a director's liability for monetary damages based upon such
grounds as a breach of the duty of loyalty, a failure to act in good faith,
intentional misconduct, a knowing violation of law, or the receipt of an
improper personal benefit.
The indemnification provisions described above would extend to and include
proceedings under the federal Securities Act of 1933. However, insofar as
indemnification for liabilities arising under said Act may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in said Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being offered by this Prospectus, the Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in said Act and
will be governed by the final adjudication of such issue.
51
APPENDIX A
BY-LAWS
OF
ACE HARDWARE CORPORATION
(As Amended on January 24, 1994)
ARTICLE I
OFFICES
SECTION 1. The registered office of the corporation in the State of
Delaware shall be in the City of Wilmington in said State, and the registered
agent in charge thereof shall be Corporation Service Company, 4305 Lancaster
Pike. In the event that the business address of said registered agent in
said State shall at any time be changed, the address of the corporation's
registered office shall be deemed to have changed correspondingly.
SECTION 2. The corporation may also have an office or offices in the
Village of Oak Brook, Illinois, and at such other places as the Board of
Directors may from time to time designate.
ARTICLE II
CORPORATE SEAL
SECTION 1. The corporate seal shall have inscribed thereon the name
of the corporation and the words "Corporate Seal, Delaware".
ARTICLE III
MEETINGS OF STOCKHOLDERS
SECTION 1. The annual meeting of stockholders for the election of
directors shall be held on such date between April 10 and June 10 of each
year as shall be designated in a written communication mailed not less than
160 days prior to the designated date to each holder of record of a share
of Class A stock of the corporation as of a date no earlier than 40 days
preceding the date of such mailing. The Board of Directors shall adopt a
resolution establishing each annual meeting date as designated in such
communication, the purpose of which is to inform the Class A stockholders
of the annual meeting date in advance of the commencement of the time period
specified in Article XXIII, Section 3 of the By-laws for the submission to
the President or Secretary of the corporation of proposed By-law amendments,
director nominations, or other matters by a stockholder or stockholders.
At each annual meeting the stockholders shall elect by plurality vote (and
by written ballot unless the same shall be waived or dispensed with by a
majority vote of the stockholders represented at the meeting) members of the
class of directors whose terms expire at that time, and all directors so
elected shall hold office until the date of the next annual meeting of the
stockholders for the election of directors of such class or until their
respective successors shall have been elected and qualified.
SECTION 2. Special meetings of the stockholders may be called at any
time by the President and shall be called by the President or Secretary on
the request in writing or by vote of a majority of the whole Board of
Directors or at the request in writing of stockholders of record owning ten
percent (10%) in amount of the capital stock outstanding and entitled to
vote. Any special meeting may be called for any specified purpose or purposes
permitted by the General Corporation Law of Delaware and the Certificate of
Incorporation of the corporation.
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SECTION 3. All meetings of the stockholders for the election of
directors shall be held at the office of the corporation in Oak Brook,
Illinois, or at such other place within the United States of America as may
from time to time be designated by the Board of Directors and stated in the
Fnotice of the meeting to be given under Article III, Section 6 of the
By-laws. All other meetings of the stockholders shall be held at such place
or places in the United States of America as may from time to time be
designated by the Board of Directors and stated in the notice of meeting.
Each meeting of the stockholders shall be held at such time of day as shall
be approved by the Board of Directors.
SECTION 4. A complete list of the stockholders entitled to vote at any
meeting thereof, arranged in alphabetical order and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder, shall be prepared by the Secretary or by such person as shall
be designated by him to prepare such list. The list shall be kept on file
at the registered office of the corporation in the State of Illinois and
shall be subject to inspection by any stockholder at any time during usual
business hours for a period of ten (10) days prior to the meeting, and the
same shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any stockholder during
the whole time of the meeting.
SECTION 5. Each stockholder entitled to vote shall, at every meeting
of the stockholders, be entitled to one vote in person or by proxy, signed
by him, for each share of voting stock held by him. Such right to vote shall
be subject to the right of the Board of Directors to close the transfer
books or to fix a record date for voting stockholders not more than sixty
(60) nor less than ten (10) days before the date of the meeting as
hereinafter provided, and if the directors shall not have exercised such
right, no share of stock shall be voted on at any election for directors
which shall have been issued or transferred on the books of the corporation
within twenty (20) days next preceding such election.
SECTION 6. Written notice of the time and place of the annual meeting
and of any special meeting of stockholders shall be mailed or personally
delivered to each stockholder entitled to vote thereat not less than
thirty (30) nor more than sixty (60) days prior to the date of the meeting.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail in a sealed envelope addressed to the stockholder at his
address as it appears on the records of the corporation, with postage prepaid
thereon. Notice of any special meeting shall state in general terms the
purposes for which the meeting is to be held.
SECTION 7. The holders of a majority of the stock outstanding and
entitled to vote at any meeting of the stockholders, represented in person
or by proxy, shall constitute a quorum for the transaction of business at
such meeting. In the absence of a quorum, the stockholders attending or
represented at the time and place for such meeting may adjourn the meeting
from time to time, without notice other than announcement of the time and
place of the adjourned meeting at the meeting at which the adjournment is
taken, until a quorum shall be present. At any such adjourned meeting at
which a quorum shall be present, any business may be transacted which might
have been transacted at the meeting as originally scheduled.
ARTICLE IV
DIRECTORS
SECTION 1. The property and business of the corporation shall be
managed and controlled by its Board of Directors, which shall be comprised
of 10 persons as of the annual meeting of stockholders to be held in 1987
and which thereafter shall be comprised of such number of persons, not less
than 9, as shall be fixed from time to time by the Board of Directors. One of
the members of the Board of Directors at all times may be the President of
Ace Hardware Corporation, but otherwise no person shall be eligible for
election or appointment as a director, or to continue to hold office as a
director, unless such person is either the owner of a retail business
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organization which is a stockholder of Ace Hardware Corporation or an
executive officer, general partner or general manager of such a retail
business organization. Each director who is not a full-time executive officer
of Ace Hardware Corporation shall sometimes hereinafter be referred to as a
"dealer director". Effective with respect to the election of directors at the
annual meeting of stockholders to be held in 1987, the following procedure
shall be utilized in electing dealer directors:.
(a) The Board of Directors shall divide the United States into such
number of geographic regions as it shall deem appropriate as regions
from which dealer directors shall be chosen.
(b) No later than the fifteenth day of October preceding the date of
each annual meeting of stockholders, the Board shall determine the
regions from which each dealer director to be elected at such meeting
shall be chosen. No person shall be eligible to serve as a dealer
director from a particular region unless the headquarters store or
office of the stockholder of Ace Hardware Corporation of which he is
an owner, executive officer, general partner, or general manager is
located in such region. In the discretion of the Board, two or more
dealer directors may be elected from and qualify for service on the
Board from the same region.
(c) Each region shall consist of such of the States of the United
States as shall be determined by the Board of Directors, which shall
have authority from time to time to make revisions as to the States
included within particular regions as well as to change the number of
regions, provided that no such revision or change shall deprive any
director holding office at the time the revision or change is made from
continuing to serve for the balance of the term for which he was elected
or otherwise chosen.
(d) Each dealer director who was elected prior to the annual meeting
of stockholders to be held in 1987 for a term expiring in a year
subsequent to 1987 shall be deemed to have been chosen from the
particular initially established region in which there is located the
headquarters store or office of the stockholder of Ace Hardware
Corporation of which he is an owner, executive officer, general partner
or general manager.
In the event that, for any reason other than a revision made by the
Board of Directors as to the States to be included within particular regions
or a change made by the Board in the number of regions, either a dealer
director or an executive officer director ceases to satisfy the eligibility
requirements which are applicable to his position as a director, his
membership on the Board of Directors shall thereupon immediately terminate.
At all annual meetings of the stockholders, all holders of Class A stock of
Ace Hardware Corporation as of the record date established for voting at the
meeting shall be eligible to vote in the election for each position on the
Board of Directors to be filled at such meeting regardless of the region or
regions from which any particular position is to be filled.
SECTION 2. No dealer director elected or appointed as such a director
for the first time at the annual meeting of stockholders to be held in 1987
or at any time thereafter shall be eligible for subsequent election or
appointment to any position on the Board if such election or appointment
would result in his being elected or appointed to serve a total of more than
9 years as such a director. Subject to such extensions of their eligibility
for which they qualify pursuant to provisions previously contained in these
By-laws which were applicable to certain positions on the Board filled by
elections conducted at certain annual stockholders meetings held prior to
the year 1987, no dealer director who was elected or appointed for the
first time at any time prior to that year shall be eligible to be elected
or appointed to serve as a dealer director for a period of more than two
elected terms of three years. Notwithstanding the foregoing provisions,
however, one director whose term expires as of the date of the annual
meeting of stockholders to be held in 1987 may be elected at that meeting
for a 2-year term and two directors whose terms expire as of the date of
said annual meeting may be reelected at said meeting for additional 1-year
terms, one director who would not otherwise be eligible for reelection in
1988 may be reelected at the annual meeting of stockholders to be held in
1988 for a 2-year term, and one director who would not otherwise be eligible
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for election in 1990 may be reelected at the annual meeting of stockholders
to be held in 1990 for a 3-year term. The President of the corporation, if
elected as a director, shall be eligible for election or reelection or
appointment as a director at any time without regard to the period of time
during which he has previously served as a director.
SECTION 3. The directors shall be divided into three classes, as
nearly equal in number as possible, as determined by the Board of Directors.
Commencing as of the date of the annual meeting of stockholders to be held
in 1987, the first of said classes shall consist of 4 directors, 2 of whom
shall be directors to be elected at that meeting for 1-year terms, with a
total of 4 directors of the first class then being elected for 3-year terms
at the annual meeting of stockholders to be held in 1988. The second of
said classes shall consist of 3 directors, 1 of whom shall be a director
elected for a 1-year term at the 1987 annual meeting of stockholders whose
position shall be filled at the 1988 annual meeting of stockholders by a
person elected for a 2-year term. The remaining two second class positions
shall be positions to be filled by the election of 2 persons for 3-year
terms at the 1987 annual meeting. The third of said classes shall consist
of 3 directors, 2 of whom shall be directors elected for 2-year terms at
the 1987 annual meeting of stockholders whose positions shall be filled at
the 1989 annual meeting of stockholders by 2 persons elected for 3-year
terms. The remaining third class position shall be a position having a term
expiring at the 1989 annual meeting and filled at that time by a person
elected for a 3-year term. At each subsequent annual meeting of the
stockholders, as the terms of each class of directors expire, directors of
the class whose terms expire shall be elected for terms of 3 years. The
directors shall be elected by the stockholders, except that if there by any
vacancies in the Board by reason of death, resignation or otherwise, or if
there be any newly created directorships resulting from any increase in the
authorized number of directors which is to take effect prior to the next
annual meeting of stockholders, a majority of the directors then in office
(though less than a quorum) shall have authority to fill any such vacancy
or any newly created directorship for the unexpired term. In no event shall
any term for which any director is elected exceed three years.
SECTION 4. Without affecting the right of any Class A stockholder to
nominate as a candidate for election to membership on the Board of Directors
any person who would be eligible to serve as a director in accordance with
the procedure specified in Article XXIII, the Board of Directors shall cause
nominees to be selected for election as directors at each annual meeting of
stockholders for whom proxies will be solicited on behalf of the Board. If
the Board determines that proxies shall be solicited on its behalf for the
election as a director at the next annual meeting of stockholders of the
President of Ace Hardware Corporation, the Board shall make a timely
determination to this effect. At the time that the Board determines the
regions from which dealer directors are to be elected at the next annual
meeting of the stockholders, the Board shall also determine whether each
incumbent dealer director who is eligible to be reelected for another term
at such annual meeting shall be selected as a Board-endorsed nominee for
reelection from any such region at said meeting. Each such determination
shall be made by the Board without participation in its proceedings by the
director who is eligible to be reelected at such next annual meeting. The
following procedure shall be applied by the Board in selecting all other
Board-endorsed dealer director nominees for whom proxies will be solicited
on the Board's behalf at the next annual meeting:
(a) A standing Nominating Committee established by the Board shall
submit to the Board as soon as practicable prior to the last regularly
scheduled meeting of the directors in each calendar year a list of such
number of persons as the Board shall determine who are recommended by
such Committee to be considered as members of a candidate selection
committee for each director region from which the Board has determined
that a new dealer director should be elected at the next annual meeting
of the stockholders.
(b) At or prior to its last regularly scheduled meeting in each
calendar year, the Board shall create such a candidate selection
committee for each such director region and shall select as members of
each such candidate selection committee five of the persons recommended
by the Nominating Committee plus two incumbent members of the Board.
The Board may also select such alternate members, if any, of any such
candidate selection committee as it deems appropriate.
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(c) Each candidate selection committee shall make a timely
designation of one of its eligible members as the person on whose behalf
proxies will be solicited at the next annual meeting as a Board-endorsed
nominee for election as a director.
(d) Notwithstanding any of the foregoing provisions, in any instance
where a board-endorsed nominee for election as a director becomes
ineligible under the provisions of the By-Laws for election as a director
or shall decline to run or seek reelection or shall be unable to run or
seek reelection by reason of death or disability, or shall, in the case
of an incumbent director have resigned or been removed from the Board of
Directors subsequent to having been named a board-endorsed nominee, or
in any instance where the Board of Directors, having endorsed a nominee
for election as a director shall withdraw or revoke such endorsement,
then the standing Nominating Committee established by the Board shall
submit to the Board as soon as practicable, a list of such number of
persons as the Board shall determine who are recommended by such
committee to be considered as members of a candidate selection committee
for that particular director region. The Board shall at a regularly
scheduled meeting or a special meeting of the directors as soon as
practicable, create a candidate selection committee for that director
region and shall select as members of the candidate selection committee
five persons recommended by the nominating committee plus two incumbent
members of the Board. The Board may also select such alternate members,
if any, of any such candidate selection committee as it deems
appropriate. The candidate selection committee shall then make a timely
designation of one of its eligible members as the person on whose behalf
proxies will be solicited at the next annual meeting as a Board-endorsed
nominee for election as a director.
ARTICLE V
POWERS OF DIRECTORS
SECTION 1. The Board of Directors shall have, in addition to such
powers as are hereinafter expressly conferred on it, all such powers as may
be exercised by the corporation, subject to the provisions of the statute,
the Certificate of Incorporation and the By-Laws.
SECTION 2. The following powers are hereby expressly conferred upon
the Board of Directors:
(a) to purchase or otherwise acquire property, rights or privileges
for the corporation, which the corporation has power to take, at such
prices and on such terms as the Board of Directors may deem proper;
(b) to pay for such property, rights or privileges in whole or in
part with money, stock, bonds, debentures or other securities of the
corporation (secured by mortgages or otherwise), or by the delivery of
other property of the corporation;
(c) to create, make and issue mortgages, bonds, deeds, leases, trust
agreements and negotiable or transferable instruments and securities,
and to do every act and thing necessary to effectuate the same;
(d) to appoint agents, consultants, advisors and trustees, and to
dismiss them at its discretion, to fix their duties and emoluments and
to change them from time to time and to require such security as it may
deem proper;
(e) to confer on any officer or officers of the corporation the power
of selecting, discharging or suspending any of the persons referred to
in subsection (d) of this Section;
(f) to determine by whom and in what manner the corporation's bills,
notes, receipts, acceptances, endorsements, checks, releases, contracts
or other documents shall be signed;
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(g) irrespective of any personal interest of any of its members, to
determine the amount of compensation, if any, to be paid to directors
and to members of the Executive Committee and other Committees
established by the Board of Directors for their services to the
corporation as directors or Committee members.
ARTICLE VI
MEETINGS OF DIRECTORS
SECTION 1. An annual organizational meeting of the Board of Directors
as constituted after the election of directors at each annual meeting of the
stockholders shall be held without call or formal notice at a time later in
the same day as the annual meeting of the stockholders or during the day
next following such stockholders meeting. The specific date of each such
meeting of the Board, as well as the time and place thereof, shall be
determined at one of the meetings of the Board held during the time between
the most recently conducted annual stockholders meeting and the next
scheduled annual stockholders meeting. In addition to electing officers of
the corporation as provided for in Article VIII, Section 2, the Board shall
select the members of its standing committees for the period until its next
annual organizational meeting and shall give voting directions to the
President as to the persons to be elected by the corporation as members of
the Boards of Directors of each of its wholly-owned subsidiary corporations
at their respective annual meeting times.
SECTION 2. Additional regular meetings of the Board of Directors may
be held upon such notice, or without notice, and at such time and at such
place as shall from time to time be determined by the Board.
SECTION 3. Special meetings of the directors may be called by the
Chairman of the Board on four (4) days' notice by mail (calculated from the
date of mailing) or on two days' notice by telephone to each director and
shall be called by the Chairman of the Board in like manner on the written
request of not less than four (4) directors. Special meetings of the
directors may be held within or without the State of Delaware at such place
as is indicated in the notice or waiver of notice thereof.
SECTION 4. A majority of the total number of directors then holding
office shall constitute a quorum for the transaction of business. If
at any meeting of the Board there shall be less than a quorum present, a
majority of the directors present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
secured.
ARTICLE VII
COMMITTEES ESTABLISHED BY THE BOARD
SECTION 1. The Board of Directors shall establish as standing
committees of the Board an executive committee and such other committees
as it shall deem from time to time to be appropriate. The Chairman of the
Board shall be an ex-officio member of any standing committee if the
resolution adopted by the Board with regard to the membership of such
committee so provides, except for any committee authorized to grant or
withhold consent to the transfer of shares of the corporation's stock
pursuant to Article XVI, Section 9 of these By-laws. Each such committee
shall have such responsibilities and duties as shall be described in a
resolution or resolutions adopted by a majority of the whole Board. Such
resolution or resolutions may also establish the number (or the minimum and
maximum numbers) of persons to be selected to serve on each of said
committees, the voting members of each of which shall be members of the
Board. The Board shall also have authority from time to time to establish
special ad hoc committees comprised of two or more directors, the specific
responsibilities of which shall be described in the resolutions creating
them.
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SECTION 2. One or more directors may be designated by the Board as
alternate members of any standing or special ad hoc committee, who may
replace any absent or disqualified committee member at any meeting of the
committee. Vacancies in the membership of any committee established by the
Board shall be filled only by the Board.
SECTION 3. In no event shall the executive committee or any other
committee established by the Board have the power or authority at any time
to take any final action on behalf of the Board with respect to (a)
proposing amendments to the corporation's certificates of incorporation,
(b) the adoption of any amendments to the By-laws of the corporation, (c)
the adoption of an agreement of merger or consolidation, (d) the making of
recommendations to the stockholders for the sale, lease, or exchange of all
or substantially all of the corporation's property or assets, (e) the
making of recommendations to the stockholders for the dissolution of the
corporation or the revocation of a dissolution, (f) the making of any
proposals submitted to the Board with respect to the purchase of all or a
controlling portion of the outstanding capital stock of the corporation,
(g) the authorization of issuance of shares of capital stock of the
corporation or (h) the filling of vacancies in the membership of the Board
or any committee thereof.
SECTION 4. Each standing committee of the Board (with the exception
of any committee authorized to grant or withhold consent to the transfer of
shares of the corporation's stock pursuant to Article XVI, Section 9 of
these By-laws) shall select one of its members to act as Chairman thereof
as promptly as feasible after the members of the committee are selected at
each annual organizational meeting of the Board. At the time of
establishment of any special ad hoc committee of the Board, the Board shall
designate a member of such committee to act as its Chairman.
SECTION 5. Regular meetings of each standing committee established
by the Board shall be held as provided for in a resolution adopted by the
Board, or by a particular committee or its Chairman if authorized in a
resolution of the Board. Special meetings of any standing committee, and
all meetings of any special ad hoc committee, shall be held on reasonable
notice given to all members thereof by the Chairman of the committee. Even
if he has not been made a member of a particular standing committee, the
Chairman of the Board shall be provided with the same notice of all regular
or special meetings of such committee as is provided to members of the
committee, and he shall have the right to attend any of the meetings held
by the committee in an advisory non-voting capacity. Subject to the
provisions of the resolution describing the responsibilities and duties of
a particular committee established by the Board, any such committee shall
have authority to establish its own rules of procedure. The Chairman of
each committee of the Board which is required by these By-laws to have one
of its members designated as its Chairman shall be responsible for assuring
that: (a) an appropriate agenda is prepared for each formal meeting of the
Committee; (b) minutes of the proceedings of each such meeting are kept;
and (c) either a copy of such minutes or a summarized written report of the
meeting is submitted to the Board at or prior to the next meeting of the
Board.
SECTION 6. A majority of the voting members of any committee
hereunder shall constitute a quorum for meetings thereof, but the
affirmative vote of a majority of all voting members of the whole committee
shall be necessary with respect to all actions taken by the committee.
SECTION 7. With the exception of the Chairman of any committee of
the type described in the first sentence of Section 4 of this Article VII,
the Board may authorize the payment to the Chairman of any standing or
special ad hoc committee of compensation for the services rendered by him
in his capacity as Chairman in such amount as the Board shall deem to be
appropriate. Such compensation shall be in addition to the compensation
paid to dealer directors for their regular services as members of the
Board.
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ARTICLE VIII
OFFICERS OF THE CORPORATION
SECTION 1. There shall be elected by the Board of Directors the
following executive officers of the corporation: (a) a Chairman of the
Board and, if deemed appropriate by the directors, a Vice Chairman of the
Board, each of whom shall be elected from the membership of the Board of
Directors; (b) a President; (c) a Treasurer; and (d) one or more Executive
Vice Presidents, Senior Vice Presidents, or Vice Presidents as the Board
shall deem the business of the corporation to require from time to time. In
addition the Board of Directors shall elect as corporate (but not executive)
officers of the corporation a Secretary and such Assistant Secretaries as
the Board shall determine to be appropriate. The board shall also elect from
time to time such other additional executive or corporate officers as in
its opinion are desirable for the conduct of the business of the corporation.
Any number of offices filled by election of the Board may be held by the same
person, except the offices of President and Secretary. Any executive officer
of the corporation may bestow upon any employee of the corporation under
his supervision such title or titles descriptive of the position held by
such employee as such executive officer shall deem to be appropriate,
provided that no such title shall be the same as or confusingly similar to
the title of any officer elected by the Board, and provided further that no
such title shall be deemed to bestow the status of an executive officer or
corporate officer upon such employee nor to empower him with any authority
to act on behalf of the corporation other than such authority as shall have
expressly been assigned to him by the executive officer bestowing such
title upon him.
SECTION 2. All executive officers and corporate officers of the
corporation shall be elected by the Board of Directors for one-year terms
at the regular meeting thereof following the annual meeting of stockholders,
provided that, in any event, any such officer shall hold office until his
successor has been elected and qualified or until his death, resignation
or removal from office. In the case of any officer with whom an employment
contract employing him to perform the functions of a specific office for
a period extending beyond one year has been entered into, the office or
offices to which he is elected at each such meeting of the Board of
Directors shall constitute the office or offices with respect to which he
is employed under such employment contract during the ensuing year. The
Board of Directors shall have authority to direct that the corporation
enter into an employment contract with any executive officer or other
employee for the purpose of employing him for a specified period of time,
and no such contract shall be legally binding upon the corporation unless
the same has been expressly authorized by the Board and has been executed
on behalf of the corporation by the Chairman of the Board, the President,
an Executive Vice President, a Senior Vice President or a Vice President
of the corporation. In no event shall any such employment contract extend
for an initial term of more than five years, but any such contract may
contain a provision whereby the contract is automatically renewed for
additional successive terms of not less than three years each, provided
that the corporation is given the right to terminate the contract at the
end of the initial term or renewal term by giving notice to the executive
officer or other employee involved of its intention to do so by such specific
period of time prior to the last day of the initial term or the then
current renewal term as shall be set forth in the contract. Authorization
of any such employment contract shall require the affirmative vote of a
majority of the whole Board of Directors then in office. Subject to such
contractual rights (if any) as may exist with respect to his employment, any
executive officer or other officer elected or appointed by the Board of
Directors may be removed from office at any time, with or without cause,
by the affirmative vote of a majority of the whole Board of Directors then
in office. If the office of any executive officer or other officer elected
or appointed by the Board of Directors becomes vacant for any reason, the
vacancy shall be filled by the affirmative vote of a majority of the whole
Board of Directors then in office.
SECTION 3. In case of the absence or disability of any executive
officer or any other officer of the corporation elected or appointed by the
Board of Directors, or for any other reason deemed sufficient by a majority
of the whole Board of Directors then in office, and subject to such
contractual rights as may exist with respect to the employment of any such
officer, the Board of Directors may delegate the powers or duties of any
such officer to any other officer, or to any director, for the time being.
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SECTION 4. In addition to executive officers, certain employees of
the corporation may be designated from time to time by the President as
staff officers, that is, officers upon whom responsibility is conferred
with respect to the operations of a particular department, division, branch
or function of the corporation. Any such staff officer shall be appointed by
the President and may thereafter be removed at any time, with or without
cause, by the President. However, if the Board of Directors elects or
appoints an Executive Vice President, Senior Vice President, Vice President
or other officer pursuant to the authority vested in it by Section 1. above,
such officer may thereafter be removed only by the affirmative vote of a
majority of the whole Board of Directors then in office even though such
officer's title includes one or more words which are descriptive of the
particular department, division, branch or function of the corporation
managed by such officer. The removal of any officer shall be subject to
such contractual rights (if any) as may exist under any contract of
employment which has been entered into with him.
SECTION 5. Unless his compensation has been expressly specified by a
contract of employment entered into with him, the compensation of any
executive officer shall be such amount as shall be determined from time to
time by the Board of Directors. The President shall have sole authority to
determine from time to time the amount of compensation to be paid to any
other officer, except in the case of an officer whose compensation has been
expressly specified in a contract of employment which has been entered into
with him and except in the case of any such officer whose basic annual
compensation would be or is in an amount which equals or exceeds the basic
annual compensation then being paid to any executive officer (exclusive of
the Secretary or any Assistant Secretary or Assistant Treasurer).
ARTICLE IX
DUTIES OF THE CHAIRMAN OF THE BOARD,
VICE CHAIRMAN OF THE BOARD AND PRESIDENT
SECTION 1. The Chairman of the Board shall preside at all meetings of
the stockholders and the Board of Directors and shall perform such other
duties as may be prescribed from time to time by the Board of Directors or
by the By-laws. His specific duties and responsibilities shall include (a)
acting as the primary liaison between the executive officers of the
corporation on the one hand and its Board of Directors and its dealer-
stockholders on the other hand; (b) bringing to the attention of and
consulting with the corporation's executive officers with respect to any
special concerns of the corporation's dealer-stockholders which come to his
attention or to the attention of the Board of Directors; (c) reviewing from
the perspective of the Board of Directors and the corporation's dealer-
stockholders all reports, financial budgets, and corporate plans as
developed and submitted to him from time to time by the corporation's
executive officers; (d) overseeing and aiding in the implementation of plans
for orderly successions to the positions held by the corporation's executive
officers and other important staff personnel; and (e) seeing that the
efforts of the various executive officers and other key management personnel
of the corporation are carried out in a coordinated manner, particularly in
periods when transitions in important officer or management positions occur.
Except where it is provided by law that the signature of the President is
required, the Chairman of the Board shall possess all of the same powers as
the President to sign all certificates for shares of stock of the corporation
and all contracts and other instruments of the corporation which may be
authorized by the Board of Directors.
SECTION 2. If the Board has elected a Vice Chairman of the Board, he
shall preside at all meetings of the stockholders and the Board of
Directors in the absence of the Chairman of the Board, and he shall be
empowered to perform the other duties and exercise the other powers vested
in the Chairman of the Board in the event that the Chairman of the Board is
prevented by his absence, by disability, or otherwise from being able to
perform such duties and powers in connection with a particular matter
within the legally permitted period of time or within such period of time
as shall be deemed to be reasonable and appropriate for action to be taken
by the Chairman with regard to such matter. If there is no director holding
the position of Vice Chairman of the Board, but there is a director (other
than the Chairman of the Board) holding the position of Chairman of the
Executive Committee of the Board, then the Chairman of the Executive
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Committee shall perform the duties and exercise the powers described above
for the Vice Chairman of the Board whenever necessary; otherwise, upon the
occurrence of any circumstance in which a Vice Chairman of the Board would
have been vested with authority to perform the duties and exercise the
powers of Chairman of the Board, the Board shall select one of its members
as acting Chairman of the Board who shall be vested with the same authority.
SECTION 3. The President shall be charged with the general and active
management of the day-to-day operations of the corporation and with seeing
that all orders and resolutions of the Board of Directors are carried into
effect. His specific duties and responsibilities shall include (a) reporting
from time to time to the Chairman of the Board on all significant matters
affecting the operations and interests of the corporation which fall within
his knowledge; (b) seeing that short-term and long-term corporate plans and
budgets consistent with the directions of the Board of Directors are prepared
and developed on a regular basis; (c) seeing that the corporation continually
maintains competent personnel at all levels in order to adequately serve the
needs of the retail hardware dealers supplied by it; (d) consulting with the
Chairman of the Board from time to time with respect to the types of
programs, products and services to be made available to the corporation's
retail hardware dealers in order to serve the best interests of the
corporation's entire network of dealers; (e) submitting to the stockholders
at their annual meetings and/or at dealer conventions sponsored by the
corporation such reports on the operations and affairs of the corporation as
shall be appropriate in order to provide them with information of importance
to them as both customers and stockholders of the corporation; and (f)
executing on behalf of the corporation contracts and other instruments in
writing, including mortgages, bonds and governmental reports of various
kinds, in all instances wherein the signature of the President of the
corporation is required or has been authorized by the Board of Directors or
is otherwise deemed to be appropriate. The Board of Directors, in its
discretion, may vest the person holding the office of President of the
corporation at any given time with the additional title of Chief Executive
Officer. Whenever the title of Chief Executive Officer is used as an
additional title for the person holding the office of President, it shall
be deemed to relate specifically to the duties and responsibilities dealing
with the development of plans for orderly successions to the positions held
by the corporation's executive officers and other management personnel and
to the ongoing development of short-term and long-term strategic plans for
the corporation to be presented to and reviewed by the Board of Directors
and to the execution of all such plans as are approved by the Board.
ARTICLE X
DUTIES OF EXECUTIVE VICE PRESIDENTS, SENIOR
VICE PRESIDENTS AND OTHER VICE PRESIDENTS
SECTION 1. Any Executive Vice President elected by the Board of
Directors shall possess the power and may perform the duties of the
President in his absence or disability. Each officer having the title of
Executive Vice President shall perform such other duties as may be prescribed
from time to the time by the Board of Directors.
SECTION 2. Any Senior Vice President elected by the Board of Directors
shall possess the power and may perform the duties herein authorized to be
performed by an Executive Vice President in the event that there is no
person holding the office of Executive Vice President at the time, or in the
event of the absence or disability of all persons then holding the office
of Executive Vice President. Each officer having the title of Senior Vice
President shall perform such other duties as may be prescribed from time to
time by the Board of Directors.
SECTION 3. Any Vice President elected by the Board of Directors shall
possess the power and may perform the duties herein authorized to be
performed by a Senior Vice President in the event that there is no person
holding the office of Senior Vice President at the time, or in the event of
the absence or disability of all persons then holding the office of Senior
Vice President. Each officer having the title of Vice President shall
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perform such other duties as may be prescribed from time to time by the
Board of Directors.
SECTION 4. If there shall be more than one person holding the office
of Executive Vice President at any time, or if there shall be more than one
person holding the office of Senior Vice President at any time, or if there
shall be more than one person holding the office of Vice President at any
time, in each such instance the Board of Directors shall designate the order
in which each of them shall possess the power and perform the duties of an
officer of the next higher rank under the applicable one of the above
Sections in the event of the nonexistence, absence or disability of all such
higher ranking officers.
SECTION 5. Notwithstanding any of the above provisions of this
Article X, if the title given to any Executive Vice President, Senior Vice
President, or Vice President also includes one or more words that are
descriptive of a particular department, division, branch or function of the
corporation managed by such officer, the duties of such officer shall
consist only of the general and active management of the operations or
activities of such department, division, branch or function and such other
duties as shall have been specifically assigned to such officer by the
Board of Directors.
ARTICLE XI
DUTIES OF CONTROLLER
SECTION 1. In the event that a Controller shall be elected or appointed
at any time by the Board of Directors, or in the event that a staff officer
having the title of Controller is appointed at any time by the President,
such officer shall be responsible to the Board of Directors, the President,
and the Vice President-Finance (if such office has been created and filled),
for all financial control and internal audit of the corporation and its
subsidiaries. He shall also perform such other duties as may be assigned to
him by the Board of Directors or the President.
ARTICLE XII
DUTIES OF THE SECRETARY AND ASSISTANT SECRETARIES
SECTION 1. The Secretary (or an Assistant Secretary) shall attend all
meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the corporation and of the
Board of Directors in a book to be kept for that purpose and shall perform
like duties for the standing committees when required. He shall give, or
cause to be given, notice of all meetings of the stockholders and special
meetings of the Board of Directors, and shall perform such other duties as
may be prescribed by the Board of Directors or President, under whose
supervision he shall be. He shall have custody of the corporate seal of the
corporation and he, or an Assistant Secretary, shall have authority to affix
the same to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such Assistant Secretary.
The Board of Directors may give general authority to any other officer to
affix the seal of the corporation and to attest the affixing by his
signature.
SECTION 2. The Secretary shall also keep, or cause to be kept by
such person or persons to whom he shall delegate such duty, a register of
all shares of capital stock issued by the corporation and all transfers of
such shares. Such register shall be maintained in such manner and subject
to such regulations as the Board of Directors may prescribe.
SECTION 3. The Assistant Secretary, or if there be more than one (1),
the Assistant Secretaries in the order determined by the Board of Directors,
shall, in the absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
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ARTICLE XIII
DUTIES OF THE TREASURER
SECTION 1. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the corporation and shall deposit
all moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the Board of
Directors.
SECTION 2. He shall disburse the funds of the corporation, taking
proper vouchers for such disbursements, and shall render to the President
and the Board of Directors at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as Treasurer and
of the financial condition of the corporation.
SECTION 3. If required by the Board of Directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession
or under his control belonging to the corporation.
ARTICLE XIV
WRITTEN CONSENTS AND CONFERENCE TELEPHONE MEETINGS
SECTION 1. To the extent permitted by the General Corporation Law of
the State of Delaware, and in accordance with the applicable procedure
prescribed by the provisions thereof, whenever a vote or resolution of
stockholders, the Board of Directors, or a committee of the Board at a
meeting is required or permitted in connection with any corporate action
by any provision of law, the Certificate of Incorporation, these By-laws,
or any unrevoked resolution previously adopted by the Board, the meeting
and vote or resolution may be dispensed with and the corporate action may
be taken pursuant to written consent. The writing evidencing such consent
shall be filed with the minutes of the proceedings of the stockholders,
Board, or committee.
SECTION 2. In accordance with the applicable procedure prescribed by
the General Corporation Law of the State of Delaware, members of the Board
of Directors, or of any committee of the board, may participate in a
meeting of the Board, or of any such committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
ARTICLE XV
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS
SECTION 1. In accordance with the provisions of Section 145 of the
General Corporation Law of the State of Delaware, and as more fully provided
for in Article EIGHTH (b) of the restated Certificate of Incorporation of
Ace Hardware Corporation, as amended, persons serving as directors, officers,
employees or agents of or at the request of the corporation shall be
indemnified against all expenses, liabilities and losses (including
attorneys' fees, judgments, fines, excise taxes or penalties under the U.S.
Employee Retirement Income Security Act, as amended, and amounts paid or to
be paid in settlement) reasonably incurred or suffered by them in connection
with any action, suit or proceeding (whether civil, criminal, administrative
or investigative) instituted or threatened to be instituted against them by
reason of their service in any of the aforementioned capacities on behalf of
the corporation or at its request.
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ARTICLE XVI
CERTIFICATES OF STOCK AND TRANSFER THEREOF
SECTION 1. The shares of the corporation shall be represented by
certificates signed by the Chairman of the Board or the President and the
Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer of the corporation and may be sealed with the seal of the
corporation or a facsimile thereof.
SECTION 2. The signatures of the officers of the corporation upon a
certificate may be facsimiles. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased
to be such officer before such certificate is issued, it may be issued by
the corporation with the same effect as if he were such officer at the date
of its issue.
SECTION 3. Each certificate of stock shall have conspicuously noted
or stated thereon a statement of the liens, restrictions and limitations
upon the voting power, ownership, transfer or other rights and privileges
of the holder thereof. All shares of stock in the corporation shall be
issued and accepted in accordance with and subject to the conditions,
restrictions, and offsetting liens stipulated in the Certificate of
Incorporation and By-laws of this corporation and amendments thereto.
SECTION 4. If a certificate of stock be lost or destroyed, another
may be issued in its stead upon proof of such loss or destruction and the
giving of a satisfactory bond of indemnity, in an amount sufficient to
indemnify the corporation against any claim. A new certificate may be
issued without requiring bond when, in the judgment of the directors, it
is proper to do so.
SECTION 5. The corporation shall have a first lien upon each share
of its issued and outstanding stock of any class, and upon each certificate
of stock representing a share or shares of stock of any class of the
corporation, for the amount of any indebtedness payable to the corporation
by the holder thereof, and shall have a similar first lien upon all amounts
which have been paid to the corporation pursuant to a subscription agreement
for the purchase of shares of stock of the corporation which will be
issuable to the subscriber upon the completion of payment of the purchase
price of the shares. The interest of each holder of shares of the
corporation's stock in and to the shares issued to such holder and the
interest of each subscriber for shares of the corporation's stock in and
to the funds paid to the corporation by such subscriber on account of the
purchase price of the shares being purchased by such subscriber shall at
all times be deemed to be offset by the amount of any indebtedness payable
to the corporation by such holder or subscriber. In no event shall any
transfer of any of the shares owned by any holder or any transfer of the
stock subscription account of any subscriber for shares of stock of the
corporation be made unless and until the stockholder whose shares are being
transferred or the subscriber whose subscription account is being transferred
is free from all indebtedness to the corporation.
SECTION 6. No certificate representing any issued and outstanding
share or shares of any class of stock of the corporation shall be pledged,
mortgaged, hypothecated, sold, assigned or transferred without the prior
consent of the Board of Directors of the corporation. In the event that the
Board of Directors shall refuse to consent to any transfer or assignment of
any certificate or certificates representing any share or shares of issued
and outstanding stock of the corporation of any class, then the corporation
shall have the right and shall be obligated to purchase from the owner
thereof all of the shares of its stock of any class held for the store or
other retail business unit with respect to which the corporation issued the
share or shares as to which such consent has been refused and the franchise
granted by this corporation with regard to the operation of such retail
business unit shall thereby be terminated. In no event shall any transfer
or assignment of shares of any class of stock of the corporation be made to
any transferee who is not eligible to be a holder of such shares under the
provisions of Article Fourth of the restated Certificate of Incorporation
of the corporation. In the case of a proposed transfer of ownership of a
store or other retail business unit owned by a holder of shares of stock of
the corporation to a transferee which the corporation has accepted or is
willing to accept as a franchised Ace Hardware dealer, then the owner of
such stock shall have the option of either (a) selling or otherwise
transferring to such transferee such number of shares of stock of this
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corporation of any class which the corporation would otherwise have been
required to offer to such transferee in connection with the franchise
granted to such transferee with respect to such store or other retail
business unit, or (b) selling such shares to the corporation. In any case
where the holder or holders of 50% or more of the outstanding voting stock
of a corporation having a franchise from this corporation for one or more
retail business outlets, or the holder or holders of 50% or more of the
outstanding voting stock of a corporation owning 80% or more of the
outstanding voting stock of a corporation having such a franchise, propose
to sell or otherwise transfer all of the shares of capital stock (both
voting and non-voting) of such corporation held by them, written notice of
such proposal shall be given to this corporation, and upon the consummation
of any such sale or transfer, such corporation shall have the option of
either (a) retaining all of the shares of the capital stock of this
corporation then held by it or (b) selling such shares to this corporation,
but in the case of such a sale of said shares to this corporation, the
franchise granted to said corporation by this corporation for each retail
business unit operated by said corporation shall thereupon be deemed to have
terminated by the voluntary action of said corporation and no such retail
business unit shall thereafter operate as a franchise of this corporation
unless a new application for a franchise for such retail business unit has
been submitted to and accepted by this corporation. Notwithstanding any of
the foregoing provisions, this corporation shall in no event be obligated to
treat any of the following types of transfers as qualifying for purposes of
the options provided for in this Section 6 of selling to this corporation
shares of its capital stock: (a) any transfer of ownership of a retail
business outlet or unit or of shares of the capital stock of a corporation
directly or indirectly owning such outlet or unit which is not complete,
unconditional and irrevocable; (b) any such transfer to an entity in which
the transferor retains an ownership interest; or (c) any such transfer to
the spouse of the transferor.
SECTION 7. Subject to the provisions of Section 5 of this Article XVI
of these By-laws, in the event of the termination of the franchise granted
by this corporation with regard to the operation of a retail hardware store
or other retail business unit for which shares of stock of the corporation
are held, the corporation shall be obligated to purchase such shares.
Unissued shares which have been subscribed for with respect to any such
store or other retail business unit shall also be covered by the provisions
of this Section to the extent of the amounts which have been paid on account
of the purchase price thereof, and the corporation shall be obligated to
refund all such amounts, subject only to the provisions of Section 5 of this
Article XVI. For purposes of this Section, termination of the franchise
granted for a particular retail hardware store or other retail business
outlet shall include not only any termination pursuant to formal notice of
termination given by either this corporation or the holder of the franchise
but shall also include each of the following situations which shall be deemed
to constitute such a termination:
(a) The closing down of the store or other retail business unit with
respect to which such shares of stock of the corporation are held, unless
such store or other retail business unit is merely being moved, with the
corporation's consent and approval, to another location or is being
acquired by another dealer which this corporation has accepted or is
willing to accept as a franchised dealer for operation pursuant to the
same franchise at another location;
(b) The death of an individual holder of the shares of stock of this
corporation held for such retail store or other retail business unit, or
of a member of a partnership which is a holder of such shares, except in
a case where the store or other retail business unit with respect to
which such shares are held continues, with the approval of the officers
of the corporation (which approval shall not be unreasonably withheld),
to be operated under a franchise from the corporation by the decedent's
estate or by the person or persons to whom such shares are to be
distributed by the decedent's estate or by the successor or successors
to the decedent's interest in the partnership holding such shares (it
being immaterial for this purpose that, in connection with such
continuation of operation, the legal form of ownership of the franchised
dealer has been changed from an individual proprietorship or partnership
to a corporation or from a partnership to an individual proprietorship);
(c) An adjudication of the insolvency of the dealer or of the store
or other retail business unit for which the shares of stock of this
corporation are held, or the making of an assignment for the benefit of
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creditors or the filing of a voluntary petition in bankruptcy or similar
petition under the U.S. Bankruptcy Code by or on behalf of such dealer
or retail business unit, or the filing of an involuntary petition in
bankruptcy or similar petition under the U.S. Bankruptcy Code against
the dealer or against said retail business unit.
SECTION 8. A transfer of shares of stock of the corporation requiring
the consent of the Board of Directors shall not be deemed to have occurred
upon the death of a person who is the holder of shares of stock of the
corporation jointly with one or more other persons under circumstances
whereby ownership of such shares passes automatically by operation of law
to the surviving holder or holders of such shares, nor shall the corporation
become obligated to purchase such shares upon the death of such person unless
the store or other retail business unit with respect to which such shares are
held either (a) closes down, or (b) ceases to be operated under a franchise
from this corporation.
SECTION 9. The Board of Directors may delegate to a committee composed
of two (2) or more members of the Board authority to act on its behalf with
respect to all matters where the consent of the Board is required in
connection with the transfer or assignment of any shares of any class of
stock of the corporation.
SECTION 10. The price to be paid by the corporation in connection with
the purchase by it of any shares of its stock shall be as follows:
(a) in the case of Class A stock, the par value of the shares;
(b) in the case of Class B stock, an amount per share equal to the
per share price last established by the Board of Directors as the price
to be paid by the corporation in the event of redemption of shares of
its Class B stock, which shall in no event be less than twice the par
value of the Class B stock and shall also at all times be equal to
twenty (20) times the per share purchase price last established by the
Board of Directors with respect to purchases by it of Shares of its
Class C Stock;
(c) in the case of Class C stock, an amount per share equal to the
per share price last established by the Board of Directors as the
purchase price to be paid by the Corporation for shares of its Class C
stock, which price shall in no event be less than the par value thereof.
SECTION 11. Any shares of any class of stock of the corporation
which are purchased by it from any stockholder shall become treasury
shares which shall be eligible for sale to any other person, persons or
firm which shall be qualified to hold such shares.
SECTION 12. Effective with respect to all purchases and redemptions of
shares of its capital stock made by the corporation from its stockholders
on or after December 31, 1981, the entire purchase or redemption price to
be paid by the corporation for such shares shall be paid in cash except
that, in any of the situations described in subsection (a) hereof, the
purchase or redemption price for such shares shall be paid in the manner
set forth in subsection (b) hereof.
(a) The situations in which such price shall be paid in the manner
set forth in subsection (b) of this Section are as follows:
(1) the voluntary termination by a stockholder of this
corporation of the franchise from this corporation held by such
stockholder for a retail business outlet under circumstances whereby
such outlet continues to engage in substantially the same business
under the ownership or control of the same person, partnership or
corporation that owned or controlled it immediately prior to such
termination; for purposes of this paragraph:
(A) control of an outlet owned by an unincorporated person
or partnership shall be deemed to be the same if more than
fifty per cent (50%) of the assets or profit shares therein,
or more than fifty per cent (50%) of the capital stock of a
corporation becoming the owner of such outlet, continues to
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be legally or equitably owned by the same person, partnership
or corporation; and
(B) control of an outlet owned by a corporation shall be
deemed to be the same if more than fifty per cent (50%) of
the capital stock of said corporation, or more than fifty per
cent (50%) of the assets or profit shares of an unincorporated
person or partnership becoming the owner of such outlet,
continues to be owned by the same person, partnership or
corporation.
(2) the termination by this corporation of the franchise from
this corporation for a retail business outlet pursuant to the
provisions of the Ace Dealer Franchise Agreement authorizing such
termination by reason of:
(A) the failure of such retail business outlet to make
any payment owing to the corporation for merchandise or
services supplied by it within the time period specified in
such provisions; or
(B) any default of such retail business outlet in
performing any obligation of such outlet under the Ace
Dealer Franchise Agreement of such outlet other than the
obligation to pay for merchandise or services supplied by
the corporation, provided that such default is described in
the corporation's notice of termination in such a manner as
to reasonably apprise such retail business outlet as to the
nature of such default.
(b) In each of the situations described in subsection (a) above, the
purchase or redemption price to be paid by the corporation for the
shares of its stock being purchased or redeemed by it shall be paid in
the following manner:
(1) in the case of Class A stock, the entire price shall be
paid by the corporation in cash;
(2) in the case of Class B stock or Class C stock purchased by
a stockholder as part of the shares of capital stock of the
corporation subscribed for in connection with the granting of a
franchise by the corporation for a retail business outlet, that
portion of the purchase or redemption price to be paid by the
corporation which equals the amount paid to the corporation pursuant
to such subscription shall be paid by the corporation in cash and any
remaining balance of the price (with interest thereon) shall be paid
by the corporation in equal annual installments over a period of four
years;
(3) in the case of Class C stock received by a stockholder as
part of the patronage dividends distributed by the corporation for a
retail business outlet, the entire price (with interest thereon)
shall be paid by the corporation in equal annual installments over a
period of four years;
(4) if the total portion of the purchase or redemption price
which would otherwise be payable under the foregoing paragraphs in
equal annual installments over a period of four years is less than
$5,000, the entire purchase or redemption price shall be paid by the
corporation in cash, notwithstanding the installment provisions of
said paragraphs;
(5) in any situation where a stockholder whose shares of
capital stock of the corporation are to be purchased or redeemed by
it is indebted to the corporation at such time, then, in accordance
with the corporation's first lien and offset rights under Article
XVI, Section 5, of these By-laws and Article Fourth (1) of the
restated Certificate of Incorporation of the corporation, the
purchase or redemption price shall in all cases be applied against
such indebtedness to the extent thereof, with the portion of such
price which would otherwise have been payable in cash being first
applied for such purpose and, if any indebtedness to the corporation
still remains, the portion of the price which would otherwise have
been payable in equal annual installments then being applied for
such purpose to the extent of any such remaining indebtedness;
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(6) the corporation's obligation to pay any portion of the
purchase or redemption price of its shares in equal annual
installments shall be evidenced by an installment promissory note
of the corporation delivered to the stockholder whose shares are
being purchased or redeemed, which note shall provide for the payment
of the principal thereof in four equal annual installments commencing
one year from the date of the repurchase or redemption of the shares
and for the payment of interest with each annual installment payment
of principal on the unpaid balance of principal from time to time at
such rate as shall have been established by the Board of Directors
as of the date of issuance thereof, provided, however, that said rate
of interest shall in no event be less than the greater of (A) the
latest interest rate as of the date of issuance of such note
determined by the Board of Directors as the rate to be paid on
patronage refund certificates distributed to the corporation's
member-stockholders as part of their annual patronage dividends or
(B) 6% per annum;
(7) notwithstanding any of the foregoing provisions, the Board
of Directors, in its discretion and after considering the financial
condition and requirements of the corporation, may authorize and
cause payment to be made in cash for all or any portion of the
purchase or redemption price which would otherwise be payable in
four equal annual installments if the Board of Directors determines
that the prescribed method of payment would impose an undue hardship
upon the stockholder whose shares are being repurchased or redeemed;
(8) the Board of Directors may adopt hardship guidelines to
implement the provisions of paragraph (7) of this Section and may
delegate the authority to make determinations pursuant to said
provisions to a committee comprised of two or more directors or to a
committee comprised of two or more executive officers of the
corporation.
ARTICLE XVII
CLOSING OF TRANSFER BOOKS AND
DETERMINATION OF RECORD DATE
SECTION 1. The Board of Directors shall have power to close the stock
transfer books of the corporation for a period not exceeding sixty (60)
days preceding the date of any meeting of stockholders or the date for the
allotment of rights or the dates when any change or conversion or exchange
of capital stock shall go into effect or for a period of not exceeding sixty
(60) days in connection with obtaining the consent of stockholders for any
purpose.
SECTION 2. Notwithstanding the foregoing, in lieu of closing the stock
transfer books as aforesaid, the Board of Directors may fix in advance a
date, not exceeding sixty (60) days preceding the date of any meeting of
stockholders, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or
a date in connection with obtaining such consent, as a record date for the
determination of the stockholders entitled to notice of, and to vote, at
any such meeting and any adjournment thereof, or to any such allotment of
rights, or to exercise the rights in respect of any such change, conversion
or exchange of capital stock, or to give such consent, and in such case such
stockholders as shall be stockholders of record on the date so fixed shall
be entitled to such notice of, and to vote at such meeting and any
adjournment thereof, or to receive such allotment of rights, or to exercise
such rights, or to give such consent, as the case may be, notwithstanding
any transfer of any stock on the books of the corporation after any such
record date fixed as aforesaid.
SECTION 3. The corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to
or interest in such share on the part of any other person whether or not it
shall have express or other notice thereof, save as expressly provided by
the laws of Delaware.
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ARTICLE XVIII
FISCAL YEAR
SECTION 1. Except as from time to time otherwise provided for by the
Board of Directors, the fiscal year of the corporation shall end on the
3lst day of December in each year.
ARTICLE XIX
DIVIDENDS
SECTION 1. No dividends shall ever be declared on any of the shares
of any class of stock of the corporation.
ARTICLE XX
CHECKS FOR MONEY
SECTION 1. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
ARTICLE XXI
BOOKS AND RECORDS
SECTION 1. The books, accounts and records of the corporation, except
as otherwise required by the laws of the State of Delaware, may be kept
within or without the State of Delaware, at such place or places as may
from time to time be designated by the By-laws or by resolution of the
directors.
ARTICLE XXII
NOTICES
SECTION 1. Notice required to be given under the provisions of these
By-laws to any director, officer or stockholder shall not be construed to
mean personal notice, but may be given in writing by depositing the same in
a post office or letter box, in a postpaid sealed wrapper, addressed to
such stockholder, officer or director at such address as appears on the
books of the corporation, and such notice shall be deemed to be given at
the time when the same shall be thus mailed. Any stockholder, officer or
director may waive, in writing, any notice required to be given under these
By-laws, whether before or after the time stated therein.
ARTICLE XXIII
AMENDMENTS OF BY-LAWS AND ADVANCE NOTIFICATION BY
STOCKHOLDERS OF PROPOSALS FOR AMENDMENTS, DIRECTOR
NOMINATIONS OR OTHER CORPORATE ACTIONS
SECTION 1. Except for any provisions hereof which shall at any time
have been adopted by the stockholders in the manner prescribed in Section 2,
these By-laws may be amended or repealed or added to, or new By-laws may be
adopted, by the affirmative vote of a majority of the Board of Directors at
any regular meeting of the Board or at any special meeting thereof called
for that purpose. If any By-law regulating an impending election of
directors is adopted, amended or repealed by the Board of Directors, there
shall be set forth in the notice of the next meeting of stockholders for
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the election of directors the By-law so adopted, amended or repealed,
together with a precise statement of the changes made.
SECTION 2. These By-laws may also be amended or repealed or added to,
or new By-laws may be adopted, at any regular or special meeting of
stockholders at which a quorum is present or represented by the affirmative
vote of a majority of the issued and outstanding shares of Class A stock of
the corporation. Any amendment, repeal, addition to the By-laws, or any new
By-laws, adopted by the stockholders may be further amended, repealed, or
added to only at a regular or special meeting of the stockholders at which
a quorum is present or represented by the affirmative vote of a majority of
the issued and outstanding shares of Class A stock of the corporation in
the manner prescribed herein.
SECTION 3. A written notice shall be given to the President or
Secretary of the corporation of the intent of one or more stockholders to
submit at a forthcoming stockholders meeting (a) a proposed amendment to
these By-laws; (b) the nomination of an eligible person for election as a
director; or (c) any other stockholder proposal for corporate action. Such
notice must be received, either by mail or by personal delivery, not less
than seventy-five (75) nor more than one hundred fifty (150) days prior to
the date of the annual meeting or, in the event of a special meeting of
stockholders, not later than the close of the fifteenth (15th) day following
the day on which notice of the meeting is first mailed to stockholders. In
the case of an annual meeting, the intention of one or more stockholders to
submit a proposed By-law amendment, nomination or other proposal for
corporate action which is so received in proper order shall be mentioned in
the formal notice of the meeting, but neither the name or names of the
stockholder or stockholders intending to make any such submission nor the
name of any director nominee proposed by one or more stockholders shall be
mentioned in the notice. No reference of any kind to any proposal or
nomination to be submitted by any stockholder pursuant to this Section
shall be made in the proxy materials caused to be sent to stockholders by
the Board of Directors. At all annual or special meetings the Chairman shall
declare out of order any proposed amendment, any nomination, or any other
stockholder proposal not presented in accordance with this Section. Every
notice given by a stockholder or stockholders under this Section shall set
forth:
(a) the name and the business and residence addresses of the
stockholder (or person authorized by such stockholder as the
stockholder's voting representative) intending to submit the proposed
amendment, nomination, or other matter;
(b) with respect to such notice of intent to submit a nomination,
information concerning the proposed nominee's business and residence
addresses, age and eligibility to serve as a director; and
(c) with respect to notice of an intent to propose a By-law
amendment or some other corporate action, a description of the proposed
amendment or other action.
Notice of intent to submit a nomination shall be accompanied by the
written consent of each nominee to serve as a director of the corporation
if so elected.
ARTICLE XXIV
MEMBERS' PATRONAGE DIVIDENDS
SECTION 1. A "membership" in the corporation within the meaning of
the term "membership" as used in Section 1388(c)(2)(B) of the U.S. Internal
Revenue Code of 1954, as amended, shall be deemed to be held by (a) each
retail hardware dealer owning a share of Class A stock of the corporation
and (b) each other dealer in hardware or related products which becomes an
owner of a share of Class A stock of the corporation after having been
expressly approved as an Ace Hardware dealer by the Board of Directors of
the corporation. The term "retail hardware dealer" as used in clause (a)
of the preceding sentence shall mean any person or firm purchasing
merchandise from this corporation for the purpose of reselling such
merchandise at retail. However, whenever the term "retail hardware dealer"
is used in any of the subsequent Sections of this Article XXIV of the
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By-laws, such term shall be deemed to include all dealers holding
memberships in this corporation except where the context in which such
term appears is of such a nature that it is not practical for such term to
be applied to "other dealers" as referred to in clause (b) of the first
sentence of this Section. For purposes of this Article XXIV of the By-laws
a "retail hardware store" shall be deemed to refer to a business location
to which there is delivered for resale from such location at the retail
level any merchandise purchased from this corporation. Each such retail
hardware store owned or controlled, directly or indirectly, by the same
person, partnership or corporation, shall be deemed to constitute only
one (1) retail hardware dealer. An unincorporated person or partnership
shall be deemed controlled by another person, partnership or corporation if
fifty per cent (50%) or more of the assets or profit shares therein are
legally or equitably owned by such other person, partnership or corporation,
or by the legal or equitable owner or owners of fifty per cent (50%) or more
of such other person, partnership or corporation's assets or profit shares
(if unincorporated) or shares of capital stock (if incorporated). A
corporation shall be deemed controlled by another person, partnership or
corporation if fifty per cent (50%) or more of the capital stock of said
corporation is owned by such other person, partnership or corporation, or
by the owner or owners of fifty per cent (50%) or more of its capital stock
(if incorporated) or fifty per cent (50%) or more of its assets or profit
shares (if unincorporated).
SECTION 2. In accordance with the policy heretofore established by
the corporation in the Amendment to its By-laws adding Article XXIV thereto
by the resolution adopted by the Board of Directors on July 20, 1973, there
shall be distributed on a patronage basis to such members (that is, dealers
holding memberships, as hereinabove defined, in the corporation) in a manner
taking into account the amount of business done by the corporation with each
of them, all the net savings and overcharges effected by or resulting from
the operations conducted and carried on by the corporation in connection with
sales of merchandise made by the corporation after May 31, 1974, to such
members which remain after paying all operating and administration expenses
of the corporation and all interest on its indebtedness and after the setting
aside by the Board of Directors of such reasonable reserves as they shall
determine from time to time to be appropriate for the purpose of insuring
the safety and welfare of the corporation and for the purpose of providing
for the expectancy of any losses or contingencies. Said distributions shall
be made no later than eight and one-half (8 1/2) months following the close
of the year of the corporation during which the patronage occurred with
respect to which each such distribution is made. In no event shall less
than twenty per cent (20%) of the total patronage distributions made each
year to each member be distributed in cash. The remaining portion shall be
distributed in cash or in written notices of allocation (as defined in
Section 1388 of the U.S. Internal Revenue Code) in whatever proportions
shall be determined each year by the Board of Directors.
SECTION 3. Notwithstanding the foregoing, every such member on becoming
such authorizes and directs that all net savings of every character effected
by this corporation which are distributable to such member, to the extent of
the excess thereof over the twenty per cent (20%) minimum portion of such
distributable amount required to be distributed in cash, may first be
applied by the corporation to the payment of any indebtedness owed to the
corporation by such member. Any such net savings which become distributable
with respect to merchandise sold by this corporation for delivery to any
retail hardware store owned or controlled, directly or indirectly, by the
same person, partnership or corporation which so owns or controls one (1)
or more other retail hardware stores may be so applied against any
indebtedness owing with respect to merchandise sold by this corporation
for delivery to any store which is part of any group deemed hereunder to
constitute one (1) retail hardware dealer. The balance of any such net
savings not so applied shall then be distributed as patronage dividends in
the manner set forth in Article XXIV, Section 2, of these By-laws.
SECTION 4. Each retail hardware dealer who applies for and is accepted
as a member of this corporation shall, by his act of subscribing for a share
of Class A stock of the corporation entitling such dealer to become such a
member, consent that the amount of any patronage dividends with respect to
his purchases of merchandise from this corporation occurring on or after
June 1, 1974, which are made in written notices of allocation (as defined
in Section 1388 of the U.S. Internal Revenue Code, as amended) and which
are received by such member from this corporation will be taken into
account by him at their stated dollar amounts in the manner provided in
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Section 1385(a) of said Code in the taxable year in which such notices of
allocation are received by said member. The term "written notice of
allocation" as used here shall be deemed to include, but not to be limited
to, a letter of advice to a member which discloses to such member an amount
which the corporation has elected to apply against indebtedness owed to the
corporation in accordance with the first sentence of Article XXIV, Section 3,
of these By-laws.
SECTION 5. The aforesaid written notices of allocation shall be
redeemable by the corporation in cash at the discretion of the Board of
Directors and/or in accordance with the restated Certificate of
Incorporation of the corporation and these By-laws. As security for the
payment to the corporation of any indebtedness owing at any time to the
corporation by any retail hardware dealer having membership in the
corporation or by any retail hardware dealer who has subscribed for the 1
share of Class A stock of the corporation which is required to be owned in
order to become a member of the corporation, the corporation shall have a
first lien upon any written notice of allocation held by any such dealer
(including all retail hardware stores treated as being part of a group
constituting one "member" or "dealer"). The interest of each holder of any
written notice of allocation in and to the same shall at all times be deemed
to be offset by the amount of any indebtedness payable to the corporation by
such holder.
SECTION 6. Notwithstanding any other provision of these By-laws, and
in accordance with the policy heretofore established by the corporation in
the Amendment to its By-laws adding Section 6 to Article XXIV thereof by
the resolution adopted by the Board of Directors on April 24, 1974,
commencing with respect to purchases of merchandise made from the
corporation after May 31, 1974 the corporation shall also make
distributions on a patronage basis to those of its dealers who have
franchise or membership agreements with the corporation and who have
executed unrevoked and unexpired written consents of the type referred to
in Section 1388 (c)(2) (A) of the U. S. Internal Revenue Code to include in
their gross income all patronage dividends distributed to them in the form
of written notices of allocation (as defined in Section 1388 of the U.S.
Internal Revenue Code), even though such dealers do not then own any shares
of any class of the capital stock of the corporation. Such patronage
dividend distributions shall be made to such dealers in a manner taking
into account the amount of business done by the corporation with each of
them during the periods with respect to which said written consents are
effective for each of them and shall consist of all the net savings and
overcharges effected by or resulting from the business done by the
corporation with such dealers which remain after paying all of the
operating and administration expenses and interest on indebtedness of the
corporation allocable to such business and after the setting aside by the
Board of Directors of such reasonable reserves as they shall determine from
time to time to be appropriate for the purpose of insuring the safety and
welfare of the corporation and for the purpose of providing for the
expectancy of any losses or contingencies. Each such written consent shall
provide that it may be revoked at any time by the dealer, effective with
respect to business done by the corporation with such dealer after the
close of the taxable year of this corporation during which the revocation
is filed with it. Each such written consent shall cease to be effective
with respect to all business done by this corporation with any dealer who
has furnished such a written consent to this corporation immediately upon
said dealer's becoming an owner of a share of Class A stock of this
corporation, as of which date such consent shall expire and such dealer
shall be deemed to hold a "membership" in this corporation so that the
provisions of this Article XXIV which are applicable to the distribution of
patronage dividends to its members then become effective with respect to
such dealer. Unless the same shall have been revoked or otherwise terminated,
any such consent which has theretofore been executed by a dealer shall in
any event be deemed to have expired and been rendered ineffective at the end
of one hundred twenty (120) days following the later of (a) the date as of
which an initial Registration Statement and Prospectus with respect to an
offer to sell shares of the capital stock of the corporation (including
shares of its Class A stock) to its dealers have become effective under the
U.S. Securities Act of 1933, or (b) the date as of which such Prospectus can
be used under the securities law of any state in which state registration of
such stock is required. No such dealer shall be eligible to receive
distributions of patronage dividends from the corporation with respect to
business done by the corporation with such dealer after the expiration of
such 120-day period unless such dealer either has. become a member of the
corporation by owning a share of its Class A stock (in which case such
dealer shall thereupon be entitled to patronage dividends as provided for
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in Section 2 of this Article XXIV) or has executed a subscription agreement
for the purchase of shares of capital stock of the corporation (including
one (1) share of its Class A stock) which has been accepted by the
corporation. There shall be incorporated in all such subscription agreements
which include a subscription for a share of the Class A stock of the
corporation a provision whereby the subscribing dealer consents to include
in his gross income all patronage dividends distributed to such dealer in
the form of written notices of allocation (as defined in Section 1388 of the
U.S. Internal Revenue Code), and any dealer who has executed such a
subscription agreement but who is not entitled to become the owner of a
share of Class A stock of this corporation until he has completed payment
of the purchase price for such share in accordance with such subscription
agreement shall be entitled to receive patronage dividends pursuant to this
Section 6 during the period for which he makes payments on account of such
purchase price as required by the subscription agreement. Upon the completion
of such payments and the issuance of such share of stock to him, such dealer
shall then be entitled to receive patronage dividends pursuant to Section 2
of this Article XXIV. In no event shall less than twenty per cent (20%) of
the total patronage dividend distributions made each year to any dealer who
is entitled to receive such distributions pursuant to this Section 6 be
distributed in cash. Any amount in excess of said twenty per cent (20%)
minimum portion of the patronage dividends otherwise distributable to a
dealer under this Section 6 may first be applied by the corporation to the
payment of any indebtedness owed to the corporation by such dealer in the
same manner as set forth in Section 3 of this Article XXIV. Any patronage
dividends distributed in the form of written notices of allocation pursuant
to this Section 6 shall be subject to all of the provisions with respect to
distributions made in the form of written notices of allocation which are
set forth in Section 5 of this Article XXIV.
SECTION 7. Notwithstanding any of the foregoing provisions, the
portion of any patronage dividends which would otherwise be distributable
in cash under any provision of this Article XXIV to a retail hardware
dealer with respect to a retail hardware store having a franchise or
membership agreement with this corporation which has been cancelled or
terminated at any time subsequent to the date of the annual meeting of
stockholders to be held on the third Monday of May in 1980 by any means
or for any reason whatsoever prior to the time of distribution of such
patronage dividends shall be applied by the corporation to the payment of
any indebtedness owed to the corporation by or on behalf of such store to
the extent of such indebtedness instead of being distributed in cash,
provided, however, that an amount equal to 20% of the total patronage
dividends distributable for the applicable year to any such dealer with
respect to such store shall nevertheless be paid in cash within 8 1/2
months following the close of such year if a timely written request for
the payment of such amount in cash is submitted to the corporation by the
dealer. However, in all events no less than 30% of the total annual
patronage dividends distributable to a retail hardware dealer with respect
to a retail business outlet pursuant to any provision of these By-laws
shall be paid in cash if the retail business outlet is located in a
jurisdiction as to which the 30% income tax withholding provisions of
Section 1441 or Section 1442 of the U.S. Internal Revenue Code are
applicable.
SECTION 8. Effective with respect to business done by them with this
corporation after December 31, 1982, each retail hardware dealer having
membership in this corporation on that date and each retail hardware dealer
who is a subscriber on that date or who becomes a subscriber after that date
for the 1 share of Class A stock of this corporation which is required to be
owned in order to become a member of this corporation shall, solely by such
dealer's act of commencing or continuing to do business with this
corporation after said date, be deemed to have authorized and directed that,
notwithstanding any other provision of this Article XXIV of these By-laws,
the distributions to be made on a patronage basis as provided for in
Section 2 and Section 6 of this Article XXIV shall be made in a manner
taking into account the quantity or value of business done with each dealer
by each separate division of the corporation as shall be established on the
books of the corporation with respect to its operations and/or the quantity
or value of business done by the corporation or each such division of the
corporation with each of its dealers with respect to each category of sales
as shall be established on the books of the corporation. Each such dealer
shall further thereby be deemed to have authorized and directed that, in
any taxable year of this corporation during which it incurs a loss in
connection with the operations of any such division or in connection with
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any such category of sales, (i) a proportionate share of such loss shall
be deducted from the net earnings of the corporation on the business done
during such year by each of its other divisions or with respect to each of
its other sales categories with its dealers and (ii) the amount of patronage
dividends which the corporation would otherwise be obligated to distribute
to its dealers in connection with their purchases from each such other
division of the corporation or in connection with each of the other sales
categories established by the corporation (as the case may be) shall be
reduced by such proportionate share of said loss. For the foregoing purposes
the proportionate share of any such loss in connection with the operations
of any such division of the corporation or in connection with any such
category of sales which shall be deducted from the net earnings realized
by it with respect to business done by each other division of the
corporation or with respect to each of the other sales categories
established by the corporation shall be determined by multiplying the total
amount of such loss by a fraction having as its numerator the net earnings
which would otherwise be distributable as patronage dividends in connection
with the business done with its members by each such other division or each
such other category of sales and having as its denominator the total of the
net earnings which would otherwise be distributable as patronage dividends
in connection with the business done with its members by all such divisions
of this corporation and/or all such sales categories.
ARTICLE XXV
ESTABLISHMENT OF ACE HARDWARE CORPORATION
DEALERSHIPS AND INTERNATIONAL DISTRIBUTORSHIPS
SECTION 1. Except as provided in Article XXV, Section 3 hereof, no
person, partnership or corporation shall be authorized or permitted to use
the name "Ace Hardware" or any trademark or trade name including the word
"Ace" in conjunction with the sale of hardware or related merchandise, to
display any identification sign or emblem indicating that said person,
partnership or corporation is an authorized Ace Hardware dealer, or to
purchase merchandise (including items carried under the Ace brand name)
from Ace Hardware Corporation unless such person, partnership or corporation
has first been accepted by Ace Hardware Corporation as a duly licensed or
franchised dealer and has executed the membership or similar agreement then
utilized by Ace Hardware Corporation for the establishment of such a dealer
relationship and has otherwise complied with the usual requirements of Ace
Hardware Corporation with respect thereto. Any such agreement may contain
such reasonable provisions with respect to the termination thereof as shall
be legally permitted by the laws of the United States of America and by the
laws of the state or other jurisdiction in which the business of the dealer
is located.
SECTION 2. In order for any person, partnership or corporation to be
accepted by Ace Hardware Corporation as a licensed dealer, such person,
partnership or corporation shall also be required to purchase the necessary
number of shares of capital stock of the corporation as required by Article
Fourth (c) and Article Fourth (e) of the restated Certificate of
Incorporation of Ace Hardware Corporation filed with the Secretary of State
of Delaware on September 18, 1974. Accordingly, each such person, partnership
or corporation shall, concurrently with the execution by such person,
partnership or corporation of the Ace Dealer Membership Agreement then
utilized by the corporation, also agree in writing to purchase one (1)
share of Class A stock of the corporation at a price equal to the par value
thereof of $1,000 per share, and forty (40) shares of Class C stock of the
corporation at a price equal to the par value thereof of $100 per share or,
when the store which is licensed under such Membership Agreement is not the
first store owned or controlled by said person, partnership or corporation
which has become accepted by Ace Hardware Corporation as a licensed dealer,
to purchase fifty (50) shares of Class C stock at a price equal to the par
value thereof of $100 per share. The terms of payment with respect to any
shares of capital stock of the corporation purchased by any such person,
partnership or corporation shall be as set forth in such resolution as
shall be adopted from time to time by the Board of Directors of the
corporation for the purpose of establishing such terms of payment.
SECTION 3. In the case of a person, partnership or corporation
operating one or more business outlets located outside the United States of
America, its territories and possessions, Ace Hardware Corporation
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may approve the sale of merchandise for delivery to such an outlet under
the terms of an international distributor agreement entered into with it by
such party in lieu of the membership or similar agreement utilized with
respect to business outlets by parties who are accepted by Ace Hardware
Corporation as licensed or franchised dealers. No party approved as an
international distributor shall be entitled to purchase or own any shares
of the capital stock of Ace Hardware Corporation, nor shall any patronage
dividends be paid on account of any purchases made from Ace Hardware
Corporation by international distributors. Purchases of merchandise by
international distributors shall be made in accordance with the applicable
terms of the international distributor agreement and such other terms as
may be imposed by Ace Hardware Corporation from time to time with regard to
particular international distributors. Such purchases may include items
carried under "Ace" or "Ace Hardware" brand names or under other private
label names owned by, or licensed to, Ace Hardware Corporation only with
the express written consent of an executive officer whom its President has
vested with authority to grant such consents. No international distributor
shall have authority or be permitted to use names "Ace" or "Ace Hardware"
or any other trade name, trademark or service mark owned or registered by,
or licensed to, Ace Hardware Corporation in the United States of America or
elsewhere (including any translations of any of said names or marks) unless
a separate written license agreement granting such distributor the right to
such use is entered into between it and Ace Hardware Corporation. All of
the terms and conditions contained in international distributor or license
agreements or imposed upon international distributors (including, but not
limited to, those dealing with territorial rights, duration, and service,
handling, or license fees or charges, as well as any terms which vary among
particular international distributors) shall be established solely by the
executive officer or officers of Ace Hardware Corporation vested with such
authority by its President, provided, however, that no international
distributor shall be granted any exclusive area or territorial rights
without the prior approval of the Board of Directors or a committee of the
Board to which the Board has delegated the authority to approve the
granting of such rights. In establishing such terms, consideration shall be
given to the relevant business circumstances, including, but not limited
to, specific legal requirements and various costs associated with serving
an international distributor in a particular location.
SECTION 4. Each person, partnership or corporation accepted by Ace
Hardware Corporation as a duly licensed dealer or international distributor
shall, by virtue of such acceptance, be deemed to have agreed to assume
liability for and indemnify Ace Hardware Corporation and hold it harmless
from and against any and all claims which may be asserted against it and
from any losses sustained by it (including attorneys' fees and expenses
incurred by it in defending such claims or in attempting to avoid or
mitigate such losses) in connection with or resulting from billings by
suppliers of merchandise purchased by or at the request of such dealer or
distributor from or through Ace Hardware Corporation in cases where such
merchandise is not to be supplied from the corporation's own inventories.
ARTICLE XXVI
BY-LAWS TO CONSTITUTE BINDING CONTRACT
SECTION 1. These By-laws, as amended from time to time, shall
constitute a binding legal contract between Ace Hardware Corporation and
its stockholders, and shall be legally binding on all stockholders of Ace
Hardware Corporation and the successors, heirs, executors, administrators,
assigns and personal representatives of such stockholders.
SECTION 2. The purchase of shares of any class of stock of this
corporation and the issuance thereof to any stockholder shall constitute
and be equivalent to a consent of the part of the stockholder to whom said
shares are issued to be bound by these By-laws, as amended from time to
time, and an agreement on such stockholder's part to be bound thereby.
SECTION 3. The invalidity of any portion of these By-laws, as amended
from time to time, shall in no way affect any other portion of the By-laws
which can be given effect without such invalidated part, and the remaining
portions of the By-laws shall continue to constitute a legally binding
contract between this corporation and its stockholders.
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No dealer, salesman, or any other person
has been authorized by the Company to give
ACE HARDWARE CORPORATION any information or make any representations
in connection with the offering described
herein. This Prospectus does not constitute
an offer to sell, or a solicitation of an
2,126 Shares of Class A offer to buy, to any person in any state in
(Voting) Stock which it is unlawful to make such
$1,000 par value solicitation. The delivery of this
Prospectus at any time does not imply that
there has been no change in the affairs of
the Company subsequent to its date of
issue.
92,750 Shares of Class C In Florida the securities covered by this
(Non-voting) Stock Prospectus are being offered pursuant to a
$100 par value limited offering exemption which extends to
Florida purchasers the privilege of electing
to void their purchases within 3 days after
making any payment on account of the
purchase price.
TABLE OF CONTENTS
Item Page
Available Information 2
Reports to Security Holders 2
Factors to be Considered 2
Summary 3
Use of Proceeds 6
PROSPECTUS Distribution Plan and Offering Terms 7
Description of Capital Stock 9
Opinions of Experts 14
The Company's Business 14
Properties 29
Index to Financial Statements 31
Independent Auditors' Report 32
Financial Statements 33
Selected Financial Data 46
Dated: , 1995 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 47
Management 49
Indemnification Obligations of Company
and S.E.C. Position on Securities
Act Indemnification 50
Appendix A--By-laws of Ace Hardware
Corporation A-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following is an estimate of expenses in connection with the issuance
and distribution of the capital stock being offered:
Printing of Registration Statement and Prospectus $10,000
Accounting Fees and Expenses 12,000
Legal Fees 2,000
Fees and Expenses under "Blue Sky" Laws of Various States 3,500
Miscellaneous Expenses 500
Total $28,000
Item 15. Indemnification of Directors and Officers.
In accordance with the authority granted by Section 145 of the General
Corporation Law of the State of Delaware, under which the Registrant is
incorporated, Article XV of the Registrant's By-Laws (which Article is
included in the copy of the By-laws designated as Appendix A to the
Prospectus constituting a part of this Registration Statement and is
incorporated herein by reference) provides for indemnification by the
Registrant of its directors, officers, employees or agents. The principal
provisions of said By-law obligate the Registrant to indemnify any such
person against expenses (including attorneys' fees) actually and reasonably
incurred by any such person in connection with his successful defense of any
action, suit or proceeding (whether civil, criminal, administrative or
investigative) instituted against him by reason of the fact that he is or
was an officer, director, employee or agent of the Registrant and further
authorize the Registrant, in any situation where the Board of Directors of
the Registrant, by a majority vote of disinterested directors, determines
that any such person acted in good faith and in a manner he reasonably
believed to be in the best interest of the Registrant, to indemnify him for
the amount of any judgment or fine or settlement payment incurred by him,
together with his expenses and attorneys' fees, in connection with any such
action, suit or proceeding.
Richard Kaup, the late Virgil Poss, and Antone Salel, who constitute the
Trustees of the Ace Dealers' Perpetuation Fund prior to its termination on
November 30, 1976 (as of which date all of the assets of said Fund were
assigned and transferred to the Registrant and the Registrant then assumed
and became responsible for any and all obligations and liabilities,
contingent or otherwise, of the Trustees of said Fund), would also be
afforded indemnification by the Registrant with respect to any of their
activities while acting as such Trustees under the following terms included
in a resolution adopted by unanimous vote of the Board of Directors of the
Registrant on April 24, 1974: "... that the corporation indemnify and hold
harmless each of said Trustees with respect to any claims made against any
of them and any expenses thereby incurred by any of them in connection with
any of their activities as such Trustees".
Insofar as indemnification for liabilities arising under the federal
Securities Act of 1933 may be permitted to directors, officers, or persons
controlling the Registrant, pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
S-1
The Registrant also maintains a directors and officers liability and
corporation indemnification insurance policy issued by Illinois National
Insurance Company under which there are to be paid on behalf of the
Registrant all amounts for which the Registrant grants indemnification to
a director or officer of the Registrant with respect to any claim(s) made
against him which arise out of a "Wrongful Act" (as defined in the policy)
committed by such director or officer in his capacity as such a director or
officer and which he has become legally obligated to pay. Said policy also
insures each director or officer of the Registrant against loss arising from
any claim(s) not indemnified by the Registrant which may be made against him
by reason of any such "Wrongful Act" committed by him.
The limits of liability under said policy are $10,000,000 for each loss
and $10,000,000 for each policy year. The Registrant is subject to a
$250,000 self-insured retention for a loss in which the Registrant grants
indemnification to the directors and officers. Each director and officer
covered by the policy has first dollar coverage with no deductible for each
loss in which the Registrant does not grant indemnification. Coverage is not
provided for claims under Section 16(b) of the federal Securities Exchange
Act of 1934, which could not arise in any event due to the ownership
limitations and restrictions on transfers which are applicable to the
Registrant's stock. Among the other classes of claims which are excluded
from coverage under the policy are claims based upon alleged violations of
the federal Employee Retirement Income Security Act of 1974.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
Exhibit
No.
1 No exhibit.
2 No exhibit.
3 Not applicable.
4-A Restated Certificate of Incorporation of the Registrant
dated September 18, 1974 filed as Exhibit 3-A to the
Registrant's Form S-1 Registration Statement (Registration
No. 2-55860) on March 30, 1976 and incorporated herein by
reference.
4-B By-laws of the Registrant as amended on September 20, 1994
(included as Appendix A to the Prospectus constituting a
part of this Form S-2 Registration Statement).
4-C Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated May 19, 1976 filed
as Exhibit 3-D to Amendment No. 1 to the Registrant's Form
S-1 Registration Statement (Registration No. 2-55860) on
June 10, 1976 and incorporated herein by reference.
4-D Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated May 21, 1979 filed
as Exhibit 3-F to Amendment No. 1 to the Registrant's Form
S-1 Registration Statement (Registration No. 2-63880) on
May 23, 1979 and incorporated herein by reference.
4-E Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 7, 1982 filed
as Exhibit 3-G to the Registrant's Form S-1 Registration
Statement (Registration No. 2-82460) on March 16, 1983 and
incorporated herein by reference.
S-2
Exhibit
No.
4-F Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 5, 1987 filed
as Exhibit 3-F to the Registrant's Form S-1 Registration
Statement (Registration No. 33-4299) on March 29, 1988 and
incorporated by reference.
4-G Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant dated June 16, 1989 filed
as Exhibit 4-G to the Post-Effective Amendment No. 1 to
the Registrant's Form S-2 Registration Statement (Regis-
tration No. 33-27790) on March 20, 1990 and incorporated
herein by reference.
4-H Specimen copy of Class B stock certificate as revised as
of November, 1984, filed as Exhibit 4-A to Post-Effective
Amendment No. 2 to the Registrant's Form S-1 Registration
Statement (Registration No. 2-82460) on March 15, 1985 and
incorporated herein by reference.
4-I Specimen copy of Patronage Refund Certificate as revised
in 1988 filed as Exhibit 4-B to Post-Effective Amendment
No. 2 to the Registrant's Form S-1 Registration Statement
(Registration No. 33-4299) on March 29, 1988 and
incorporated herein by reference.
4-J Specimen copy of Class A stock certificate as revised in
1987 filed as Exhibit 4-C to Post-Effective Amendment
No. 2 to the Registrant's Form S-1 Registration Statement
(Registration No. 33-4299) on March 29, 1988 and
incorporated herein by reference.
4-K Specimen copy of Class C stock certificate filed as
Exhibit 4-I to the Registrant's Form S-1 Registration
Statement (Registration No. 2-82460) on March 16, 1983
and incorporated herein by reference.
4-L Copy of current standard form of Subscription for Capital
Stock Agreement to be used for dealers to subscribe for
shares of the Registrant's stock in conjunction with new
membership agreements submitted to the Registrant filed as
Exhibit 4-L to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 23, 1994 and incorporated herein by
reference.
4-M Copy of plan for the distribution of patronage dividends
with respect to purchases of merchandise made from the
Registrant on and after January 1, 1995, adopted by the
Board of Directors of the Registrant on July 26, 1994
(the text of which plan is set forth under the heading
"The Company's Business," subheading "Forms of Patronage
Dividend Distributions" in the Prospectus constituting a
part of this Form S-2 Registration Statement).
4-N Copy of plan for the distribution of patronage dividends
with respect to purchases of merchandise made from the
Registrant on or after January 1, 1993 through December
31, 1994 adopted by the Board of Directors of the
Registrant on December 8, 1992, (the text of which plan
is set forth under the heading "The Company's Business,"
subheading "Forms of Patronage Dividend Distributions" in
the Prospectus constituting a part of this Form S-2
Registration Statement).
5 Opinion of David W. League, General Counsel of the
Registrant, as to legality of securities being registered.
6 No exhibit.
S-3
Exhibit
No.
7 Opinion of Messrs. Gatenbey, Law & League filed as Exhibit
7 to the Registrant's Form S-1 Registration Statement
(Registration No. 2-82460) on March 16, 1983 and
incorporated herein by reference.
8 No exhibit; the opinions of David W. League, General
Counsel of the Registrant, as to certain tax matters are
set forth in statements attributed to him under the heading
"Distribution Plan and Offering Terms," subheading "Federal
Income Tax Status of Class A and Class C Shares" and under
the heading "The Company's Business," subheading "Federal
Income Tax Treatment of Patronage Dividends" in the
Prospectus constituting a part of this Form S-2
Registration Statement.
9 Not applicable.
10-A Copy of Retirement Benefits Replacement Plan of the
Registrant, restated as of January 1, 1989 filed as
Exhibit 10- A to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 23, 1994 and incorporated herein by
reference.
10-B Copy of resolutions amending the 1990 Incentive Plans for
Executives and establishing the Executive Supplement
Benefit Plans of the Registrant adopted by its Board of
Directors on December 11, 1990, filed as exhibit 10-G to
Post-Effective Amendment No. 2 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-27790)
on March 20, 1991 and incorporated herein by reference.
10-C Copy of Amendment to the Executive Supplemental Benefits
Plan of the Registrant adopted by its Board of Directors
on July 30, 1991 filed as Exhibit 10-E to the Registrant's
Form S-2 Registration Statement (Registration No. 33-46449)
on March 23, 1992 and incorporated herein by reference.
10-D Copy of amendment to the Executive Supplemental Benefits
Plan of the Registrant adopted by its Board of Directors on
December 9, 1991 filed as Exhibit 10-F to the Registrant's
Form S-2 Registration Statement (Registration No. 33-46449)
on March 23, 1992 and incorporated herein by reference.
10-E Copy of the "Ace Hardware Corporation Officer's (sic)
Incentive Compensation Plan" as amended and restated
effective January 1, 1994 filed as Exhibit 10-G to Post-
Effective Amendment No. 2 to the Registrant's Form S-2
Registration Statement (Registration No. 33-46449) on
March 23, 1994 and incorporated herein by reference.
10-F Copy of Employment Agreement dated October 4, 1994
between Ace Hardware Corporation and Paul Ingevaldson.
10-G Copy of Employment Agreement dated October 4, 1994 between
Ace Hardware Corporation and David F. Hodnik.
10-H Copy of Employment Agreement dated October 12, 1994
between Ace Hardware Corporation and William A. Loftus.
10-I Copy of Employment Agreement effective January 1, 1993
between Ace Hardware Corporation and Roger E. Peterson
filed as Exhibit 10-K to the Post-Effective Amendment
No. 1 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on March 22, 1993 and
incorporated herein by reference.
S-4
Exhibit
No.
10-J Copy of Employment Agreement effective January 1, 1993
between Ace Hardware Corporation and Paul Ingevaldson
filed as Exhibit 10-I to the Post-Effective Amendment
No. 1 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-464489) on March 22, 1993 and
incorporated herein by reference.
10-K Copy of Employment Agreement effective January 1, 1993
between Ace Hardware Corporation and David F. Hodnik filed
as Exhibit 10-J to the Post-Effective Amendment No. 1 to
the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on March 22, 1993 and
incorporated herein by reference.
10-L Copy of Employment Agreement effective January 1, 1993
between Ace Hardware Corporation and William A. Loftus
filed as Exhibit 10-L to the Post-Effective Amendment No. 1
to the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on March 22, 1993 and
incorporated herein by reference.
10-M Copy of Loan Agreement with Anne Arundel County, Maryland
dated December 1, 1981 securing 15-year floating rate
industrial development revenue bonds in the principal sum
of $9 million held by The Northern Trust Company, Chicago,
Illinois, for itself and other participating lenders filed
as Exhibit 10-A-k to Post-Effective Amendment No. 3 to the
Registrant's Form S-1 Registration Statement (Registration
No. 2-63880) on March 9, 1982 and incorporated herein by
reference.
10-N Copy of Note Purchase and Private Shelf Agreement with The
Prudential Insurance Company of America dated September
27, 1991 securing 8.74% Senior Series A Notes in the
principal sum of $20,000,000 with a maturity date of
July 1, 2003 filed as Exhibit 10-A-q to the Registrant's
Form S-2 Registration Statement (Registration No. 33-46449)
on March 23, 1992 and incorporated herein by reference.
10-O Copy of Standard Form of Ace Hardware International Retail
Merchant Agreement adopted in 1990, filed as Exhibit 10-A-q
to Post-Effective Amendment No. 2 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-27790) on
March 20, 1991 and incorporated herein by reference.
10-P Copy of Current Standard Form of Ace Hardware Membership
Agreement filed as Exhibit 10-P to Post-Effective
Amendment No. 2 to the Registrant's Form S-2 Registration
Statement (Registration No. 33-46449) on March 23, 1994
and incorporated herein by reference.
10-Q Copy of 6.89% Senior Series B notes in the aggregate
principal sum of $20,000,000 issued July 29, 1992 with a
maturity date of January 1, 2000 pursuant to Note Purchase
and Private Shelf Agreement with the Prudential Insurance
Company of America dated September 27, 1991 filed as
Exhibit 10-Q to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 23, 1994 and incorporated herein by
reference.
10-R Copy of 6.47% Senior Series A notes in the aggregate
principal sum of $30,000,000 issued September 22, 1993
with a maturity date of June 22, 2008, and $20,000,000
Private Shelf Facility, pursuant to Note Purchase and
Private Shelf Agreement with the Prudential Insurance
Company of America dated as of September 22, 1993 filed
as Exhibit 10-R to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 23, 1994 and incorporated herein by
reference.
S-5
Exhibit
No.
10-S Assignment and Assumption dated October 22, 1992 of Lease
dated August 31, 1992 with MTI Vacations, Inc. filed as
Exhibit 10-A-s to the Post-Effective Amendment No. 1 to
the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on March 22, 1993 and
incorporated herein by reference.
10-T Copy of Amendment to the Executive Supplemental Benefit
Plans of the Registrant adopted by its Board of Directors
on March 17, 1992 filed as Exhibit 10-A-t to the Post-
Effective Amendment No. 1 to the Registrant's Form S-2
Registration Statement (Registration No. 33-46449) on
March 22, 1993 and incorporated herein by reference.
10-U Copy of Lease dated September 30, 1992 for general offices
of the Registrant in Oak Brook, Illinois filed as Exhibit
10-A-u to the Post-Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 22, 1993 and incorporated herein by
reference.
10-V Copy of Fourth Amendment to Executive Supplemental Benefit
Plans effective January 1, 1994 filed as Exhibit 10-V to
Post-Effective Amendment No. 2 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-46449) on
March 23, 1994 and incorporated herein by reference.
10-W Copy of Ace Hardware Corporation Deferred Director Fee
Plan as amended on June 8, 1993 filed as Exhibit 10-W to
Post-Effective Amendment No. 2 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-46449) on
March 23, 1994 and incorporated herein by reference.
10-X Copy of Ace Hardware Corporation Deferred Compensation
Plan effective January 1, 1994 filed as Exhibit 10-X to
Post-Effective Amendment No. 2 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-46449)
on March 23, 1994 and incorporated herein by reference.
10-Y Copy of Lease dated September 22, 1994 for bulk
merchandise redistribution center of Registrant in Carol
Stream, Illinois.
10-Z Copy of Lease dated May 4, 1994 for freight consolidation
center of the Registrant in Chicago, Illinois.
10-a-1 Copy of Long Term Incentive Compensation Deferral Option
Plan of the Registrant effective January 1, 1995 adopted
by its Board of Directors on December 6, 1994.
10-a-2 Copy of Director's Deferral Option Plan of the Registrant
effective January 1, 1995 adopted by its Board of
Directors on December 6, 1994.
10-a-3 Copy of Employment Agreement dated March 22, 1994 between
Ace Hardware Corporation and Fred J. Neer.
10-a-4 Copy of Employment Agreement dated March 22, 1994 between
Ace Hardware Corporation and Donald L. Schuman.
10-a-5 Copy of Employment Agreement dated December 13, 1993
between Ace Hardware Corporation and David W. League.
10-a-6 Copy of Employment Agreement dated December 15, 1993
between Ace Hardware Corporation and David F. Myer.
10-a-7 Copy of Employment Agreement dated March 24, 1994 between
Ace Hardware Corporation and Michael C. Bodzewski.
S-6
Exhibit
No.
10-a-8 Copy of Employment Agreement dated December 15, 1993
between Ace Hardware Corporation and Rita D. Kahle.
10-a-9 Copy of Agreement dated January 6, 1995 between Ace
Hardware Corporation and Roger E. Peterson.
10-a-10 Copy of Ace Hardware Corporation Officer Incentive Plan
for Fiscal Year 1994.
11 No exhibit.
12 No exhibit.
13 Not applicable.
14 Not applicable.
15 No exhibit.
16 Not applicable.
17 Not applicable.
18 Not applicable.
19 Not applicable.
20 Not applicable.
21 Not applicable.
22 Not applicable.
23 (a) Auditors' Consent, Dated March 23, 1995.
(b) Consent of Counsel, Legal Opinions-Exhibit 5 and
Exhibit 7.
24 Powers of Attorney.
25 No exhibit.
26 No exhibit.
27 No exhibit.
28 Not applicable.
S-7
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(a) Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, to file with the Securities and Exchange
Commission such supplementary and periodic information, documents and
reports as may be prescribed by any rule or regulation of the Commission
heretofore or hereafter duly adopted pursuant to authority conferred in
that section;
(b) To file with the Securities and Exchange Commission, during any
period in which offers or sales are being made pursuant to the
registration, a post-effective amendment to the Registration Statement:
(i) to include any Prospectus required by Section 10(a) (3) of
the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement, including (but not limited to) any addition
or deletion of a managing underwriter.
(c) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment to the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof;
(d) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
S-8
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ACE HARDWARE CORPORATION
By RICHARD E. LASKOWSKI
Richard E. Laskowski
Chairman of the Board and Director
DATED: March 23, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
RICHARD E. LASKOWSKI Chairman of the Board March 23, 1995
Richard E. Laskowski and Director
ROGER E. PETERSON Chief Executive Officer March 23, 1995
Roger E. Peterson
DAVID F. HODNIK President and March 23, 1995
David F. Hodnik Chief Operating Officer
RITA D. KAHLE Vice President-Finance March 23, 1995
Rita D. Kahle (Principal Financial Officer)
Jennifer C. Anderson, Directors
Lawrence R. Bowman, Mark
Jeronimus, Howard J. Jung,
John E. Kingrey, Ray W.
Osborne, Don S. Williams,
Jon R. Weiss and
James R. Williams
*By DAVID F. HODNIK
David F. Hodnik
*By RITA D. KAHLE
Rita D. Kahle
*Attorneys-in-fact
March 23, 1995
S-9
INDEX TO EXHIBITS FILED TO
THE REGISTRATION STATEMENT
ON FORM S-2 OF ACE HARDWARE CORPORATION
Exhibit
Number Exhibit
4-B By-laws of the Registrant as amended on September 20, 1994
(included as Appendix A to the Prospectus constituting a
part of this Form S-2 Registration Statement).
4-M Copy of plan for the distribution of patronage dividends
with respect to purchases of merchandise made from the
Registrant on and after January 1, 1995, adopted by the
Board of Directors of the Registrant on July 26, 1994
(the text of which plan is set forth under the heading
"The Company's Business," subheading "Forms of Patronage
Dividend Distributions" in the Prospectus constituting a
part of this Form S-2 Registration Statement).
4-N Copy of plan for the distribution of patronage dividends
with respect to purchases of merchandise made from the
Registrant on or after January 1, 1993 through December 31,
1994, adopted by the Board of Directors of the Registrant
on December 8, 1992, (the text of which plan is set forth
under the heading "The Company's Business," subheading
"Forms of Patronage Dividend Distributions" in the
Prospectus constituting a part of this Form S-2
Registration Statement).
5 Opinion of David W. League, General Counsel of the
Registrant as to legality of securities being registered.
10-F Copy of Employment Agreement dated October 4, 1994 between
Ace Hardware Corporation and Paul Ingevaldson.
10-G Copy of Employment Agreement dated October 4, 1994 between
Ace Hardware Corporation and David F. Hodnik.
10-H Copy of Employment Agreement dated October 12, 1994 between
Ace Hardware Corporation and William A. Loftus.
10-Y Copy of Lease dated September 22, 1994 for bulk merchandise
redistribution center of Registrant in Carol Stream,
Illinois.
10-Z Copy of Lease dated May 4, 1994 for freight consolidation
center of the Registrant in Chicago, Illinois.
10-a-1 Copy of Long Term Incentive Compensation Deferral Option
Plan of the Registrant effective January 1, 1995 adopted
by its Board of Directors on December 6, 1994.
10-a-2 Copy of Director's Deferral Option Plan of the Registrant
effective January 1, 1995 adopted by its Board of
Directors on December 6, 1994.
10-a-3 Copy of Employment Agreement dated March 22, 1994 between
Ace Hardware Corporation and Fred J. Neer.
10-a-4 Copy of Employment Agreement dated March 22, 1994 between
Ace Hardware Corporation and Donald L. Schuman.
S-10
Exhibit
Number Exhibit
10-a-5 Copy of Employment Agreement dated December 13, 1993
between Ace Hardware Corporation and David W. League.
10-a-6 Copy of Employment Agreement dated December 15, 1993
between Ace Hardware Corporation and David F. Myer.
10-a-7 Copy of Employment Agreement dated March 24, 1994 between
Ace Hardware Corporation and Michael C. Bodzewski.
10-a-8 Copy of Employment Agreement dated December 15, 1993
between Ace Hardware Corporation and Rita D. Kahle.
10-a-9 Copy of Agreement dated January 6, 1995 between Ace
Hardware Corporation and Roger E. Peterson.
10-a-10 Copy of Ace Hardware Corporation Officer Incentive Plan
for Fiscal Year 1994.
23(a) Auditors' consent dated March 23, 1995
24 Powers of Attorney
The various exhibits incorporated by reference are listed in Item 16 of
this Form S-2 Registration Statement of Ace Hardware Corporation.
S-11
March 23, 1995
To the Board of Directors
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, Illinois 60521
Gentlemen:
This opinion relates to the legality of the 1,500 shares of Class A
voting stock (par value $1,000 per share) and 40,000 shares of Class C
nonvoting stock (par value $100 per share) of Ace Hardware Corporation
(the "Company"), a Delaware corporation, which are being registered with
the Securities and Exchange Commission under the Securities Act of 1933
under a Registration Statement (Form S-2) with respect to which Registration
Statement this opinion is furnished. Said opinion further relates to the
legality of unsold shares of Class A stock and Class C stock previously
registered under Registration Statement No. 33-46449 which, pursuant to
Rule 429 of Regulation C of the Securities Act of 1933, are included among
the shares being offered by the Prospectus constituting a part of the
Registration Statement with respect to which said opinion is furnished.
As General Counsel in the Legal Department of the Company since January 1,
1989 and as a partner in the firm of Gatenbey, Law & League which acted as
general counsel to the Company and its Illinois predecessor corporation for
many years prior to that date, I have examined the Company's restated
Certificate of Incorporation (as amended to date), the By-laws of the
Company (as amended to date), and its corporate proceedings, and have made
such other investigations as I have deemed necessary or appropriate for the
purpose of this opinion.
Based upon the foregoing, I am of the opinion that:
(1) The Company is duly organized and validly existing as a corporation
in good standing under the laws of the State of Delaware and is also
duly qualified to do business as a foreign corporation in, and is
in good standing under the laws of, the States of Arizona,
Arkansas, California, Colorado, Connecticut, Florida, Georgia,
Idaho, Illinois, Maryland, Mississippi, Nebraska, New York,
North Carolina, Ohio, Oregon, Texas, Washington and Wisconsin.
(2) The total authorized capital stock of the Company consists of 10,000
shares of Class A Voting Stock (par value $1,000 per share), 6,500
shares of Class B Nonvoting Stock (par value $1,000 per share) and
2,000,000 shares of Class C Nonvoting Stock (par value $100 per
share).
(3) All of the shares of capital stock of the Company which are to be
offered by the Prospectus filed as a part of the aforesaid
Registration Statement with respect to which this opinion is
furnished (including any shares which may have heretofore been
issued but are not presently outstanding), will, upon issuance in
accordance with the terms set forth in said Prospectus, constitute
legally and validly issued, fully paid and non-assessable shares.
I understand that this opinion is to be used in connection with the aforesaid
Registration Statement, and I consent to the filing of this opinion with the
Registration Statement and to the reference to me in the Prospectus under
the heading "Opinions of Experts". I also hereby consent to the comment
made in the Prospectus under "Distribution Plan and Offering Terms",
subheading "Federal Income Tax Status of Class A and Class C Shares", to
the effect that the statements made under said subheading with respect to
the federal income tax treatment of shares of the Company's Class A and Class
C Stock purchased by its dealers and the statements made in the Prospectus
under "The Company's Business", subheading "Federal Income Tax Treatment of
Patronage Dividends" represent my opinion concerning said matters. I also
hereby consent on behalf of Gatenbey, Law & League to the reference to them
in the Prospectus under the heading "Opinions of Experts" and to the
incorporation by reference as Exhibit No. 7 to said Post-Effective Amendment
of their opinion relating to the preference in excess of par value to which
shares of Class B nonvoting stock of the Company are entitled in the event
of the involuntary liquidation of the Company which was heretofore filed as
Exhibit No. 7 to the Company's Form S-1 Registration Statement under
Registration No. 2-63880.
Very truly yours,
David W. League
General Counsel - Ace Hardware Corporation
EMPLOYMENT AGREEMENT
This Employment Agreement made and entered into this 04th day of October, 1994
by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter
referred to as the "Employer", and Paul M. Ingevaldson , hereinafter referred
to as the "Executive";
W I T N E S S E T H :
Whereas the Executive is now employed by the Employer and the Employer and
Executive desire to enter into an Agreement to provide for the continuation of
the services of the Executive for the Employer for a term of years to the
extent and upon the terms and conditions hereinafter set forth;
Now, therefore, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
l. Employment. The Employer hereby employs the Executive as an
executive officer of the Employer holding such specific office or
offices during the term of this Agreement to which he has been
appointed by the Employer or is hereafter elected by the Board of
Directors of the Employer, and the Executive hereby accepts such
employment upon the terms and conditions hereinafter set forth.
The duties and responsibilities of the Executive shall include
those duties and responsibilities assigned to the office or
offices held by him under the Employer's By-laws and its practices
and procedures, together with such additional duties as may
reasonably be assigned to him from time to time by the President
or the Board of Directors of the Employer. If, during the term of
this Agreement, the Executive shall become eligible to be elected
or appointed as a director of the Employer, then, in the event
that he is elected or appointed as such a director, the Executive
shall serve in such capacity without additional compensation
during the remainder of the term of this Agreement.
2. Term of Agreement. The initial term of this Agreement shall begin
on January 1, 1995 and shall terminate on December 31, 1996,
unless the Agreement shall have been terminated earlier by reason
of the Executive's resignation, death, retirement or termination
for cause pursuant to Section 4 hereof or by reason of a
determination made pursuant to Section 9 hereof. Provided the
Executive is actively employed by the Employer as of the last day
of the initial term hereof, the Agreement shall automatically be
extended for an additional term of one (l) year following the
expiration of the initial term unless either the Employer or the
Executive shall have delivered written notice to the other party
hereto not less than sixty (60) days prior to December 31, 1996 of
its or his intention to terminate the Agreement at the end of the
initial term, in which case the Agreement shall not be extended
beyond December 31, 1996.
3. Employer's Alternative Option to Re-offer Same Agreement. In lieu
of either allowing this Agreement to be extended for an additional
one-year term beyond December 31, 1996 or exercising its right not
to extend the Agreement for such an additional one-year term, the
Employer shall have the additional option of offering to the
Executive a new Employment Agreement to be effective as of January
1, 1997 which shall contain all of the same terms and conditions
as this Agreement except for a provision comparable to this
Section 3 and for those modifications which would be required with
respect to the then current salary of the Executive and the dates
or years to be designated in such new Agreement. In order to
exercise such option, the Employer shall deliver written notice to
the Executive of the Employer's intention to offer him such new
Employment Agreement not less than sixty (60) days prior to
December 31, 1996. With such notice the Employer shall tender to
the Executive two (2) copies of such new agreement duly executed
on behalf of the Employer. In the event that the Executive does
not return to the Employer one (l) copy of said new agreement
executed by the Executive by December 31, 1996, the Employer's
offer of such new agreement shall be deemed null and void. Any
decision on the part of the Employer to offer such new agreement
to the Executive, as well as any decision on the part of the
Employer not to allow this Agreement to be extended for an
additional term of one (1) year as provided for in Section 2
above, shall be made only by the Board of Directors of the
Employer.
4. Termination for Cause. The Employer may dismiss the Executive
from its employment and terminate this Agreement at any time for
cause, which shall consist of (a) theft, fraud, or embezzlement,
or conviction of any felony; or (b) the giving away or selling of
any trade secrets belonging to the Employer or of any information,
plans or records acquired or compiled by the Executive, or
furnished to him by Employer, in conjunction with his employment
hereunder for use in Employer's business, provided that such
activity results in a proven detriment to the Employer, and
provided further that this provision shall not apply to
information, plans and records which are otherwise available to
competitors of Employer or to members of the public. In the event
of any such termination of this Agreement for cause, payment to
the Executive of whatever portion of the Executive's salary which
shall have accrued to him to the date of such termination shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall also constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of such termination for the
payment by Employer of compensation to him or for the payment by
Employer after such date of the cost of any additional benefits
provided by Employer for the Executive.
5. Compensation. For all services rendered by the Executive under
this Agreement, the Employer agrees to pay to the Executive a
salary of Two Hundred Thirty Two Thousand Dollars ($232,000.00)
per year, or such increased amount, if any, as shall be approved
by the Board of Directors of the Employer pursuant to the annual
review procedure hereinafter provided for. Such salary shall be
paid to the Employee in semi-monthly installments, or in such
other manner as shall be mutually agreed upon by the Employer and
the Executive. The Employer further agrees to review the salary
of the Executive hereunder at a meeting of the Board of Directors
of the Employer during the last quarter of 1995 with respect to
the amount of such salary to be paid to the Executive during the
contract year beginning January 1,1996. In the event that this
Agreement is extended for one (1) year beyond December 31, 1996,
the Employer agrees to further review said salary at a meeting of
the Board of Directors of the Employer during the last quarter of
1996 with respect to the amount thereof to be paid to the
Executive during the contract year beginning January 1,1997. The
Executive shall be paid such increased salary, if any, as the
Employer's Board of Directors shall deem to be appropriate after
the completion of each salary review made by the Board.
Notwithstanding anything herein to the contrary, the Employer's
contractual obligation for the payment of compensation hereunder
shall be suspended during any period Executive is receiving income
continuation benefits, including, but not limited to, short or
long-term disability benefits, under any Employer-sponsored plan.
6. Limitation on Outside Business Activities. The Executive shall
devote his entire business time, attention and energies to the
business of the Employer, and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or
not such business activity is pursued for gain, profit or other
pecuniary advantage, except that the Executive may devote a
reasonable portion of his time during business hours to
professional, civic, community or charitable activities, and, with
the approval of the President of the Employer, to service as a
director of other corporations and to other types of activities
not expressly mentioned herein.
7. Vacations. The Executive shall be granted during each calendar
year a vacation consisting of such number of weeks as he would be
entitled to during each such year in accordance with the vacation
policy established by the Employer for its executive officer
employees.
8. Nondisclosure of Confidential Information. It is understood and
agreed that the method and system of business used and developed
by the Employer involves marketing programs, pricing procedures,
operational procedures, training procedures, information
concerning retailers supplied by the Employer, lists of vendors to
the Employer, and other confidential information and/or trade
secrets of the Employer, and that the Executive, by virtue of his
employment hereunder, necessarily has and will become acquainted
with such confidential information and/or trade secrets. It is
further understood and agreed that the business and customers of
the Employer extend throughout the fifty (50) States of the United
States and its territorial possessions, the District of Columbia,
and several foreign countries located in various parts of the
world. Accordingly, the Executive agrees to treat as confidential
and to use only for the advancement of the interests of the
Employer all such information and/or trade secrets belonging to
the Employer and all information, plans and records submitted to
him by the Employer or acquired or compiled by him from time to
time in the course of his employment by the Employer for use in
the Employer's business which he knows to have been received by
him in confidence or which he knows would not otherwise be
available to competitors of the Employer or to members of the
public and, as a further specific condition of his employment
hereunder, and in further consideration thereof, the Executive
covenants and agrees that he will not, at any time during the term
of this Agreement or after its termination divulge to any person,
firm or corporation engaged anywhere in any line of business which
is directly or indirectly competitive with any line of business
engaged in by the Employer any such confidential information or
trade secrets. In the event of a breach or threatened breach of
the provisions of this Section of this Agreement which conflicts
with or would conflict with the interests of the Employer and
which results in or would result in a detriment to the Employer,
the Employer shall be entitled to an injunction restraining the
Executive from so disclosing any such trade secrets or
confidential information. Nothing contained herein shall be
construed as prohibiting the Employer from pursuing any other
remedies available to the Employer for such breach or threatened
breach, including the recovery of damages from the Executive.
9. Termination for Physical or Mental Incapacity or Alcohol or
Narcotics Addiction. Notwithstanding any other provision herein
contained, the Employer may, at its option, terminate this
Agreement at any time after it shall have been determined by
competent medical authority that the Executive has become
physically or mentally incapacitated or has become addicted to the
use of alcohol or narcotics to such an extent that he is prevented
by reason of such physical disability, mental incapacity, or
addiction from properly carrying on his duties hereunder;
provided, however, that the foregoing shall not be construed to
relieve the Employer of any obligations it would otherwise have
under the Americans with Disabilities Act of 1990 or other
applicable Illinois statutes to the extent the same are not
preempted thereby. In the event of any such termination of this
Agreement, the Executive shall be paid whatever portion of his
salary shall have accrued to him to the date of such termination,
together with such amount, if any, as shall equal the amount of
salary which otherwise would have been paid to him during any
accrued vacation time not utilized by him, and the payment to the
Executive of such salary and such accrued vacation pay shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall further constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of the termination of his
employment pursuant to this Section 9 for the payment by Employer
of compensation to him or for the payment by Employer after such
date of the cost of any additional benefits provided by Employer
for the Executive.
10. Non-Competition with Employer upon Voluntary Termination of
Employment. As a further specific condition of his employment by
the Employer hereunder and in further consideration of such
employment, the Executive agrees that, for a period of one (1)
year following any voluntary termination by the Executive of his
employment hereunder at any time prior to the last day of the term
for which he would otherwise be employed under this Agreement, he
will not, in any State or territory of the United States of
America or the District of Columbia in which the Employer has
franchise or other regular customer relationships with retailers
at the time of such termination of the Executive's employment (a)
become associated, by way of employment or any other type of
arrangement, in any business activities of any other person, firm
or corporation which are in competition with any business
activities carried on by the Employer or (b) become engaged on his
own behalf or for his own account in any such business activity or
in the conduct of a consulting or advisory service for any such
business activity carried on by any other person, firm or
corporation. The Employer and the Executive recognize that the
laws and public policies of the various States of the United
States and its territories and the District of Columbia may differ
as to the validity and enforceability of agreements similar to
those contained in this Section 10. It is the intention of the
Employer and the Executive that the provisions of this Agreement
shall be enforced to the fullest extent permissible under the laws
and public policies of the State of Illinois, but that the
unenforceability (or the modification to conform with such laws or
public policies) of any provision or provisions hereof shall not
render unenforceable or impair the validity of the remainder of
this Agreement. Accordingly, if any provision of this Agreement
shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete
or modify, as necessary, the offending provisions and to alter the
balance of this Agreement in order to render the same valid and
enforceable to the fullest extent permissible as aforesaid.
11. Application to Subsidiaries of Employer. Any employment of the
Executive by any wholly-owned subsidiary of the Employer and any
services performed by the Executive for any such subsidiary during
the term hereof (including, but not limited to, services in the
capacity of an officer or director of any such subsidiary) shall
be deemed to be included within the scope of the Executive's
employment hereunder and, unless separate compensation of the
Executive for the services performed by him for any such
subsidiary shall have been expressly authorized by the Board of
Directors of such subsidiary, the compensation paid to the
Executive pursuant to Section 5 hereof shall be deemed to
constitute the total compensation payable to the Executive for the
services performed by him for both the Employer and any such
subsidiary. The terms "Employer", "Employer's business", "line of
business engaged in by the Employer", and "business activities
carried on by the Employer" as used in Sections 8 and 10 hereof
shall include any subsidiary of the Employer, the business of or
lines of business engaged in by any such subsidiary, and all
business activities carried on by any such subsidiary.
12. Separation Allowance Payments. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4 and 9 of this Agreement
effective as of any date while this Agreement is in effect, the
same shall not constitute a breach of this Agreement; however, in
such event, the Employer shall continue to pay to the Executive on
the regular dates for payment thereof the salary which would
accrue for him under this Agreement if his employment had been
continued until the last day of the then current term of this
Agreement. In addition, if any such termination of employment by
the Employer for a reason not specified in Sections 4 and 9 hereof
becomes effective during the final six (6) months of the then
current term of this Agreement, the Employer shall further pay to
the Executive following the end of such term a separation
allowance in a total amount equal to the amount of salary which
would have continued to accrue for him if his employment hereunder
had continued beyond the end of such term until a total of six (6)
months has elapsed from the effective date of such termination of
his employment. Such separation allowance shall be paid to the
Executive in equal installments on the same dates that the
Executive would have received payments of salary if his employment
had continued for such period of time. It is the intention of the
parties that, by reason of the foregoing provisions, the Executive
shall in all events receive payments for a period of six (6)
months beyond the effective date of termination of his employment
by the Employer during the final six (6) months of the then
current term of this Agreement for any reason not specified in
Sections 4 and 9 hereof, which payments shall consist of the
regular salary payments which would accrue for the Executive until
the end of the then current term of this Agreement plus such
number of separation allowance payments thereafter as shall be
required in order to insure that payments of salary or of amounts
equivalent thereto are received by the Executive for such total
period of six (6) months subsequent to such termination of his
employment. The non-competition provisions set forth in Section
10 of this Agreement shall also be applicable to the Executive's
right to receive separation allowance payments under this Section
12 and, effective with respect to any such payment which would
otherwise become due and payable to the Executive on or after the
Executive's commencement of employment in, or other engagement in,
any type of business activity described in Section 10, the
Employer shall have no obligation to make any such separation
allowance payments to the Executive. Notwithstanding anything
herein to the contrary, the Employer's obligation to make
Separation Allowance Payments hereunder shall terminate upon the
death of the Executive and such Separation Allowance Payments as
would have otherwise been payable hereunder except for the death
of the Executive shall be forfeited.
l3. Outplacement Agency Services. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4 and 9 of this Agreement
effective as of any date while this Agreement is in effect, the
Employer shall make available to the Executive, at the Employer's
expense, the services of a recognized outplacement agency selected
by the Employer for the purpose of aiding the Executive in seeking
other employment.
l4. Amendments. Any of the terms and provisions of this Agreement
may, from time to time, be altered or amended by mutual agreement
of the parties hereto, provided, however, that any such alteration
or amendment shall be made in writing and shall be signed by both
parties hereto. Any such writing shall be made a part of this
Agreement as of the effective date specified in such writing. Any
increase in salary granted to the Executive by the Employer
pursuant to the salary review provisions of Section 5 of this
Agreement shall not constitute an alteration or amendment of the
Agreement requiring the signatures of both parties hereto,
however, and this Agreement shall be deemed to have been amended
with respect to any such salary increase by the adoption by the
Board of Directors of the Employer of a resolution authorizing
such increase and by the Executive's continuing thereafter to
perform the services required of him hereunder.
l5. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with reference to the employment of the
Executive by the Employer and the compensation to be paid to the
Executive for or with respect to such employment. All agreements,
contracts, understandings or arrangements which may have been
heretofore made or had with reference to the employment of the
Executive by the Employer are hereby wholly abrogated, discharged
and annulled, with the exception of any existing rights of the
Executive under the Employer's Profit Sharing Plan, Pension Plan,
Retirement Benefits Replacement Plan, Executive Supplemental
Benefit Plans, Deffered Compensation Plan, and other employee
benefit plans now maintained by the Employer. The Employer
further agrees that any new or improved benefits provided
generally to or made generally available to the Employer's
executive officer employees will be provided or made available on
the same basis to the Executive.
16. Applicable Law. This Agreement and the construction,
interpretation and enforcement of each of the provisions hereof
shall be governed in all respects by the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ACE HARDWARE CORPORATION,
a Delaware corporation
EXECUTIVE
By: Roger E. Peterson
President and CEO
(SEAL)
Paul M. Ingevaldson
ATTEST:
David W. League (SEAL)
Secretary
EMPLOYMENT AGREEMENT
This Employment Agreement made and entered into this 4th day of October, 1994
by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter
referred to as the "Employer", and David F. Hodnik, hereinafter referred to as
the "Executive";
W I T N E S S E T H :
Whereas the Executive is now employed by the Employer and the Employer and
Executive desire to enter into an Agreement to provide for the continuation of
the services of the Executive for the Employer for a term of years to the
extent and upon the terms and conditions hereinafter set forth;
Now, therefore, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
l. Employment. The Employer hereby employs the Executive as an
executive officer of the Employer holding such specific office or
offices during the term of this Agreement to which he has been
appointed by the Employer or is hereafter elected by the Board of
Directors of the Employer, and the Executive hereby accepts such
employment upon the terms and conditions hereinafter set forth.
The duties and responsibilities of the Executive shall include
those duties and responsibilities assigned to the office or
offices held by him under the Employer's By-laws and its practices
and procedures, together with such additional duties as may
reasonably be assigned to him from time to time by the President
or the Board of Directors of the Employer. If, during the term of
this Agreement, the Executive shall become eligible to be elected
or appointed as a director of the Employer, then, in the event
that he is elected or appointed as such a director, the Executive
shall serve in such capacity without additional compensation
during the remainder of the term of this Agreement.
2. Term of Agreement. The initial term of this Agreement shall begin
on January 1, 1995 and shall terminate on December 31, 1996,
unless the Agreement shall have been terminated earlier by reason
of the Executive's resignation, death, retirement or termination
for cause pursuant to Section 4 hereof or by reason of a
determination made pursuant to Section 9 hereof. Provided the
Executive is actively employed by the Employer as of the last day
of the initial term hereof, the Agreement shall automatically be
extended for an additional term of one (l) year following the
expiration of the initial term unless either the Employer or the
Executive shall have delivered written notice to the other party
hereto not less than sixty (60) days prior to December 31, 1996 of
its or his intention to terminate the Agreement at the end of the
initial term, in which case the Agreement shall not be extended
beyond December 31, 1996.
3. Employer's Alternative Option to Re-offer Same Agreement. In lieu
of either allowing this Agreement to be extended for an additional
one-year term beyond December 31, 1996 or exercising its right not
to extend the Agreement for such an additional one-year term, the
Employer shall have the additional option of offering to the
Executive a new Employment Agreement to be effective as of January
1, 1997 which shall contain all of the same terms and conditions
as this Agreement except for a provision comparable to this
Section 3 and for those modifications which would be required with
respect to the then current salary of the Executive and the dates
or years to be designated in such new Agreement. In order to
exercise such option, the Employer shall deliver written notice to
the Executive of the Employer's intention to offer him such new
Employment Agreement not less than sixty (60) days prior to
December 31, 1996. With such notice the Employer shall tender to
the Executive two (2) copies of such new agreement duly executed
on behalf of the Employer. In the event that the Executive does
not return to the Employer one (l) copy of said new agreement
executed by the Executive by December 31, 1996, the Employer's
offer of such new agreement shall be deemed null and void. Any
decision on the part of the Employer to offer such new agreement
to the Executive, as well as any decision on the part of the
Employer not to allow this Agreement to be extended for an
additional term of one (1) year as provided for in Section 2
above, shall be made only by the Board of Directors of the
Employer.
4. Termination for Cause. The Employer may dismiss the Executive
from its employment and terminate this Agreement at any time for
cause, which shall consist of (a) theft, fraud, or embezzlement,
or conviction of any felony; or (b) the giving away or selling of
any trade secrets belonging to the Employer or of any information,
plans or records acquired or compiled by the Executive, or
furnished to him by Employer, in conjunction with his employment
hereunder for use in Employer's business, provided that such
activity results in a proven detriment to the Employer, and
provided further that this provision shall not apply to
information, plans and records which are otherwise available to
competitors of Employer or to members of the public. In the event
of any such termination of this Agreement for cause, payment to
the Executive of whatever portion of the Executive's salary which
shall have accrued to him to the date of such termination shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall also constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of such termination for the
payment by Employer of compensation to him or for the payment by
Employer after such date of the cost of any additional benefits
provided by Employer for the Executive.
5. Compensation. For all services rendered by the Executive under
this Agreement, the Employer agrees to pay to the Executive a
salary of Three Hundred Fifty Thousand Dollars ($350,000.00)
per year, or such increased amount, if any, as shall be approved
by the Board of Directors of the Employer pursuant to the annual
review procedure hereinafter provided for. Such salary shall be
paid to the Employee in semi-monthly installments, or in such
other manner as shall be mutually agreed upon by the Employer and
the Executive. The Employer further agrees to review the salary
of the Executive hereunder at a meeting of the Board of Directors
of the Employer during the last quarter of 1995 with respect to
the amount of such salary to be paid to the Executive during the
contract year beginning January 1, 1996. In the event that this
Agreement is extended for one (1) year beyond December 31, 1996,
the Employer agrees to further review said salary at a meeting of
the Board of Directors of the Employer during the last quarter of
1996 with respect to the amount thereof to be paid to the
Executive during the contract year beginning January 1, 1997. The
Executive shall be paid such increased salary, if any, as the
Employer's Board of Directors shall deem to be appropriate after
the completion of each salary review made by the Board.
Notwithstanding anything herein to the contrary, the Employer's
contractual obligation for the payment of compensation hereunder
shall be suspended during any period Executive is receiving income
continuation benefits, including, but not limited to, short or
long-term disability benefits, under any Employer-sponsored plan.
6. Limitation on Outside Business Activities. The Executive shall
devote his entire business time, attention and energies to the
business of the Employer, and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or
not such business activity is pursued for gain, profit or other
pecuniary advantage, except that the Executive may devote a
reasonable portion of his time during business hours to
professional, civic, community or charitable activities, and, with
the approval of the President of the Employer, to service as a
director of other corporations and to other types of activities
not expressly mentioned herein.
7. Vacations. The Executive shall be granted during each calendar
year a vacation consisting of such number of weeks as he would be
entitled to during each such year in accordance with the vacation
policy established by the Employer for its executive officer
employees.
8. Nondisclosure of Confidential Information. It is understood and
agreed that the method and system of business used and developed
by the Employer involves marketing programs, pricing procedures,
operational procedures, training procedures, information
concerning retailers supplied by the Employer, lists of vendors to
the Employer, and other confidential information and/or trade
secrets of the Employer, and that the Executive, by virtue of his
employment hereunder, necessarily has and will become acquainted
with such confidential information and/or trade secrets. It is
further understood and agreed that the business and customers of
the Employer extend throughout the fifty (50) States of the United
States and its territorial possessions, the District of Columbia,
and several foreign countries located in various parts of the
world. Accordingly, the Executive agrees to treat as confidential
and to use only for the advancement of the interests of the
Employer all such information and/or trade secrets belonging to
the Employer and all information, plans and records submitted to
him by the Employer or acquired or compiled by him from time to
time in the course of his employment by the Employer for use in
the Employer's business which he knows to have been received by
him in confidence or which he knows would not otherwise be
available to competitors of the Employer or to members of the
public and, as a further specific condition of his employment
hereunder, and in further consideration thereof, the Executive
covenants and agrees that he will not, at any time during the term
of this Agreement or after its termination divulge to any person,
firm or corporation engaged anywhere in any line of business which
is directly or indirectly competitive with any line of business
engaged in by the Employer any such confidential information or
trade secrets. In the event of a breach or threatened breach of
the provisions of this Section of this Agreement which conflicts
with or would conflict with the interests of the Employer and
which results in or would result in a detriment to the Employer,
the Employer shall be entitled to an injunction restraining the
Executive from so disclosing any such trade secrets or
confidential information. Nothing contained herein shall be
construed as prohibiting the Employer from pursuing any other
remedies available to the Employer for such breach or threatened
breach, including the recovery of damages from the Executive.
9. Termination for Physical or Mental Incapacity or Alcohol or
Narcotics Addiction. Notwithstanding any other provision herein
contained, the Employer may, at its option, terminate this
Agreement at any time after it shall have been determined by
competent medical authority that the Executive has become
physically or mentally incapacitated or has become addicted to the
use of alcohol or narcotics to such an extent that he is prevented
by reason of such physical disability, mental incapacity, or
addiction from properly carrying on his duties hereunder;
provided, however, that the foregoing shall not be construed to
relieve the Employer of any obligations it would otherwise have
under the Americans with Disabilities Act of 1990 or other
applicable Illinois statutes to the extent the same are not
preempted thereby. In the event of any such termination of this
Agreement, the Executive shall be paid whatever portion of his
salary shall have accrued to him to the date of such termination,
together with such amount, if any, as shall equal the amount of
salary which otherwise would have been paid to him during any
accrued vacation time not utilized by him, and the payment to the
Executive of such salary and such accrued vacation pay shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall further constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of the termination of his
employment pursuant to this Section 9 for the payment by Employer
of compensation to him or for the payment by Employer after such
date of the cost of any additional benefits provided by Employer
for the Executive.
10. Non-Competition with Employer upon Voluntary Termination of
Employment. As a further specific condition of his employment by
the Employer hereunder and in further consideration of such
employment, the Executive agrees that, for a period of one (1)
year following any voluntary termination by the Executive of his
employment hereunder at any time prior to the last day of the term
for which he would otherwise be employed under this Agreement, he
will not, in any State or territory of the United States of
America or the District of Columbia in which the Employer has
franchise or other regular customer relationships with retailers
at the time of such termination of the Executive's employment (a)
become associated, by way of employment or any other type of
arrangement, in any business activities of any other person, firm
or corporation which are in competition with any business
activities carried on by the Employer or (b) become engaged on his
own behalf or for his own account in any such business activity or
in the conduct of a consulting or advisory service for any such
business activity carried on by any other person, firm or
corporation. The Employer and the Executive recognize that the
laws and public policies of the various States of the United
States and its territories and the District of Columbia may differ
as to the validity and enforceability of agreements similar to
those contained in this Section 10. It is the intention of the
Employer and the Executive that the provisions of this Agreement
shall be enforced to the fullest extent permissible under the laws
and public policies of the State of Illinois, but that the
unenforceability (or the modification to conform with such laws or
public policies) of any provision or provisions hereof shall not
render unenforceable or impair the validity of the remainder of
this Agreement. Accordingly, if any provision of this Agreement
shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete
or modify, as necessary, the offending provisions and to alter the
balance of this Agreement in order to render the same valid and
enforceable to the fullest extent permissible as aforesaid.
11. Application to Subsidiaries of Employer. Any employment of the
Executive by any wholly-owned subsidiary of the Employer and any
services performed by the Executive for any such subsidiary during
the term hereof (including, but not limited to, services in the
capacity of an officer or director of any such subsidiary) shall
be deemed to be included within the scope of the Executive's
employment hereunder and, unless separate compensation of the
Executive for the services performed by him for any such
subsidiary shall have been expressly authorized by the Board of
Directors of such subsidiary, the compensation paid to the
Executive pursuant to Section 5 hereof shall be deemed to
constitute the total compensation payable to the Executive for the
services performed by him for both the Employer and any such
subsidiary. The terms "Employer", "Employer's business", "line of
business engaged in by the Employer", and "business activities
carried on by the Employer" as used in Sections 8 and 10 hereof
shall include any subsidiary of the Employer, the business of or
lines of business engaged in by any such subsidiary, and all
business activities carried on by any such subsidiary.
12. Separation Allowance Payments. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4 and 9 of this Agreement
effective as of any date while this Agreement is in effect, the
same shall not constitute a breach of this Agreement; however, in
such event, the Employer shall continue to pay to the Executive on
the regular dates for payment thereof the salary which would
accrue for him under this Agreement if his employment had been
continued until the last day of the then current term of this
Agreement. In addition, if any such termination of employment by
the Employer for a reason not specified in Sections 4 and 9 hereof
becomes effective during the final six (6) months of the then
current term of this Agreement, the Employer shall further pay to
the Executive following the end of such term a separation
allowance in a total amount equal to the amount of salary which
would have continued to accrue for him if his employment hereunder
had continued beyond the end of such term until a total of six (6)
months has elapsed from the effective date of such termination of
his employment. Such separation allowance shall be paid to the
Executive in equal installments on the same dates that the
Executive would have received payments of salary if his employment
had continued for such period of time. It is the intention of the
parties that, by reason of the foregoing provisions, the Executive
shall in all events receive payments for a period of six (6)
months beyond the effective date of termination of his employment
by the Employer during the final six (6) months of the then
current term of this Agreement for any reason not specified in
Sections 4 and 9 hereof, which payments shall consist of the
regular salary payments which would accrue for the Executive until
the end of the then current term of this Agreement plus such
number of separation allowance payments thereafter as shall be
required in order to insure that payments of salary or of amounts
equivalent thereto are received by the Executive for such total
period of six (6) months subsequent to such termination of his
employment. The non-competition provisions set forth in Section
10 of this Agreement shall also be applicable to the Executive's
right to receive separation allowance payments under this Section
12 and, effective with respect to any such payment which would
otherwise become due and payable to the Executive on or after the
Executive's commencement of employment in, or other engagement in,
any type of business activity described in Section 10, the
Employer shall have no obligation to make any such separation
allowance payments to the Executive. Notwithstanding anything
herein to the contrary, the Employer's obligation to make
Separation Allowance Payments hereunder shall terminate upon the
death of the Executive and such Separation Allowance Payments as
would have otherwise been payable hereunder except for the death
of the Executive shall be forfeited.
l3. Outplacement Agency Services. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4 and 9 of this Agreement
effective as of any date while this Agreement is in effect, the
Employer shall make available to the Executive, at the Employer's
expense, the services of a recognized outplacement agency selected
by the Employer for the purpose of aiding the Executive in seeking
other employment.
l4. Amendments. Any of the terms and provisions of this Agreement
may, from time to time, be altered or amended by mutual agreement
of the parties hereto, provided, however, that any such alteration
or amendment shall be made in writing and shall be signed by both
parties hereto. Any such writing shall be made a part of this
Agreement as of the effective date specified in such writing. Any
increase in salary granted to the Executive by the Employer
pursuant to the salary review provisions of Section 5 of this
Agreement shall not constitute an alteration or amendment of the
Agreement requiring the signatures of both parties hereto,
however, and this Agreement shall be deemed to have been amended
with respect to any such salary increase by the adoption by the
Board of Directors of the Employer of a resolution authorizing
such increase and by the Executive's continuing thereafter to
perform the services required of him hereunder.
l5. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with reference to the employment of the
Executive by the Employer and the compensation to be paid to the
Executive for or with respect to such employment. All agreements,
contracts, understandings or arrangements which may have been
heretofore made or had with reference to the employment of the
Executive by the Employer are hereby wholly abrogated, discharged
and annulled, with the exception of any existing rights of the
Executive under the Employer's Profit Sharing Plan, Pension Plan,
Retirement Benefits Replacement Plan, Executive Supplemental
Benefit Plans, Deffered Compensation Plan, and other employee
benefit plans now maintained by the Employer. The Employer
further agrees that any new or improved benefits provided
generally to or made generally available to the Employer's
executive officer employees will be provided or made available on
the same basis to the Executive.
16. Applicable Law. This Agreement and the construction,
interpretation and enforcement of each of the provisions hereof
shall be governed in all respects by the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ACE HARDWARE CORPORATION,
a Delaware corporation
EXECUTIVE
By: Roger E. Peterson
President and CEO
(SEAL)
David F. Hodnik
ATTEST:
David W. League (SEAL)
Secretary
EMPLOYMENT AGREEMENT
This Employment Agreement made and entered into this 12th day of October, 1994
by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter
referred to as the "Employer", and William A. Loftus, hereinafter referred to
as the "Executive";
W I T N E S S E T H :
Whereas the Executive is now employed by the Employer and the Employer and
Executive desire to enter into an Agreement to provide for the continuation of
the services of the Executive for the Employer for a term of years to the
extent and upon the terms and conditions hereinafter set forth;
Now, therefore, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
l. Employment. The Employer hereby employs the Executive as an
executive officer of the Employer holding such specific office or
offices during the term of this Agreement to which he has been
appointed by the Employer or is hereafter elected by the Board of
Directors of the Employer, and the Executive hereby accepts such
employment upon the terms and conditions hereinafter set forth.
The duties and responsibilities of the Executive shall include
those duties and responsibilities assigned to the office or
offices held by him under the Employer's By-laws and its practices
and procedures, together with such additional duties as may
reasonably be assigned to him from time to time by the President
or the Board of Directors of the Employer. If, during the term of
this Agreement, the Executive shall become eligible to be elected
or appointed as a director of the Employer, then, in the event
that he is elected or appointed as such a director, the Executive
shall serve in such capacity without additional compensation
during the remainder of the term of this Agreement.
2. Term of Agreement. The initial term of this Agreement shall begin
on January 1, 1995 and shall terminate on December 31, 1996,
unless the Agreement shall have been terminated earlier by reason
of the Executive's resignation, death, retirement or termination
for cause pursuant to Section 4 hereof or by reason of a
determination made pursuant to Section 9 hereof. Provided the
Executive is actively employed by the Employer as of the last day
of the initial term hereof, the Agreement shall automatically be
extended for an additional term of one (l) year following the
expiration of the initial term unless either the Employer or the
Executive shall have delivered written notice to the other party
hereto not less than sixty (60) days prior to December 31, 1996 of
its or his intention to terminate the Agreement at the end of the
initial term, in which case the Agreement shall not be extended
beyond December 31, 1996.
3. Employer's Alternative Option to Re-offer Same Agreement. In lieu
of either allowing this Agreement to be extended for an additional
one-year term beyond December 31, 1996 or exercising its right not
to extend the Agreement for such an additional one-year term, the
Employer shall have the additional option of offering to the
Executive a new Employment Agreement to be effective as of January
1, 1997 which shall contain all of the same terms and conditions
as this Agreement except for a provision comparable to this
Section 3 and for those modifications which would be required with
respect to the then current salary of the Executive and the dates
or years to be designated in such new Agreement. In order to
exercise such option, the Employer shall deliver written notice to
the Executive of the Employer's intention to offer him such new
Employment Agreement not less than sixty (60) days prior to
December 31, 1996. With such notice the Employer shall tender to
the Executive two (2) copies of such new agreement duly executed
on behalf of the Employer. In the event that the Executive does
not return to the Employer one (l) copy of said new agreement
executed by the Executive by December 31, 1996, the Employer's
offer of such new agreement shall be deemed null and void. Any
decision on the part of the Employer to offer such new agreement
to the Executive, as well as any decision on the part of the
Employer not to allow this Agreement to be extended for an
additional term of one (1) year as provided for in Section 2
above, shall be made only by the Board of Directors of the
Employer.
4. Termination for Cause. The Employer may dismiss the Executive
from its employment and terminate this Agreement at any time for
cause, which shall consist of (a) theft, fraud, or embezzlement,
or conviction of any felony; or (b) the giving away or selling of
any trade secrets belonging to the Employer or of any information,
plans or records acquired or compiled by the Executive, or
furnished to him by Employer, in conjunction with his employment
hereunder for use in Employer's business, provided that such
activity results in a proven detriment to the Employer, and
provided further that this provision shall not apply to
information, plans and records which are otherwise available to
competitors of Employer or to members of the public. In the event
of any such termination of this Agreement for cause, payment to
the Executive of whatever portion of the Executive's salary which
shall have accrued to him to the date of such termination shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall also constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of such termination for the
payment by Employer of compensation to him or for the payment by
Employer after such date of the cost of any additional benefits
provided by Employer for the Executive.
5. Compensation. For all services rendered by the Executive under
this Agreement, the Employer agrees to pay to the Executive a
salary of Two Hundred Sixty Thousand Dollars ($260,000.00)
per year, or such increased amount, if any, as shall be approved
by the Board of Directors of the Employer pursuant to the annual
review procedure hereinafter provided for. Such salary shall be
paid to the Employee in semi-monthly installments, or in such
other manner as shall be mutually agreed upon by the Employer and
the Executive. The Employer further agrees to review the salary
of the Executive hereunder at a meeting of the Board of Directors
of the Employer during the last quarter of 1995 with respect to
the amount of such salary to be paid to the Executive during the
contract year beginning January 1, 1996. In the event that this
Agreement is extended for one (1) year beyond December 31, 1996,
the Employer agrees to further review said salary at a meeting of
the Board of Directors of the Employer during the last quarter of
1996 with respect to the amount thereof to be paid to the
Executive during the contract year beginning January 1, 1997. The
Executive shall be paid such increased salary, if any, as the
Employer's Board of Directors shall deem to be appropriate after
the completion of each salary review made by the Board.
Notwithstanding anything herein to the contrary, the Employer's
contractual obligation for the payment of compensation hereunder
shall be suspended during any period Executive is receiving income
continuation benefits, including, but not limited to, short or
long-term disability benefits, under any Employer-sponsored plan.
6. Limitation on Outside Business Activities. The Executive shall
devote his entire business time, attention and energies to the
business of the Employer, and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or
not such business activity is pursued for gain, profit or other
pecuniary advantage, except that the Executive may devote a
reasonable portion of his time during business hours to
professional, civic, community or charitable activities, and, with
the approval of the President of the Employer, to service as a
director of other corporations and to other types of activities
not expressly mentioned herein.
7. Vacations. The Executive shall be granted during each calendar
year a vacation consisting of such number of weeks as he would be
entitled to during each such year in accordance with the vacation
policy established by the Employer for its executive officer
employees.
8. Nondisclosure of Confidential Information. It is understood and
agreed that the method and system of business used and developed
by the Employer involves marketing programs, pricing procedures,
operational procedures, training procedures, information
concerning retailers supplied by the Employer, lists of vendors to
the Employer, and other confidential information and/or trade
secrets of the Employer, and that the Executive, by virtue of his
employment hereunder, necessarily has and will become acquainted
with such confidential information and/or trade secrets. It is
further understood and agreed that the business and customers of
the Employer extend throughout the fifty (50) States of the United
States and its territorial possessions, the District of Columbia,
and several foreign countries located in various parts of the
world. Accordingly, the Executive agrees to treat as confidential
and to use only for the advancement of the interests of the
Employer all such information and/or trade secrets belonging to
the Employer and all information, plans and records submitted to
him by the Employer or acquired or compiled by him from time to
time in the course of his employment by the Employer for use in
the Employer's business which he knows to have been received by
him in confidence or which he knows would not otherwise be
available to competitors of the Employer or to members of the
public and, as a further specific condition of his employment
hereunder, and in further consideration thereof, the Executive
covenants and agrees that he will not, at any time during the term
of this Agreement or after its termination divulge to any person,
firm or corporation engaged anywhere in any line of business which
is directly or indirectly competitive with any line of business
engaged in by the Employer any such confidential information or
trade secrets. In the event of a breach or threatened breach of
the provisions of this Section of this Agreement which conflicts
with or would conflict with the interests of the Employer and
which results in or would result in a detriment to the Employer,
the Employer shall be entitled to an injunction restraining the
Executive from so disclosing any such trade secrets or
confidential information. Nothing contained herein shall be
construed as prohibiting the Employer from pursuing any other
remedies available to the Employer for such breach or threatened
breach, including the recovery of damages from the Executive.
9. Termination for Physical or Mental Incapacity or Alcohol or
Narcotics Addiction. Notwithstanding any other provision herein
contained, the Employer may, at its option, terminate this
Agreement at any time after it shall have been determined by
competent medical authority that the Executive has become
physically or mentally incapacitated or has become addicted to the
use of alcohol or narcotics to such an extent that he is prevented
by reason of such physical disability, mental incapacity, or
addiction from properly carrying on his duties hereunder;
provided, however, that the foregoing shall not be construed to
relieve the Employer of any obligations it would otherwise have
under the Americans with Disabilities Act of 1990 or other
applicable Illinois statutes to the extent the same are not
preempted thereby. In the event of any such termination of this
Agreement, the Executive shall be paid whatever portion of his
salary shall have accrued to him to the date of such termination,
together with such amount, if any, as shall equal the amount of
salary which otherwise would have been paid to him during any
accrued vacation time not utilized by him, and the payment to the
Executive of such salary and such accrued vacation pay shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall further constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of the termination of his
employment pursuant to this Section 9 for the payment by Employer
of compensation to him or for the payment by Employer after such
date of the cost of any additional benefits provided by Employer
for the Executive.
10. Non-Competition with Employer upon Voluntary Termination of
Employment. As a further specific condition of his employment by
the Employer hereunder and in further consideration of such
employment, the Executive agrees that, for a period of one (1)
year following any voluntary termination by the Executive of his
employment hereunder at any time prior to the last day of the term
for which he would otherwise be employed under this Agreement, he
will not, in any State or territory of the United States of
America or the District of Columbia in which the Employer has
franchise or other regular customer relationships with retailers
at the time of such termination of the Executive's employment (a)
become associated, by way of employment or any other type of
arrangement, in any business activities of any other person, firm
or corporation which are in competition with any business
activities carried on by the Employer or (b) become engaged on his
own behalf or for his own account in any such business activity or
in the conduct of a consulting or advisory service for any such
business activity carried on by any other person, firm or
corporation. The Employer and the Executive recognize that the
laws and public policies of the various States of the United
States and its territories and the District of Columbia may differ
as to the validity and enforceability of agreements similar to
those contained in this Section 10. It is the intention of the
Employer and the Executive that the provisions of this Agreement
shall be enforced to the fullest extent permissible under the laws
and public policies of the State of Illinois, but that the
unenforceability (or the modification to conform with such laws or
public policies) of any provision or provisions hereof shall not
render unenforceable or impair the validity of the remainder of
this Agreement. Accordingly, if any provision of this Agreement
shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete
or modify, as necessary, the offending provisions and to alter the
balance of this Agreement in order to render the same valid and
enforceable to the fullest extent permissible as aforesaid.
11. Application to Subsidiaries of Employer. Any employment of the
Executive by any wholly-owned subsidiary of the Employer and any
services performed by the Executive for any such subsidiary during
the term hereof (including, but not limited to, services in the
capacity of an officer or director of any such subsidiary) shall
be deemed to be included within the scope of the Executive's
employment hereunder and, unless separate compensation of the
Executive for the services performed by him for any such
subsidiary shall have been expressly authorized by the Board of
Directors of such subsidiary, the compensation paid to the
Executive pursuant to Section 5 hereof shall be deemed to
constitute the total compensation payable to the Executive for the
services performed by him for both the Employer and any such
subsidiary. The terms "Employer", "Employer's business", "line of
business engaged in by the Employer", and "business activities
carried on by the Employer" as used in Sections 8 and 10 hereof
shall include any subsidiary of the Employer, the business of or
lines of business engaged in by any such subsidiary, and all
business activities carried on by any such subsidiary.
12. Separation Allowance Payments. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4 and 9 of this Agreement
effective as of any date while this Agreement is in effect, the
same shall not constitute a breach of this Agreement; however, in
such event, the Employer shall continue to pay to the Executive on
the regular dates for payment thereof the salary which would
accrue for him under this Agreement if his employment had been
continued until the last day of the then current term of this
Agreement. In addition, if any such termination of employment by
the Employer for a reason not specified in Sections 4 and 9 hereof
becomes effective during the final six (6) months of the then
current term of this Agreement, the Employer shall further pay to
the Executive following the end of such term a separation
allowance in a total amount equal to the amount of salary which
would have continued to accrue for him if his employment hereunder
had continued beyond the end of such term until a total of six (6)
months has elapsed from the effective date of such termination of
his employment. Such separation allowance shall be paid to the
Executive in equal installments on the same dates that the
Executive would have received payments of salary if his employment
had continued for such period of time. It is the intention of the
parties that, by reason of the foregoing provisions, the Executive
shall in all events receive payments for a period of six (6)
months beyond the effective date of termination of his employment
by the Employer during the final six (6) months of the then
current term of this Agreement for any reason not specified in
Sections 4 and 9 hereof, which payments shall consist of the
regular salary payments which would accrue for the Executive until
the end of the then current term of this Agreement plus such
number of separation allowance payments thereafter as shall be
required in order to insure that payments of salary or of amounts
equivalent thereto are received by the Executive for such total
period of six (6) months subsequent to such termination of his
employment. The non-competition provisions set forth in Section
10 of this Agreement shall also be applicable to the Executive's
right to receive separation allowance payments under this Section
12 and, effective with respect to any such payment which would
otherwise become due and payable to the Executive on or after the
Executive's commencement of employment in, or other engagement in,
any type of business activity described in Section 10, the
Employer shall have no obligation to make any such separation
allowance payments to the Executive. Notwithstanding anything
herein to the contrary, the Employer's obligation to make
Separation Allowance Payments hereunder shall terminate upon the
death of the Executive and such Separation Allowance Payments as
would have otherwise been payable hereunder except for the death
of the Executive shall be forfeited.
l3. Outplacement Agency Services. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4 and 9 of this Agreement
effective as of any date while this Agreement is in effect, the
Employer shall make available to the Executive, at the Employer's
expense, the services of a recognized outplacement agency selected
by the Employer for the purpose of aiding the Executive in seeking
other employment.
l4. Amendments. Any of the terms and provisions of this Agreement
may, from time to time, be altered or amended by mutual agreement
of the parties hereto, provided, however, that any such alteration
or amendment shall be made in writing and shall be signed by both
parties hereto. Any such writing shall be made a part of this
Agreement as of the effective date specified in such writing. Any
increase in salary granted to the Executive by the Employer
pursuant to the salary review provisions of Section 5 of this
Agreement shall not constitute an alteration or amendment of the
Agreement requiring the signatures of both parties hereto,
however, and this Agreement shall be deemed to have been amended
with respect to any such salary increase by the adoption by the
Board of Directors of the Employer of a resolution authorizing
such increase and by the Executive's continuing thereafter to
perform the services required of him hereunder.
l5. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with reference to the employment of the
Executive by the Employer and the compensation to be paid to the
Executive for or with respect to such employment. All agreements,
contracts, understandings or arrangements which may have been
heretofore made or had with reference to the employment of the
Executive by the Employer are hereby wholly abrogated, discharged
and annulled, with the exception of any existing rights of the
Executive under the Employer's Profit Sharing Plan, Pension Plan,
Retirement Benefits Replacement Plan, Executive Supplemental
Benefit Plans, Deffered Compensation Plan, and other employee
benefit plans now maintained by the Employer. The Employer
further agrees that any new or improved benefits provided
generally to or made generally available to the Employer's
executive officer employees will be provided or made available on
the same basis to the Executive.
16. Applicable Law. This Agreement and the construction,
interpretation and enforcement of each of the provisions hereof
shall be governed in all respects by the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ACE HARDWARE CORPORATION,
a Delaware corporation
EXECUTIVE
By: Roger E. Peterson
President and CEO
(SEAL)
William A. Loftus
Attest:
David W. League (SEAL)
Secretary
INDUSTRIAL BUILDING LEASE
LANDLORD: RS&P/Carol Stream Limited
Partnership,
an Illinois limited
partnership
TENANT: Ace Hardware Corporation,
a Delaware corporation
PREMISES: The real estate legally
described on Exhibit B
attached hereto containing a
250,000 square foot building
BUILDING:
ADDRESS: 250 S. Gary Avenue,
Carol Stream, Illinois
DATE OF LEASE: September 22, 1994
GUARANTOR: N/A TABLE OF CONTENTS
Article Page
I. PREMISES AND TERM 1
1.1 Premises 1
1.2 Term 1
1.3 Agent 1
1.4 Use 1
1.5 Prohibited Uses 1
II. RENT 2
2.1 Monthly Base Rent 2
2.2 Base Rent and Additional Rent 2
2.3 Payment of Estimated Rent
Adjustments 2
2.4 All Payments 3
III. TAXES 3
3.1 Taxes 3
IV. UTILITIES 3
4.1 Utilities 3
V. OPERATING EXPENSES 4
VI. INSURANCE 5
6.1 Kinds and Amounts 5
6.2 Form of Insurance 5
6.3 Mutual Waiver of Claims 5
VII. DAMAGE OR DESTRUCTION 6
7.1 Damage of Destruction 6
VIII. ALTERATION/POSSESSION 6
8.1 Alteration 6
8.2 Construction 6
IX. POSSESSION 7
9.1 Possession of Existing Buildings 7
9.2 Possession with Improvements to be
Constructed 7
9.3 Early Occupancy 8
X. ENVIRONMENTAL PROVISIONS 8
XI. CONDEMNATION 9
11.1 Taking of Whole 9
11.2 Partial Taking 9
XII. ASSIGNMENT AND SUBLETTING 9
XIII. HOLDING OVER 11
13.1 Holding Over 11
XIV. EVENTS OF DEFAULT 11
14.1 Events of Default 11
Article Page
XV. REMEDIES 12
15.1 Remedies 12
XVI. LIENS AND ENCUMBRANCES 15
16.1 Encumbering Title 15
16.2 Liens 15
16.3 Event of Default 15
XVII. LIABILITY, INDEMNIFICATION, WAIVER 15
17.1 Liability and Indemnification 15
17.2 Waiver of Certain Claims 16
XVIII. SUBORDINATION 16
18.1 Subordination 16
XIX. QUIET ENJOYMENT 16
19.1 Quiet Enjoyment 16
XX. MISCELLANEOUS 16
20.1 Tenant's Statement 16
20.2 Inspection 16
20.3 Gender and Captions 16
20.4 Terms 17
20.5 Delays 17
20.6 Estoppel 17
20.7 Lender's Requirements 17
20.8 Understanding 17
20.9 Obligations 18
20.10 Severability 18
20.11 Lease Reference 18
20.12 Landlord's Right to Cure 18
20.13 Brokerage 18
20.14 Signs 18
XXI. NOTICES 19
21.1 Notices 19
EXHIBITS:
"A" The Premises
"B" Legal Description of Real Estate
"C" Landlord's Work
"D" Depiction of Wall referred to in
Exhibit C
Address: 250 S. Gary Avenue
Carol Stream, Illinois
Drafted: September 8, 1994
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into by and between
RS&P/Carol Stream Limited Partnership, an Illinois limited
partnership hereinafter referred to as "Landlord" and Ace
Hardware Corporation, a Delaware corporation, hereinafter
referred to as "Tenant", who hereby mutually covenant and agree
as follows:
I. PREMISES AND TERMS
1.1 Premises. In consideration of the mutual obligations
of Landlord and Tenant set forth herein, Landlord hereby leases
to Tenant and Tenant hereby accepts the premises designated on
the plan attached hereto as Exhibit "A", containing a building
(the "Building") located on the real estate (the "Real Estate")
legally described on Exhibit "B", together with all rights,
privileges, easements, appurtenances, and amenities belonging to
or in any way pertaining to the Premises, to have and to hold,
subject to the terms, covenants and conditions in this Lease
(collectively, the "Premises").
1.2 Term. The term of this Lease shall commence on
October 1, 1994 (the "Commencement Date") and shall end 60 months
thereafter or as amended, pursuant to Article IX below (the
"Expiration Date").
1.3 Agent. As used in this Lease, the term "Agent" shall
mean the agent of Landlord or in the event Landlord is a land
trust, then agent shall mean the agent for the beneficiaries of
Landlord. Until otherwise designated by notice, in writing from
Landlord, Agent shall be Kinney Associates located at 50 W. North
Avenue, Melrose Park, IL 60190. Tenant may rely upon any
consent or approval given in writing by Agent or upon notice from
Agent or from the attorneys for Agent or Landlord.
1.4 Use. The premises shall be used only for the
purposes of warehousing and general offices and for no other
purpose.
1.5 Prohibited Uses. Tenant shall not use or permit the
Premises to be used in any manner which would violate any
certificate of occupancy affecting the Premises, constitute a
public or private nuisance or waste, or render the insurance on
the Building void or the insurance risk more hazardous. Tenant
shall not use or occupy the Premises contrary to any statute,
rule, order, ordinance, requirement or regulation applicable
thereto. Landlord may promulgate reasonable rules and
regulations, which rule or regulation shall become effective
thirty (30) days after notice thereof to Tenant provided they do
not interfere with Tenant's intended use of the Premises.
II. BASE RENT, SECURITY DEPOSIT AND ADDITIONAL RENT
2.1 Monthly Base Rent. Tenant agrees to pay to Landlord,
monthly base rent for the Premises, payable in advance, without
demand, deduction or set off at the following rates per month:
Months Monthly Base Rental
1-42 $62,500.00 ($3.00 psf per year)
43-60 $67,708.33 ($3.25 psf per year)
Each monthly installment, plus the other monthly charges
set forth in Paragraph 2.2 below shall be due and payable on the
date hereof and a like monthly installment shall be due and
payable on or before the first day of each calendar month, and
all payments due hereunder for any fractional calendar month
shall be prorated.
2.2 Base Rent and Additional Rent. Tenant agrees to pay
Taxes (hereinafter defined) payable by Landlord pursuant to
Paragraph 3.1 below assessed for and attributable to the portion
of the term hereof that falls within the applicable taxing period
(e.g., the Taxes attributable to the period of October 1, 1994 to
December 31, 1994, shall be those Taxes attributable to said
period of 1994 and payable in the tax bills issued in 1995) the
cost payable by Tenant in accordance with Article V hereof.
During each month of the term of this Lease, on the same day that
rent is due hereunder, Tenant shall pay to Landlord an amount
equal to one-twelfth of the estimated annual cost of Taxes. Said
payments shall be as and for additional rent. Tenant authorizes
Landlord to use the funds deposited with Landlord under this
Paragraph 2.2 to pay such costs.
The amount of the monthly base rent and the initial monthly
Taxes are as follows:
(1) Initial Base Rent as set forth in Para. 2.1 $62,500.00
(2) Tax Payment
$19,666.74
(3) Other $
Initial Monthly Payment Total
$82,166.74
2.3 Payment of Estimated Rent Adjustments. Landlord
shall from time to time deliver to Tenant a written notice or
notices ("Project Notice") setting forth Landlord's reasonable
estimates, forecasts or projections (collectively, the
"Projections") of Taxes with respect to the current calendar
year. On or before the first day of the next calendar Month
following Landlord's service of a Projection Notice, and on or
before the first day of each month thereafter, Tenant shall pay
to Landlord on account one-twelfth of the amount of the
Projections as shown in the Projection Notice. Within thirty
(30) days following Landlord's service of a Projection Notice,
Tenant shall also pay to Landlord a lump sum equal to the amount
of such Projections for the current calendar year less the sum of
(i) any previous payments of the respective rent adjustments made
for such calendar year, and (ii) monthly installments of such
rent adjustments due for the remainder of such calendar year
pursuant to such Projection Notice. Following the end of each
calendar year and after Landlord shall have determined the actual
amount of Taxes for such calendar year, Landlord shall notify
Tenant in writing of such Taxes. If such Taxes exceed the
respective rent adjustments paid for such calendar year by
Tenant, Tenant shall, within thirty (30) days after the date of
Landlord's notice pay to Landlord an amount equal to such excess.
If the rent adjustments paid for such calendar year by Tenant
exceed such Taxes, then Landlord shall credit such excess to Rent
payment after the date of Landlord's notice until such excess has
been exhausted. If this Lease shall expire prior to full
application of such excess, Landlord shall pay to Tenant the
balance not theretofore applied against Rent and not reasonably
required for payment of rent adjustments for the calendar year in
which the Lease expires. No interest or penalties shall accrue
on any amounts which Landlord is obligated to credit or to pay to
Tenant by reason of this Section.
2.4 All Payments. All rentals and charges due from
Tenant to Landlord herein (collectively "Rent") shall be paid as
directed in writing by Landlord.
III. TAXES
3.1 Landlord agrees to pay all taxes, assessments and
governmental charges of any kind and nature (collectively
referred to herein as "Taxes") that accrue against the Premises,
and/or improvements of which the Premises are a part and deliver
copies of the tax bills to Tenant. If at any time during the
term of this Lease, there shall be levied, assessed or imposed on
Landlord a capital levy or other tax directly on the rents
received therefrom and/or a franchise tax, rental tax or use tax,
assessment, levy or charge measured by or based, in whole or in
part, upon such rents from the Premises and/or the land and
improvements of which the Premises are a part, then such all
taxes, assessments, levies or charges, or the part, thereof so
measured or based, shall be deemed to be included within the term
"Taxes" for the purposes hereof. The Landlord shall have the
right to employ a tax consulting firm to attempt to assure a fair
tax burden on the Building and Real Estate within the applicable
taxing jurisdiction. Tenant agrees to pay the cost of such
consultant, which shall not exceed the savings in Taxes achieved
by the consultant.
Tenant shall be liable for all taxes levied or assessed
against any personal property or fixtures placed in the Premises.
If any such taxes are levied or assessed against Landlord or
Landlord's property (i) Landlord pays the same or (ii) the
assessed value of Landlord's property is increased by inclusion
of such personal property and fixtures and Landlord pays the
increased taxes, then, upon demand Tenant shall pay to Landlord
such taxes.
IV. UTILITIES
4.1 Landlord agrees to make available normal water and
electricity service to the Premises. Tenant shall pay for all
water, gas, heat, light, power, telephone, sewer, sprinkler
charges and other utilities and services used on or at the
Premises ("Utility Charges") together with any taxes, penalties,
surcharges or the like pertaining to the Tenant's use of the
Premises, and any maintenance charges for utilities. Landlord
shall not be liable for any interruption or failure of utility
service on the Premises.
V. OPERATING EXPENSES
5.1 Except as otherwise provided herein, Tenant shall
keep and maintain the entire Premises and Building clean and in
good condition and repair, including without limitation,
necessary replacements, and pursuant thereto Tenant shall pay all
costs and expenses for operating, maintaining, managing and
repairs the Building and the Real Estate and the personal
property used in conjunction therewith (collectively, the
"Project"), including, without limitation all Utility Charges,
the costs of heating and lighting, security and security systems,
snow and ice and trash removal, painting, cleaning, landscaping
and grounds maintenance, repairs and maintenance of loading
docks, parking lots and truck dock equipment, fuel, water, sewer,
steam, electricity, gas, insurance, supplies, sales and use
taxes, and any other expense or charge which an expense of
operating, maintaining, managing and repairs the Project, except
as hereinafter provided, and shall include any capital
improvement made after the Commencement Date which is required
under any governmental laws, regulations or ordinances except as
provided in Section 5, 2(iii) below.
5.2 Tenant, at its cost and expense, shall (i) maintain
all parts of the exterior Premises, landscape and grounds
surrounding the Premises in good condition, (ii) promptly make
all necessary repairs and replacements, (iii) keep the parking
areas, sidewalks, driveways and alleys surrounding the Premises
in a clean and sanitary condition and shall remove all rubbish,
snow and ice from same. Tenant shall have no obligations to
repair or maintain the north parking lot during the term of this
Lease whether or not Tenant is using said lot, nor shall Tenant
have any obligation to remove the surface of the north parking
lot or improve it following the expiration of any permit allowing
the use of said lot by Tenant, unless Tenant desires or intends
to continue to use said parking lot, in which case Tenant shall
perform all work required to extend or continue such permit.
5.3 Tenant, at it own cost and expense, shall enter into
a regularly scheduled preventive maintenance/service contract
with a maintenance contractor approved by Landlord for servicing
all hot water, heating and air conditioning systems (air
conditioning in the office space only), equipment and levelers,
if any, servicing the Premises. The service contract must
include all services suggested by the equipment manufacturer in
its operations/maintenance manual and executed copy of such
contract and service report must be provided to Landlord. The
service contracts shall not be subject to cancellation except
after at least thirty (30) days' prior written notice to
Landlord. True and correct copies of the service contracts,
together with satisfactory evidence of payment of the premiums
and fees thereon, shall be deposited with Landlord at the
Commencement Date and renewals thereof not less than thirty (30)
days prior to the end of the term of each such coverage.
5.4 Landlord shall be responsible, at Landlord's expense,
for the maintaining and repairing of the roof, general structure
and foundation of the building.
VI. INSURANCE
6.1 Kinds and Amounts. Tenant shall procure and maintain
the following insurance policies at its own cost and expense:
a. Comprehensive general liability insurance,
including contractual liability under Tenant's
indemnification obligations contained in this
Lease, covering injury to or death of persons and
damages to property in an amount of not less than
$5,000,000.00 combined single limit per
occurrence; (so long as Ace Hardware Corporation
is the Tenant hereunder and its creditworthiness
is equal to or greater than it was on the
Commencement Date, then it may self insure for
another portion of this coverage).
b. Workman's compensation insurance is not less than
statutory amounts;
c. Insurance against risk of breakage of plate glass in
or on the Premises or at Tenant's option, self
insure;
d. Insurance covering all contents including
leasehold improvements, and Tenant's trade
fixtures, machinery, equipment, furniture and
furnishing and goods stored in the Premises to
the extent of their full replacement cost under
broad form standard fire and extended coverage
insurance, including, without limitation,
vandalism and malicious mischief and sprinkler
leakage endorsements.
e. Business interruption insurance in an amount that
would indemnify Tenant for loss of income.
f. Fire and casualty loss to the Building and any
improvement therein with broad form extended coverage
to the extent of the full replacement cost thereof.
6.2 Form of Insurance. Insurance to be carried by Tenant
shall be in companies and in form, substance and amount
(initially in amounts stated above) satisfactory from time to
time to Landlord and any mortgagee of Landlord. Insurance
policies described in Paragraphs 6.1(a), (b), (c), (d), (e) and
(f) shall name Landlord, Landlords's Mortgagees and agent and
shall contain waivers of subrogation against Landlord or Agent as
additional party insureds and/or loss payee, as appropriate,
pursuant to the Standard Mortgagee Endorsement customarily issued
by insurers and shall contain waivers of subrogation against
Landlord and expressly permit waiver of claims prior to a loss as
provided in Paragraph 6.2 hereof. The aforesaid insurance shall
not be subject to cancellation except after at least thirty (30)
days' prior written notice to Landlord and any mortgagee of
Landlord. The original insurance policies or certificates,
together with satisfactory evidence of payment of the premiums
thereon, shall be deposited with Landlord prior to the
Commencement Date and renewals thereof not less than thirty (30)
days prior to the end of the term of each such coverage.
6.3 Mutual Waiver of Claims and Subrogation Rights.
Notwithstanding any other provision of this Lease to the
contrary, whenever (a) any loss, cost, damage or expense
resulting from fire, explosion or any other casualty or
occurrence is incurred by either of the parties to this Lease, or
anyone claiming by, through, or under it in connection with the
Premises, and (b) such party is then covered in whole or in part
by insurance with insured, then the part so insured (or so
required) hereby waives any claims against and releases the other
party from any liability said other party may have on account of
such loss, cost, damage or expense to the extent of any amount
recovered by reason of such insurance (or which could have been
recovered had such insurance been carried as so required).
6.4 Tenant hereby indemnifies and hold Landlord and
Landlord's Mortgagees harmless and will defend from and against
any losses, costs, damages, fees (including reasonable attorneys'
fees) or claims of any kind whatsoever that arise or result from
matters that would be covered under insurance policies described
in 6.1(a) above, but for which Tenant is then or was self-
insuring.
VII. DAMAGE OR DESTRUCTION
7.1 Damage or Destruction by Fire or Casualty. In the
event the Premises are damaged or destroyed by fire, explosion or
other casualty, Landlord shall commence the repair, restoration
or rebuilding thereof as soon as practicable after Landlord
settles the insurance claims with its insurer, but no later than
within ninety (90) days after such damage and shall complete such
restoration, repair or rebuilding within one hundred eighty (180)
days after the commencement thereof, subject to delay because of
changes, deletions, or additions in construction requested by
Tenant, acts of Tenant, strikes, lockouts, casualties, acts of
God, war, fuel or energy shortages, material or labor shortages,
governmental regulation or control or other causes beyond the
control of Landlord. If the fire or casualty (not caused by any
act or neglect of Tenant, its agents, employees or contractors)
or the repair, restoration or rebuilding caused thereby shall
render the Premises untenantable for the use identified in
Paragraph 1.4, in whole or part, Base Rent shall be adjusted from
the date when the damage occurred until the date on which the
Premises are again fit for occupancy by Tenant in an amount
bearing the same ratio to the total amount of Base Rent for such
period as the portion of the Premises not ready for occupancy
from time to time bears to the entire Premises. If such a fire,
explosion or other casualty damages the Building, Landlord may,
in lieu of repairing, restoring or rebuilding the same, elect to
terminate this lease by notice to Tenant within ninety (90) days
after occurrence of the fire or the casualty causing the damage.
In the event Landlord has not commenced the repair, restoration
or rebuilding of the Building within 180 days after the date of
the casualty, then Tenant shall have the right to terminate this
Lease by giving Landlord written notice of such election within
ten (10) days after the expiration of such 180-day period. In
either of such events, Tenant shall be obligated to pay Rent and
other charges hereunder accrued to the date when the damage
occurred. In the event Landlord's fire and extended coverage
insurance provides for a deductible amount, and a loss occurs
which is the kind of risk otherwise insured under the policy,
then Tenant shall pay to Landlord, promptly upon being billed
therefor, the lesser of (a) the amount of the loss, or (b) the
amount of the deductible. Notwithstanding anything to the
contrary herein set forth, Landlord shall have no obligation
pursuant to this Paragraph 7.1, (a) to repair or restore any
Alterations (as hereinafter defined) owned or made by Tenant in
the Premises or to spend for any repair or restoration amounts in
excess of insurance proceeds paid to Landlord which are not
applied to reduce the balance of any mortgage on the Building or
Real Estate, or (b) repair or restore the Premises if the damage
or destruction occurs during the last twenty four (24) months of
the Term.
VIII. ALTERATIONS/POSSESSION
8.1 Tenant shall not make any alterations, additions or
improvements to the Premises without the prior written consent of
Landlord. Tenant, at its own cost and expense, may erect such
shelves, bins, machinery and trade fixtures as it desires
provided that (a) such items do not alter the basic character of
the Premises or the Building and/or improvements of which the
Premises are a part; (b) such items do not overload or damage the
same; (c) such items may be removed without injury to the
Premises; (d) or said installations do not affect insurance rates
or risks thereunder and (e) the construction, erection or
installation thereof complies with all applicable governmental
laws, ordinances, regulations and with Landlord's specifications
and requirements. Tenant shall obtain any and all permits
required by governmental authorities. All alterations,
additions, improvements and partitions erected by Tenant shall be
and remain the property of Tenant during the term of this Lease.
All shelves, bins, machinery and trade fixtures installed by
Tenant shall be removed on or before the earlier to occur of the
date of termination of this Lease or vacating the Premises, at
which time Tenant shall restore the Premises to their original
condition, except for ordinary wear and tear. All alterations,
installations, removals and restoration shall be performed in a
good and workmanlike manner so as not to damage or alter the
primary structure or structural qualities of the Building and
Real Estate.
8.2 Construction with Landlord's Consent. Tenant shall
not commence or engage in any construction or installation of any
alterations, improvements or fixtures, including business
fixtures, to the Premises unless the Tenant first does the
following:
a. Prepares all necessary plans and secures any and all
licenses and permits to perform the work from all
appropriate governmental agencies;
b. Obtains the prior written consent of Landlord for
such improvements, which consent shall not be
unreasonably withheld. To secure said consent,
Tenant shall furnish Landlord with copies of all
plans, at which time Landlord shall have thirty (30)
days to approve or disapprove the work; and
c. Obtains Certificates of Insurance from all
contractors in amounts and from companies acceptable
to Landlord, naming Landlord, Agent and all other
parties required by Landlord to be named, as
additional insureds thereon.
d. Obtains waivers of mechanics and other liens and
contractors affidavits from all contractors as to all
work to be performed and all materials to be
provided.
IX. POSSESSION
9.1 Possession of Existing Building. Tenant acknowledges
that (i) it has inspected and accepts the Premises, (ii) the
buildings and improvements comprising the same are suitable for
the purpose for which the Premises are leased, (iii) the Premises
are in good and satisfactory condition, and (iv) no
representations as to condition or as to the repair of the
Premises, nor promises to alter, remodel or improve the Premises
have been made by Landlord except for those items set forth on
Exhibit C attached hereto which Landlord agrees to use all
commercially reasonable effort to complete by October 1, 1994.
If this Lease is executed before the Premises become vacant or
otherwise available and ready for occupancy, or if any present
Tenant or occupant of the Premises holds over, and Landlord
cannot, using good faith efforts, acquire possession of the
Premises prior to the date above recited as the Commencement Date
of this Lease, Landlord shall not be deemed to be in default
hereunder, not in any way liable to Tenant because of such
failure, and Tenant agrees to accept possession of the Premises
at such time as Landlord is able to tender the same, which date
shall thenceforth be deemed to be the "Commencement Date"; and
the Term of this Lease automatically shall be extended so as to
include the full number of months hereinbefore provided for,
except that if the Commencement Date is other than the first day
of a calendar month, such term also shall be extended for the
remainder of the calendar month in which possession is tendered.
Landlord hereby waives payment of rent covering any period prior
to such tendering of possession. After the Commencement Date,
Tenant shall, upon demand, execute and deliver to Landlord a
letter of acceptance of delivery of the Premises.
9.2 Early Occupancy. If Landlord permits Tenant to
occupy the Premises for conduct of its business prior to the
Commencement Date, then such occupancy shall be subject to all
the terms and conditions of this Lease, including payment of Rent
from and after the date of Tenant's occupancy.
X. ENVIRONMENTAL PROVISIONS
10.1 In addition to all other provisions of this Lease,
Tenant represents and warrants that (i) Tenant, at its sole cost
and expense, shall comply with all federal, state and local
statutes, ordinances, regulations and rules, presently in force
or hereinafter enacted relating to environmental quality,
contamination and clean-up (collectively "Environmental Laws")
and (ii) except as hereinafter provided, Tenant, its agents and
contractors, licensees or invitees shall not possess, handle,
use, manufacture, store, release or dispose of any flammables,
explosives, radioactive materials, hazardous wastes or
substances, toxic wastes or substances, petroleum products or
derivatives or any other similar substances or materials that are
included under or regulated by any Environmental Laws
(collectively, "Hazardous Substances") on, under or about the
Premises (including, but not limited to the groundwater or soil
thereof).
10.2 Notwithstanding the provisions of Paragraph 10.1,
Tenant may handle, store, and use Hazardous Substances, limited
to the types, amounts and uses as reasonably necessary to conduct
Tenant's business as now being conducted, provided that: (i)
Tenant's business and operations, and more especially its
handling, storage, use and disposal of Hazardous Substances shall
at all times comply with all applicable Environmental Laws, (ii)
Tenant shall secure and abide by any and all permits required
under applicable Environmental Laws for Tenant's handling,
storage, use and disposal of any such Hazardous Substances, and
(iii) Tenant shall give or post all notices required by any and
all applicable Environmental Laws pertaining to such Hazardous
Substances.
10.3 Tenant shall provide Landlord with copies of all
manifests, schedules, correspondence, reports and other documents
of all types and kinds, when filed or provided to any
governmental or quasi-governmental agency ("Agency") having
jurisdiction over environmental matters, or therwise required to
be maintained by any Agency, or as such received from any Agency.
10.4 Any increase in the premiums of insurance maintained
by Landlord on the Property which arises from Tenant's
possession, use and/or storage of Hazardous Substances shall be
paid for solely by Tenant upon demand by Landlord. Tenant shall,
as its sole cost and expense, procure and maintain such
additional insurance as (i) may be necessary to comply with any
and all applicable Environmental Laws and (ii) reasonably
requested by Landlord from time to time, and all parties set
forth in Article IV as additional insureds, shall be named as
additional insureds thereunder.
10.5 Landlord and its agents and representatives shall
have the right to take samples in quantity sufficient for
scientific analysis of all products, materials and substances
present on the Premises including, but not limited to, samples or
products, materials or substances brought onto or made or
produced on the Premises by the Tenant or an occupant claiming
by, through or under Tenant or otherwise present on the Premises.
Tenant may not perform any sampling, testing or drilling to
locate any Hazardous Substances on the Premises without
Landlord's prior written consent. Landlord and its agents and
representatives shall also have access to the premises for
purpose of (i) inspecting the books and records of Tenant, or any
other occupant of the Premises claiming by, through or under the
Tenant, (ii) ascertaining the nature of the activities being
conducted thereon, and (iii) determining the type, kind and
quantity of all products, materials and substances brought onto
the Premises, or made or produced thereon.
10.6 Notwithstanding anything contained in this Lease to
the contrary, Tenant shall reimburse, defend, indemnify and hold
Landlord, Landlord's beneficiary and their respective partners,
officers, directors, shareholders and employees harmless from and
against any and all claims, losses, liabilities, damages, costs
and expenses, including, without limitation, loss of rental
income, loss due to business interruption, and reasonable
attorneys' fees and costs, arising out of or in any way connected
with the placing, locating, introduction, disposal or release at
any time during the term of this Lease of any Hazardous
Substances in, on, under or about the Premises (or the subsurface
thereof) or the violation of any Environmental Laws by Tenant or
any occupant claiming by, through or under Tenant including,
without limitation, the costs of any required or necessary
investigation, repair, clean-up or detoxification and the
preparation of any closure or other required plans or remedies in
connection wherewith, whether voluntary or compelled by
governmental authority. The indemnity obligations of Tenant
under this Article shall survive any termination or expiration of
the Lease.
10.7 Landlord agrees that Tenant shall not be responsible
or liable for any Hazardous Substances or other violations of
Environmental Laws that existed on or about the Premises as of
the Commencement Date of this Lease. Landlord further agrees to
defend, indemnify and hold Lessee harmless from and against any
and all loss, cost, damage, liability, or claims that lessee may
incur or suffer as a result of Hazardous Substances or violations
of Environmental Laws that were present or existing on or under
the Premises prior to the Commencement Date of this Lease. This
indemnification and hold harmless shall not be binding upon
Landlord's Mortgagees and their successors and assigns.
XI. CONDEMNATION
11.1 Taking of Whole. If the entire Building or a
substantial part thereof, or any part thereof which includes all
or a substantial part of the Premises, shall be taken or
condemned for a public or quasi-public use or purpose by a
competent authority, or if such a portion of the Premises shall
be so taken that as a result thereof the balance cannot be used
for the same purpose and with substantially the same utility to
Tenant as immediately prior to such taking, then in either of
such events, the Term shall terminate upon the earlier of
delivery of possession to the condemning authority or the
effective date of the taking. Any award, compensation or damages
(the "Award") for a partial or total taking shall be paid to and
be the sole property of Landlord whether the Award shall be made
as compensation for diminution of the value of the leasehold
estate or the fee of the Building and Real Estate or otherwise,
and Tenant hereby assigns to Landlord all of Tenant's right,
title and interest in and to any and all of the Award. Tenant
shall pay Rent and other charges hereunder accruing to the date
of termination.
11.2 Partial Taking. If only a part of the Premises shall
be so taken or condemned, but the balance of the Premises can
still be used for the same purpose and with substantially the
same utility to Tenant as immediately prior to such taking, this
Lease shall not terminate and Landlord shall repair and restore
the Premises and all improvements thereon, except that Landlord
shall not hereby be required to expend for repair and restoration
any sum in excess of the Award. Any portion of the Award which
has not been expended by Landlord for such repairing or
restoration shall be retained by Landlord as Landlord's sole
property. Base Rent and Tenant's Proportionate Share of Taxes
and Operating Expenses pursuant to Article I and II shall be
equitably adjusted following delivery of possession to the
condemning authority.
XII. ASSIGNMENT AND SUBLETTING
12.1 Tenant shall not have the right to assign, sublet,
transfer or encumber this Lease, or any portion thereof or
interest therein, without the prior written consent of Landlord,
such consent not to be unreasonably withheld or delayed. Any
attempted assignment, subletting, transfer or encumbrance by
Tenant in violation of the terms and covenants of this Paragraph
shall be void and shall be deemed to be an Event of Default. In
the event Tenant desires to sublet the Premises, or any portion
thereof, or assign this Lease, Tenant shall give written notice
thereof to Landlord within a reasonable time prior to the
proposed commencement date of such subletting or assignment,
which notice shall set forth the name of the proposed sublessee
or assignee, a copy of the proposed sublease and copies of
financial reports and other financial information of the proposed
sublessee or assignee, as reasonably required by Landlord.
12.2 In addition to, but not in limitation of, Landlord's
right to approve of any sublessee or assignee, Landlord shall
have the option, in its sole discretion, in the event of any
proposed subletting or assignment, to terminate this Lease, or in
case of a proposed subletting of less than the entire Premises,
to recapture the portion of the Premises to be sublet, as of the
date the subletting or assignment is to be effective. The option
shall be exercised if at all, by Landlord giving Tenant written
notice thereof within ten (10) business days (provided Tenant has
given Landlord prior notice or of its intention to sublease or
assign) following Landlord's receipt of Tenant's written notice
as required above. If this Lease shall be terminated with
respect to the entire demised Premises pursuant to this
paragraph, the term of this Lease shall end on the date stated in
Landlord's notice as the effective date of the sublease or
assignment as if that date had been originally fixed in this
Lease for the expiration of the term hereof; provided, however,
that effective on such date Tenant shall pay Landlord all
amounts, as estimated by Landlord, payable by Tenant to such date
with respect to taxes, insurance, repairs, maintenance,
restoration and other obligations, costs or changes which are the
responsibility of Tenant hereunder. Further, upon any such
cancellation Landlord and Tenant shall have no further
obligations or liabilities to each other under this Lease, except
with respect to obligations or liabilities which accrued
hereunder as of such cancellation date (in the same manner as if
such cancellation date were the date originally fixed in this
Lease of the expiration of the term hereof). If Landlord
recaptures under this paragraph only a portion of the Premises,
the rent during the unexpired term hereof shall adjust
proportionately based on the rent per square foot contained in
this Lease as of the date immediately prior to such recapture.
Tenant shall, at Tenant's own cost and expense, discharge in full
any outstanding commission obligation on the part of Landlord
with respect to this Lease, and any commissions which may be due
and owing as a result of any proposed assignment or subletting,
whether or not the Premises are recaptured pursuant thereto and
rented by Landlord to the proposed Tenant or any other tenant.
12.3 If this lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, 11 U.S.C.
Section 101 es esq., (the "Bankruptcy Code"), any and all monies
or other consideration payable or otherwise to be delivered in
connection with such assignment shall be paid or delivered to
Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of
Tenant within the meaning of the Bankruptcy Code. Any and all
monies or other considerations constituting Landlord's property
under the preceding sentence not paid or delivered to Landlord
shall be held in trust for the benefit of Landlord and be
promptly paid or delivered to Landlord. Any person or entity to
which this Lease is assigned pursuant to the provisions of the
Bankruptcy Code, shall be deemed, without further act or deed, to
have assumed all of the obligations arising under this Lease on
and after the date of such assignment. Any such assignee shall
upon demand execute and deliver to Landlord an instrument
confirming such assumption.
12.4 Any assignee, sublessee or transferee of Tenant's
interest in this Lease (all such assignees, sublessees and
transferees being hereinafter referred to as "Transferees"), by
assuming Tenant's obligations hereunder, shall assume liability
to Landlord for all amounts paid to persons other than Landlord
by such Transferees in contravention of the Paragraph. No
assignment, subletting or other transfer, whether consented to by
Landlord or not or permitted hereunder shall relieve Tenant of
its obligations under this Lease.
12.5 Assumption and Attornment. If Tenant shall assign
this Lease as permitted herein, the assignee shall expressly
assume all of the obligations of Tenant hereunder in a written
instrument satisfactory to Landlord. If Tenant shall sublease
the Premises as permitted herein, Tenant shall obtain and furnish
to Landlord, not later than fifteen (15) day prior to the
effective date of such sublease and in form satisfactory to
Landlord, the written agreement of such subtenant to the effect
that the subtenant will attorn to the Landlord, at Landlord's
option and written request, in the event this Lease terminates
before the expiration of the sublease.
12.6 Default During Sublet Period. If an Event of Default
occurs while the Premises or any part thereof are assigned or
sublet, then Landlord in addition to any other remedies herein
provided, or provided by law, may collect directly from such
Transferee all rents payable to the Tenant and apply such rent
against any sums due Landlord hereunder. No such collection
shall be construed to constitute a novation or a release of
Tenant from the further performance of Tenant's obligations
hereunder.
12.7 Excess Rent. If Tenant, having first obtained
Landlord's consent to any sublease or assignment, shall assign
this Lease or sublet the Premises, or any part thereof, at a
rental in excess of the Rent or Proportionate Share thereof due
and payable by Tenant under this Lease, then Tenant shall pay to
Landlord as additional rent all of any such excess rent.
XIII. HOLDING OVER
13.1 Holding Over. Tenant shall have no right to occupy
the Premises or any portion thereof after the Expiration date of
the lease or after termination of the Lease or of Tenant's right
to possession pursuant to Articles XIV and XV hereof. In the
event Tenant or any party claiming by, through or under Tenant
holds over, Landlord may exercise any and all remedies available
to it at law or in equity to recover possession of the Premises,
and for damages. For each and ever month or partial month that
Tenant or any party claiming by, through or under Tenant remains
in occupancy of all or any portion of the Premises after the
Expiration Date of the Lease or after termination of the Lease or
Tenant's right to possession, Tenant shall pay without notice or
demand, as minimum damages and not as a penalty, monthly rental
at a rate equal to double the rate of Rent and other charges
payable by Tenant hereunder immediately prior to the expiration
or other termination of the Lease or of Tenant's right to
possession. The acceptance by Landlord of any lesser sum shall
be construed as a payment on account and not in satisfaction of
damages for such holding over.
XIV. EVENTS OF DEFAULT
14.1 The following events (herein individually referred to
as "Event of Default") each shall be deemed to be events of
nonperformance by Tenant under this Lease.
a. Tenant shall fail to pay any installment of the rent
herein reserved when due, or any other payment,
change, escrow, additional rent, or reimbursement to
Landlord required herein when due.
b. The Tenant or any guarantor of the Tenant's
obligations hereunder shall (i) become insolvent;
(ii) admit in writing its inability to pay its debts;
(iii) make a general assignment for the benefit of
creditors; (iv) commence any case, proceeding or
other action seeking to have an order for relief
entered on its behalf as a debtor or to adjudicate it
a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any law relating
to bankruptcy, insolvency, reorganization or relief
of debtors or seeking appointment of a receiver,
trustee, part of its property; or (v) take any action
to authorize or in contemplation of any of the
actions set forth above in this Paragraph.
c. Any case, proceeding or other action against the
Tenant or any guarantor of the Tenant's obligations
hereunder shall be commenced seeking (i) to have an
order for relief entered against it as debtor or to
adjudicate it a bankrupt or insolvent; (ii)
reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency
reorganization, dissolution or composition to it or
its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors;
(iii) appointment of a receiver, trustee, custodian
or other similar official for it or for all or any
substantial part of its property, and such case,
proceeding or other action (a) results in the entry
of an order for relief against it which it is not
fully stayed within seven (7) business days after the
entry thereof or (b) shall remain undismissed for a
period of forty-five (45) days.
d. Tenant shall (i) vacate all or a substantial portion
of the Premises or (ii) fail to continuously operate
its business at the Premises for the permitted use
set forth herein, whether or not Tenant is in default
of the rental payments due under this Lease.
e. Tenant shall fail to discharge any lien placed upon
the Premises in violation of Article XVI hereof
within twenty (20) days after any such lien or
encumbrance is file against the Premises.
f. If Tenant is a corporation, Tenant shall enter into a
contract for the liquidation or sale, other than in
the ordinary course of business, of all or
substantially all of the assets of the corporation.
g. Tenant shall fail to comply with any term, provision
or covenant of this Lease (other than those listed in
this Article XIV), and shall not cure such failure
within thirty (30) days after written notice thereof
to Tenant.
XV. REMEDIES
15.1 Upon the occurrence of an Event of Default, Landlord
shall, prior to the exercise of any remedy provided herein or
otherwise, serve upon the Tenant a five-day notice, in the event
of a monetary default, or a thirty (30) day notice, in the event
of a non-monetary default, in accordance with the provisions of
Article XXI, Notices. That notice shall specify the default or
defaults to be cured, and the time provided in the respective
notice shall be deemed a cure period for the benefit of the
Tenant. After the expiration of the applicable cure period,
Landlord shall not be obligated to accept any tender of cure by
the Tenant.
15.2 Upon expiration of the applicable notice, the
Landlord shall have the option to pursue any one or more of the
following remedies, in addition to cumulatively and concurrently
with, any other remedies available to Landlord at law or in
equity:
a. Terminate this Lease; and/or
b. Terminate Tenant's right to possession of the
Premises, and enter upon and take possession of the
Premises without terminating this Lease; and/or
c. To the extent permitted by law, alter all locks and
other security devices at the Premises with or
without terminating this Lease, and pursue at
Landlord's option, one or more remedies pursuant to
this Lease, Tenant hereby specifically waiving any
state or federal law to the contrary.
In any such event, or in the event of Landlord's exercise of
any other remedy available to Landlord at law or in equity,
Tenant immediately shall surrender the Premises to Landlord, and
if Tenant fails to do so, Landlord, without waiving any other
remedy it may have, may enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may
be occupying such Premises or any part thereof, without being
liable for prosecution or any claim of damages therefor.
15.3 If Landlord terminates this Lease, at Landlord's
option, Tenant shall be liable for and shall pay to Landlord, the
sum of all rental and other payments owed to Landlord hereunder
accrued to the date of such termination, plus, as liquidated
damages, an amount equal to (1) the present value of the total
rental and other payments owed hereunder for the remaining
portion of the Lease term, calculated as if such term expired on
the date set forth in Article I, less (2) the then present fair
market rental value of the Premises for such period, which
because of the difficulty of ascertaining such value, Landlord
and Tenant stipulate and agree, shall in no event be deemed to
exceed seventy-five percent (75%) of the rental amount set forth
in Article II above. Present values shall be determined using an
8?% discount rate.
15.4 If Landlord terminates the Tenant's right to
possession and repossesses the Premises without terminating the
Lease, Tenant, at Landlord's option, shall be liable for and
shall pay Landlord on demand all rental and other payments owed
to Landlord hereunder, accrued to the date of such repossession,
plus all amounts required to be paid by Tenant to Landlord until
the Expiration Date as stated in Article I, diminished by all
amounts received by Landlord through reletting the Premises
during such remaining term (but only to the extent of the rent
herein reserved). Actions to collect amounts due by Tenant to
Landlord under this subparagraph may be brought from time to
time, on one or more occasions, without the necessity of
Landlord's waiting until expiration of the Lease term.
15.5 Upon an Event of Default, in addition to any sum
provided to be paid herein, Tenant also shall be liable for and
shall pay to Landlord (i) brokers' fees incurred by Landlord in
connection with reletting the whole or any part of the Premises;
(ii) the costs of removing and storing Tenant's or other
occupant's property; (iii) the costs of repairing, altering,
remodeling or otherwise putting the Premises into its original
condition, ordinary wear and tear excepted and (iv) all
reasonable expenses incurred in marketing the Premises and (v)
all reasonable expenses incurred by Landlord in enforcing or
defending landlord's rights and/or remedies. If either party
hereto institute any action or proceeding to enforce any
provision hereof by reason of any alleged breach of any provision
of this Lease, the prevailing party shall be entitled to receive
from the losing party all reasonable attorney's fees and all
court costs in connection with such proceeding.
15.6 In the event Tenant fails to made any payment due,
within five (5) days after due, Tenant shall pay to Landlord, on
demand, a late charge in an amount equal to two percent (2%) of
the outstanding balance for each month said balance exists, which
amount shall be deemed to be additional rent. This sum shall be
due in addition to, and cumulatively with, all of Landlord's
other rights and remedies hereunder, at law or in equity, and
shall not be construed as liquidated damages or as limiting
Landlord's remedies in any manner.
15.7 Exercise by Landlord of any one or more remedies
hereunder granted or otherwise available shall not be deemed to
be an acceptance of surrender of the Premises by Landlord,
whether by agreement or by operation of law, it being understood
that such surrender can be effected only by the written agreement
of Landlord and Tenant. Tenant and Landlord further agree that
forbearance by Landlord to enforce its rights pursuant to the
Lease at law or in equity, shall not be a waiver of Landlord's
right to enforce one or more of its rights in connection with any
subsequent default. Further, acceptance of rentals or any other
payments due pursuant to this Lease, with knowledge by the
Landlord of any default by Tenant under this Lease, or subsequent
to issuance to the Tenant of a demand to cure a default under
this Lease, shall not be deemed to be a waiver of Landlord's
right to demand cure of the default, or to be a waiver of
Landlord's right to proceed against Tenant for said default.
15.8 In the event of termination and/or repossession of
the Premises for an Event of Default, Landlord shall use
reasonable efforts to relet the Premises and to collect rental
after reletting; provided, that, Tenant shall not be entitled to
credit or reimbursement of any proceeds in excess of the rental
owed hereunder. Landlord may relet the whole or any portion of
the Premises for any period, to any Tenant and for any use and
purpose.
15.9 If landlord fails to perform any of its obligations
hereunder within thirty (30) days after written notice form
Tenant specifying such failure, Tenant's exclusive remedy shall
be an action for damages and Tenant shall not have the right of
setoff or deduction from any sums due to Landlord. Unless and
until Landlord fails to so cure any default after such notice,
Tenant shall not have any remedy or cause of action by reason
thereof. All obligations of Landlord hereunder will be construed
as covenants not conditions; and all such obligations will be
binding upon Landlord only during the period of its ownership of
the Premises and not thereafter. The term "Landlord" shall mean
only the owner, for the time being of the Premises, and in the
event of the transfer by such owner of its interest in the
Premises, such owner shall thereupon be released and discharged
from all covenants and obligations of the Landlord thereafter
accruing, but such covenants and obligations shall be binding
during the Lease term upon each new owner for the duration of
such owner's ownership. Notwithstanding any other provision
hereof, Landlord shall not have any personal liability hereunder.
In the event of any breach or default by Landlord in any term or
provision of this Lease, Tenant agrees to look solely to the
equity or interest then owned by Landlord in the Premises or of
the Building of which the Premises are a part; however, in no
event, shall any deficiency judgement or any money judgment of
any kind be sought or obtained against any Landlord.
15.10 If Landlord terminates Tenant's right to possession
and repossesses the Premises pursuant to the authority herein
granted, then Landlord shall have the right to (i) keep in place
and use or (ii) remove or store all of the furniture, fixtures
and equipment at the Premises, including that which is owned by
or leased to Tenant at all times prior to any foreclosure thereon
by Landlord or repossession thereof by and Landlord thereof
possession of all or any portion of such furniture, fixtures,
equipment and other property to any person ("Claimant") who
presents to landlord a copy of any instrument represented by
Claimant to have been executed by Tenant (or any predecessor of
tenant) granting Claimant the right under various circumstances
to take possession of such furniture, fixtures, equipment or
other property, without the necessity on the part of Landlord to
inquire into the authenticity or legality of said instrument.
The rights of Landlord herein stated shall be in addition to any
and all other rights that Landlord has or may hereafter have at
law or in equity; and Tenant stipulates and agrees that the
rights herein granted Landlord are commercially reasonable.
15.11 Notwithstanding anything in this Lease tot he
contrary, all amounts payable by Tenant to, or on behalf of,
Landlord under this Lease, whether or not expressly denominated
as rent, shall constitute rent.
15.12 Landlord shall not be required to accept performance
from (or rendering performance to) any person or entity other
than Tenant.
12.13 Landlord's acceptant of rent subsequent to its
receipt of knowledge of Tenant's breach or default of a non-
monetary provision under this Lease shall not constitute a waiver
or forgiveness of said breach or default, or a waiver of
Landlord's right to pursue its remedies therefor.
XVI. LIENS AND ENCUMBRANCES
16.1 Encumbering Title. Tenant shall not do any act which
shall in any way encumber the title of Landlord in and to the
Premises, the Building or Real Estate, nor shall the interest or
estate of Landlord in the Premises, the Building or Real Estate
be in any way subject to any claim by way of lien or encumbrance,
whether by operation of law or by virtue of any express or
implied contract by Tenant. Any claim to, or lien upon, the
Premises, the Building or Real Estate arising from any act or
omission of Tenant shall accrue only against the leasehold estate
of Tenant and shall be subject and subordinate to the paramount
title and rights of Landlord in and to the Premises, the Building
and Real Estate.
16.2 Liens. Tenant shall not permit the Premises, the
Building or Real Estate to become subject to any mechanics',
laborers' or materialmen's lien on account of labor or material
furnished to Tenant or claimed to have been furnished to Tenant
in connection with work of any character performed or claimed to
have been performed on the Premises by, or at the direction or
sufferance of, Tenant. Tenant shall immediately pay and judgment
rendered against Tenant, with all proper costs and changes, and
shall have the lien released and any judgement satisfied.
16.3 Event of Default. The imposition of any encumbrance
or lien pursuant to Paragraphs 16.1 and 16.2 above, regardless of
merit of said claims, shall constitute an Event of Default under
this Lease, and Landlord shall be entitled to all rights and
remedies accorded Landlord in the Event of Default. Further, at
any time after 10 days following the imposition of the
encumbrance or lien, Landlord shall have the right to pay,
discharge, settle, compromise or otherwise act to remove the
encumbrance or lien, without regard to the merits of sid
encumbrance or lien, and Tenant shall be responsible for the
actual damages incurred in removing, costs, expenses and
attorneys' fees incurred in connection therewith, all of which
constituting additional rent due to the landlord.
XVII. LIABILITY, INDEMNIFICATION AND WAIVER
17.1 Liability and Indemnification. Except for any
claims, rights of recovery and causes of action that Tenant has
released, Landlord shall hold Tenant harmless and defend Tenant
against any and all claims or liability for any injury or damage
to any person in, on or about the Premises or any part thereof
and/or the Building of which the Premises are a part, when such
injury or damage shall be caused by the gross negligence or
intentional misconduct by Landlord, its agents, servants and
employees. Except for any claims, rights of recovery and causes
of action that Landlord has released, Tenant shall hold Landlord
harmless form and defend Landlord against any and all claims or
liability for any injury or damage (i) to any person or property
whatsoever occurring in, on or about the Premises or any part
thereof and/or the Building of which the Premises are a part,
including without limitation elevators, stairways, passageways or
hallways, the use of which Tenant may have in accordance with
this Lease, when such injury or damage shall be caused by the
act, neglect, fault of, or omission of any duty with respect to
the same by Tenant, its agents, servants, employees, or invitees
(ii) arising from the conduct of management of any work done by
the Tenant in or about the Premises, (iii) arising form
transactions of the Tenant, and (iv) all costs, counsel fees,
expenses and liabilities incurred in connection with any such
claim or action or proceeding brought thereon. The provisions of
this Article XVII shall survive the expiration or termination of
this Lease with respect to any claims or liability occurring
prior to such expiration or termination.
17.2 Waiver of Certain Claims. All property belonging to
Tenant or any occupant of the premises that is in or on any part
of the Building or Real Estate shall be there at the risk of
Tenant or of such other person only, and Landlord shall not be
liable for any damage thereof or for the theft or
misappropriation thereof.
XVIII. SUBORDINATION
18.1 Subordination. Tenant accepts this Lease subject and
subordinate to any mortgages and/or deeds of trust now or at any
time hereafter constituting a lien or charge upon the Premises or
the improvements situated thereon or the Building of which the
premises are a part. Tenant, at any time hereafter on demand,
shall execute any instruments, releases or other documents that
may be required by any mortgage for the purpose of subjecting and
subordinating this Lease to the lien of any such mortgage.
XIX. QUIET ENJOYMENT
19.1 Quiet Enjoyment. Landlord covenants that on or
before the Commencement Date it will have good title to the
Premises, free and clear of all liens and encumbrances, excepting
only the lien for current taxes not yet due, any mortgage or
mortgages, zoning ordinances and other building and fire
ordinances and governmental regulations relating to the use of
such property, and easements, restrictions and other conditions
of record to the extent required to provide Tenant with quiet
enjoyment of the Premises. If this Lease is a sublease, than
Tenant agrees to take the Premises subject to the provisions of
the prior Leases. Landlord represents that it has the authority
to enter into this Lease and that so long as Tenant pays all
amounts due hereunder and performs all other covenants and
agreements herein set forth, Tenant shall peaceably and quietly
have, hold and enjoy the Premises for the term hereof without
hindrance or molestation form Landlord, subject to the terms and
provisions of this lease.
XX. MISCELLANEOUS
20.1 Tenant's Statement. Tenant shall furnish to
Landlord, within 10 (10) days after written request thereof from
Landlord, a copy of Tenant's then most recent audited and
certified financial statement. Tenant agrees that landlord may
deliver a copy of such statements to any mortgagee or prospective
mortgagee of Landlord, or any prospective purchaser of the
Premises, Building or Real Estate.
20.2 Inspection. Landlord and Landlord's agents and
representatives shall have the right to enter the Premises at any
reasonable time during business hours, after giving reasonable
notice, to inspect the Premises and to make such repairs as may
be required or permitted pursuant to this Lease. During the
period that is nine (9) months prior to the Expiration Date, upon
telephonic notice to Tenant, Landlord and Landlord's
representatives may enter the Premises during business hours for
the purpose of showing the Premises. In addition, Landlord shall
have the right to erect a suitable sign on the Premises stating
that the Premises will be available.
20.3 Gender and Captions. Words of any gender used in
this Lease shall be held and construed to include any other
gender, and works in the singular number shall be held to include
the plural, unless the context otherwise requires. The captions
inserted in this Lease are for convenience only and in no way
define, limit or otherwise describe the scope or intent of this
Lease, or any provision hereof, or in any way affect the
interpretation of this Lease.
20.4 The terms, provisions and covenants and conditions
contained in this Lease shall run with the land and shall apply
to, inure to the benefit of, and be binding upon, the parties
hereto and upon their respective heirs, executors, personal
representatives, legal representatives, successors and assigns,
except as otherwise herein expressly provided. Landlord shall
have the right to transfer and assign, in whole or in part, its
rights and obligations in the Building and Real Estate that are
the subject of this Lease. Tenant agrees to furnish to Landlord,
promptly upon demand, a Certificate of Good Standing for the
Corporation, from the Secretary of State of the state of
incorporation, a corporate resolution, proof of due authorization
by partners, or other appropriate documentation evidencing the
due authorization of such party to enter into this Lease. Tenant
agrees to provide a certificate of good standing and corporate
resolution upon signing of the Lease and at any time during the
period of this Lease.
20.5 Landlord shall not be held responsible for delays in
the performance of its obligations hereunder when caused by
material shortages, weather, war, acts of God or labor disputes.
20.6 Estoppel. Tenant agrees, form time to time, within
ten (10) days after request by Landlord to deliver to Landlord or
Landlord's designee, a certificate of occupancy and an estoppel
certificate stating that this lease is in full force and effect,
the date to which rent is paid and such other factual matters
pertaining to this Lease as may be requested by Landlord. Tenant
hereby irrevocably appoints Landlord as attorney-in-fact for the
Tenant with full power and authority to execute and deliver in
the name of Tenant such estoppel certificate if Tenant fails to
deliver the same within such ten (10) day period and such
certificate as signed by Landlord or Landlord's beneficiary, as
the case may be, shall be fully binding on Tenant, if Tenant
fails to deliver a contrary certificate within five (5) days
after receipt by Tenant of a copy of the certificate executed by
Landlord or Landlord's beneficiary, as the case may be, on behalf
of Tenant.
20.7 Lender's Requirements. If any mortgagee or
prospective lender of Landlord should require, as a condition
precedent to the closing of any loan or the disbursal of any
money under any loan, that this Lease be amended or supplemented
in any manner (other than the size or location of the Premises,
the Term, the purpose set forth in Article I or the Rent or in
any other regard as will substantially or materially affect the
rights of Tenant under this Lease), Landlord shall give written
notice thereof to Tenant, which notice shall be accompanied by an
agreement ("Lease Supplement") embodying such amendments and
supplements. Tenant shall, within 10 (10) business days after
the effective date of Landlord's notice, execute the tendered
Lease Supplement. If Tenant reasonably believes that the
amendments or supplements fall within the categories set forth in
the clause in parenthesis in the first sentence, then Tenant
shall deliver to Landlord a written statement of its reason or
reasons for refusing to execute the lease Supplement. Failure of
Tenant to respond or execute the lease Supplement within said ten
(10) business day period shall be an Event of Default under this
Lease without further notice and opportunity to cure such
default.
20.8 This Lease constitutes the entire understanding and
agreement of the Landlord and Tenant with respect to the subject
matter of this Lease, and contains all of the covenants and
agreements of Landlord and Tenant with respect thereto. Landlord
and Tenant each acknowledge that no representations, inducements,
promises or agreements, oral or written, have been made by
Landlord or Tenant or anyone acting on behalf of Landlord or
Tenant, which are not contained herein, and any prior agreements,
promises, negotiations, or representations not expressly set
forth in this Lease are of no force or effect. This Lease may
not be altered, changed or amended except by an instrument in
writing executed by both parties hereto.
20.9 All obligations of Tenant hereunder not fully
performed as of the expiration or earlier termination of the term
of this Lease shall survive the expiration or earlier termination
of the term hereof, including without limitation, all payment
obligations with respect to taxes and insurance and all
obligations concerning the condition and repair of the Premises.
Upon the expiration or earlier termination of the term hereof,
and prior to Tenant vacating the Premises, Tenant shall pay to
Landlord any amount reasonably estimated by Landlord as necessary
to put the Premises, including without limitation, all plumbing,
electrical, heating and air conditioning systems and equipment
therein, in the same condition and repair, reasonable wear and
tear excluded. Tenant shall also, prior to vacating the
Premises, pay to Landlord the amount, as estimated by Landlord,
of Tenant's obligation hereunder for Real Estate taxes and
insurance premiums for the year in which the Lease expires or
terminates. All such amounts shall be used and held by Landlord
for payment of such obligations of Tenant hereunder, with Tenant
being liable for any additional costs therefor upon demand by
Landlord, or with any excess to be returned to Tenant after all
such obligations have been determined and satisfied as the case
may be. Any security deposit held by Landlord shall be credited
against the amount due from Tenant under this Paragraph 20.9.
20.10 Severability. If any term or provision of this Lease
shall to any extent be held invalid or unenforceable, the
remaining terms and provision of this Lease shall not be affected
thereby, but each term and provision of this Lease shall be valid
and be enforced to the fullest extent permitted by law. This
Lease and the terms and provisions thereof, shall be governed by
the laws of the state in which Premises is located.
20.11 All references in this Lease to "the date hereof" or
similar references shall be deemed to refer to the last date, in
point of time, on which all parties hereto have executed this
Lease.
20.12 Landlord's Right to Cure. Landlord may, but shall
not be obligated to, cure any default by Tenant (specifically
including, but not by way of limitation, Tenant's failure to
obtain insurance, obtain or maintain utilities, make repairs, or
satisfy lien claims); and whenever Landlord so elects, all costs
and expenses paid by Landlord in curing such default, including
without limitation reasonable attorneys; fees, shall be so much
additional rent due on the next rent date after such payment
together with interest (except in the case of said attorneys'
fees) at the same rate as for late payments set forth in
Paragraph 15.6 from the date of the advance to the date of
repayment by Tenant to Landlord.
20.13 Brokerage. Tenant warrants that it has had no
dealings with any broker or agent in connection with this Lease
other than HSA, Inc. and Stein & Co., Inc. (whose commission, if
any, Landlord covenants and agrees to pay in accordance with a
separate agreement, if any, between Landlord and Landlord's
broker). Tenant covenants to pay, hold harmless and indemnify
Landlord from and against any and all costs, expenses or
liability for any compensation, commissions and charges claimed
by any broker, agent or finder other than the brokers named in
this Paragraph 20.13 with respect to the Lease or the negotiation
hereof is such claim is made by, through or on account of the
actions of Tenant.
20.14 Signs. Tenant shall have the right to install any
exterior signs upon the Premises or surrounding grounds, subject
to landlord's consent, which shall not be unreasonably withheld
or delayed, and which sign shall be removed at Tenant's cost upon
termination or expiration of this Lease. Tenant shall repair,
paint, and/or replace the Building facia surface to which its
signs are attached upon vacation of the Premises, or the removal
or alteration of its signage. Tenant shall not, (1) make any
changes to the exterior of the Premises, (ii) install any
exterior lights, decorations, balloons, flags, pennants, banners
or painting or (iii) erect or install any signs, windows or door
lettering, placards, decorations or advertising media of any type
which can be viewed from the exterior of the Premises, without
Landlord's prior written consent. All signs, decorations,
advertising media, blinds, draperies and other window treatment
or bars or other security installations visible from outside the
Premises shall conform in all respects to the criteria
established by Landlord.
XXI. NOTICES
21.1 Each provision of this instrument or of any
applicable governmental laws, ordinances, regulations and other
requirements with reference to the sending, mailing or delivering
of notice or the making of any payment by Landlord to Tenant or
with reference to the sending, mailing or delivering of any
notice or the making of any payment by Tenant to Landlord shall
be deemed to be complied with when and if the following steps are
taken:
a. All rent and other payments required to be made by Tenant
to landlord hereunder shall be payable to Landlord at the
address for Landlord as Landlord may specify from time to
time by written notice delivered in accordance herewith
Tenant's obligation to pay rent and any other amounts to
Landlord under the term of this Lease shall not be deemed
satisfied until such rent and other amounts have been
actually received and funds collected by Landlord or by
Landlord's Lender. In addition to base rental due
hereunder, all sums of money and all payments due
Landlord hereunder shall be deemed to be additional
rental owed to Landlord.
b. All payments required to be made by Landlord to Tenant
hereunder shall be payable to Tenant at the address set
forth below, or at such other address within the
continental United States as Tenant may specify from time
to time by written notice delivered in accordance
herewith.
c. Any written notice or document required or permitted to
be delivered hereunder shall be deemed to be delivered
and served, whether actually received or not, when (a)
personally served to Tenant if Tenant is an individual,
or (b) if Tenant is a partnership or corporation,
personally served to any partner, officer or agent of the
Tenant, or employee then and there in charge of the
Premises on behalf of the Tenant, or (c) deposited in the
United States Mail, proper postage prepaid, Certified or
Registered Mail, with return receipt requested, addressed
to the Tenant at the address of the Premises or such
other address as Tenant may designate to Landlord or (d)
delivered by courier or other recognize method of
transmittal.
d. Any written notice or document required or permitted to
be delivered hereunder shall be deemed to be delivered
and served, whether actually received or not, when (a)
personally served to Landlord if Landlord is an
individual, or (b) if Landlord is a partnership or
corporation, personally served to any partner, officer or
agent of the landlord, or (c) deposited in the United
Sates Mail, proper postage prepaid, Certified or
Registered Mail, with return receipt requested, addressed
to the Landlord at 501 W. North Avenue, Melrose Park,
Illinois 60190, or such other address as Landlord may
designate by notice to Tenant or (d) delivered by courier
or other recognized method of transmittal. Any written
notice given to Landlord shall also be given to LaSalle
National Bank, 120 S. LaSalle Street, Chicago, Illinois
60603, Attn: Mr. John Marynell, Vice President.
XXII. ADDITIONS TO BUILDING
22.1 Landlord shall have the right to construct additions
to the Building for Landlord's use or benefit, or for use by any
successor, assign or tenant of Landlord, subject to the prior
approval of Tenant, which approval shall not be unreasonably
withheld or delayed. During the construction of any such
addition, Landlord shall take all reasonable measures and steps
to not materially interfere with Tenant's use and operation of
its business in the Building or occupancy of the remainder of the
Premises. Tenant shall have not interest or right in any such
addition to the Building, not any right to any rents or other
proceeds resulting from the use of occupancy of such additions.
EXECUTED BY LANDLORD, this 26th day of September, 1994.
Witness RS&P/Carol Stream Limited Partnership, an
Illinois limited
partnership
By:RS&P Gary Avenue Limited Partnership, an
Illinois
limited partnership, General Partner
By:
RS&P/Gary Avenue, Inc., an Illinois corporation,
General Partner
Robert W. Numan By: Bruce Kinney
Title: Attorney Title: President
Address:
501 W. North Ave.
Suite 407
Melrose Park, IL 60160
EXECUTED BY TENANT, this 22nd day of September, 1994
Attest/Witness
Ace Hardware Corporation
David League By: David Myer
Title: Secretary Title: Vice President, Retail Support
ADDRESS:
2222 Kensington Court
Oak Brook, IL 60521
EXHIBIT B
LEGAL DESCRIPTION
Lot 1 in Narco-Carol Stream Center for the Industry Unit 1
Subdivision, a Subdivision of part of the Northwest Quarter of
Section 5, Township 39 North, Range 10 East of the Third
Principal Meridian (except that part thereof falling within Gary
Avenue, as widened) in the Village of Carol Stream, DuPage
County, Illinois
EXHIBIT C
TENANT IMPROVEMENTS
Landlord shall, at its cost and expense, provide the following
improvements:
1. Fill in rail pit and pour a concrete floor comparable to
existing floors.
2. Place all mechanical systems in good working order including
but not limited to, levelors and dock doors, HVAC system for
office and heating for warehouse.
3. Minor repair of parking lot and seal entire east lot.
4. Remove rack and sprinkler per Tenant's direction.
5. Lights in staging area in working order.
6. Tenant shall have the right to reimbursement from Landlord
for up to $20,000 of improvements made by Tenant to the
Premises. Upon written notice to Landlord accompanied by
appropriate evidence of the expenditures made by Tenant,
Landlord shall make such reimbursement within thirty (30)
days after receipt of such notice. Failure by Landlord to
make such payment within said thirty (30) day period shall
entitle Tenant to set off the requested amount against the
next payment of Rent due from Tenant hereunder.
Lease of Real Property
This Agreement of Lease of real property is made and entered
into by and between DONGARY INVESTMENTS, LTD., a Colorado
corporation, hereinafter referred to as "Lessor," and ACE HARDWARE
CORPORATION, hereinafter referred to as "Lessee."
LESSOR LESSEE
Name: Dongary Investments, Ltd. Name: Ace Hardware Corporation
Street: 3980 Quebec Street, Street: 2200 Kensington Court
Suite 214
Mailing address: P.O. Box 7240 Mailing Address:2222 Kensington
Court
City,State,Zip: Denver, CO 80207 City,State,Zip: Oak Brook,IL
60521
Telephone: (303)320-3960 Attn: Jerry Barton
Telephone: (708) 990-6648
DATE OF LEASE TERM OF LEASE MONTHLY BASE RENT
Beginning End
January 26, 1994 June 1, 1994 May 31, 1997 $15,000.00
I. LOCATION OF PREMISES:
4300 WEST 35TH PLACE, CHICAGO, IL 60632
Consisting of forty four (44) doors of a truck terminal dock,
offices, shop and parking, all located on approximately 5.15
acres as more particularly described in Exhibit "A" attached
hereto and made a part hereof.
II. TERM:
TO HAVE AND TO HOLD the premises, together with all
improvements, rights, easements, privileges and appurtenance
thereon or appertaining or held and enjoyed, unto Lessee upon the
covenants and agreements herein set forth, the term of this Lease
shall be THREE (3) YEARS, commencing the 1st DAY OF JUNE, 1994, and
terminating the 31st DAY OF MAY, 1997 with five, one (1) year
renewal options at rental rates of FIFTEEN THOUSAND ($15,000.00)
plus one half of the percentage increase in the city of Chicago CPI
(Consumer Price Index), annual average, all items, for the period
June 1, 1994 through May 31, 1997 for first option then prior year
thereafter, but never less than the previous years written notice
of intent for each option. Notwithstanding anything herein to the
contrary, Lessee may terminate this Lease at any time after the
first year of the initial term upon four (4) months prior written
notice.
III. BASE RENT:
The base rental payable during the THREE YEAR TERM shall be
FIVE HUNDRED FORTY THOUSAND AND NO/100 DOLLARS ($540,000.00). Said
base rental shall be payable by Lessee to Lessor in THIRTY SIX (36)
installments as follows:
A. Contemporaneous with the execution of this Lease, lessee
shall pay Lessor the first installment of FIFTEEN
THOUSAND DOLLARS ($15,000.00) and a security deposit of
FIFTEEN THOUSAND DOLLARS ($15,000.00). The prepaid
installment for the security deposit will not accrue
interest to Lessee. Any income which may be earned by
Lessor from these funds will be considered additional
rental income by Lessor. The security deposit will be
refunded at the termination, plus any extensions, of this
Lease providing Lessee is not in default and after an
inspection of the premises by lessor and any repairs are
made which are Lessee's responsibility.
B. Beginning on the 1st DAY OF JULY, 1994, and on the same
day of the succeeding THIRTY-FOUR MONTHS, Lessee shall
pay Lessor FIFTEEN THOUSAND AND NO/100 DOLLARS
($15,000.00) through MAY 31, 1997.
C. Unless otherwise specified in writing by lessor, all
rental payments shall be made payable to DONGARY
INVESTMENTS, LTD., at the address stated above.
D. All installments of rent due under the provisions of this
Lease which are unpaid as of ten (10) days of the date
the same are due shall bear interest at the highest legal
rate of the state in which the demised premises are
located per annum from and after the due date thereof and
until paid; and all sums of money which the Lessor shall
be required to pay or shall advance or expend by reason
of the default of the Lessee under the provisions of this
Lease shall bear interest at the highest legal rate of
the state in which the demised premises are located per
annum from and after the date of the payment thereof and
until the Lessor shall be reimbursed therefor. The
interest due as provided under this Section shall
constitute additional rent under this Lease.
E. The entire amount of rent reserved and agreed to be paid
under this lease and each and every installment thereof,
the amount of all taxes, assessments, insurance premiums
and other charges to be paid by the Lessee as herein
provided, if paid by Lessor, and all costs, reasonable
attorneys' fees and expenses which may be incurred by
Lessor in enforcing the provisions of this Lease or on
account of any delinquency of Lessee in carrying out any
of the provisions of this Lease, shall be the
responsibility of the Lessee.
IV. USE OF DEMISED PREMISES:
Subject to the applicable zoning, use and building laws,
ordinances, and governmental regulations in force from time to
time, the Lessee may use the demised premises for motor freight
terminal purposes. The rules and regulations of the Board of Fire
Underwriters for the area in which the demised premises are located
shall be complied with in dealing with all volatile, explosive or
especially inflammable fluids, vapors, gases, or materials on the
demised premises.
Lessee warrants that they will not conduct any hazardous waste
storage or hazardous waste disposal operations (including but not
limited to hazardous waste transportation operations or special
waste transportation operations) on the leased premises; not will
they store any hazardous waste in the trailers, tractors, yard,
shop, or terminal areas (in drums or other containers) at the
leased premises; not will Lessee have hazardous waste generators at
this site; nor will Lessee permit the use or storage upon the
premises of hazardous waste in any form by others who Lessee may
bring on to the leased premises or conduct business with.
Lessee understands that there is one (12,000 gallon diesel)
underground storage tank on the premises which the Lessor warrants
is in compliance with EPA's current new tank standards. Lessee
does not want to use this tank at the present time, therefore
Lessor will take this tank temporarily out of service by following
the current EPA requirements for temporary closure. Lessor shall
be responsible for, and shall indemnify and defend Lessee against,
any claims, fines, penalties, expenses or other damages arising out
of any environmental contamination involving said underground
storage tank or the failure of the tank to comply with federal,
state or local laws or regulations while the tank is not being
used. Should Lessee decide to use this tank at a later date, then
Lessee shall be liable for any and all then current governmental
regulations for underground storage tanks, and Lessee shall be
responsible for, and shall indemnify and defend Lessor against, any
claims, fines, penalties, expenses or other damages arising out of
any environmental contamination involving said underground storage
tank or the failure of the tank to comply with federal, state or
local laws or regulations upon Lessee's use of said tank.
Lessee understands that there are no underground storage tanks
on the premises, for waste oil, oil, anti-freeze, solvents and etc.
Proper containment and disposal of waste oil, oil, anti-freeze,
solvents and etc. will be at Lessee's sole liability and expense.
Lessee shall indemnify Lessor from any damage whatsoever,
including attorney's fees, which are due to any release or
threatened release of fuel, oil or other hazardous substance caused
by Lessee, its employees, agents or invitees.
Lessor shall be responsible for any environmental
contamination, fines, penalties, and cleanup costs plus any third
party liability which occurred prior to Lessee's occupancy, and any
and all contamination, fines, penalties, cleanup costs or third
party liability which are caused by Lessee, its servants or agents,
shall be the sole responsibility of the Lessee.
V. IMPROVEMENTS - LESSOR - LESSEE:
Prior to the commencement of Lessee's term, Lessor and lessee
shall inspect the premises. Any repairs shall be only those things
reasonable and necessary for Lessee's enjoyment and use of the
premises, as is but repaired, and shall not include any alterations
or customizing of the premises for Lessee's special requirements.
Lessor agrees to make an inspection to document the condition
of the facility. This inspection will document the condition upon
which the lessee accepts the premises and will return the premises
at the expiration of the lease. Facility to be delivered in broom
clean, operational condition.
At the expiration of the Lease Agreement, or prior
termination, the lessee shall surrender the leased property to the
Lessor in at least as good a condition as when received, damage
form the elements or acts of God, or damage resulting form the
negligence or willful misconduct of Lessor, its agents or
employees, excepted. Lessee shall be liable to Lessor for any
damage to the leased property resulting from the negligent or
willful acts or omissions of lessee or its agent or employees.
VI. REAL ESTATE TAXES:
Lessee shall, as additional rent together with all other sums
agreed to be paid by it under this Lease, pay unto Lessor, monthly,
the real estate taxes and assessments of the total property. The
amount of the real estate taxes and assessments at the present time
is FIVE THOUSAND, FOUR HUNDRED, TWENTY SIX AND 35/100 DOLLARS
($5,426.35) monthly beginning June 1, 1994. Annually, when the
real estate tax bills are received, a copy will be forwarded to
Lessee and any overage will be refunded to Lessee or any shortage
will be billed to Lessee and must be paid to Lessor no later than
the next regular monthly rental installment.
VII. INSURANCE:
A. Lessee shall, as additional rent together with all other
sums agreed to be paid by it under this lease, pay unto
lessor, monthly, the cost of lessor's fire and extended
casualty insurance on only the structures on the demised
premises. The cost of the insurance at the present time
is FORTY NINE AND 92/100 DOLLARS ($49.92) per month.
Lessee shall be responsible for and obtain their own
insurance for their personal property. This payment for
insurance shall be due and payable with the regular
monthly rental installments.
B. Lessee agrees to maintain public liability insurance in a
reputable insurance company at its own expense. The
liability under such insurance to be not less than Five
Million Dollars ($5,000,000.00) for any one person
injured, or Five Million Dollars ($5,000,000.00) for any
one accident, or Two Million Dollars ($2,000,000.00) for
property damages. Said policy shall name Lessor as an
additional insured and protect Lessor and Lessee as their
interests may appear. Lessee shall provide Lessor with a
Certificate of Insurance that provides the aforesaid
coverage, with a provision for thirty (30) days Notice of
Cancellation.
C. Lessor shall not be liable for any damage or injury to
persons or property occurring or arising upon the said
demised premises from any cause whatsoever; and Lessee
hereby agrees to keep and save Lessor harmless from any
suit or claims for damage or injury sustained upon the
demised premises, by any person from any cause whatsoever
except those caused by the neglect of Lessor, during the
term of this Lease.
VIII. UTILITIES:
Lessee shall, in addition to all other sums agreed to be paid
by it under this Lease, pay all utilities on this property each
month. Said utilities shall include but not be limited to, service
usage charges for heat, light, water, sewage, trash hauling and
cleaning service. Lessee shall transfer all utilities into their
name prior to occupancy.
IX. PERSONAL PROPERTY TAXES:
It is understood and agreed that Lessee shall be liable for
all taxes levied against personal property and fixtures owned by
Lessee or placed by Lessee in, on or about the demised premises,
and if any such taxes on such personal property or fixtures are
levied against Lessor's property, and if Lessor pays the same,
which Lessor shall have the right to do regardless of the validity
of such levy, or if the assessed value of Lessor's premises is
increased by the inclusion therein of the value placed upon such
property, and if Lessor pays the taxes based on such increased
assessment, which Lessor shall have the right to do regardless of
the validity thereof, Lessee, upon demand, shall, as the case may
be, pay to Lessor the taxes so levied against Lessor resulting from
such increase in assessment.
X. ALTERATIONS:
Lessee shall not make, or suffer to be made, any alternations
of said premises or any part thereof, without the written consent
of Lessor first had and obtained. Any additions to, or alterations
of, the said premises, except movable furniture and trade fixtures,
shall become at once a part of the realty and belong to Lessor.
Any and all alterations, changes and improvements which Lessee may
make with Lessor's consent shall be made by Lessee at its own cost
and expense, and Lessee shall not permit any liens for labor and/or
materials to attach to or be filed against the property of Lessor.
Lessee hereby agrees to indemnify and protect Lessor against, and
hold it free and harmless from all such liens and claim of liens.
XI. REPAIRS AND REPLACEMENT:
Lessee shall, at its own expense, keep the entire premises,
including but not limited to doors, paving, fences, fixtures and
equipment, repaired and in good tenantable condition, order and
repair at all times. Lessor shall at its own expense keep the roof
and main structure in good tenantable condition, order and repair.
Any and all asphalt paving damage caused by Lessee, holes or ware
due to Lessee's use, etc. shall be lessee's responsibility.
Due to the responsibility of Lessee to keep the facilities and
the improvements in good condition and repair at all times at its
expense, it is agreed that Lessee shall maintain the following good
housekeeping rules during the term of this lease:
A. It is the responsibility of Lessee to have the heating
and ventilating equipment checked by a qualified engineer
or contractor at least once each year and the cost for
such inspection and repairs shall be paid by Lessee.
B. All plumbing and plumbing fixtures shall be kept in good,
clean operating condition and checked at least once each
two years by a licensed plumbing contractor. All
expenses for such inspection and repairs shall be paid by
Lessee.
C. Lessee will maintain the interior offices in a clean and
sanitary condition at all times.
D. All electric outlets and fixtures shall be kept in good
working condition by Lessee and any inspection and/or
repairs are to be paid for by Lessee.
E. In the event any of the above conditions are not complied
with by Lessee, Lessor may notify Lessee by registered
mail of his intent and shall perform the necessary
services or repairs and Lessee agrees that he will pay
the total cost for same within thirty days after
submission of invoices.
In addition, any and all damages caused by Lessee, its
employees, or agents, shall be immediately repaired by
Lessee at Lessee's sole expense. If Lessor has the
damages repaired, it shall be billed to Lessee and shall
be due and payable within thirty (30) days of billing.
F. Failure to list specifically any item shall not relieve
Lessee of its duty to maintain the entire facility unless
specifically listed as Lessor's responsibility.
G. Lessee shall provide Lessor with copies of any and all
inspections.
XII. RIGHT OF INSPECTION AND ENTRY:
Lessor shall have the right, through its agents, at all
reasonable times during the continuance hereof, to enter upon said
premises to see that proper care is taken thereof, or to show the
same to any intending lessee.
XIII. ASSIGNMENT OF LEASE:
Lessee agrees not to assign this Lease not any rights
hereunder, nor let, nor sublet the demised premises nor any part
thereof, without first obtaining the written consent of Lessor,
which shall not be unreasonable withheld.
XIV. ABANDONMENT OF PREMISES:
If Lessee shall abandon or vacate the Premises, or if Lessee's
right to occupy the Premises be terminated by lessor by reason of
Lessee's breach of any of the covenants herein, the same may be re-
let by Lessor for such rent and upon such terms as Lessor may deem
fit; and if a sufficient sum shall not thus be realized monthly,
after paying the expenses of such re-letting and collecting to
satisfy the rent hereby reserved, Lessee agrees to satisfy and pay
all deficiency monthly during the remaining period of this Lease.
XV. SURRENDER BY PREMISES:
Lessee will, at the termination of this Lease by lapse of time
or otherwise, yield up immediate possession to Lessor, and failing
so to do, will pay as liquidated damages, for the whole time such
possession is withheld, the sum of SEVEN HUNDRED AND NO/100 DOLLARS
($700.00) per day; but the provisions of this clause shall not be
held as a waiver by Lessor of any right of re-entry as herein set
forth; nor shall the receipt of said rent or any part thereof, or
any other act in apparent affirmance of tenancy, operate as a
waiver of the right to forfeit this lease and the term granted for
the period still unexpired, for a breach of any of the covenants
herein.
XVI. REMOVAL OF FURNITURE:
Lessee shall have the right to remove from the premises all
movable furniture belonging to it, and the same shall be removed by
Lessee at the expiration or termination of this Lease, or any
renewal term hereof, provided that the same may be removed without
damage to the building or property, and if damage is caused by such
removal, Lessee agrees to repair such damage at its own cost
forthwith.
XVII. BANKRUPTCY OR INSOLVENCY OF LESSEE:
If Lessee be adjudged bankrupt or insolvent, this Lease shall
thereupon immediately terminate, and the same shall not be
assignable by any process of law not be treated as an asset of
Lessee or assignees of said Lessee by virtue of any proceeding in
bankruptcy or insolvency; and, in case of any such adjudication, or
if Lessee shall become bankrupt or insolvent, or made an assignment
of all its property for the benefit of its creditors, said Lessor
may, in any such case, at its option, terminate this Lease and re-
enter upon said premises and thereupon all rights of Lessee
hereunder shall cease and terminate.
XVIII. REMEDIES OF LESSOR:
A. If default be made in the payment of the above rent,
taxes, and insurance or any part thereof, or in any of
the covenants herein contained to be kept by the Lessee,
ten days after notice in writing to Lessee, Lessor may at
any time thereafter at his election declare said term
ended and re-enter the Premises or any part thereof, with
or (to the extent permitted by law) without notice or
process of law and remove Lessee or any persons occupying
the same without prejudice to any remedies which might
otherwise be used for arrears of rent, taxes and
insurance, and Lessor shall have at all times the right
to distrain for rent due, and shall have a valid and
first lien upon all personal property which Lessee now
owns, or may hereafter acquire or have an interest in,
which is by law subject to such distraint, as security
for payment of the rent, taxes and insurance herein
reserved.
B. Lessee's covenant to pay rent, taxes and insurance is and
shall be independent of each and every other covenant of
this Lease. Lessee agrees that any claim by Lessee
against Lessor shall not be deducted from rent, taxes and
insurance not set off against any claim for rent, taxes
and insurance in any action.
C. The rights and remedies of lessor under this Lease are
cumulative. The exercise or use of any one or more
thereof shall not bar Lessor from any exercise or use of
any other right or remedy provided herein or otherwise
provided by law, not shall exercise nor use of any right
or remedy by Lessor waive any other right or remedy.
XIX. PLURALS AND SUCCESSORS:
The words "Lessor" and "Lessee" wherever herein occurring and
used shall be construed to mean "Lessors" and "Lessees" in case
more than one person constitutes either party to this Lease; and
all the covenants and agreements contained shall be binding upon,
and insure to, their respective successors, heirs, executors,
administrators and assigns and may be exercised by them or their
attorney or agent.
XX. SEVERABILITY:
Whenever possible, each provision of this Lease shall be
interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Lease shall be
prohibited by or invalid under applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the
remaining provisions of this Lease.
XXI. INDEMNITY OF LESSOR:
A. Against Violation of Laws and Ordinances: Lessee
covenants and agrees that it will protect and save and
keep the Lessor forever harmless and indemnified against
and from any penalty of damage or charges claimed or
imposed for any violation of any laws or ordinances,
whether occasioned by the neglect of Lessee or those
holding under Lessee or by the occupancy and business of
Lessee.
B. Against Accidents and Occurrences: Lessee covenants and
agrees that it will protect and save and keep the Lessor
forever harmless and indemnified against and from any and
all loss, cost, damage or expense arising out of or from
any accident or other occurrence due to the acts or
neglects of the Lessee, its servants or agents on or
about the demised premises, causing injury to any person
or damage to any property whosoever or whatsoever.
C. Against Claims and Liens of Third Parties: Lessee
further covenants and agrees that it will defend and
indemnify Lessor and hold it harmless from any and all
liens, claims, suits, judgements, loss, costs, damage or
expense made by or for any contractor, employee of a
contractor or any other person whatsoever arising out of
or in any way connected with any other person whatsoever
arising out of or in any way connected with any contract
with Lessee, its agents or employees or in connection
with any work performed, material furnished,
construction, installation or alterations made or being
made or performed in or about the demised premises which
are contracted for by the Lessee. Lessee's obligations
set for the in this Section shall not apply to work
performed, materials furnished, construction,
installation, alterations or repairs required of Lessor
by this Lease.
XXII. ASSOCIATION MEMBERSHIP:
It is understood and agreed that the various owners and the
Lessees within the development, known as Highway Freight Center,
will all be members of an association. This association will have
the responsibility of maintaining the roadways and utilities and to
further provide additional services desired by the lessees and
owners, such as security, for their mutual benefit. All costs
incurred by this association shall be paid by each member on a
basis proportionate to the square footage of the land area owned or
leased to the total area within the development.
XXIII. NET LEASE:
It is the intention of the parties that this Lease should be a
net lease and that all the cost and expenses of operation,
maintenance, and repair, all taxes and insurance, and all other
expenses incurred in connection with the demised premises shall be
paid by the Lessee, except as otherwise specifically provided
herein; and whenever in this Lease it shall be provided that any
work is to be performed by the Lessee or any taxes or insurance
premiums are to be paid by the Lessee or by any of the terms and
provisions of this Lease it is the obligation of the Lessee to do
or perform any act or thing, such work to be so done and such taxes
and insurance premiums to be so paid and such other obligations to
be so performed shall be done at the cost and expense of the
Lessor, except where otherwise herein specifically provided.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement by affixing their names by their duly authorized officers
on the date appearing below their respective names.
LESSOR LESSEE
DONGARY INVESTMENTS, LTD. ACE HARDWARE CORPORATION
Federal ID # 84-0478211
BY: Eldon C. Yeutter BY: David Myer
Vice President
TITLE: Executive Vice President TITLE: Retail Support
DATE: April 5, 1994 DATE: May 4, 1994
ACE HARDWARE CORPORATION
LONG-TERM INCENTIVE COMPENSATION DEFERRAL OPTION PLAN
JANUARY 1, 1995
ACE HARDWARE CORPORATION
LONG-TERM INCENTIVE COMPENSATION DEFERRAL OPTION PLAN
I. PURPOSE
The purpose of this Ace Hardware Corporation Long-Term Incentive
Compensation Deferral Option Plan (the "Plan") is to provide a
further means whereby Ace Hardware Corporation (the "Company") may
afford wealth accumulation to certain officers of the Company who
have rendered and continue to render valuable service to the
Company. By providing a means whereby income may be deferred into
the future, the Plan will aid in attracting and retaining
executives of exceptional ability.
Compensation reductions made pursuant to the Plan will be credited
with interest for the benefit of each Participant. The intent of
the Plan is to credit Participants' compensation deferrals with a
specified rate of interest and to provide the Participants a means
to accumulate supplemental funds for retirement, special needs
prior to retirement or death.
II. DEFINITIONS AND CERTAIN PROVISIONS
2.1 "Agreement" means the Ace Hardware Corporation's
Long-Term Incentive Compensation Deferral Option
Agreement executed between a Participant and the Company,
whereby a Participant agrees to defer a portion of
his/her Bonus pursuant to the provisions of the Plan, and
the Company agrees to make benefit payments in accordance
with the provisions of the Plan.
2.2 "Beneficiary" means the person or persons who under this
Plan becomes entitled to receive a Participant's interest
in the event of the Participant's death.
2.3 "Board of Directors" means the Board of Directors of Ace
Hardware Corporation or any committee thereof acting
within the scope of its authority.
2.4 "Bonus" means the amount(s) paid during a calendar year
to a Participant under the Ace Hardware Corporation
Long-Term Incentive Compensation Plan.
2.5 "Committee" means the committee appointed to manage and
administer the Plan.
2.6 "Company" means Ace Hardware Corporation, a Delaware
corporation and its subsidiaries and any successor in
interest.
2.7 "Deferral Year" means any calendar year, 1995 through
1999.
2.8 "Deferred Benefit Account" means the account(s)
maintained on the books of the Company for a Participant
under this Plan. A separate Deferred Benefit Account
shall be maintained for each Participant. A Participant's
Deferred Benefit Account shall not constitute or be
treated as a trust fund of any kind.
2.9 "Determination Date" means the date on which the amount
of a Participant's Deferred Benefit Account is determined
as provided in Article III hereof. The last day of a Plan
year or the date of a Participant's Termination of
Service shall be a Determination Date.
2.10 "Disability" means a condition, as determined by the
Company, that totally and continuously prevents the
Participant, for at least six consecutive months, from
engaging in an "occupation" for compensation or profit.
During the first twenty-four (24) months of total
disability, "occupation" means the Participant's
occupation at the time the disability began. After that
period, "occupation" means any occupation for which the
Participant is or becomes reasonably fitted by education,
training or experience. Notwithstanding the foregoing, a
Disability shall not exist for purposes of this Plan if
the Participant fails to qualify for disability benefits
under the Social Security Act, unless the Company
determines, in its sole discretion, that a Disability
exists.
2.11 "Effective Date" means January 1, 1995.
2.12 "Hour of Service" shall mean (1) each hour for which an
employee is directly or indirectly compensated or
entitled to compensation by the Company for the
performance of duties during the applicable computation
period; (2) each hour for which an employee is directly
or indirectly compensated or entitled to compensation by
the Company (irrespective of whether the employment
relationship has terminated) for reasons other than
performance of duties (such as vacation, holidays,
sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation
period; (3) each hour for which back pay is awarded or
agreed to by the Company without regard to mitigation of
damages.
2.13 "Interest Yield" means either the Retirement Interest
Yield, the Termination Interest Yield, or the Death
Interest Yield, as defined below:
(a) "Retirement Interest Yield" means a rate of
interest equal to 120 percent of Prime.
(b) "Termination Interest Yield" means a rate of
interest equal to 100 percent of Prime.
(c) "Death Interest Yield" means a rate of interest
equal to 120 percent of Prime. This rate of
interest shall be fixed at the time of the
Participant's death.
2.14 "Participant" means an officer of the Company who is
eligible to participate in the Plan pursuant to Article
III, has executed an Agreement with the Company, and who
has commenced Bonus reductions pursuant to such
Agreement.
2.15 "Plan" means the Ace Hardware Corporation Long-Term
Incentive Compensation Deferral Option Plan as amended
from time-to-time.
2.16 "Prime" means the Prime Rate as of December 31st of the
preceding year as reported in the Wall Street Journal.
2.17 "Retirement Date" means the date of Termination of
Service of the Participant other than by reason of death
or Disability on or after he/she attains either age 55
with 10 Years of Service or age 60 with 5 Years of
Service or age 65.
2.18 "Termination of Service" means the Participant's
cessation of his/her service with the Company for any
reason whatsoever, whether voluntarily or involuntarily,
including by reason of retirement, death or Disability.
2.19 "Year of Service" means any calendar year during which a
Participant completes at least 1000 Hours of Service with
the Company.
III. PARTICIPATION AND COMPENSATION REDUCTION
3.1 Participation. Participation in the Plan shall be limited
to officers of the Company, who are eligible to
participate in the Ace Hardware Corporation Long-Term
Incentive Compensation Plan and who elect to participate
in this Plan by filing an Agreement with the Company
prior to the first day of the deferral period in which a
Participant's participation commences in the Plan. The
election to participate shall be effective upon receipt
by the Committee of the Agreement that is properly
completed and executed in conformity with the Plan.
3.2 Minimum and Maximum Deferral and Length of Participation.
A Participant may elect to defer any amount of his/her
Bonus including the non-vested portion, the immediate
award portion and the PREP portion of the Long-Term
Incentive Compensation Plan award. The amount of each
portion of the Bonus award which may be deferred shall be
equal to 20% to 100% (in 20% increments) of the award
granted. If a Bonus award is subject to a one year
vesting provision under the Long-Term Incentive
Compensation Plan, the same vesting requirements shall
apply to Bonus awards deferred into this Plan.
A Participant shall make an annual election for the
upcoming Deferral Year by December 1st of the year
preceding the Deferral Year for which the election is
being made.
3.3 Timing of Deferral Credits. The amount of Bonus that a
Participant elects to defer in the Agreement shall cause
an equivalent reduction in his/her Bonus. Bonus deferrals
shall be credited to the Participant's Deferred Benefit
Account at such time as the Participant would have
otherwise received or been eligible to receive the Bonus
deferred pursuant to the Plan.
3.4 New Participants. A Participant who first attains such
status subsequent to January 1, 1995, shall be entitled
to participate in the Plan after satisfying the
requirements of Section 3.1 and shall be bound by all
terms and conditions of the Plan, provided, however, that
this Agreement must be filed no later than thirty (30)
days following his/her eligibility to participate.
3.5 Emergency Benefit; Waiver of Deferral. In the event that
the Committee, upon written petition of the Participant
or his/her Beneficiary, determines in its sole
discretion, that the Participant or his/her Beneficiary
has suffered an unforeseeable financial emergency, the
Company shall pay to the Participant or his/her
Beneficiary, as soon as possible following such
determination, an amount, not in excess of the
Participant's Deferred Benefit Account, necessary to
satisfy the emergency. For purposes of this Plan, an
unforeseeable financial emergency is an unanticipated
emergency that is caused by an event beyond the control
of the Participant or Beneficiary and that would result
in severe financial hardship to the individual if the
emergency distribution were not permitted. Cash needs
arising from foreseeable events, such as the purchase of
a residence or education expenses for children shall not
be considered the result of an unforeseeable financial
emergency. The Committee may also grant a waiver of the
Participant's agreement to defer a stated amount of Bonus
upon finding that the Participant has suffered an
unforeseeable financial emergency. The waiver shall be
for such period of time as the Committee deems necessary
under the circumstances to relieve the hardship.
3.6 Determination of Account. Each Participant's Deferred
Benefit Account as of each Determination Date shall
consist of the balance of the Participant's Deferred
Benefit Account as of the immediately preceding
Determination Date, plus the Participant's elective
deferred Bonus pursuant to Section 3.2 since the
immediately preceding Determination Date. The Deferred
Benefit Account of each Participant shall be reduced by
the amount of all distributions, if any, made from such
Deferred Benefit Account since the preceding
Determination Date. The appropriate Interest Yield shall
be credited on the average daily balance of the Deferred
Benefit Account as of the Determination Date and since
the last preceding Determination Date, but after the
Deferred Benefit Account has been adjusted for any
additions (including interest earnings) or distributions
to be credited or deducted for each such day.
3.7 Vesting of Deferred Benefit Account. Except as provided
in Section 3.2, a Participant shall be one hundred (100)
percent vested in his/her Deferred Benefit Account.
Notwithstanding any other provision of this Plan, a
Participant shall be one hundred (100) percent vested in
his/her Deferred Benefit Account at the time of
retirement, death or Disability.
IV. BENEFITS
4.1 Inservice Distribution. At the time a Participant
executes the Agreement, he/she may elect to receive a
return of up to 50%, in 5% increments, of the annual
deferrals originally made pursuant to the Plan. The
return of deferral election applies solely to the
Participant's deferral and not to interest credited to
the Participant's Deferred Benefit Account. Each return
of deferral shall be paid in a lump sum on December 1 of
the year which is five (5) years after the year in which
the deferral is made. A return of deferral shall only be
paid prior to a Participant's Termination of Service. Any
return of deferral paid shall be deemed a distribution,
and shall be deducted from the Participant's Deferred
Benefit Account. A separate return of deferral selection
shall be made for each Deferral Year.
4.2 Retirement Benefit. Subject to Section 4.6 below, upon
a Participant's Retirement Date, he/she shall be entitled
to receive the amount of his/her Deferred Benefit Account
determined under Section 3.6 using the Retirement
Interest Yield. The form of benefit payment shall be as
provided in Section 4.6.
4.3 Termination Benefit. Upon the Termination of Service of
a Participant prior to his/her Retirement Date for
reasons other than death or Disability, the Company shall
pay to the Participant a benefit equal to the amount of
his/her Deferred Benefit Account, determined under
Section 3.6 hereof using the Termination Interest Yield.
In calculating a Participant's Deferred Benefit Account
pursuant to this Section, the Termination Interest Yield
shall be utilized retroactive to the beginning of the
Participant's initial deferral into this Plan. Unless
otherwise directed by the Committee, the termination
benefit shall be payable in a lump sum within sixty (60)
days following such Termination of Service. Upon a
Termination of Service, the Participant shall immediately
cease to be eligible for any other benefit provided under
this Plan. In the event of a Participant's Termination of
Service, interest shall be credited to his/her Deferred
Benefit Account through the last day of the month during
which the Termination of Service occurred.
4.4 Death Benefits. Upon the death of a Participant or a
retired Participant, the Beneficiary of such Participant
shall receive the Participant's remaining Deferred
Benefit Account. Payment of a Participant's remaining
Deferred Benefit Account shall be in accordance with
Section 4.6.
4.5 Disability. In the event of a Termination of Service due
to Disability, which first manifests itself after the
Effective Date of the Plan and prior to his/her
Retirement Date, a disabled Participant may receive a
benefit equal to the remaining balance, if any, of
his/her Deferred Benefit Account. Such benefit shall be
paid until the earliest of the following events: (i)
there is no longer any balance in the Participant's
Deferred Benefit Account; (ii) the Participant ceases to
be disabled and resumes employment with the Company;
(iii) the Participant dies. Payment of a Participant's
remaining Deferred Benefit Account shall be in accordance
with Section 4.6 over the number of years elected by the
Participant. Disability benefits shall be treated as
distributions from a Participant's Deferred Benefit
Account.
4.6 Form of Benefit Payment. Upon the happening of an event
described in Section 4.2, 4.4 or 4.5, the Company shall
pay to the Participant or his/her Beneficiary, monthly
installments payable in substantially equal amounts over
the number of years elected by the Participant. For
purposes of any installment payments due under this
Section 4.6, Participant at the time of his/her election
to defer into this Plan shall elect the number of years
such payments shall be paid. The number of years
installment payments may be paid shall not be fewer than
five (5) years nor greater than twenty (20) years.
Interest on the unpaid principal balance equal to the
applicable Retirement Interest Yield in the event of a
benefit payable pursuant to Section 4.2 or 4.5 or the
Death Interest Yield in the event of a benefit payable
pursuant to Section 4.4 will be added to the Deferred
Benefit Account on each Determination Date.
During the period a Participant is receiving installment
payments, the amount of the installment payments shall be
based on the prevailing Interest Yield applicable at the
commencement of payments, projected into the future. The
amount of the installment payments shall be recomputed
every three years and the installment payments shall be
increased or decreased to reflect any changes in the
applicable Interest Yield. Upon the death of a
Participant after the commencement of benefits pursuant
to Section 4.4, the remaining installment payments
payable to the Beneficiary shall be fixed. The Interest
Yield used to determine the installment payment amounts
shall be the Death Interest Yield.
The Company may, in its sole discretion, elect to pay, at
any time, a Participant's or Beneficiary's Deferred
Benefit Account in a lump sum payment.
4.7 Lump Sum Settlement Option. Notwithstanding any other
provision of this Plan, any Participant, retired
Participant or Beneficiary who has a Deferred Benefit
Account hereunder may elect to receive an immediate lump
sum payment of the balance of his/her Deferred Benefit
Account, reduced by a penalty equal to six percent (6%)
of the Participant's, retired Participant's or
Beneficiary's remaining Deferred Benefit Account. The
six percent (6%) penalty shall be permanently forfeited
and shall not be paid to the Participant, retired
Participant, or Beneficiary. A Participant who elects to
receive a lump sum payment pursuant to this Section 4.7
must forego further participation in the Plan for
eighteen (18) months.
In determining the amount to be paid as a lump sum
payment pursuant to this Section 4.7, the Termination
Interest Yield shall be utilized. In the event that the
Participant, prior to the election to receive a lump sum
payment pursuant to this Section 4.7, has attained
either age 55 with 10 Years of Service or age 60 with 5
Years of Service or age 65; and within one year following
the election to receive the lump sum has not acted in
competition with the Company either individually or as an
employee of a competitor, the difference between the
Deferred Benefit Account using the Retirement Interest
Yield or the Death Interest Yield, if applicable and the
Termination Interest Yield shall be paid to the
Participant, retired Participant or Beneficiary.
4.8 Withholding; Employment Taxes. To the extent required by
law in effect at the time payments are made, the Company
shall withhold any taxes required to be withheld by any
Federal, State or local government.
4.9 Commencement of Payments. Unless otherwise provided,
commencement of payments under this Plan shall be within
sixty (60) days following receipt of notice by the
Committee of an event which entitles a Participant or a
Beneficiary to payments under this Plan, or at such
earlier date as may be determined by the Committee. All
payments shall be made as of the first day of the month.
4.10 Full Payment of Benefits. Notwithstanding any other
provision of this Plan, all benefits shall be paid no
later than the Participant's eightieth (80th) birthday.
4.11 Recipients of Payments: Designation of Beneficiary. All
payments to be made by the Company under the Plan shall
be made to the Participant during his/her lifetime,
provided that if the Participant dies prior to the
completion of such payments, then all subsequent payments
under the Plan shall be made by the Company to the
Beneficiary determined in accordance with this Section
4.11. The Participant may designate a Beneficiary by
filing a written notice of such designation with the
Committee in such form as the Company requires and may
include contingent Beneficiaries. The Participant may
from time-to-time change the designated Beneficiary
without the consent of such Beneficiary by filing a new
designation in writing with the Committee. If no
designation is in effect at the time when any benefits
payable under this Plan shall become due, the Beneficiary
shall be the spouse of the Participant, or if no spouse
is then living, the representatives of the Participant's
estate.
V. CLAIMS FOR BENEFITS PROCEDURE
5.1 Claim for Benefits. Any claim for benefits under the Plan
shall be made in writing to any member of the Committee.
If such claim for benefits is wholly or partially denied
by the Committee, the Committee shall, within a
reasonable period of time, but not later than sixty (60)
days after receipt of the claim, notify the claimant of
the denial of the claim. Such notice of denial shall be
in writing and shall contain:
(a) The specific reason or reasons for denial of the
claim;
(b) A reference to the relevant Plan provisions upon
which the denial is based;
(c) A description of any additional material or
information necessary for the claimant to perfect
the claim, together with an explanation of why such
material or information is necessary; and
(d) An explanation of the Plan's claim review
procedure. If no such notice is provided, the
claim shall be deemed granted.
5.2 Request for Review of a Denial of a Claim for Benefits.
Upon the receipt by the claimant of written notice of
denial of the claim, the claimant may within ninety (90)
days file a written request to the Committee, requesting
a review of the denial of the claim, which review shall
include a hearing if deemed necessary by the Committee.
In connection with the claimant's appeal of the denial of
his/her claim, he/she may review relevant documents and
may submit issues and comments in writing.
5.3 Decision Upon Review of Denial of Claim for Benefits. The
Committee shall render a decision on the claim review
promptly, but no more than sixty (60) days after the
receipt of the claimant's request for review, unless
special circumstances (such as the need to hold a
hearing) require an extension of time, in which case the
sixty (60) day period shall be extended to 120 days. Such
decision shall:
(a) Include specific reasons for the decision;
(b) Be written in a manner calculated to be understood
by the claimant; and
(c) Contain specific references to the relevant Plan
provisions upon which the decision is based.
The decision of the Committee shall be final and binding
in all respects on both the Company and the claimant.
VI. ADMINISTRATION
6.1 Committee. The Plan shall be administered by the
Committee. Members of the Committee or agents of the
Committee may be Participants under the Plan. No member
of the Committee who is also a Participant shall be
involved in the decisions of the Committee regarding any
determination of any claim for benefit with respect to
himself or herself.
6.2 General Rights, Powers, and Duties of Committee. The
Committee shall be responsible for the management,
operation, and administration of the Plan. The Committee
may designate a Committee member or an officer of the
Company as Plan Administrator. Absent such delegation,
the Committee shall be the Plan Administrator. The Plan
Administrator shall perform duties as designated by the
Committee. In addition to any powers, rights and duties
set forth elsewhere in the Plan, it shall have the
following powers and duties:
(a) To adopt such rules and regulations consistent with
the provisions of the Plan as it deems necessary
for the proper and efficient administration of the
Plan;
(b) To administer the Plan in accordance with its terms
and any rules and regulations it establishes;
(c) To maintain records concerning the Plan sufficient
to prepare reports, returns and other information
required by the Plan or by law;
(d) To construe and interpret the Plan and resolve all
questions arising under the Plan;
(e) To direct the Company to pay benefits under the
Plan, and to give such other directions and
instructions as may be necessary for the proper
administration of the Plan;
(f) To employ or retain agents, attorneys, actuaries,
accountants or other persons, who may also be
Participants in the Plan or be employed by or
represent the Company, as it deems necessary for
the effective exercise of its duties, and may
delegate to such agents any power and duties, both
ministerial and discretionary, as it may deem
necessary and appropriate; and
(g) To be responsible for the preparation, filing and
disclosure on behalf of the Plan of such documents
and reports as are required by any applicable
Federal or State law.
6.3 Information to be Furnished to Committee. The Company
shall furnish the Committee such data and information as
it may require. The records of the Company shall be
determinative of each Participant's period of employment,
termination of employment and the reason therefor, leave
of absence, reemployment, Years of Service, personal
data, and Bonus deferrals. Participants and their
Beneficiaries shall furnish to the Committee such
evidence, data, or information, and execute such
documents as the Committee requests.
6.4 Responsibility. No member of the Committee of the Company
shall be liable to any person for any action taken or
omitted in connection with the administration of this
Plan unless attributable to his/her own fraud or willful
misconduct. The Company agrees to defend, indemnify and
hold each Committee member harmless from any and all
damages, losses or costs (including reasonable attorney's
fees) which occur by reason of, arise out of, or are
incidental to the implementation or administration of the
Plan unless attributable to his/her own willful fraud or
willful misconduct.
6.5 Committee Review. Any action on matters within the
discretion of the Committee shall be final and conclusive
as to all Participants, retired Participants,
Beneficiaries and other persons claiming rights under the
Plan. The Committee shall exercise all of the powers,
duties and responsibilities set forth hereunder in its
sole discretion.
VII. AMENDMENT AND TERMINATION
7.1 Amendment. The Plan may be amended in whole or in part by
the Board of Directors at any time. Notice of any such
amendment shall be given in writing to the Committee and
to each Participant and each Beneficiary. No amendment
shall decrease the value of a Participant's Deferred
Benefit Account.
7.2 Company's Right to Terminate. The Board of Directors may
terminate the Plan and/or the Agreements pertaining to
the Participant at any time after the Effective Date of
the Plan. In the event of any such termination, the
Participant or Beneficiary shall be entitled to the
amount of his/her Deferred Benefit Account determined
under Section 3.6, using the Retirement Interest Yield
as of the date of termination of the Plan and/or his/her
Agreement. Such benefit shall be paid to the Participant
in monthly installments over a period of no more than
fifteen (15) years, except that the Company, in its sole
discretion, may pay out such benefit in a lump sum or in
installments over a period shorter than fifteen (15)
years.
VIII. MISCELLANEOUS
8.1 No Implied Rights; Rights on Termination of Service.
Neither the establishment of the Plan nor any amendment
thereof shall be construed as giving any Participant,
retired Participant, Beneficiary, or any other person any
legal or equitable right unless such right shall be
specifically provided for in the Plan or conferred by
specific action of the Company in accordance with the
terms and provisions of the Plan. Except as expressly
provided in this Plan, the Company shall not be required
or be liable to make any payment under the Plan.
8.2 No Right to Company Assets. Neither the Participant nor
any other person shall acquire by reason of the Plan any
right in or title to any assets, funds or property of the
Company whatsoever including, without limiting the
generality of the foregoing, any specific funds, assets,
or other property which the Company, in its sole
discretion, may set aside in anticipation of a liability
hereunder. Any benefits which become payable hereunder
shall be payable from the general assets of the Company.
The Participant shall have only a contractual right to
the amounts, if any, payable hereunder unsecured by any
asset of the Company. Nothing contained in the Plan
constitutes a guarantee by the Company that the assets of
the Company shall be sufficient to pay any benefit to any
person.
8.3 No Employment Rights. Nothing herein shall constitute a
contract of employment or of continuing service or in any
manner obligate the Company to continue the services of
the Participant, or obligate the Participant to continue
in the service of the Company, or as a limitation of the
right of the Company to discharge any of its employees,
with or without cause. Nothing herein shall be construed
as fixing or regulating the Bonus payable to the
Participant.
8.4 Offset. If, at the time payments or installments of
payments are to be made hereunder, the Participant,
retired Participant or the Beneficiary are indebted or
obligated to the Company, then the payments remaining to
be made to the Participant, retired Participant, or the
Beneficiary may, at the discretion of the Company, be
reduced by the amount of such indebtedness or obligation,
provided, however, that an election by the Company not to
reduce any such payment or payments shall not constitute
a waiver of its claim for such indebtedness or
obligation.
8.5 Non-assignability. Neither the Participant nor any other
person shall have any voluntary or involuntary right to
commute, sell, assign, pledge, anticipate, mortgage or
otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt the amounts, if any, payable
hereunder, or any part thereof, which are expressly
declared to be unassignable and non-transferable. No part
of the amounts payable shall be, prior to actual payment,
subject to seizure or sequestration for the payment of
any debts, judgments, alimony or separate maintenance
owed by the Participant or any other person, or be
transferable by operation of law in the event of the
Participant's or any other person's bankruptcy or
insolvency.
8.6 Gender and Number. Wherever appropriate herein, the
masculine may mean the feminine and the singular may mean
the plural or vice versa.
8.7 Notice. Any notice required or permitted to be given
under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, and
if given to the Company, delivered to the principal
office of the Company, directed to the attention of the
Committee. Such notice shall be deemed given as of the
date of delivery or, if delivery is made by mail, as of
the date shown on the postmark or the receipt for
registration or certification.
8.8 Governing Laws. The Plan shall be construed and
administered according to the laws of the State of
Illinois.
IN WITNESS WHEREOF, the Company has adopted this Ace Hardware
Corporation LONG-
TERM INCENTIVE COMPENSATION DEFERRAL OPTION PLAN as of January 1,
1995.
Ace Hardware Corporation
By: ____________________________
Its: ____________________________
ACE HARDWARE CORPORATION
DIRECTORS' DEFERRAL OPTION PLAN
JANUARY 1, 1995
ACE HARDWARE CORPORATION
DIRECTORS' DEFERRAL OPTION PLAN
I. PURPOSE
The purpose of this Ace Hardware Corporation Directors' Deferral
Option Plan (the "Plan") is to provide a further means whereby Ace
Hardware Corporation (the "Company") may afford financial security
to directors of the Company who have rendered and continue to
render valuable service to the Company.
Compensation reductions made pursuant to the Plan will be credited
with interest for the benefit of each Participant. The intent of
the Plan is to credit Participants' compensation deferrals with a
specified rate of interest and to provide the Participants a means
to accumulate supplemental funds for retirement, special needs
prior to retirement or death.
II. DEFINITIONS AND CERTAIN PROVISIONS
2.1 "Agreement" means the Ace Hardware Corporation's
Directors' Deferral Option Agreement executed between a
Participant and the Company, whereby a Participant agrees
to defer a portion of his/her Compensation pursuant to
the provisions of the Plan, and the Company agrees to
make benefit payments in accordance with the provisions
of the Plan.
2.2 "Beneficiary" means the person or persons who under this
Plan becomes entitled to receive a Participant's interest
in the event of the Participant's death.
2.3 "Board of Directors" means the Board of Directors of Ace
Hardware Corporation or any committee thereof acting
within the scope of its authority.
2.4 "Committee" means the committee appointed to manage and
administer the Plan.
2.5 "Company" means Ace Hardware Corporation, a Delaware
corporation and its subsidiaries and any successor in
interest.
2.6 "Compensation" means the directors fees for personal
services rendered by a Participant as a director of the
Company during a calendar year.
2.7 "Deferral Year" means any calendar year, 1995 through
2000.
2.8 "Deferred Benefit Account" means the account(s)
maintained on the books of the Company for a Participant
under this Plan. A separate Deferred Benefit Account
shall be maintained for each Participant. A Participant's
Deferred Benefit Account shall not constitute or be
treated as a trust fund of any kind.
2.9 "Determination Date" means the date on which the amount
of a Participant's Deferred Benefit Account is determined
as provided in Article III hereof. The last day of a Plan
year or the date of a Participant's Termination of
Service shall be a Determination Date.
2.10 "Disability" means a condition, as determined by the
Company, that totally and continuously prevents the
Participant, for at least six consecutive months, from
engaging in an "occupation" for compensation or profit.
During the first twenty-four (24) months of total
disability, "occupation" means the Participant's
occupation at the time the disability began. After that
period, "occupation" means any occupation for which the
Participant is or becomes reasonably fitted by education,
training or experience. Notwithstanding the foregoing, a
Disability shall not exist for purposes of this Plan if
the Participant fails to qualify for disability benefits
under the Social Security Act, unless the Company
determines, in its sole discretion, that a Disability
exists.
2.11 "Effective Date" means January 1, 1995.
2.12 "Interest Yield" means either the Retirement Interest
Yield, the Termination Interest Yield, or the Death
Interest Yield, as defined below:
(a) "Retirement Interest Yield" means a rate of
interest equal to 120 percent of Prime.
(b) "Termination Interest Yield" means a rate of
interest equal to 100 percent of Prime.
(c) "Death Interest Yield" means a rate of interest
equal to 120 percent of Prime. This rate of
interest shall be fixed at the time of the
Participant's death.
2.13 "Participant" means a member of the Board of Directors of
the Company who is designated to be eligible pursuant to
Section 3.1 and who has executed an Agreement with the
Company.
2.14 "Plan" means the Ace Hardware Corporation Directors'
Deferral Option Plan as amended from time-to-time.
2.15 "Prime" means the Prime Rate as of December 31st of the
preceding year as reported in the Wall Street Journal.
2.16 "Retirement Date" means the date of Termination of
Service of the Participant other than by reason of death
or Disability on or after he/she attains either 3
completed board terms, age 55 with 2 completed board
terms, age 60 with 1 completed board term or age 65.
2.17 "Termination of Service" means the Participant's
cessation of his/her service with the Company for any
reason whatsoever, whether voluntarily or involuntarily,
including by reason of retirement, death, or Disability.
III. PARTICIPATION AND COMPENSATION REDUCTION
3.1 Participation. Participation in the Plan shall be
limited to directors of the Company who elect to
participate in this Plan by filing an Agreement with the
Company prior to the first day of the deferral period in
which a Participant's participation commences in the
Plan. The election to participate shall be effective upon
receipt by the Committee of the Agreement that is
properly completed and executed in conformity with the
Plan.
3.2 Minimum and Maximum Deferral and Length of Participation.
A Participant in the Plan may elect to defer 5 to 100
percent of his/her Compensation in 5 percent increments.
A Participant may elect to defer a different percentage
of Compensation for each Deferral year. A Participant
shall make an annual election for the upcoming Deferral
Year by December 1st of the year preceding the Deferral
Year for which the election is being made.
3.3 Timing of Deferral Credits. The amount of Compensation
that a Participant elects to defer in the Agreement shall
cause an equivalent reduction in his/her Compensation.
Compensation deferrals shall be credited to the
Participant's Deferred Benefit Account at such time as
the Participant would have otherwise received or been
eligible to receive the Compensation deferred pursuant to
the Plan.
3.4 New Participants. A Participant who first attains such
status subsequent to January 1, 1995, shall be entitled
to participate in the Plan after satisfying the
requirements of Section 3.1 and shall be bound by all
terms and conditions of the Plan, provided, however, that
this Agreement must be filed no later than thirty (30)
days following his/her eligibility to participate.
3.5 Emergency Benefit; Waiver of Deferral. In the event that
the Committee, upon written petition of the Participant
or his/her Beneficiary, determines in its sole
discretion, that the Participant or his/her Beneficiary
has suffered an unforeseeable financial emergency, the
Company shall pay to the Participant or his/her
Beneficiary, as soon as possible following such
determination, an amount, not in excess of the
Participant's Deferred Benefit Account, necessary to
satisfy the emergency. For purposes of this Plan, an
unforeseeable financial emergency is an unanticipated
emergency that is caused by an event beyond the control
of the Participant or Beneficiary and that would result
in severe financial hardship to the individual if the
emergency distribution were not permitted. Cash needs
arising from foreseeable events, such as the purchase of
a residence or education expenses for children shall not
be considered the result of an unforeseeable financial
emergency. The Committee may also grant a waiver of the
Participant's agreement to defer a stated amount of
Compensation upon finding that the Participant has
suffered an unforeseeable financial emergency. The
waiver shall be for such period of time as the Committee
deems necessary under the circumstances to relieve the
hardship.
3.6 Determination of Account. Each Participant's Deferred
Benefit Account as of each Determination Date shall
consist of the balance of the Participant's Deferred
Benefit Account as of the immediately preceding
Determination Date, plus the Participant's elective
deferred Compensation pursuant to Section 3.2 since the
immediately preceding Determination Date. The Deferred
Benefit Account of each Participant shall be reduced by
the amount of all distributions, if any, made from such
Deferred Benefit Account since the preceding
Determination Date. The appropriate Interest Yield shall
be credited on the average daily balance of the Deferred
Benefit Account as of the Determination Date and since
the last preceding Determination Date, but after the
Deferred Benefit Account has been adjusted for any
additions (including interest earnings) or distributions
to be credited or deducted for each such day.
3.7 Vesting of Deferred Benefit Account. A Participant shall
be one hundred (100) percent vested in his/her Deferred
Benefit Account.
IV. BENEFITS
4.1 Inservice Distribution. At the time a Participant
executes the Agreement, he/she may elect to receive a
return of up to 50%, in 5% increments, of the annual
deferral originally made pursuant to the Plan. The return
of deferral election applies solely to the Participant's
deferral and not to interest credited to the
Participant's Deferred Benefit Account. Each return of
deferral shall be paid in a lump sum on December 1 of the
year which is six (6) years after the year in which the
deferral is made. A return of deferral shall only be paid
prior to a Participant's Termination of Service. Any
return of deferral paid shall be deemed a distribution,
and shall be deducted from the Participant's Deferred
Benefit Account. A separate return of deferral election
shall be made for each Deferral Year.
4.2 Retirement Benefit. Subject to Section 4.6 below, upon
a Participant's Retirement Date, he/she shall be entitled
to receive the amount of his/her Deferred Benefit Account
determined under Section 3.6 using the Retirement
Interest Yield. The form of benefit payment shall be as
provided in Section 4.6.
4.3 Termination Benefit. Upon the Termination of Service of
a Participant prior to his/her Retirement Date for
reasons other than death or Disability, the Company shall
pay to the Participant a benefit equal to the amount of
his/her Deferred Benefit Account, determined under
Section 3.6 hereof using the Termination Interest Yield.
In calculating a Participant's Deferred Benefit Account
pursuant to this Section, the Termination Interest Yield
shall be utilized retroactive to the beginning of the
Participant's initial deferral into this Plan. Unless
otherwise directed by the Committee, the termination
benefit shall be payable in a lump sum within sixty (60)
days following such Termination of Service. Upon a
Termination of Service, the Participant shall immediately
cease to be eligible for any other benefit provided under
this Plan. In the event of a Participant's Termination of
Service, interest shall be credited to his/her Deferred
Benefit Account through the last day of the month during
which the Termination of Service occurred.
4.4 Death Benefits. Upon the death of a Participant or a
retired Participant, the Beneficiary of such Participant
shall receive the Participant's remaining Deferred
Benefit Account. Payment of a Participant's remaining
Deferred Benefit Account shall be in accordance with
Section 4.6.
4.5 Disability. In the event of a Termination of Service due
to Disability, which first manifests itself after the
Effective Date of the Plan and prior to his/her
Retirement Date, a disabled Participant may receive a
benefit equal to the remaining balance, if any, of
his/her Deferred Benefit Account. Such benefit shall be
paid until the earliest of the following events: (i)
there is no longer any balance in the Participant's
Deferred Benefit Account; (ii) the Participant ceases to
be disabled and resumes employment with the Company;
(iii) the Participant dies. Payment of a Participant's
remaining Deferred Benefit Account shall be in accordance
with Section 4.6 over the number of years elected by the
Participant. Disability benefits shall be treated as
distributions from a Participant's Deferred Benefit
Account.
4.6 Form of Benefit Payment. Upon the happening of an event
described in Section 4.2, 4.4 or 4.5, the Company shall
pay to the Participant or his/her Beneficiary, monthly
installments payable in substantially equal amounts over
the number of years elected by the Participant. For
purposes of any installment payments due under this
Section 4.6, Participant at the time of his/her election
to defer into this Plan shall elect the number of years
such payments shall be paid. The number of years
installment payments may be paid shall not be fewer than
five (5) years nor greater than twenty (20) years.
Interest on the unpaid principal balance equal to the
applicable Retirement Interest Yield in the event of a
benefit payable pursuant to Section 4.2 or 4.5 or the
Death Interest Yield in the event of a benefit payable
pursuant to Section 4.4 will be added to the Deferred
Benefit Account on each Determination Date.
During the period a Participant is receiving installment
payments, the amount of the installment payments shall be
based on the prevailing Interest Yield applicable at the
commencement of payments, projected into the future. The
amount of the installment payments shall be recomputed
every three years and the installment payments shall be
increased or decreased to reflect any changes in the
applicable Interest Yield. Upon the death of a
Participant or a retired Participant, the remaining
installment payments payable to the Beneficiary shall be
fixed. The Interest Yield used to determine the
installment payment amounts shall be the Death Interest
Yield.
The Company may, in its sole discretion, elect to pay, at
any time, a Participant's or Beneficiary's Deferred
Benefit Account in a lump sum payment.
4.7 Lump Sum Settlement Option. Notwithstanding any other
provision of this Plan, any Participant, retired
Participant or Beneficiary who has a Deferred Benefit
Account hereunder may elect to receive an immediate lump
sum payment of the balance of his/her Deferred Benefit
Account, reduced by a penalty equal to six percent (6%)
of the Participant's, retired Participant's or
Beneficiary's remaining Deferred Benefit Account. The
six percent (6%) penalty shall be permanently forfeited
and shall not be paid to the Participant, retired
Participant, or Beneficiary. A Participant who elects to
receive a lump sum payment pursuant to this Section 4.7
must forego further participation in the Plan for
eighteen (18) months.
In determining the amount to be paid as a lump sum
payment pursuant to this Section 4.7, the Termination
Interest Yield shall be utilized. In the event that the
Participant, prior to the election to receive a lump sum
payment pursuant to this Section 4.7, has attained
either 3 completed board terms, age 55 with 2 completed
board terms, age 60 with 1 completed board term or age
65; and within one year following the election to receive
the lump sum has not acted in competition with the
Company either individually or as an employee or director
of a competitor, the difference between the Deferred
Benefit Account using the Retirement Interest Yield or
the Death Interest Yield, if applicable and the
Termination Interest Yield shall be paid to the
Participant, retired Participant or Beneficiary.
4.8 Withholding; Employment Taxes. To the extent required by
law in effect at the time payments are made, the Company
shall withhold any taxes required to be withheld by any
Federal, State or local government.
4.9 Commencement of Payments. Unless otherwise provided,
commencement of payments under this Plan shall be within
sixty (60) days following receipt of notice by the
Committee of an event which entitles a Participant or a
Beneficiary to payments under this Plan, or at such
earlier date as may be determined by the Committee. All
payments shall be made as of the first day of the month.
4.10 Full Payment of Benefits. Notwithstanding any other
provision of this Plan, all benefits shall be paid no
later than the Participant's eightieth (80th) birthday.
4.11 Recipients of Payments: Designation of Beneficiary. All
payments to be made by the Company under the Plan shall
be made to the Participant during his/her lifetime,
provided that if the Participant dies prior to the
completion of such payments, then all subsequent payments
under the Plan shall be made by the Company to the
Beneficiary determined in accordance with this Section.
The Participant may designate a Beneficiary by filing a
written notice of such designation with the Committee in
such form as the Company requires and may include
contingent Beneficiaries. The Participant may from
time-to-time change the designated Beneficiary without
the consent of such Beneficiary by filing a new
designation in writing with the Committee. If no
designation is in effect at the time when any benefits
payable under this Plan shall become due, the Beneficiary
shall be the spouse of the Participant, or if no spouse
is then living, the representatives of the Participant's
estate.
V. CLAIMS FOR BENEFITS PROCEDURE
5.1 Claim for Benefits. Any claim for benefits under the Plan
shall be made in writing to any member of the Committee.
If such claim for benefits is wholly or partially denied
by the Committee, the Committee shall, within a
reasonable period of time, but not later than sixty (60)
days after receipt of the claim, notify the claimant of
the denial of the claim. Such notice of denial shall be
in writing and shall contain:
(a) The specific reason or reasons for denial of the
claim;
(b) A reference to the relevant Plan provisions upon
which the denial is based;
(c) A description of any additional material or
information necessary for the claimant to perfect
the claim, together with an explanation of why such
material or information is necessary; and
(d) An explanation of the Plan's claim review
procedure. If no such notice is provided, the
claim shall be deemed granted.
5.2 Request for Review of a Denial of a Claim for Benefits.
Upon the receipt by the claimant of written notice of
denial of the claim, the claimant may within ninety (90)
days file a written request to the Committee, requesting
a review of the denial of the claim, which review shall
include a hearing if deemed necessary by the Committee.
In connection with the claimant's appeal of the denial of
his/her claim, he/she may review relevant documents and
may submit issues and comments in writing.
5.3 Decision Upon Review of Denial of Claim for Benefits. The
Committee shall render a decision on the claim review
promptly, but no more than sixty (60) days after the
receipt of the claimant's request for review, unless
special circumstances (such as the need to hold a
hearing) require an extension of time, in which case the
sixty (60) day period shall be extended to 120 days. Such
decision shall:
(a) Include specific reasons for the decision;
(b) Be written in a manner calculated to be understood
by the claimant; and
(c) Contain specific references to the relevant Plan
provisions upon which the decision is based.
The decision of the Committee shall be final and binding
in all respects on both the Company and the claimant.
VI. ADMINISTRATION
6.1 Committee. The Plan shall be administered by the
Committee. Members of the Committee or agents of the
Committee may be Participants under the Plan. No member
of the Committee who is also a Participant shall be
involved in the decisions of the Committee regarding any
determination of any claim for benefit with respect to
himself or herself.
6.2 General Rights, Powers, and Duties of Committee. The
Committee shall be responsible for the management,
operation, and administration of the Plan. The Committee
may designate a Committee member or an officer of the
Company as Plan Administrator. Absent such delegation,
the Committee shall be the Plan Administrator. The Plan
Administrator shall perform duties as designated by the
Committee. In addition to any powers, rights and duties
set forth elsewhere in the Plan, it shall have the
following powers and duties:
(a) To adopt such rules and regulations consistent with
the provisions of the Plan as it deems necessary
for the proper and efficient administration of the
Plan;
(b) To administer the Plan in accordance with its terms
and any rules and regulations it establishes;
(c) To maintain records concerning the Plan sufficient
to prepare reports, returns and other information
required by the Plan or by law;
(d) To construe and interpret the Plan and resolve all
questions arising under the Plan;
(e) To direct the Company to pay benefits under the
Plan, and to give such other directions and
instructions as may be necessary for the proper
administration of the Plan;
(f) To employ or retain agents, attorneys, actuaries,
accountants or other persons, who may also be
Participants in the Plan or be employed by or
represent the Company, as it deems necessary for
the effective exercise of its duties, and may
delegate to such agents any power and duties, both
ministerial and discretionary, as it may deem
necessary and appropriate; and
(g) To be responsible for the preparation, filing and
disclosure on behalf of the Plan of such documents
and reports as are required by any applicable
Federal or State law.
6.3 Information to be Furnished to Committee. The Company
shall furnish the Committee such data and information as
it may require. The records of the Company shall be
determinative of each Participant's period of employment,
termination of employment and the reason therefore, leave
of absence, reemployment, number of completed board
terms, personal data, and Compensation deferrals.
Participants and their Beneficiaries shall furnish to the
Committee such evidence, data, or information, and
execute such documents as the Committee requests.
6.4 Responsibility. No member of the Committee of the Company
shall be liable to any person for any action taken or
omitted in connection with the administration of this
Plan unless attributable to his/her own fraud or willful
misconduct. The Company agrees to defend, indemnify and
hold each Committee member harmless from any and all
damages, losses or costs (including reasonable attorney's
fees) which occur by reason of, arise out of, or are
incidental to the implementation or administration of the
Plan unless attributable to his/her own willful fraud or
willful misconduct.
6.5 Committee Review. Any action on matters within the
discretion of the Committee shall be final and conclusive
as to all Participants, retired Participants,
Beneficiaries and other persons claiming rights under the
Plan. The Committee shall exercise all of the powers,
duties and responsibilities set forth hereunder in its
sole discretion.
VII. AMENDMENT AND TERMINATION
7.1 Amendment. The Plan may be amended in whole or in part by
the Company at any time. Notice of any such amendment
shall be given in writing to the Committee and to each
Participant and each Beneficiary. No amendment shall
decrease the value of a Participant's Deferred Benefit
Account.
7.2 Company's Right to Terminate. The Company may terminate
the Plan and/or the Agreements pertaining to the
Participant at any time after the Effective Date of the
Plan. In the event of any such termination, the
Participant or Beneficiary shall be entitled to the
amount of his/her Deferred Benefit Account determined
under Section 3.6, using the Retirement Interest Yield
as of the date of termination of the Plan and/or his/her
Agreement. Such benefit shall be paid to the Participant
in monthly installments over a period of no more than
fifteen (15) years, except that the Company, in its sole
discretion, may pay out such benefit in a lump sum or in
installments over a period shorter than fifteen (15)
years.
VIII. MISCELLANEOUS
8.1 No Implied Rights; Rights on Termination of Service.
Neither the establishment of the Plan nor any amendment
thereof shall be construed as giving any Participant,
retired Participant, Beneficiary, or any other person any
legal or equitable right unless such right shall be
specifically provided for in the Plan or conferred by
specific action of the Company in accordance with the
terms and provisions of the Plan. Except as expressly
provided in this Plan, the Company shall not be required
or be liable to make any payment under the Plan.
8.2 No Right to Company Assets. Neither the Participant nor
any other person shall acquire by reason of the Plan any
right in or title to any assets, funds or property of the
Company whatsoever including, without limiting the
generality of the foregoing, any specific funds, assets,
or other property which the Company, in its sole
discretion, may set aside in anticipation of a liability
hereunder. Any benefits which become payable hereunder
shall be payable from the general assets of the Company.
The Participant shall have only a contractual right to
the amounts, if any, payable hereunder unsecured by any
asset of the Company. Nothing contained in the Plan
constitutes a guarantee by the Company that the assets of
the Company shall be sufficient to pay any benefit to any
person.
8.3 No Employment Rights. Nothing herein shall constitute a
contract of employment or of continuing service or in any
manner obligate the Company to continue the services of
the Participant, or obligate the Participant to continue
in the service of the Company, or as a limitation of the
right of the Company to discharge any of its directors,
with or without cause. Nothing herein shall be construed
as fixing or regulating the Compensation payable to the
Participant.
8.4 Offset. If, at the time payments or installments of
payments are to be made hereunder, the Participant,
retired Participant or the Beneficiary are indebted or
obligated to the Company, then the payments remaining to
be made to the Participant, retired Participant, or the
Beneficiary may, at the discretion of the Company, be
reduced by the amount of such indebtedness or obligation,
provided, however, that an election by the Company not to
reduce any such payment or payments shall not constitute
a waiver of its claim for such indebtedness or
obligation.
8.5 Non-assignability. Neither the Participant nor any other
person shall have any voluntary or involuntary right to
commute, sell, assign, pledge, anticipate, mortgage or
otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt the amounts, if any, payable
hereunder, or any part thereof, which are expressly
declared to be unassignable and non-transferable. No part
of the amounts payable shall be, prior to actual payment,
subject to seizure or sequestration for the payment of
any debts, judgments, alimony or separate maintenance
owed by the Participant or any other person, or be
transferable by operation of law in the event of the
Participant's or any other person's bankruptcy or
insolvency.
8.6 Gender and Number. Wherever appropriate herein, the
masculine may mean the feminine and the singular may mean
the plural or vice versa.
8.7 Notice. Any notice required or permitted to be given
under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, and
if given to the Company, delivered to the principal
office of the Company, directed to the attention of the
Committee. Such notice shall be deemed given as of the
date of delivery or, if delivery is made by mail, as of
the date shown on the postmark or the receipt for
registration or certification.
8.8 Governing Laws. The Plan shall be construed and
administered according to the laws of the State of
Illinois.
IN WITNESS WHEREOF, the Company has adopted this Ace Hardware
Corporation
DIRECTORS' DEFERRAL OPTION PLAN as of January 1, 1995.
Ace Hardware Corporation
By: ____________________________
Its: ____________________________
EMPLOYMENT AGREEMENT
This Employment Agreement made and entered into this 22nd day of March, 1994
by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter
referred to as the "Employer", and Fred J. Neer, hereinafter referred to as
the "Executive";
W I T N E S S E T H :
Whereas the Executive is now employed by the Employer and the Employer and
Executive desire to enter into an Agreement to provide for the continuation of
the services of the Executive for the Employer for a term of years to the
extent and upon the terms and conditions hereinafter set forth;
Now, therefore, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
l. Employment. The Employer hereby employs the Executive as an
executive officer of the Employer holding such specific office or
offices during the term of this Agreement to which he has been
appointed by the Employer or is hereafter elected by the Board of
Directors of the Employer, and the Executive hereby accepts such
employment upon the terms and conditions hereinafter set forth.
The duties and responsibilities of the Executive shall include
those duties and responsibilities assigned to the office or
offices held by him under the Employer's By-laws and its practices
and procedures, together with such additional duties as may
reasonably be assigned to him from time to time by the President
or the Board of Directors of the Employer. If, during the term of
this Agreement, the Executive shall become eligible to be elected
or appointed as a director of the Employer, then, in the event
that he is elected or appointed as such a director, the Executive
shall serve in such capacity without additional compensation
during the remainder of the term of this Agreement.
2. Term of Agreement. The initial term of this Agreement shall begin
on April 1, 1994 and shall terminate on March 31, 1996, unless the
Agreement shall have been terminated earlier by reason of the
Executive's resignation, death, retirement or termination for
cause pursuant to Section 4. hereof or by reason of a
determination made pursuant to Section 9. hereof. Provided the
Executive is actively employed by the Employer as of the last day
of the initial term hereof, the Agreement shall automatically be
extended for an additional term of one (l) year following the
expiration of the initial term unless either the Employer or the
Executive shall have delivered written notice to the other party
hereto not less than sixty (60) days prior to March 31, 1996 of
its or his intention to terminate the Agreement at the end of the
initial term, in which case the Agreement shall not be extended
beyond March 31, 1996.
3. Employer's Alternative Option to Re-offer Same Agreement. In lieu
of either allowing this Agreement to be extended for an additional
one-year term beyond March 31, 1996 or exercising its right not to
extend the Agreement for such an additional one-year term, the
Employer shall have the additional option of offering to the
Executive a new Employment Agreement to be effective as of
April 1, 1996 which shall contain all of the same terms and
conditions as this Agreement except for a provision comparable to
this Section 3. and for those modifications which would be
required with respect to the then current salary of the Executive
and the dates or years to be designated in such new Agreement. In
order to exercise such option, the Employer shall deliver written
notice to the Executive of the Employer's intention to offer him
such new Employment Agreement not less than sixty (60) days prior
to March 31, 1996. With such notice the Employer shall tender to
the Executive two (2) copies of such new agreement duly executed
on behalf of the Employer. In the event that the Executive does
not return to the Employer one (l) copy of said new agreement
executed by the Executive by March 31, 1996, the Employer's offer
of such new agreement shall be deemed null and void. Any decision
on the part of the Employer to offer such new agreement to the
Executive, as well as any decision on the part of the Employer not
to allow this Agreement to be extended for an additional term of
one (1) year as provided for in Section 2. above, shall be made
only by the Board of Directors of the Employer.
4. Termination for Cause. The Employer may dismiss the Executive
from its employment and terminate this Agreement at any time for
cause, which shall consist of (a) theft, fraud, or embezzlement,
or conviction of any felony; or (b) the giving away or selling of
any trade secrets belonging to the Employer or of any information,
plans or records acquired or compiled by the Executive, or
furnished to him by Employer, in conjunction with his employment
hereunder for use in Employer's business, provided that such
activity results in a proven detriment to the Employer, and
provided further that this provision shall not apply to
information, plans and records which are otherwise available to
competitors of Employer or to members of the public. In the event
of any such termination of this Agreement for cause, payment to
the Executive of whatever portion of the Executive's salary which
shall have accrued to him to the date of such termination shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall also constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of such termination for the
payment by Employer of compensation to him or for the payment by
Employer after such date of the cost of any additional benefits
provided by Employer for the Executive.
5. Compensation. For all services rendered by the Executive under
this Agreement, the Employer agrees to pay to the Executive a
salary of One Hundred Sixty-Eight Thousand Dollars ($168,000.00)
per year, or such increased amount, if any, as shall be approved
by the Board of Directors of the Employer pursuant to the annual
review procedure hereinafter provided for. Such salary shall be
paid to the Employee in semi-monthly installments, or in such
other manner as shall be mutually agreed upon by the Employer and
the Executive. The Employer further agrees to review the salary
of the Executive hereunder at a meeting of the Board of Directors
of the Employer during the first quarter of 1995 with respect to
the amount of such salary to be paid to the Executive during the
contract year beginning April 1,1995. In the event that this
Agreement is extended for one (1) year beyond March 31, 1996, the
Employer agrees to further review said salary at a meeting of the
Board of Directors of the Employer during the first quarter of
1996 with respect to the amount thereof to be paid to the
Executive during the contract year beginning April 1,1996. The
Executive shall be paid such increased salary, if any, as the
Employer's Board of Directors shall deem to be appropriate after
the completion of each salary review made by the Board.
Notwithstanding anything herein to the contrary, the Employer's
contractual obligation for the payment of compensation hereunder
shall be suspended during any period Executive is receiving income
continuation benefits, including, but not limited to, short or
long-term disability benefits, under any Employer-sponsored plan.
6. Limitation on Outside Business Activities. The Executive shall
devote his entire business time, attention and energies to the
business of the Employer, and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or
not such business activity is pursued for gain, profit or other
pecuniary advantage, except that the Executive may devote a
reasonable portion of his time during business hours to
professional, civic, community or charitable activities, and, with
the approval of the President of the Employer, to service as a
director of other corporations and to other types of activities
not expressly mentioned herein.
7. Vacations. The Executive shall be granted during each calendar
year a vacation consisting of such number of weeks as he would be
entitled to during each such year in accordance with the vacation
policy established by the Employer for its executive officer
employees.
8. Nondisclosure of Confidential Information. It is understood and
agreed that the method and system of business used and developed
by the Employer involves marketing programs, pricing procedures,
operational procedures, training procedures, information
concerning retailers supplied by the Employer, lists of vendors to
the Employer, and other confidential information and/or trade
secrets of the Employer, and that the Executive, by virtue of his
employment hereunder, necessarily has and will become acquainted
with such confidential information and/or trade secrets. It is
further understood and agreed that the business and customers of
the Employer extend throughout the fifty (50) States of the United
States and its territorial possessions, the District of Columbia,
and several foreign countries located in various parts of the
world. Accordingly, the Executive agrees to treat as confidential
and to use only for the advancement of the interests of the
Employer all such information and/or trade secrets belonging to
the Employer and all information, plans and records submitted to
him by the Employer or acquired or compiled by him from time to
time in the course of his employment by the Employer for use in
the Employer's business which he knows to have been received by
him in confidence or which he knows would not otherwise be
available to competitors of the Employer or to members of the
public and, as a further specific condition of his employment
hereunder, and in further consideration thereof, the Executive
covenants and agrees that he will not, at any time during the term
of this Agreement or after its termination divulge to any person,
firm or corporation engaged anywhere in any line of business which
is directly or indirectly competitive with any line of business
engaged in by the Employer any such confidential information or
trade secrets. In the event of a breach or threatened breach of
the provisions of this Section of this Agreement which conflicts
with or would conflict with the interests of the Employer and
which results in or would result in a detriment to the Employer,
the Employer shall be entitled to an injunction restraining the
Executive from so disclosing any such trade secrets or
confidential information. Nothing contained herein shall be
construed as prohibiting the Employer from pursuing any other
remedies available to the Employer for such breach or threatened
breach, including the recovery of damages from the Executive.
9. Termination for Physical or Mental Incapacity or Alcohol or
Narcotics Addiction. Notwithstanding any other provision herein
contained, the Employer may, at its option, terminate this
Agreement at any time after it shall have been determined by
competent medical authority that the Executive has become
physically or mentally incapacitated or has become addicted to the
use of alcohol or narcotics to such an extent that he is prevented
by reason of such physical disability, mental incapacity, or
addiction from properly carrying on his duties hereunder;
provided, however, that the foregoing shall not be construed to
relieve the Employer of any obligations it would otherwise have
under the Americans with Disabilities Act of 1990 or other
applicable Illinois statutes to the extent the same are not
preempted thereby. In the event of any such termination of this
Agreement, the Executive shall be paid whatever portion of his
salary shall have accrued to him to the date of such termination,
together with such amount, if any, as shall equal the amount of
salary which otherwise would have been paid to him during any
accrued vacation time not utilized by him, and the payment to the
Executive of such salary and such accrued vacation pay shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall further constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of the termination of his
employment pursuant to this Section 9. for the payment by Employer
of compensation to him or for the payment by Employer after such
date of the cost of any additional benefits provided by Employer
for the Executive.
10. Non-Competition with Employer upon Voluntary Termination of
Employment. As a further specific condition of his employment by
the Employer hereunder and in further consideration of such
employment, the Executive agrees that, for a period of one (1)
year following any voluntary termination by the Executive of his
employment hereunder at any time prior to the last day of the term
for which he would otherwise be employed under this Agreement, he
will not, in any State or territory of the United States of
America or the District of Columbia in which the Employer has
franchise or other regular customer relationships with retailers
at the time of such termination of the Executive's employment (a)
become associated, by way of employment or any other type of
arrangement, in any business activities of any other person, firm
or corporation which are in competition with any business
activities carried on by the Employer or (b) become engaged on his
own behalf or for his own account in any such business activity or
in the conduct of a consulting or advisory service for any such
business activity carried on by any other person, firm or
corporation. The Employer and the Executive recognize that the
laws and public policies of the various States of the United
States and its territories and the District of Columbia may differ
as to the validity and enforceability of agreements similar to
those contained in this Section 10. It is the intention of the
Employer and the Executive that the provisions of this Agreement
shall be enforced to the fullest extent permissible under the laws
and public policies of the State of Illinois, but that the
unenforceability (or the modification to conform with such laws or
public policies) of any provision or provisions hereof shall not
render unenforceable or impair the validity of the remainder of
this Agreement. Accordingly, if any provision of this Agreement
shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete
or modify, as necessary, the offending provisions and to alter the
balance of this Agreement in order to render the same valid and
enforceable to the fullest extent permissible as aforesaid.
11. Application to Subsidiaries of Employer. Any employment of the
Executive by any wholly-owned subsidiary of the Employer and any
services performed by the Executive for any such subsidiary during
the term hereof (including, but not limited to, services in the
capacity of an officer or director of any such subsidiary) shall
be deemed to be included within the scope of the Executive's
employment hereunder and, unless separate compensation of the
Executive for the services performed by him for any such
subsidiary shall have been expressly authorized by the Board of
Directors of such subsidiary, the compensation paid to the
Executive pursuant to Section 5. hereof shall be deemed to
constitute the total compensation payable to the Executive for the
services performed by him for both the Employer and any such
subsidiary. The terms "Employer", "Employer's business", "line of
business engaged in by the Employer", and "business activities
carried on by the Employer" as used in Sections 8. and 10. hereof
shall include any subsidiary of the Employer, the business of or
lines of business engaged in by any such subsidiary, and all
business activities carried on by any such subsidiary.
12. Separation Allowance Payments. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4. and 9. of this Agreement
effective as of any date while this Agreement is in effect, the
same shall not constitute a breach of this Agreement; however, in
such event, the Employer shall continue to pay to the Executive on
the regular dates for payment thereof the salary which would
accrue for him under this Agreement if his employment had been
continued until the last day of the then current term of this
Agreement. In addition, if any such termination of employment by
the Employer for a reason not specified in Sections 4. and 9.
hereof becomes effective during the final six (6) months of the
then current term of this Agreement, the Employer shall further
pay to the Executive following the end of such term a separation
allowance in a total amount equal to the amount of salary which
would have continued to accrue for him if his employment hereunder
had continued beyond the end of such term until a total of six (6)
months has elapsed from the effective date of such termination of
his employment. Such separation allowance shall be paid to the
Executive in equal installments on the same dates that the
Executive would have received payments of salary if his employment
had continued for such period of time. It is the intention of the
parties that, by reason of the foregoing provisions, the Executive
shall in all events receive payments for a period of six (6)
months beyond the effective date of termination of his employment
by the Employer during the final six (6) months of the then
current term of this Agreement for any reason not specified in
Sections 4. and 9. hereof, which payments shall consist of the
regular salary payments which would accrue for the Executive until
the end of the then current term of this Agreement plus such
number of separation allowance payments thereafter as shall be
required in order to insure that payments of salary or of amounts
equivalent thereto are received by the Executive for such total
period of six (6) months subsequent to such termination of his
employment. The non-competition provisions set forth in Section
10. of this Agreement shall also be applicable to the Executive's
right to receive separation allowance payments under this Section
12. and, effective with respect to any such payment which would
otherwise become due and payable to the Executive on or after the
Executive's commencement of employment in, or other engagement in,
any type of business activity described in Section 10., the
Employer shall have no obligation to make any such separation
allowance payments to the Executive. Notwithstanding anything
herein to the contrary, the Employer's obligation to make
Separation Allowance Payments hereunder shall terminate upon the
death of the Executive and such Separation Allowance Payments as
would have otherwise been payable hereunder except for the death
of the Executive shall be forfeited.
l3. Outplacement Agency Services. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4. and 9. of this Agreement
effective as of any date while this Agreement is in effect, the
Employer shall make available to the Executive, at the Employer's
expense, the services of a recognized outplacement agency selected
by the Employer for the purpose of aiding the Executive in seeking
other employment.
l4. Amendments. Any of the terms and provisions of this Agreement
may, from time to time, be altered or amended by mutual agreement
of the parties hereto, provided, however, that any such alteration
or amendment shall be made in writing and shall be signed by both
parties hereto. Any such writing shall be made a part of this
Agreement as of the effective date specified in such writing. Any
increase in salary granted to the Executive by the Employer
pursuant to the salary review provisions of Section 5. of this
Agreement shall not constitute an alteration or amendment of the
Agreement requiring the signatures of both parties hereto,
however, and this Agreement shall be deemed to have been amended
with respect to any such salary increase by the adoption by the
Board of Directors of the Employer of a resolution authorizing
such increase and by the Executive's continuing thereafter to
perform the services required of him hereunder.
l5. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with reference to the employment of the
Executive by the Employer and the compensation to be paid to the
Executive for or with respect to such employment. All agreements,
contracts, understandings or arrangements which may have been
heretofore made or had with reference to the employment of the
Executive by the Employer are hereby wholly abrogated, discharged
and annulled, with the exception of any existing rights of the
Executive under the Employer's Profit Sharing Plan, Pension Plan,
Retirement Benefits Replacement Plan, Executive Supplemental
Benefit Plans, and other employee benefit plans now maintained by
the Employer. The Employer further agrees that any new or
improved benefits provided generally to or made generally
available to the Employer's executive officer employees will be
provided or made available on the same basis to the Executive.
16. Applicable Law. This Agreement and the construction,
interpretation and enforcement of each of the provisions hereof
shall be governed in all respects by the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ACE HARDWARE CORPORATION,
a Delaware corporation
EXECUTIVE
By: Roger E. Peterson
President and CEO
(SEAL)
Fred J. Neer
ATTEST:
David W. League (SEAL)
Secretary
EMPLOYMENT AGREEMENT
This Employment Agreement made and entered into this 22nd day of March, 1994
by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter
referred to as the "Employer", and Donald L. Schuman, hereinafter referred to
as the "Executive";
W I T N E S S E T H :
Whereas the Executive is now employed by the Employer and the Employer and
Executive desire to enter into an Agreement to provide for the continuation of
the services of the Executive for the Employer for a term of years to the
extent and upon the terms and conditions hereinafter set forth;
Now, therefore, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
l. Employment. The Employer hereby employs the Executive as an
executive officer of the Employer holding such specific office or
offices during the term of this Agreement to which he has been
appointed by the Employer or is hereafter elected by the Board of
Directors of the Employer, and the Executive hereby accepts such
employment upon the terms and conditions hereinafter set forth.
The duties and responsibilities of the Executive shall include
those duties and responsibilities assigned to the office or
offices held by him under the Employer's By-laws and its practices
and procedures, together with such additional duties as may
reasonably be assigned to him from time to time by the President
or the Board of Directors of the Employer. If, during the term of
this Agreement, the Executive shall become eligible to be elected
or appointed as a director of the Employer, then, in the event
that he is elected or appointed as such a director, the Executive
shall serve in such capacity without additional compensation
during the remainder of the term of this Agreement.
2. Term of Agreement. The initial term of this Agreement shall begin
on April 1, 1994 and shall terminate on March 31, 1996, unless the
Agreement shall have been terminated earlier by reason of the
Executive's resignation, death, retirement or termination for
cause pursuant to Section 4. hereof or by reason of a
determination made pursuant to Section 9. hereof. Provided the
Executive is actively employed by the Employer as of the last day
of the initial term hereof, the Agreement shall automatically be
extended for an additional term of one (l) year following the
expiration of the initial term unless either the Employer or the
Executive shall have delivered written notice to the other party
hereto not less than sixty (60) days prior to March 31, 1996 of
its or his intention to terminate the Agreement at the end of the
initial term, in which case the Agreement shall not be extended
beyond March 31, 1996.
3. Employer's Alternative Option to Re-offer Same Agreement. In lieu
of either allowing this Agreement to be extended for an additional
one-year term beyond March 31, 1996 or exercising its right not to
extend the Agreement for such an additional one-year term, the
Employer shall have the additional option of offering to the
Executive a new Employment Agreement to be effective as of
April 1, 1996 which shall contain all of the same terms and
conditions as this Agreement except for a provision comparable to
this Section 3. and for those modifications which would be
required with respect to the then current salary of the Executive
and the dates or years to be designated in such new Agreement. In
order to exercise such option, the Employer shall deliver written
notice to the Executive of the Employer's intention to offer him
such new Employment Agreement not less than sixty (60) days prior
to March 31, 1996. With such notice the Employer shall tender to
the Executive two (2) copies of such new agreement duly executed
on behalf of the Employer. In the event that the Executive does
not return to the Employer one (l) copy of said new agreement
executed by the Executive by March 31, 1996, the Employer's offer
of such new agreement shall be deemed null and void. Any decision
on the part of the Employer to offer such new agreement to the
Executive, as well as any decision on the part of the Employer not
to allow this Agreement to be extended for an additional term of
one (1) year as provided for in Section 2. above, shall be made
only by the Board of Directors of the Employer.
4. Termination for Cause. The Employer may dismiss the Executive
from its employment and terminate this Agreement at any time for
cause, which shall consist of (a) theft, fraud, or embezzlement,
or conviction of any felony; or (b) the giving away or selling of
any trade secrets belonging to the Employer or of any information,
plans or records acquired or compiled by the Executive, or
furnished to him by Employer, in conjunction with his employment
hereunder for use in Employer's business, provided that such
activity results in a proven detriment to the Employer, and
provided further that this provision shall not apply to
information, plans and records which are otherwise available to
competitors of Employer or to members of the public. In the event
of any such termination of this Agreement for cause, payment to
the Executive of whatever portion of the Executive's salary which
shall have accrued to him to the date of such termination shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall also constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of such termination for the
payment by Employer of compensation to him or for the payment by
Employer after such date of the cost of any additional benefits
provided by Employer for the Executive.
5. Compensation. For all services rendered by the Executive under
this Agreement, the Employer agrees to pay to the Executive a
salary of One Hundred Sixty-Five Thousand Dollars ($165,000.00)
per year, or such increased amount, if any, as shall be approved
by the Board of Directors of the Employer pursuant to the annual
review procedure hereinafter provided for. Such salary shall be
paid to the Employee in semi-monthly installments, or in such
other manner as shall be mutually agreed upon by the Employer and
the Executive. The Employer further agrees to review the salary
of the Executive hereunder at a meeting of the Board of Directors
of the Employer during the first quarter of 1995 with respect to
the amount of such salary to be paid to the Executive during the
contract year beginning April 1, 1995. In the event that this
Agreement is extended for one (1) year beyond March 31, 1996, the
Employer agrees to further review said salary at a meeting of the
Board of Directors of the Employer during the first quarter of
1996 with respect to the amount thereof to be paid to the
Executive during the contract year beginning April 1, 1996. The
Executive shall be paid such increased salary, if any, as the
Employer's Board of Directors shall deem to be appropriate after
the completion of each salary review made by the Board.
Notwithstanding anything herein to the contrary, the Employer's
contractual obligation for the payment of compensation hereunder
shall be suspended during any period Executive is receiving income
continuation benefits, including, but not limited to, short or
long-term disability benefits, under any Employer-sponsored plan.
6. Limitation on Outside Business Activities. The Executive shall
devote his entire business time, attention and energies to the
business of the Employer, and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or
not such business activity is pursued for gain, profit or other
pecuniary advantage, except that the Executive may devote a
reasonable portion of his time during business hours to
professional, civic, community or charitable activities, and, with
the approval of the President of the Employer, to service as a
director of other corporations and to other types of activities
not expressly mentioned herein.
7. Vacations. The Executive shall be granted during each calendar
year a vacation consisting of such number of weeks as he would be
entitled to during each such year in accordance with the vacation
policy established by the Employer for its executive officer
employees.
8. Nondisclosure of Confidential Information. It is understood and
agreed that the method and system of business used and developed
by the Employer involves marketing programs, pricing procedures,
operational procedures, training procedures, information
concerning retailers supplied by the Employer, lists of vendors to
the Employer, and other confidential information and/or trade
secrets of the Employer, and that the Executive, by virtue of his
employment hereunder, necessarily has and will become acquainted
with such confidential information and/or trade secrets. It is
further understood and agreed that the business and customers of
the Employer extend throughout the fifty (50) States of the United
States and its territorial possessions, the District of Columbia,
and several foreign countries located in various parts of the
world. Accordingly, the Executive agrees to treat as confidential
and to use only for the advancement of the interests of the
Employer all such information and/or trade secrets belonging to
the Employer and all information, plans and records submitted to
him by the Employer or acquired or compiled by him from time to
time in the course of his employment by the Employer for use in
the Employer's business which he knows to have been received by
him in confidence or which he knows would not otherwise be
available to competitors of the Employer or to members of the
public and, as a further specific condition of his employment
hereunder, and in further consideration thereof, the Executive
covenants and agrees that he will not, at any time during the term
of this Agreement or after its termination divulge to any person,
firm or corporation engaged anywhere in any line of business which
is directly or indirectly competitive with any line of business
engaged in by the Employer any such confidential information or
trade secrets. In the event of a breach or threatened breach of
the provisions of this Section of this Agreement which conflicts
with or would conflict with the interests of the Employer and
which results in or would result in a detriment to the Employer,
the Employer shall be entitled to an injunction restraining the
Executive from so disclosing any such trade secrets or
confidential information. Nothing contained herein shall be
construed as prohibiting the Employer from pursuing any other
remedies available to the Employer for such breach or threatened
breach, including the recovery of damages from the Executive.
9. Termination for Physical or Mental Incapacity or Alcohol or
Narcotics Addiction. Notwithstanding any other provision herein
contained, the Employer may, at its option, terminate this
Agreement at any time after it shall have been determined by
competent medical authority that the Executive has become
physically or mentally incapacitated or has become addicted to the
use of alcohol or narcotics to such an extent that he is prevented
by reason of such physical disability, mental incapacity, or
addiction from properly carrying on his duties hereunder;
provided, however, that the foregoing shall not be construed to
relieve the Employer of any obligations it would otherwise have
under the Americans with Disabilities Act of 1990 or other
applicable Illinois statutes to the extent the same are not
preempted thereby. In the event of any such termination of this
Agreement, the Executive shall be paid whatever portion of his
salary shall have accrued to him to the date of such termination,
together with such amount, if any, as shall equal the amount of
salary which otherwise would have been paid to him during any
accrued vacation time not utilized by him, and the payment to the
Executive of such salary and such accrued vacation pay shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall further constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of the termination of his
employment pursuant to this Section 9. for the payment by Employer
of compensation to him or for the payment by Employer after such
date of the cost of any additional benefits provided by Employer
for the Executive.
10. Non-Competition with Employer upon Voluntary Termination of
Employment. As a further specific condition of his employment by
the Employer hereunder and in further consideration of such
employment, the Executive agrees that, for a period of one (1)
year following any voluntary termination by the Executive of his
employment hereunder at any time prior to the last day of the term
for which he would otherwise be employed under this Agreement, he
will not, in any State or territory of the United States of
America or the District of Columbia in which the Employer has
franchise or other regular customer relationships with retailers
at the time of such termination of the Executive's employment (a)
become associated, by way of employment or any other type of
arrangement, in any business activities of any other person, firm
or corporation which are in competition with any business
activities carried on by the Employer or (b) become engaged on his
own behalf or for his own account in any such business activity or
in the conduct of a consulting or advisory service for any such
business activity carried on by any other person, firm or
corporation. The Employer and the Executive recognize that the
laws and public policies of the various States of the United
States and its territories and the District of Columbia may differ
as to the validity and enforceability of agreements similar to
those contained in this Section 10. It is the intention of the
Employer and the Executive that the provisions of this Agreement
shall be enforced to the fullest extent permissible under the laws
and public policies of the State of Illinois, but that the
unenforceability (or the modification to conform with such laws or
public policies) of any provision or provisions hereof shall not
render unenforceable or impair the validity of the remainder of
this Agreement. Accordingly, if any provision of this Agreement
shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete
or modify, as necessary, the offending provisions and to alter the
balance of this Agreement in order to render the same valid and
enforceable to the fullest extent permissible as aforesaid.
11. Application to Subsidiaries of Employer. Any employment of the
Executive by any wholly-owned subsidiary of the Employer and any
services performed by the Executive for any such subsidiary during
the term hereof (including, but not limited to, services in the
capacity of an officer or director of any such subsidiary) shall
be deemed to be included within the scope of the Executive's
employment hereunder and, unless separate compensation of the
Executive for the services performed by him for any such
subsidiary shall have been expressly authorized by the Board of
Directors of such subsidiary, the compensation paid to the
Executive pursuant to Section 5. hereof shall be deemed to
constitute the total compensation payable to the Executive for the
services performed by him for both the Employer and any such
subsidiary. The terms "Employer", "Employer's business", "line of
business engaged in by the Employer", and "business activities
carried on by the Employer" as used in Sections 8. and 10. hereof
shall include any subsidiary of the Employer, the business of or
lines of business engaged in by any such subsidiary, and all
business activities carried on by any such subsidiary.
12. Separation Allowance Payments. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4. and 9. of this Agreement
effective as of any date while this Agreement is in effect, the
same shall not constitute a breach of this Agreement; however, in
such event, the Employer shall continue to pay to the Executive on
the regular dates for payment thereof the salary which would
accrue for him under this Agreement if his employment had been
continued until the last day of the then current term of this
Agreement. In addition, if any such termination of employment by
the Employer for a reason not specified in Sections 4. and 9.
hereof becomes effective during the final six (6) months of the
then current term of this Agreement, the Employer shall further
pay to the Executive following the end of such term a separation
allowance in a total amount equal to the amount of salary which
would have continued to accrue for him if his employment hereunder
had continued beyond the end of such term until a total of six (6)
months has elapsed from the effective date of such termination of
his employment. Such separation allowance shall be paid to the
Executive in equal installments on the same dates that the
Executive would have received payments of salary if his employment
had continued for such period of time. It is the intention of the
parties that, by reason of the foregoing provisions, the Executive
shall in all events receive payments for a period of six (6)
months beyond the effective date of termination of his employment
by the Employer during the final six (6) months of the then
current term of this Agreement for any reason not specified in
Sections 4. and 9. hereof, which payments shall consist of the
regular salary payments which would accrue for the Executive until
the end of the then current term of this Agreement plus such
number of separation allowance payments thereafter as shall be
required in order to insure that payments of salary or of amounts
equivalent thereto are received by the Executive for such total
period of six (6) months subsequent to such termination of his
employment. The non-competition provisions set forth in Section
10. of this Agreement shall also be applicable to the Executive's
right to receive separation allowance payments under this Section
12. and, effective with respect to any such payment which would
otherwise become due and payable to the Executive on or after the
Executive's commencement of employment in, or other engagement in,
any type of business activity described in Section 10., the
Employer shall have no obligation to make any such separation
allowance payments to the Executive. Notwithstanding anything
herein to the contrary, the Employer's obligation to make
Separation Allowance Payments hereunder shall terminate upon the
death of the Executive and such Separation Allowance Payments as
would have otherwise been payable hereunder except for the death
of the Executive shall be forfeited.
l3. Outplacement Agency Services. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4. and 9. of this Agreement
effective as of any date while this Agreement is in effect, the
Employer shall make available to the Executive, at the Employer's
expense, the services of a recognized outplacement agency selected
by the Employer for the purpose of aiding the Executive in seeking
other employment.
l4. Amendments. Any of the terms and provisions of this Agreement
may, from time to time, be altered or amended by mutual agreement
of the parties hereto, provided, however, that any such alteration
or amendment shall be made in writing and shall be signed by both
parties hereto. Any such writing shall be made a part of this
Agreement as of the effective date specified in such writing. Any
increase in salary granted to the Executive by the Employer
pursuant to the salary review provisions of Section 5. of this
Agreement shall not constitute an alteration or amendment of the
Agreement requiring the signatures of both parties hereto,
however, and this Agreement shall be deemed to have been amended
with respect to any such salary increase by the adoption by the
Board of Directors of the Employer of a resolution authorizing
such increase and by the Executive's continuing thereafter to
perform the services required of him hereunder.
l5. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with reference to the employment of the
Executive by the Employer and the compensation to be paid to the
Executive for or with respect to such employment. All agreements,
contracts, understandings or arrangements which may have been
heretofore made or had with reference to the employment of the
Executive by the Employer are hereby wholly abrogated, discharged
and annulled, with the exception of any existing rights of the
Executive under the Employer's Profit Sharing Plan, Pension Plan,
Retirement Benefits Replacement Plan, Executive Supplemental
Benefit Plans, and other employee benefit plans now maintained by
the Employer. The Employer further agrees that any new or
improved benefits provided generally to or made generally
available to the Employer's executive officer employees will be
provided or made available on the same basis to the Executive.
16. Applicable Law. This Agreement and the construction,
interpretation and enforcement of each of the provisions hereof
shall be governed in all respects by the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ACE HARDWARE CORPORATION,
a Delaware corporation
EXECUTIVE
By: Roger E. Peterson
President and CEO
(SEAL)
Donald L. Schuman
ATTEST:
David W. League (SEAL)
Secretary
EMPLOYMENT AGREEMENT
This Employment Agreement made and entered into this 13th day of December,
1993 by and between ACE HARDWARE CORPORATION, a Delaware corporation,
hereinafter referred to as the "Employer", and David W. League, hereinafter
referred to as the "Executive";
W I T N E S S E T H :
Whereas the Executive is now employed by the Employer and the Employer and
Executive desire to enter into an Agreement to provide for the continuation of
the services of the Executive for the Employer for a term of years to the
extent and upon the terms and conditions hereinafter set forth;
Now, therefore, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
l. Employment. The Employer hereby employs the Executive as an
executive officer of the Employer holding such specific office or
offices during the term of this Agreement to which he has been
appointed by the Employer or is hereafter elected by the Board of
Directors of the Employer, and the Executive hereby accepts such
employment upon the terms and conditions hereinafter set forth.
The duties and responsibilities of the Executive shall include
those duties and responsibilities assigned to the office or
offices held by him under the Employer's By-laws and its practices
and procedures, together with such additional duties as may
reasonably be assigned to him from time to time by the President
or the Board of Directors of the Employer. If, during the term of
this Agreement, the Executive shall become eligible to be elected
or appointed as a director of the Employer, then, in the event
that he is elected or appointed as such a director, the Executive
shall serve in such capacity without additional compensation
during the remainder of the term of this Agreement.
2. Term of Agreement. The initial term of this Agreement shall begin
on January 1, 1994 and shall terminate on December 31, 1995,
unless the Agreement shall have been terminated earlier by reason
of the Executive's resignation, death, retirement or termination
for cause pursuant to Section 4 hereof or by reason of a
determination made pursuant to Section 9 hereof. Provided the
Executive is actively employed by the Employer as of the last day
of the initial term hereof, the Agreement shall automatically be
extended for an additional term of one (l) year following the
expiration of the initial term unless either the Employer or the
Executive shall have delivered written notice to the other party
hereto not less than sixty (60) days prior to December 31, 1995 of
its or his intention to terminate the Agreement at the end of the
initial term, in which case the Agreement shall not be extended
beyond December 31, 1995.
3. Employer's Alternative Option to Re-offer Same Agreement. In lieu
of either allowing this Agreement to be extended for an additional
one-year term beyond December 31, 1995 or exercising its right not
to extend the Agreement for such an additional one-year term, the
Employer shall have the additional option of offering to the
Executive a new Employment Agreement to be effective as of January
1, 1996 which shall contain all of the same terms and conditions
as this Agreement except for a provision comparable to this
Section 3 and for those modifications which would be required with
respect to the then current salary of the Executive and the dates
or years to be designated in such new Agreement. In order to
exercise such option, the Employer shall deliver written notice to
the Executive of the Employer's intention to offer him such new
Employment Agreement not less than sixty (60) days prior to
December 31, 1995. With such notice the Employer shall tender to
the Executive two (2) copies of such new agreement duly executed
on behalf of the Employer. In the event that the Executive does
not return to the Employer one (l) copy of said new agreement
executed by the Executive by December 31, 1995, the Employer's
offer of such new agreement shall be deemed null and void. Any
decision on the part of the Employer to offer such new agreement
to the Executive, as well as any decision on the part of the
Employer not to allow this Agreement to be extended for an
additional term of one (1) year as provided for in Section 2
above, shall be made only by the Board of Directors of the
Employer.
4. Termination for Cause. The Employer may dismiss the Executive
from its employment and terminate this Agreement at any time for
cause, which shall consist of (a) theft, fraud, or embezzlement,
or conviction of any felony; or (b) the giving away or selling of
any trade secrets belonging to the Employer or of any information,
plans or records acquired or compiled by the Executive, or
furnished to him by Employer, in conjunction with his employment
hereunder for use in Employer's business, provided that such
activity results in a proven detriment to the Employer, and
provided further that this provision shall not apply to
information, plans and records which are otherwise available to
competitors of Employer or to members of the public. In the event
of any such termination of this Agreement for cause, payment to
the Executive of whatever portion of the Executive's salary which
shall have accrued to him to the date of such termination shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall also constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of such termination for the
payment by Employer of compensation to him or for the payment by
Employer after such date of the cost of any additional benefits
provided by Employer for the Executive.
5. Compensation. For all services rendered by the Executive under
this Agreement, the Employer agrees to pay to the Executive a
salary of One Hundred Fifty Thousand Dollars ($150,000.00)
per year, or such increased amount, if any, as shall be approved
by the Board of Directors of the Employer pursuant to the annual
review procedure hereinafter provided for. Such salary shall be
paid to the Employee in semi-monthly installments, or in such
other manner as shall be mutually agreed upon by the Employer and
the Executive. The Employer further agrees to review the salary
of the Executive hereunder at a meeting of the Board of Directors
of the Employer during the last quarter of 1994 with respect to
the amount of such salary to be paid to the Executive during the
contract year beginning January 1, 1995. In the event that this
Agreement is extended for one (1) year beyond December 31, 1995,
the Employer agrees to further review said salary at a meeting of
the Board of Directors of the Employer during the last quarter of
1995 with respect to the amount thereof to be paid to the
Executive during the contract year beginning January 1, 1996. The
Executive shall be paid such increased salary, if any, as the
Employer's Board of Directors shall deem to be appropriate after
the completion of each salary review made by the Board.
Notwithstanding anything herein to the contrary, the Employer's
contractual obligation for the payment of compensation hereunder
shall be suspended during any period Executive is receiving income
continuation benefits, including, but not limited to, short or
long-term disability benefits, under any Employer-sponsored plan.
6. Limitation on Outside Business Activities. The Executive shall
devote his entire business time, attention and energies to the
business of the Employer, and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or
not such business activity is pursued for gain, profit or other
pecuniary advantage, except that the Executive may devote a
reasonable portion of his time during business hours to
professional, civic, community or charitable activities, and, with
the approval of the President of the Employer, to service as a
director of other corporations and to other types of activities
not expressly mentioned herein.
7. Vacations. The Executive shall be granted during each calendar
year a vacation consisting of such number of weeks as he would be
entitled to during each such year in accordance with the vacation
policy established by the Employer for its executive officer
employees.
8. Nondisclosure of Confidential Information. It is understood and
agreed that the method and system of business used and developed
by the Employer involves marketing programs, pricing procedures,
operational procedures, training procedures, information
concerning retailers supplied by the Employer, lists of vendors to
the Employer, and other confidential information and/or trade
secrets of the Employer, and that the Executive, by virtue of his
employment hereunder, necessarily has and will become acquainted
with such confidential information and/or trade secrets. It is
further understood and agreed that the business and customers of
the Employer extend throughout the fifty (50) States of the United
States and its territorial possessions, the District of Columbia,
and several foreign countries located in various parts of the
world. Accordingly, the Executive agrees to treat as confidential
and to use only for the advancement of the interests of the
Employer all such information and/or trade secrets belonging to
the Employer and all information, plans and records submitted to
him by the Employer or acquired or compiled by him from time to
time in the course of his employment by the Employer for use in
the Employer's business which he knows to have been received by
him in confidence or which he knows would not otherwise be
available to competitors of the Employer or to members of the
public and, as a further specific condition of his employment
hereunder, and in further consideration thereof, the Executive
covenants and agrees that he will not, at any time during the term
of this Agreement or after its termination divulge to any person,
firm or corporation engaged anywhere in any line of business which
is directly or indirectly competitive with any line of business
engaged in by the Employer any such confidential information or
trade secrets. In the event of a breach or threatened breach of
the provisions of this Section of this Agreement which conflicts
with or would conflict with the interests of the Employer and
which results in or would result in a detriment to the Employer,
the Employer shall be entitled to an injunction restraining the
Executive from so disclosing any such trade secrets or
confidential information. Nothing contained herein shall be
construed as prohibiting the Employer from pursuing any other
remedies available to the Employer for such breach or threatened
breach, including the recovery of damages from the Executive.
9. Termination for Physical or Mental Incapacity or Alcohol or
Termination for Physical or Mental Incapacity or Alcohol or
December 31, 1995. With such notice the Employer shall tender to
the Executive two (2) copies of such new agreement duly executed
on behalf of the Employer. In the event that the Executive does
not return to the Employer one (l) copy of said new agreement
executed by the Executive by December 31, 1995, the Employer's
offer of such new agreement shall be deemed null and void. Any
addiction from properly carrying on his duties hereunder;
provided, however, that the foregoing shall not be construed to
relieve the Employer of any obligations it would otherwise have
under the Americans with Disabilities Act of 1990 or other
applicable Illinois statutes to the extent the same are not
preempted thereby. In the event of any such termination of this
Agreement, the Executive shall be paid whatever portion of his
salary shall have accrued to him to the date of such termination,
together with such amount, if any, as shall equal the amount of
salary which otherwise would have been paid to him during any
accrued vacation time not utilized by him, and the payment to the
Executive of such salary and such accrued vacation pay shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall further constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of the termination of his
employment pursuant to this Section 9 for the payment by Employer
of compensation to him or for the payment by Employer after such
date of the cost of any additional benefits provided by Employer
for the Executive.
10. Non-Competition with Employer upon Voluntary Termination of
Employment. As a further specific condition of his employment by
the Employer hereunder and in further consideration of such
employment, the Executive agrees that, for a period of one (1)
year following any voluntary termination by the Executive of his
employment hereunder at any time prior to the last day of the term
for which he would otherwise be employed under this Agreement, he
will not, in any State or territory of the United States of
America or the District of Columbia in which the Employer has
franchise or other regular customer relationships with retailers
at the time of such termination of the Executive's employment (a)
become associated, by way of employment or any other type of
arrangement, in any business activities of any other person, firm
or corporation which are in competition with any business
activities carried on by the Employer or (b) become engaged on his
own behalf or for his own account in any such business activity or
in the conduct of a consulting or advisory service for any such
business activity carried on by any other person, firm or
corporation. The Employer and the Executive recognize that the
laws and public policies of the various States of the United
States and its territories and the District of Columbia may differ
as to the validity and enforceability of agreements similar to
those contained in this Section 10. It is the intention of the
Employer and the Executive that the provisions of this Agreement
shall be enforced to the fullest extent permissible under the laws
and public policies of the State of Illinois, but that the
unenforceability (or the modification to conform with such laws or
public policies) of any provision or provisions hereof shall not
render unenforceable or impair the validity of the remainder of
this Agreement. Accordingly, if any provision of this Agreement
shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete
or modify, as necessary, the offending provisions and to alter the
balance of this Agreement in order to render the same valid and
enforceable to the fullest extent permissible as aforesaid.
11. Application to Subsidiaries of Employer. Any employment of the
Executive by any wholly-owned subsidiary of the Employer and any
services performed by the Executive for any such subsidiary during
the term hereof (including, but not limited to, services in the
capacity of an officer or director of any such subsidiary) shall
be deemed to be included within the scope of the Executive's
employment hereunder and, unless separate compensation of the
Executive for the services performed by him for any such
subsidiary shall have been expressly authorized by the Board of
Directors of such subsidiary, the compensation paid to the
Executive pursuant to Section 5 hereof shall be deemed to
constitute the total compensation payable to the Executive for the
services performed by him for both the Employer and any such
subsidiary. The terms "Employer", "Employer's business", "line of
business engaged in by the Employer", and "business activities
carried on by the Employer" as used in Sections 8 and 10 hereof
shall include any subsidiary of the Employer, the business of or
lines of business engaged in by any such subsidiary, and all
business activities carried on by any such subsidiary.
12. Separation Allowance Payments. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4 and 9 of this Agreement
effective as of any date while this Agreement is in effect, the
same shall not constitute a breach of this Agreement; however, in
such event, the Employer shall continue to pay to the Executive on
the regular dates for payment thereof the salary which would
accrue for him under this Agreement if his employment had been
continued until the last day of the then current term of this
Agreement. In addition, if any such termination of employment by
the Employer for a reason not specified in Sections 4 and 9 hereof
becomes effective during the final six (6) months of the then
current term of this Agreement, the Employer shall further pay to
the Executive following the end of such term a separation
allowance in a total amount equal to the amount of salary which
would have continued to accrue for him if his employment hereunder
had continued beyond the end of such term until a total of six (6)
months has elapsed from the effective date of such termination of
his employment. Such separation allowance shall be paid to the
Executive in equal installments on the same dates that the
Executive would have received payments of salary if his employment
had continued for such period of time. It is the intention of the
parties that, by reason of the foregoing provisions, the Executive
shall in all events receive payments for a period of six (6)
months beyond the effective date of termination of his employment
by the Employer during the final six (6) months of the then
current term of this Agreement for any reason not specified in
Sections 4 and 9 hereof, which payments shall consist of the
regular salary payments which would accrue for the Executive until
the end of the then current term of this Agreement plus such
number of separation allowance payments thereafter as shall be
required in order to insure that payments of salary or of amounts
equivalent thereto are received by the Executive for such total
period of six (6) months subsequent to such termination of his
employment. The non-competition provisions set forth in Section
10 of this Agreement shall also be applicable to the Executive's
right to receive separation allowance payments under this Section
12 and, effective with respect to any such payment which would
otherwise become due and payable to the Executive on or after the
Executive's commencement of employment in, or other engagement in,
any type of business activity described in Section 10, the
Employer shall have no obligation to make any such separation
allowance payments to the Executive. Notwithstanding anything
herein to the contrary, the Employer's obligation to make
Separation Allowance Payments hereunder shall terminate upon the
death of the Executive and such Separation Allowance Payments as
would have otherwise been payable hereunder except for the death
of the Executive shall be forfeited.
l3. Outplacement Agency Services. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4 and 9 of this Agreement
effective as of any date while this Agreement is in effect, the
Employer shall make available to the Executive, at the Employer's
expense, the services of a recognized outplacement agency selected
by the Employer for the purpose of aiding the Executive in seeking
other employment.
l4. Amendments. Any of the terms and provisions of this Agreement
may, from time to time, be altered or amended by mutual agreement
of the parties hereto, provided, however, that any such alteration
or amendment shall be made in writing and shall be signed by both
parties hereto. Any such writing shall be made a part of this
Agreement as of the effective date specified in such writing. Any
increase in salary granted to the Executive by the Employer
pursuant to the salary review provisions of Section 5 of this
Agreement shall not constitute an alteration or amendment of the
Agreement requiring the signatures of both parties hereto,
however, and this Agreement shall be deemed to have been amended
with respect to any such salary increase by the adoption by the
Board of Directors of the Employer of a resolution authorizing
such increase and by the Executive's continuing thereafter to
perform the services required of him hereunder.
l5. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with reference to the employment of the
Executive by the Employer and the compensation to be paid to the
Executive for or with respect to such employment. All agreements,
contracts, understandings or arrangements which may have been
heretofore made or had with reference to the employment of the
Executive by the Employer are hereby wholly abrogated, discharged
and annulled, with the exception of any existing rights of the
Executive under the Employer's Profit Sharing Plan, Pension Plan,
Retirement Benefits Replacement Plan, Executive Supplemental
Benefit Plans, Deffered Compensation Plan, and other employee
benefit plans now maintained by the Employer. The Employer
further agrees that any new or improved benefits provided
generally to or made generally available to the Employer's
executive officer employees will be provided or made available on
the same basis to the Executive.
16. Applicable Law. This Agreement and the construction,
interpretation and enforcement of each of the provisions hereof
shall be governed in all respects by the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ACE HARDWARE CORPORATION,
a Delaware corporation
EXECUTIVE
By: Roger E. Peterson
President and CEO
(SEAL)
David W. League
Witness:
Fred J. Neer (SEAL)
Vice President
Human Resources
EMPLOYMENT AGREEMENT
This Employment Agreement made and entered into this 15th day of December,
1993 by and between ACE HARDWARE CORPORATION, a Delaware corporation,
hereinafter referred to as the "Employer", and David F. Myer, hereinafter
referred to as the "Executive";
W I T N E S S E T H :
Whereas the Executive is now employed by the Employer and the Employer and
Executive desire to enter into an Agreement to provide for the continuation of
the services of the Executive for the Employer for a term of years to the
extent and upon the terms and conditions hereinafter set forth;
Now, therefore, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
l. Employment. The Employer hereby employs the Executive as an
executive officer of the Employer holding such specific office or
offices during the term of this Agreement to which he has been
appointed by the Employer or is hereafter elected by the Board of
Directors of the Employer, and the Executive hereby accepts such
employment upon the terms and conditions hereinafter set forth.
The duties and responsibilities of the Executive shall include
those duties and responsibilities assigned to the office or
offices held by him under the Employer's By-laws and its practices
and procedures, together with such additional duties as may
reasonably be assigned to him from time to time by the President
or the Board of Directors of the Employer. If, during the term of
this Agreement, the Executive shall become eligible to be elected
or appointed as a director of the Employer, then, in the event
that he is elected or appointed as such a director, the Executive
shall serve in such capacity without additional compensation
during the remainder of the term of this Agreement.
2. Term of Agreement. The initial term of this Agreement shall begin
on January 1, 1994 and shall terminate on December 31, 1995,
unless the Agreement shall have been terminated earlier by reason
of the Executive's resignation, death, retirement or termination
for cause pursuant to Section 4 hereof or by reason of a
determination made pursuant to Section 9 hereof. Provided the
Executive is actively employed by the Employer as of the last day
of the initial term hereof, the Agreement shall automatically be
extended for an additional term of one (l) year following the
expiration of the initial term unless either the Employer or the
Executive shall have delivered written notice to the other party
hereto not less than sixty (60) days prior to December 31, 1995 of
its or his intention to terminate the Agreement at the end of the
initial term, in which case the Agreement shall not be extended
beyond December 31, 1995.
3. Employer's Alternative Option to Re-offer Same Agreement. In lieu
of either allowing this Agreement to be extended for an additional
one-year term beyond December 31, 1995 or exercising its right not
to extend the Agreement for such an additional one-year term, the
Employer shall have the additional option of offering to the
Executive a new Employment Agreement to be effective as of January
1, 1996 which shall contain all of the same terms and conditions
as this Agreement except for a provision comparable to this
Section 3 and for those modifications which would be required with
respect to the then current salary of the Executive and the dates
or years to be designated in such new Agreement. In order to
exercise such option, the Employer shall deliver written notice to
the Executive of the Employer's intention to offer him such new
Employment Agreement not less than sixty (60) days prior to
December 31, 1995. With such notice the Employer shall tender to
the Executive two (2) copies of such new agreement duly executed
on behalf of the Employer. In the event that the Executive does
not return to the Employer one (l) copy of said new agreement
executed by the Executive by December 31, 1995, the Employer's
offer of such new agreement shall be deemed null and void. Any
decision on the part of the Employer to offer such new agreement
to the Executive, as well as any decision on the part of the
Employer not to allow this Agreement to be extended for an
additional term of one (1) year as provided for in Section 2
above, shall be made only by the Board of Directors of the
Employer.
4. Termination for Cause. The Employer may dismiss the Executive
from its employment and terminate this Agreement at any time for
cause, which shall consist of (a) theft, fraud, or embezzlement,
or conviction of any felony; or (b) the giving away or selling of
any trade secrets belonging to the Employer or of any information,
plans or records acquired or compiled by the Executive, or
furnished to him by Employer, in conjunction with his employment
hereunder for use in Employer's business, provided that such
activity results in a proven detriment to the Employer, and
provided further that this provision shall not apply to
information, plans and records which are otherwise available to
competitors of Employer or to members of the public. In the event
of any such termination of this Agreement for cause, payment to
the Executive of whatever portion of the Executive's salary which
shall have accrued to him to the date of such termination shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall also constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of such termination for the
payment by Employer of compensation to him or for the payment by
Employer after such date of the cost of any additional benefits
provided by Employer for the Executive.
5. Compensation. For all services rendered by the Executive under
this Agreement, the Employer agrees to pay to the Executive a
salary of One Hundred Seventy Thousand Dollars ($170,000.00)
per year, or such increased amount, if any, as shall be approved
by the Board of Directors of the Employer pursuant to the annual
review procedure hereinafter provided for. Such salary shall be
paid to the Employee in semi-monthly installments, or in such
other manner as shall be mutually agreed upon by the Employer and
the Executive. The Employer further agrees to review the salary
of the Executive hereunder at a meeting of the Board of Directors
of the Employer during the last quarter of 1994 with respect to
the amount of such salary to be paid to the Executive during the
contract year beginning January 1,1995. In the event that this
Agreement is extended for one (1) year beyond December 31, 1995,
the Employer agrees to further review said salary at a meeting of
the Board of Directors of the Employer during the last quarter of
1995 with respect to the amount thereof to be paid to the
Executive during the contract year beginning January 1,1996. The
Executive shall be paid such increased salary, if any, as the
Employer's Board of Directors shall deem to be appropriate after
the completion of each salary review made by the Board.
Notwithstanding anything herein to the contrary, the Employer's
contractual obligation for the payment of compensation hereunder
shall be suspended during any period Executive is receiving income
continuation benefits, including, but not limited to, short or
long-term disability benefits, under any Employer-sponsored plan.
6. Limitation on Outside Business Activities. The Executive shall
devote his entire business time, attention and energies to the
business of the Employer, and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or
not such business activity is pursued for gain, profit or other
pecuniary advantage, except that the Executive may devote a
reasonable portion of his time during business hours to
professional, civic, community or charitable activities, and, with
the approval of the President of the Employer, to service as a
director of other corporations and to other types of activities
not expressly mentioned herein.
7. Vacations. The Executive shall be granted during each calendar
year a vacation consisting of such number of weeks as he would be
entitled to during each such year in accordance with the vacation
policy established by the Employer for its executive officer
employees.
8. Nondisclosure of Confidential Information. It is understood and
agreed that the method and system of business used and developed
by the Employer involves marketing programs, pricing procedures,
operational procedures, training procedures, information
concerning retailers supplied by the Employer, lists of vendors to
the Employer, and other confidential information and/or trade
secrets of the Employer, and that the Executive, by virtue of his
employment hereunder, necessarily has and will become acquainted
with such confidential information and/or trade secrets. It is
further understood and agreed that the business and customers of
the Employer extend throughout the fifty (50) States of the United
States and its territorial possessions, the District of Columbia,
and several foreign countries located in various parts of the
world. Accordingly, the Executive agrees to treat as confidential
and to use only for the advancement of the interests of the
Employer all such information and/or trade secrets belonging to
the Employer and all information, plans and records submitted to
him by the Employer or acquired or compiled by him from time to
time in the course of his employment by the Employer for use in
the Employer's business which he knows to have been received by
him in confidence or which he knows would not otherwise be
available to competitors of the Employer or to members of the
public and, as a further specific condition of his employment
hereunder, and in further consideration thereof, the Executive
covenants and agrees that he will not, at any time during the term
of this Agreement or after its termination divulge to any person,
firm or corporation engaged anywhere in any line of business which
is directly or indirectly competitive with any line of business
engaged in by the Employer any such confidential information or
trade secrets. In the event of a breach or threatened breach of
the provisions of this Section of this Agreement which conflicts
with or would conflict with the interests of the Employer and
which results in or would result in a detriment to the Employer,
the Employer shall be entitled to an injunction restraining the
Executive from so disclosing any such trade secrets or
confidential information. Nothing contained herein shall be
construed as prohibiting the Employer from pursuing any other
remedies available to the Employer for such breach or threatened
breach, including the recovery of damages from the Executive.
9. Termination for Physical or Mental Incapacity or Alcohol or
Narcotics Addiction. Notwithstanding any other provision herein
contained, the Employer may, at its option, terminate this
Agreement at any time after it shall have been determined by
competent medical authority that the Executive has become
physically or mentally incapacitated or has become addicted to the
use of alcohol or narcotics to such an extent that he is prevented
by reason of such physical disability, mental incapacity, or
addiction from properly carrying on his duties hereunder;
provided, however, that the foregoing shall not be construed to
relieve the Employer of any obligations it would otherwise have
under the Americans with Disabilities Act of 1990 or other
applicable Illinois statutes to the extent the same are not
preempted thereby. In the event of any such termination of this
Agreement, the Executive shall be paid whatever portion of his
salary shall have accrued to him to the date of such termination,
together with such amount, if any, as shall equal the amount of
salary which otherwise would have been paid to him during any
accrued vacation time not utilized by him, and the payment to the
Executive of such salary and such accrued vacation pay shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall further constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of the termination of his
employment pursuant to this Section 9 for the payment by Employer
of compensation to him or for the payment by Employer after such
date of the cost of any additional benefits provided by Employer
for the Executive.
10. Non-Competition with Employer upon Voluntary Termination of
Employment. As a further specific condition of his employment by
the Employer hereunder and in further consideration of such
employment, the Executive agrees that, for a period of one (1)
year following any voluntary termination by the Executive of his
employment hereunder at any time prior to the last day of the term
for which he would otherwise be employed under this Agreement, he
will not, in any State or territory of the United States of
America or the District of Columbia in which the Employer has
franchise or other regular customer relationships with retailers
at the time of such termination of the Executive's employment (a)
become associated, by way of employment or any other type of
arrangement, in any business activities of any other person, firm
or corporation which are in competition with any business
activities carried on by the Employer or (b) become engaged on his
own behalf or for his own account in any such business activity or
in the conduct of a consulting or advisory service for any such
business activity carried on by any other person, firm or
corporation. The Employer and the Executive recognize that the
laws and public policies of the various States of the United
States and its territories and the District of Columbia may differ
as to the validity and enforceability of agreements similar to
those contained in this Section 10. It is the intention of the
Employer and the Executive that the provisions of this Agreement
shall be enforced to the fullest extent permissible under the laws
and public policies of the State of Illinois, but that the
unenforceability (or the modification to conform with such laws or
public policies) of any provision or provisions hereof shall not
render unenforceable or impair the validity of the remainder of
this Agreement. Accordingly, if any provision of this Agreement
shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete
or modify, as necessary, the offending provisions and to alter the
balance of this Agreement in order to render the same valid and
enforceable to the fullest extent permissible as aforesaid.
11. Application to Subsidiaries of Employer. Any employment of the
Executive by any wholly-owned subsidiary of the Employer and any
services performed by the Executive for any such subsidiary during
the term hereof (including, but not limited to, services in the
capacity of an officer or director of any such subsidiary) shall
be deemed to be included within the scope of the Executive's
employment hereunder and, unless separate compensation of the
Executive for the services performed by him for any such
subsidiary shall have been expressly authorized by the Board of
Directors of such subsidiary, the compensation paid to the
Executive pursuant to Section 5 hereof shall be deemed to
constitute the total compensation payable to the Executive for the
services performed by him for both the Employer and any such
subsidiary. The terms "Employer", "Employer's business", "line of
business engaged in by the Employer", and "business activities
carried on by the Employer" as used in Sections 8 and 10 hereof
shall include any subsidiary of the Employer, the business of or
lines of business engaged in by any such subsidiary, and all
business activities carried on by any such subsidiary.
12. Separation Allowance Payments. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4 and 9 of this Agreement
effective as of any date while this Agreement is in effect, the
same shall not constitute a breach of this Agreement; however, in
such event, the Employer shall continue to pay to the Executive on
the regular dates for payment thereof the salary which would
accrue for him under this Agreement if his employment had been
continued until the last day of the then current term of this
Agreement. In addition, if any such termination of employment by
the Employer for a reason not specified in Sections 4 and 9 hereof
becomes effective during the final six (6) months of the then
current term of this Agreement, the Employer shall further pay to
the Executive following the end of such term a separation
allowance in a total amount equal to the amount of salary which
would have continued to accrue for him if his employment hereunder
had continued beyond the end of such term until a total of six (6)
months has elapsed from the effective date of such termination of
his employment. Such separation allowance shall be paid to the
Executive in equal installments on the same dates that the
Executive would have received payments of salary if his employment
had continued for such period of time. It is the intention of the
parties that, by reason of the foregoing provisions, the Executive
shall in all events receive payments for a period of six (6)
months beyond the effective date of termination of his employment
by the Employer during the final six (6) months of the then
current term of this Agreement for any reason not specified in
Sections 4 and 9 hereof, which payments shall consist of the
regular salary payments which would accrue for the Executive until
the end of the then current term of this Agreement plus such
number of separation allowance payments thereafter as shall be
required in order to insure that payments of salary or of amounts
equivalent thereto are received by the Executive for such total
period of six (6) months subsequent to such termination of his
employment. The non-competition provisions set forth in Section
10 of this Agreement shall also be applicable to the Executive's
right to receive separation allowance payments under this Section
12 and, effective with respect to any such payment which would
otherwise become due and payable to the Executive on or after the
Executive's commencement of employment in, or other engagement in,
any type of business activity described in Section 10, the
Employer shall have no obligation to make any such separation
allowance payments to the Executive. Notwithstanding anything
herein to the contrary, the Employer's obligation to make
Separation Allowance Payments hereunder shall terminate upon the
death of the Executive and such Separation Allowance Payments as
would have otherwise been payable hereunder except for the death
of the Executive shall be forfeited.
l3. Outplacement Agency Services. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4 and 9 of this Agreement
effective as of any date while this Agreement is in effect, the
Employer shall make available to the Executive, at the Employer's
expense, the services of a recognized outplacement agency selected
by the Employer for the purpose of aiding the Executive in seeking
other employment.
l4. Amendments. Any of the terms and provisions of this Agreement
may, from time to time, be altered or amended by mutual agreement
of the parties hereto, provided, however, that any such alteration
or amendment shall be made in writing and shall be signed by both
parties hereto. Any such writing shall be made a part of this
Agreement as of the effective date specified in such writing. Any
increase in salary granted to the Executive by the Employer
pursuant to the salary review provisions of Section 5 of this
Agreement shall not constitute an alteration or amendment of the
Agreement requiring the signatures of both parties hereto,
however, and this Agreement shall be deemed to have been amended
with respect to any such salary increase by the adoption by the
Board of Directors of the Employer of a resolution authorizing
such increase and by the Executive's continuing thereafter to
perform the services required of him hereunder.
l5. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with reference to the employment of the
Executive by the Employer and the compensation to be paid to the
Executive for or with respect to such employment. All agreements,
contracts, understandings or arrangements which may have been
heretofore made or had with reference to the employment of the
Executive by the Employer are hereby wholly abrogated, discharged
and annulled, with the exception of any existing rights of the
Executive under the Employer's Profit Sharing Plan, Pension Plan,
Retirement Benefits Replacement Plan, Executive Supplemental
Benefit Plans, Deffered Compensation Plan, and other employee
benefit plans now maintained by the Employer. The Employer
further agrees that any new or improved benefits provided
generally to or made generally available to the Employer's
executive officer employees will be provided or made available on
the same basis to the Executive.
16. Applicable Law. This Agreement and the construction,
interpretation and enforcement of each of the provisions hereof
shall be governed in all respects by the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ACE HARDWARE CORPORATION,
a Delaware corporation
EXECUTIVE
By: Roger E. Peterson
President and CEO
(SEAL)
David F. Myer
Attest:
David W. League (SEAL)
Secretary
EMPLOYMENT AGREEMENT
This Employment Agreement made and entered into this 24th day of March, 1994
by and between ACE HARDWARE CORPORATION, a Delaware corporation, hereinafter
referred to as the "Employer", and Michael C. Bodzewski, hereinafter referred
to as the "Executive";
W I T N E S S E T H :
Whereas the Executive is now employed by the Employer and the Employer and
Executive desire to enter into an Agreement to provide for the continuation of
the services of the Executive for the Employer for a term of years to the
extent and upon the terms and conditions hereinafter set forth;
Now, therefore, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
l. Employment. The Employer hereby employs the Executive as an
executive officer of the Employer holding such specific office or
offices during the term of this Agreement to which he has been
appointed by the Employer or is hereafter elected by the Board of
Directors of the Employer, and the Executive hereby accepts such
employment upon the terms and conditions hereinafter set forth.
The duties and responsibilities of the Executive shall include
those duties and responsibilities assigned to the office or
offices held by him under the Employer's By-laws and its practices
and procedures, together with such additional duties as may
reasonably be assigned to him from time to time by the President
or the Board of Directors of the Employer. If, during the term of
this Agreement, the Executive shall become eligible to be elected
or appointed as a director of the Employer, then, in the event
that he is elected or appointed as such a director, the Executive
shall serve in such capacity without additional compensation
during the remainder of the term of this Agreement.
2. Term of Agreement. The initial term of this Agreement shall begin
on April 1, 1994 and shall terminate on March 31, 1996, unless the
Agreement shall have been terminated earlier by reason of the
Executive's resignation, death, retirement or termination for
cause pursuant to Section 4. hereof or by reason of a
determination made pursuant to Section 9. hereof. Provided the
Executive is actively employed by the Employer as of the last day
of the initial term hereof, the Agreement shall automatically be
extended for an additional term of one (l) year following the
expiration of the initial term unless either the Employer or the
Executive shall have delivered written notice to the other party
hereto not less than sixty (60) days prior to March 31, 1996 of
its or his intention to terminate the Agreement at the end of the
initial term, in which case the Agreement shall not be extended
beyond March 31, 1996.
3. Employer's Alternative Option to Re-offer Same Agreement. In lieu
of either allowing this Agreement to be extended for an additional
one-year term beyond March 31, 1996 or exercising its right not to
extend the Agreement for such an additional one-year term, the
Employer shall have the additional option of offering to the
Executive a new Employment Agreement to be effective as of
April 1, 1996 which shall contain all of the same terms and
conditions as this Agreement except for a provision comparable to
this Section 3. and for those modifications which would be
required with respect to the then current salary of the Executive
and the dates or years to be designated in such new Agreement. In
order to exercise such option, the Employer shall deliver written
notice to the Executive of the Employer's intention to offer him
such new Employment Agreement not less than sixty (60) days prior
to March 31, 1996. With such notice the Employer shall tender to
the Executive two (2) copies of such new agreement duly executed
on behalf of the Employer. In the event that the Executive does
not return to the Employer one (l) copy of said new agreement
executed by the Executive by March 31, 1996, the Employer's offer
of such new agreement shall be deemed null and void. Any decision
on the part of the Employer to offer such new agreement to the
Executive, as well as any decision on the part of the Employer not
to allow this Agreement to be extended for an additional term of
one (1) year as provided for in Section 2. above, shall be made
only by the Board of Directors of the Employer.
4. Termination for Cause. The Employer may dismiss the Executive
from its employment and terminate this Agreement at any time for
cause, which shall consist of (a) theft, fraud, or embezzlement,
or conviction of any felony; or (b) the giving away or selling of
any trade secrets belonging to the Employer or of any information,
plans or records acquired or compiled by the Executive, or
furnished to him by Employer, in conjunction with his employment
hereunder for use in Employer's business, provided that such
activity results in a proven detriment to the Employer, and
provided further that this provision shall not apply to
information, plans and records which are otherwise available to
competitors of Employer or to members of the public. In the event
of any such termination of this Agreement for cause, payment to
the Executive of whatever portion of the Executive's salary which
shall have accrued to him to the date of such termination shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall also constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of such termination for the
payment by Employer of compensation to him or for the payment by
Employer after such date of the cost of any additional benefits
provided by Employer for the Executive.
5. Compensation. For all services rendered by the Executive under
this Agreement, the Employer agrees to pay to the Executive a
salary of One Hundred Seventy Thousand Dollars ($170,000.00) per
year, or such increased amount, if any, as shall be approved by
the Board of Directors of the Employer pursuant to the annual
review procedure hereinafter provided for. Such salary shall be
paid to the Employee in semi-monthly installments, or in such
other manner as shall be mutually agreed upon by the Employer and
the Executive. The Employer further agrees to review the salary
of the Executive hereunder at a meeting of the Board of Directors
of the Employer during the first quarter of 1995 with respect to
the amount of such salary to be paid to the Executive during the
contract year beginning April 1, 1995. In the event that this
Agreement is extended for one (1) year beyond March 31, 1996, the
Employer agrees to further review said salary at a meeting of the
Board of Directors of the Employer during the first quarter of
1996 with respect to the amount thereof to be paid to the
Executive during the contract year beginning April 1, 1996. The
Executive shall be paid such increased salary, if any, as the
Employer's Board of Directors shall deem to be appropriate after
the completion of each salary review made by the Board.
Notwithstanding anything herein to the contrary, the Employer's
contractual obligation for the payment of compensation hereunder
shall be suspended during any period Executive is receiving income
continuation benefits, including, but not limited to, short or
long-term disability benefits, under any Employer-sponsored plan.
6. Limitation on Outside Business Activities. The Executive shall
devote his entire business time, attention and energies to the
business of the Employer, and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or
not such business activity is pursued for gain, profit or other
pecuniary advantage, except that the Executive may devote a
reasonable portion of his time during business hours to
professional, civic, community or charitable activities, and, with
the approval of the President of the Employer, to service as a
director of other corporations and to other types of activities
not expressly mentioned herein.
7. Vacations. The Executive shall be granted during each calendar
year a vacation consisting of such number of weeks as he would be
entitled to during each such year in accordance with the vacation
policy established by the Employer for its executive officer
employees.
8. Nondisclosure of Confidential Information. It is understood and
agreed that the method and system of business used and developed
by the Employer involves marketing programs, pricing procedures,
operational procedures, training procedures, information
concerning retailers supplied by the Employer, lists of vendors to
the Employer, and other confidential information and/or trade
secrets of the Employer, and that the Executive, by virtue of his
employment hereunder, necessarily has and will become acquainted
with such confidential information and/or trade secrets. It is
further understood and agreed that the business and customers of
the Employer extend throughout the fifty (50) States of the United
States and its territorial possessions, the District of Columbia,
and several foreign countries located in various parts of the
world. Accordingly, the Executive agrees to treat as confidential
and to use only for the advancement of the interests of the
Employer all such information and/or trade secrets belonging to
the Employer and all information, plans and records submitted to
him by the Employer or acquired or compiled by him from time to
time in the course of his employment by the Employer for use in
the Employer's business which he knows to have been received by
him in confidence or which he knows would not otherwise be
available to competitors of the Employer or to members of the
public and, as a further specific condition of his employment
hereunder, and in further consideration thereof, the Executive
covenants and agrees that he will not, at any time during the term
of this Agreement or after its termination divulge to any person,
firm or corporation engaged anywhere in any line of business which
is directly or indirectly competitive with any line of business
engaged in by the Employer any such confidential information or
trade secrets. In the event of a breach or threatened breach of
the provisions of this Section of this Agreement which conflicts
with or would conflict with the interests of the Employer and
which results in or would result in a detriment to the Employer,
the Employer shall be entitled to an injunction restraining the
Executive from so disclosing any such trade secrets or
confidential information. Nothing contained herein shall be
construed as prohibiting the Employer from pursuing any other
remedies available to the Employer for such breach or threatened
breach, including the recovery of damages from the Executive.
9. Termination for Physical or Mental Incapacity or Alcohol or
Narcotics Addiction. Notwithstanding any other provision herein
contained, the Employer may, at its option, terminate this
Agreement at any time after it shall have been determined by
competent medical authority that the Executive has become
physically or mentally incapacitated or has become addicted to the
use of alcohol or narcotics to such an extent that he is prevented
by reason of such physical disability, mental incapacity, or
addiction from properly carrying on his duties hereunder;
provided, however, that the foregoing shall not be construed to
relieve the Employer of any obligations it would otherwise have
under the Americans with Disabilities Act of 1990 or other
applicable Illinois statutes to the extent the same are not
preempted thereby. In the event of any such termination of this
Agreement, the Executive shall be paid whatever portion of his
salary shall have accrued to him to the date of such termination,
together with such amount, if any, as shall equal the amount of
salary which otherwise would have been paid to him during any
accrued vacation time not utilized by him, and the payment to the
Executive of such salary and such accrued vacation pay shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall further constitute a full and
complete discharge of any and all claims which he might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of the termination of his
employment pursuant to this Section 9. for the payment by Employer
of compensation to him or for the payment by Employer after such
date of the cost of any additional benefits provided by Employer
for the Executive.
10. Non-Competition with Employer upon Voluntary Termination of
Employment. As a further specific condition of his employment by
the Employer hereunder and in further consideration of such
employment, the Executive agrees that, for a period of one (1)
year following any voluntary termination by the Executive of his
employment hereunder at any time prior to the last day of the term
for which he would otherwise be employed under this Agreement, he
will not, in any State or territory of the United States of
America or the District of Columbia in which the Employer has
franchise or other regular customer relationships with retailers
at the time of such termination of the Executive's employment (a)
become associated, by way of employment or any other type of
arrangement, in any business activities of any other person, firm
or corporation which are in competition with any business
activities carried on by the Employer or (b) become engaged on his
own behalf or for his own account in any such business activity or
in the conduct of a consulting or advisory service for any such
business activity carried on by any other person, firm or
corporation. The Employer and the Executive recognize that the
laws and public policies of the various States of the United
States and its territories and the District of Columbia may differ
as to the validity and enforceability of agreements similar to
those contained in this Section 10. It is the intention of the
Employer and the Executive that the provisions of this Agreement
shall be enforced to the fullest extent permissible under the laws
and public policies of the State of Illinois, but that the
unenforceability (or the modification to conform with such laws or
public policies) of any provision or provisions hereof shall not
render unenforceable or impair the validity of the remainder of
this Agreement. Accordingly, if any provision of this Agreement
shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete
or modify, as necessary, the offending provisions and to alter the
balance of this Agreement in order to render the same valid and
enforceable to the fullest extent permissible as aforesaid.
11. Application to Subsidiaries of Employer. Any employment of the
Executive by any wholly-owned subsidiary of the Employer and any
services performed by the Executive for any such subsidiary during
the term hereof (including, but not limited to, services in the
capacity of an officer or director of any such subsidiary) shall
be deemed to be included within the scope of the Executive's
employment hereunder and, unless separate compensation of the
Executive for the services performed by him for any such
subsidiary shall have been expressly authorized by the Board of
Directors of such subsidiary, the compensation paid to the
Executive pursuant to Section 5. hereof shall be deemed to
constitute the total compensation payable to the Executive for the
services performed by him for both the Employer and any such
subsidiary. The terms "Employer", "Employer's business", "line of
business engaged in by the Employer", and "business activities
carried on by the Employer" as used in Sections 8. and 10. hereof
shall include any subsidiary of the Employer, the business of or
lines of business engaged in by any such subsidiary, and all
business activities carried on by any such subsidiary.
12. Separation Allowance Payments. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4. and 9. of this Agreement
effective as of any date while this Agreement is in effect, the
same shall not constitute a breach of this Agreement; however, in
such event, the Employer shall continue to pay to the Executive on
the regular dates for payment thereof the salary which would
accrue for him under this Agreement if his employment had been
continued until the last day of the then current term of this
Agreement. In addition, if any such termination of employment by
the Employer for a reason not specified in Sections 4. and 9.
hereof becomes effective during the final six (6) months of the
then current term of this Agreement, the Employer shall further
pay to the Executive following the end of such term a separation
allowance in a total amount equal to the amount of salary which
would have continued to accrue for him if his employment hereunder
had continued beyond the end of such term until a total of six (6)
months has elapsed from the effective date of such termination of
his employment. Such separation allowance shall be paid to the
Executive in equal installments on the same dates that the
Executive would have received payments of salary if his employment
had continued for such period of time. It is the intention of the
parties that, by reason of the foregoing provisions, the Executive
shall in all events receive payments for a period of six (6)
months beyond the effective date of termination of his employment
by the Employer during the final six (6) months of the then
current term of this Agreement for any reason not specified in
Sections 4. and 9. hereof, which payments shall consist of the
regular salary payments which would accrue for the Executive until
the end of the then current term of this Agreement plus such
number of separation allowance payments thereafter as shall be
required in order to insure that payments of salary or of amounts
equivalent thereto are received by the Executive for such total
period of six (6) months subsequent to such termination of his
employment. The non-competition provisions set forth in Section
10. of this Agreement shall also be applicable to the Executive's
right to receive separation allowance payments under this Section
12. and, effective with respect to any such payment which would
otherwise become due and payable to the Executive on or after the
Executive's commencement of employment in, or other engagement in,
any type of business activity described in Section 10., the
Employer shall have no obligation to make any such separation
allowance payments to the Executive. Notwithstanding anything
herein to the contrary, the Employer's obligation to make
Separation Allowance Payments hereunder shall terminate upon the
death of the Executive and such Separation Allowance Payments as
would have otherwise been payable hereunder except for the death
of the Executive shall be forfeited.
l3. Outplacement Agency Services. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4. and 9. of this Agreement
effective as of any date while this Agreement is in effect, the
Employer shall make available to the Executive, at the Employer's
expense, the services of a recognized outplacement agency selected
by the Employer for the purpose of aiding the Executive in seeking
other employment.
l4. Amendments. Any of the terms and provisions of this Agreement
may, from time to time, be altered or amended by mutual agreement
of the parties hereto, provided, however, that any such alteration
or amendment shall be made in writing and shall be signed by both
parties hereto. Any such writing shall be made a part of this
Agreement as of the effective date specified in such writing. Any
increase in salary granted to the Executive by the Employer
pursuant to the salary review provisions of Section 5. of this
Agreement shall not constitute an alteration or amendment of the
Agreement requiring the signatures of both parties hereto,
however, and this Agreement shall be deemed to have been amended
with respect to any such salary increase by the adoption by the
Board of Directors of the Employer of a resolution authorizing
such increase and by the Executive's continuing thereafter to
perform the services required of him hereunder.
l5. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with reference to the employment of the
Executive by the Employer and the compensation to be paid to the
Executive for or with respect to such employment. All agreements,
contracts, understandings or arrangements which may have been
heretofore made or had with reference to the employment of the
Executive by the Employer are hereby wholly abrogated, discharged
and annulled, with the exception of any existing rights of the
Executive under the Employer's Profit Sharing Plan, Pension Plan,
Retirement Benefits Replacement Plan, Executive Supplemental
Benefit Plans, and other employee benefit plans now maintained by
the Employer. The Employer further agrees that any new or
improved benefits provided generally to or made generally
available to the Employer's executive officer employees will be
provided or made available on the same basis to the Executive.
16. Applicable Law. This Agreement and the construction,
interpretation and enforcement of each of the provisions hereof
shall be governed in all respects by the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ACE HARDWARE CORPORATION,
a Delaware corporation
EXECUTIVE
By: Roger E. Peterson
President and CEO
(SEAL)
Michael C. Bodzewski
ATTEST:
David W. League (SEAL)
Secretary
EMPLOYMENT AGREEMENT
This Employment Agreement made and entered into this 15th day of December,
1993 by and between ACE HARDWARE CORPORATION, a Delaware corporation,
hereinafter referred to as the "Employer", and Rita D. Kahle, hereinafter
referred to as the "Executive";
W I T N E S S E T H :
Whereas the Executive is now employed by the Employer and the Employer and
Executive desire to enter into an Agreement to provide for the continuation of
the services of the Executive for the Employer for a term of years to the
extent and upon the terms and conditions hereinafter set forth;
Now, therefore, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
l. Employment. The Employer hereby employs the Executive as an
executive officer of the Employer holding such specific office or
offices during the term of this Agreement to which she has been
appointed by the Employer or is hereafter elected by the Board of
Directors of the Employer, and the Executive hereby accepts such
employment upon the terms and conditions hereinafter set forth.
The duties and responsibilities of the Executive shall include
those duties and responsibilities assigned to the office or
offices held by her under the Employer's By-laws and its practices
and procedures, together with such additional duties as may
reasonably be assigned to her from time to time by the President
or the Board of Directors of the Employer. If, during the term of
this Agreement, the Executive shall become eligible to be elected
or appointed as a director of the Employer, then, in the event
that she is elected or appointed as such a director, the Executive
shall serve in such capacity without additional compensation
during the remainder of the term of this Agreement.
2. Term of Agreement. The initial term of this Agreement shall begin
on January 1, 1994 and shall terminate on December 31, 1995,
unless the Agreement shall have been terminated earlier by reason
of the Executive's resignation, death, retirement or termination
for cause pursuant to Section 4. hereof or by reason of a
determination made pursuant to Section 9. hereof. Provided the
Executive is actively employed by the Employer as of the last day
of the initial term hereof, the Agreement shall automatically be
extended for an additional term of one (l) year following the
expiration of the initial term unless either the Employer or the
Executive shall have delivered written notice to the other party
hereto not less than sixty (60) days prior to December 31, 1995 of
its or her intention to terminate the Agreement at the end of the
initial term, in which case the Agreement shall not be extended
beyond December 31, 1995.
3. Employer's Alternative Option to Re-offer Same Agreement. In lieu
of either allowing this Agreement to be extended for an additional
one-year term beyond December 31, 1995 or exercising its right not
to extend the Agreement for such an additional one-year term, the
Employer shall have the additional option of offering to the
Executive a new Employment Agreement to be effective as of
January 1, 1996 which shall contain all of the same terms and
conditions as this Agreement except for a provision comparable to
this Section 3. and for those modifications which would be
required with respect to the then current salary of the Executive
and the dates or years to be designated in such new Agreement. In
order to exercise such option, the Employer shall deliver written
notice to the Executive of the Employer's intention to offer her
such new Employment Agreement not less than sixty (60) days prior
to December 31, 1995. With such notice the Employer shall tender
to the Executive two (2) copies of such new agreement duly
executed on behalf of the Employer. In the event that the
Executive does not return to the Employer one (l) copy of said new
agreement executed by the Executive by December 31, 1995, the
Employer's offer of such new agreement shall be deemed null and
void. Any decision on the part of the Employer to offer such new
agreement to the Executive, as well as any decision on the part of
the Employer not to allow this Agreement to be extended for an
additional term of one (1) year as provided for in Section 2.
above, shall be made only by the Board of Directors of the
Employer.
4. Termination for Cause. The Employer may dismiss the Executive
from its employment and terminate this Agreement at any time for
cause, which shall consist of (a) theft, fraud, or embezzlement,
or conviction of any felony; or (b) the giving away or selling of
any trade secrets belonging to the Employer or of any information,
plans or records acquired or compiled by the Executive, or
furnished to her by Employer, in conjunction with her employment
hereunder for use in Employer's business, provided that such
activity results in a proven detriment to the Employer, and
provided further that this provision shall not apply to
information, plans and records which are otherwise available to
competitors of Employer or to members of the public. In the event
of any such termination of this Agreement for cause, payment to
the Executive of whatever portion of the Executive's salary which
shall have accrued to her to the date of such termination shall be
deemed to constitute payment in full for all compensation due to
the Executive hereunder and shall also constitute a full and
complete discharge of any and all claims which she might otherwise
have or purport to have hereunder with respect to any period
subsequent to the effective date of such termination for the
payment by Employer of compensation to her or for the payment by
Employer after such date of the cost of any additional benefits
provided by Employer for the Executive.
5. Compensation. For all services rendered by the Executive under
this Agreement, the Employer agrees to pay to the Executive a
salary of One Hundred Sixty Thousand Dollars ($160,000.00) per
year, or such increased amount, if any, as shall be approved by
the Board of Directors of the Employer pursuant to the annual
review procedure hereinafter provided for. Such salary shall be
paid to the Employee in semi-monthly installments, or in such
other manner as shall be mutually agreed upon by the Employer and
the Executive. The Employer further agrees to review the salary
of the Executive hereunder at a meeting of the Board of Directors
of the Employer during the year 1994 with respect to the amount of
such salary to be paid to the Executive in 1995. In the event
that this Agreement is extended for one (1) year beyond
December 31, 1995, the Employer agrees to further review said
salary at a meeting of the Board of Directors of the Employer in
1995 with respect to the amount thereof to be paid to the
Executive in the year 1996. The Executive shall be paid such
increased salary, if any, as the Employer's Board of Directors
shall deem to be appropriate after the completion of each salary
review made by the Board. Notwithstanding anything herein to the
contrary, the Employer's contractual obligation for the payment of
compensation hereunder shall be suspended during any period
Executive is receiving income continuation benefits, including,
but not limited to, short or long-term disability benefits, under
any Employer-sponsored plan.
6. Limitation on Outside Business Activities. The Executive shall
devote her entire business time, attention and energies to the
business of the Employer, and shall not, during the term of this
Agreement, be engaged in any other business activity, whether or
not such business activity is pursued for gain, profit or other
pecuniary advantage, except that the Executive may devote a
reasonable portion of her time during business hours to
professional, civic, community or charitable activities, and, with
the approval of the President of the Employer, to service as a
director of other corporations and to other types of activities
not expressly mentioned herein.
7. Vacations. The Executive shall be granted during each calendar
year a vacation consisting of such number of weeks as she would be
entitled to during each such year in accordance with the vacation
policy established by the Employer for its executive officer
employees.
8. Nondisclosure of Confidential Information. It is understood and
agreed that the method and system of business used and developed
by the Employer involves marketing programs, pricing procedures,
operational procedures, training procedures, information
concerning retailers supplied by the Employer, lists of vendors to
the Employer, and other confidential information and/or trade
secrets of the Employer, and that the Executive, by virtue of her
employment hereunder, necessarily has and will become acquainted
with such confidential information and/or trade secrets. It is
further understood and agreed that the business and customers of
the Employer extend throughout the fifty (50) States of the United
States and its territorial possessions, the District of Columbia,
and several foreign countries located in various parts of the
world. Accordingly, the Executive agrees to treat as confidential
and to use only for the advancement of the interests of the
Employer all such information and/or trade secrets belonging to
the Employer and all information, plans and records submitted to
her by the Employer or acquired or compiled by her from time to
time in the course of her employment by the Employer for use in
the Employer's business which she knows to have been received by
her in confidence or which she knows would not otherwise be
available to competitors of the Employer or to members of the
public and, as a further specific condition of her employment
hereunder, and in further consideration thereof, the Executive
covenants and agrees that she will not, at any time during the
term of this Agreement or after its termination divulge to any
person, firm or corporation engaged anywhere in any line of
business which is directly or indirectly competitive with any line
of business engaged in by the Employer any such confidential
information or trade secrets. In the event of a breach or
threatened breach of the provisions of this Section of this
Agreement which conflicts with or would conflict with the
interests of the Employer and which results in or would result in
a detriment to the Employer, the Employer shall be entitled to an
injunction restraining the Executive from so disclosing any such
trade secrets or confidential information. Nothing contained
herein shall be construed as prohibiting the Employer from
pursuing any other remedies available to the Employer for such
breach or threatened breach, including the recovery of damages
from the Executive.
9. Termination for Physical or Mental Incapacity or Alcohol or
Narcotics Addiction. Notwithstanding any other provision herein
contained, the Employer may, at its option, terminate this
Agreement at any time after it shall have been determined by
competent medical authority that the Executive has become
physically or mentally incapacitated or has become addicted to the
use of alcohol or narcotics to such an extent that she is
prevented by reason of such physical disability, mental
incapacity, or addiction from properly carrying on her duties
hereunder; provided, however, that the foregoing shall not be
construed to relieve the Employer of any obligations it would
otherwise have under the Americans with Disabilities Act of 1990
or other applicable Illinois statutes to the extent the same are
not preempted thereby. In the event of any such termination of
this Agreement, the Executive shall be paid whatever portion of
her salary shall have accrued to her to the date of such
termination, together with such amount, if any, as shall equal the
amount of salary which otherwise would have been paid to her
during any accrued vacation time not utilized by her, and the
payment to the Executive of such salary and such accrued vacation
pay shall be deemed to constitute payment in full for all
compensation due to the Executive hereunder and shall further
constitute a full and complete discharge of any and all claims
which she might otherwise have or purport to have hereunder with
respect to any period subsequent to the effective date of the
termination of her employment pursuant to this Section 9. for the
payment by Employer of compensation to her or for the payment by
Employer after such date of the cost of any additional benefits
provided by Employer for the Executive.
10. Non-Competition with Employer upon Voluntary Termination of
Employment. As a further specific condition of her employment by
the Employer hereunder and in further consideration of such
employment, the Executive agrees that, for a period of one (1)
year following any voluntary termination by the Executive of her
employment hereunder at any time prior to the last day of the term
for which she would otherwise be employed under this Agreement,
she will not, in any State or territory of the United States of
America or the District of Columbia in which the Employer has
franchise or other regular customer relationships with retailers
at the time of such termination of the Executive's employment (a)
become associated, by way of employment or any other type of
arrangement, in any business activities of any other person, firm
or corporation which are in competition with any business
activities carried on by the Employer or (b) become engaged on her
own behalf or for her own account in any such business activity or
in the conduct of a consulting or advisory service for any such
business activity carried on by any other person, firm or
corporation. The Employer and the Executive recognize that the
laws and public policies of the various States of the United
States and its territories and the District of Columbia may differ
as to the validity and enforceability of agreements similar to
those contained in this Section 10. It is the intention of the
Employer and the Executive that the provisions of this Agreement
shall be enforced to the fullest extent permissible under the laws
and public policies of the State of Illinois, but that the
unenforceability (or the modification to conform with such laws or
public policies) of any provision or provisions hereof shall not
render unenforceable or impair the validity of the remainder of
this Agreement. Accordingly, if any provision of this Agreement
shall be determined to be invalid or unenforceable, either in
whole or in part, this Agreement shall be deemed amended to delete
or modify, as necessary, the offending provisions and to alter the
balance of this Agreement in order to render the same valid and
enforceable to the fullest extent permissible as aforesaid.
11. Application to Subsidiaries of Employer. Any employment of the
Executive by any wholly-owned subsidiary of the Employer and any
services performed by the Executive for any such subsidiary during
the term hereof (including, but not limited to, services in the
capacity of an officer or director of any such subsidiary) shall
be deemed to be included within the scope of the Executive's
employment hereunder and, unless separate compensation of the
Executive for the services performed by her for any such
subsidiary shall have been expressly authorized by the Board of
Directors of such subsidiary, the compensation paid to the
Executive pursuant to Section 5. hereof shall be deemed to
constitute the total compensation payable to the Executive for the
services performed by her for both the Employer and any such
subsidiary. The terms "Employer", "Employer's business", "line of
business engaged in by the Employer", and "business activities
carried on by the Employer" as used in Sections 8. and 10. hereof
shall include any subsidiary of the Employer, the business of or
lines of business engaged in by any such subsidiary, and all
business activities carried on by any such subsidiary.
12. Separation Allowance Payments. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4. and 9. of this Agreement
effective as of any date while this Agreement is in effect, the
same shall not constitute a breach of this Agreement; however, in
such event, the Employer shall continue to pay to the Executive on
the regular dates for payment thereof the salary which would
accrue for her under this Agreement if her employment had been
continued until the last day of the then current term of this
Agreement. In addition, if any such termination of employment by
the Employer for a reason not specified in Sections 4. and 9.
hereof becomes effective during the final six (6) months of the
then current term of this Agreement, the Employer shall further
pay to the Executive following the end of such term a separation
allowance in a total amount equal to the amount of salary which
would have continued to accrue for her if her employment hereunder
had continued beyond the end of such term until a total of six (6)
months has elapsed from the effective date of such termination of
her employment. Such separation allowance shall be paid to the
Executive in equal installments on the same dates that the
Executive would have received payments of salary if her employment
had continued for such period of time. It is the intention of the
parties that, by reason of the foregoing provisions, the Executive
shall in all events receive payments for a period of six (6)
months beyond the effective date of termination of her employment
by the Employer during the final six (6) months of the then
current term of this Agreement for any reason not specified in
Sections 4. and 9. hereof, which payments shall consist of the
regular salary payments which would accrue for the Executive until
the end of the then current term of this Agreement plus such
number of separation allowance payments thereafter as shall be
required in order to insure that payments of salary or of amounts
equivalent thereto are received by the Executive for such total
period of six (6) months subsequent to such termination of her
employment. The non-competition provisions set forth in Section
10. of this Agreement shall also be applicable to the Executive's
right to receive separation allowance payments under this Section
12. and, effective with respect to any such payment which would
otherwise become due and payable to the Executive on or after the
Executive's commencement of employment in, or other engagement in,
any type of business activity described in Section 10., the
Employer shall have no obligation to make any such separation
allowance payments to the Executive. Notwithstanding anything
herein to the contrary, the Employer's obligation to make
Separation Allowance Payments hereunder shall terminate upon the
death of the Executive and such Separation Allowance Payments as
would have otherwise been payable hereunder except for the death
of the Executive shall be forfeited.
l3. Outplacement Agency Services. In the event that the Employer
determines to terminate the Executive's employment for other than
the reasons specified in Sections 4. and 9. of this Agreement
effective as of any date while this Agreement is in effect, the
Employer shall make available to the Executive, at the Employer's
expense, the services of a recognized outplacement agency selected
by the Employer for the purpose of aiding the Executive in seeking
other employment.
l4. Amendments. Any of the terms and provisions of this Agreement
may, from time to time, be altered or amended by mutual agreement
of the parties hereto, provided, however, that any such alteration
or amendment shall be made in writing and shall be signed by both
parties hereto. Any such writing shall be made a part of this
Agreement as of the effective date specified in such writing. Any
increase in salary granted to the Executive by the Employer
pursuant to the salary review provisions of Section 5. of this
Agreement shall not constitute an alteration or amendment of the
Agreement requiring the signatures of both parties hereto,
however, and this Agreement shall be deemed to have been amended
with respect to any such salary increase by the adoption by the
Board of Directors of the Employer of a resolution authorizing
such increase and by the Executive's continuing thereafter to
perform the services required of him hereunder.
l5. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with reference to the employment of the
Executive by the Employer and the compensation to be paid to the
Executive for or with respect to such employment. All agreements,
contracts, understandings or arrangements which may have been
heretofore made or had with reference to the employment of the
Executive by the Employer are hereby wholly abrogated, discharged
and annulled, with the exception of any existing rights of the
Executive under the Employer's Profit Sharing Plan, Pension Plan,
Retirement Benefits Replacement Plan, Executive Supplemental
Benefit Plans, and other employee benefit plans now maintained by
the Employer. The Employer further agrees that any new or
improved benefits provided generally to or made generally
available to the Employer's executive officer employees will be
provided or made available on the same basis to the Executive.
16. Applicable Law. This Agreement and the construction,
interpretation and enforcement of each of the provisions hereof
shall be governed in all respects by the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
ACE HARDWARE CORPORATION,
a Delaware corporation
EXECUTIVE
By: Roger E. Peterson
President and CEO
(SEAL)
Rita D. Kahle
ATTEST:
David W. League (SEAL)
Secretary
AGREEMENT
This agreement made and entered into on January 6, 1995 by and between
Ace Hardware Corporation, a Delaware corporation, with its principal office
located at 2200 Kensington Court, Oak Brook, Illinois 60521 (the "Company")
and Roger E. Peterson residing at 6N931 Hastings Drive, St. Charles, Illinois
("Peterson").
W I T N E S S E T H :
WHEREAS Peterson has served the Company continuously during the past
eighteen years and currently holds the position of President and CEO with the
Company; and
WHEREAS Peterson desires to voluntarily retire as an employee of the
Company as of May 31, 1995 and, in order to continue to benefit from Peterson's
experience and expertise as an executive in the hardlines wholesale industry
the Company desires to enter into this Agreement providing for the retention
by the Company from such retirement date of the services of Peterson in an
advisory and consulting capacity until May 31, 2000 (the "Advisory Period");
and
WHEREAS the Company further desires to prevent any other competitive
business from utilizing the experience and know-how of Peterson with regard to
the Company's business;
Now, therefore, in consideration of the foregoing and of the past
services rendered by Peterson to the Company and his undertakings hereinafter
referred to, IT IS HEREBY AGREED by and between the Company and Peterson as
follows:
1. Peterson shall continue in the employ of the Company until and
including May 31, 1995 and will voluntarily retire from the employment of the
Company as of June 1, 1995. During the remaining period of his employment,
the compensation and all of the terms and conditions of Peterson's employment
shall be the same as are applicable in his separate employment contract, which
shall terminate on May 31, 1995 at the time Peterson commences retirement.
2. During the Advisory Period Peterson, if living, shall furnish to the
Company such advisory and consulting services as the Company shall reasonably
require from time to time. The scheduling of such services shall be arranged
in such a manner as not to conflict with any prior commitments which Peterson
may have made which make him unavailable to perform services for the Company
at certain intervals of reasonable durations. Such services may be rendered
by Peterson at the place where he may be residing at the time or at such other
place or places as may be appropriate for him to be able to render the
specific services requested of him at particular times. Notwithstanding the
above provision in paragraph 2, Peterson shall attend the Fall Show in 1995,
Spring and Fall Shows in 1996, Spring and Fall Shows in 1997, Spring Show in
1998. It is expected that he will be in attendance for 4 days at each Show.
Peterson's spouse is invited, at Company's expense, to attend the same Shows.
3. The Company agrees, subject to the conditions herein set forth, to
pay to Peterson (in addition to all pension and other similar payments and
other benefits to which he may be entitled on account of his service to the
Company prior to his retirement) the aggregate sum of Seven Hundred Fifty
Thousand Dollars ($750,000.00). Such sum shall be paid in accordance with the
designation by Peterson on an ELECTION FOR PAYMENT OF ADVISORY AND CONSULTING
FEES form, a copy of which is attached hereto as Exhibit A, that has to be
filed with and accepted by the Vice President - Finance of Ace Hardware
Corporation prior to June 1,1995.
4. The Company shall provide medical insurance coverage as set forth on
Exhibit B attached hereto and made a part hereof, at Company's expense, for
Peterson, his spouse and unmarried child subject to such exceptions as are set
forth in the policy on medical insurance coverage to the earlier of (a) his
age of 65 years (December 14, 2002) or (b) his death. The medical insurance
coverage shall be in addition to the aggregate sum set forth in Paragraph 3.
5. During the Advisory Period, Peterson shall perform his services
hereunder for the Company as an independent contractor and will be permitted
to engage in any business and perform services for his own account except as
prohibited in Paragraph 7 herein. Any services performed by Peterson for his
own account shall be scheduled by him in such a manner as not to interfere
with his availability upon reasonable notice to perform such services as the
Company shall reasonably require of him hereunder. In the event that Peterson
shall be requested to perform services in excess of twenty-five (25) days,
including Show attendance, within any agreement year (being the period between
May 31 of a calendar year and May 31 of the following year) during the
Advisory Period, he shall be paid an additional sum for such services
performed based upon the value of the services as determined by the parties
prior to performance. Any such additional payments shall not reduce the
aggregate amount to be paid to Peterson as set forth in Paragraph 3.
6. Provided that the Agreement shall not have been deemed paid in full
pursuant to Paragraph 8, the following provisions shall be applicable in the
event of the death of Peterson on or after June 1, 1995 and before he has
received the aggregate sum of Seven Hundred Fifty Thousand Dollars
($750,000.00) set forth in Paragraph 3 (reduced by any partial forfeitures
thereof which may have been made pursuant to Paragraph 9):
(a) If Peterson's spouse survives him, an aggregate amount equal to the
difference between said aggregate sum and the portion thereof received
by Peterson prior to his death shall be paid to her in the same
installments and at the same times it would have been paid to Peterson
had he been living;
(b) If Petersons' spouse does not survive him, the amount of such
difference shall be paid upon Petersons' death to his estate in one lump
sum;
(c) If Petersons' spouse survives him but dies before receiving the
entire amount of the difference referred to in (a) above, then the
remaining portion of such difference shall be paid upon her death in one
lump sum to her estate.
7. For the purposes of this Agreement, the term "Confidential
Information" shall mean, but shall not be limited to, any technical or non-
technical data, programs, procedures, models, manuals, financial data, lists
of actual or potential customers, dealers or suppliers of the Company, and any
information regarding the Company's marketing, sales or dealer network or
plans, which is not generally known to the public through legitimate origins.
The Company and Peterson acknowledge and agree that such Confidential
Information is extremely valuable to the Company and shall be deemed to be a
"Trade Secret" pursuant to the Illinois Trade Secrets Act.
Peterson will not during, or after termination of, this Agreement, in
any form or manner, directly or indirectly, divulge, disclose or communicate
to any person, entity, firm, corporation or any other third party, or utilize
for Peterson's personal benefit or for the benefit of any competitor of the
Company, any Confidential Information.
Upon termination this Agreement with the Company for any reason,
Peterson will promptly deliver to the Company all documents concerning the
Company's customers, dealers, dealer network, marketing strategies, plans,
products or processes and/or which contain Confidential Information.
Peterson agrees that during the Advisory Period and during any further
period for which monthly payments to Peterson are provided for hereunder, he
shall not, directly or indirectly, render any services of an advisory nature
to or otherwise become employed by or participate or engage in any competing
business, without the prior written consent of the Company.
Any notice to be given by Peterson under this Agreement shall be sent by
certified mail to the Company at its office at 2200 Kensington Court, Oak
Brook, Illinois, marked to the attention of the Company's President, and any
notice from Company to Peterson shall be sent by registered mail to Peterson
at 6N931 Hastings Drive, St. Charles, Illinois. Either party may change the
address to which notices are to be addressed by notice in writing given to
the other in accordance with the above terms.
In the event that Peterson breaches any of the terms of Paragraph 7 of
this Agreement, Peterson stipulates that said breach will result in immediate
and irreparable harm to the business and goodwill of the Company and that
damages, if any, and remedies at law for such breach would be inadequate. The
Company shall therefore be entitled to apply for and receive from any court of
competent jurisdiction an injunction to restrain any violation of Paragraph 7
of this Agreement and for such further relief as the court may deem just and
proper.
8. In the event of any violation by Peterson of any of the provisions of
Paragraph 7 which could or does result in material detriment to the Company,
the Company's obligation to pay to Peterson the then-remaining unpaid portion
of the aggregate sum set forth in Paragraph 3, if any, shall thereupon cease,
and all payment theretofore made by the company to Peterson under this
Agreement shall constitute payment in full for all services performed by him
during the Advisory Period.
9. In the event that, during any month within the Advisory Period,
Peterson refuses to perform, or refrains from performing, any service which
the Company feels has been reasonably requested of him and he persists and
continues in such course of action for more than three (3) days from the date
of mailing of written notice to him of the Company's determination that such
refusal to perform or such act of refraining from performing constitutes an
unreasonable breach of his obligations to the Company hereunder, a portion of
the aggregate sum set forth in Paragraph 3 equal to the monthly installment
next payable shall be deemed to have been forfeited by Peterson, and the
Company shall have no obligation to make payment of such amount at any time
to Peterson or his surviving spouse or to the estate or the heirs,
distributees or personal representatives of either of Peterson or such spouse.
10. It is recognized that during the Advisory Period, Peterson may have
to incur certain reasonable out-of-pocket expenses incident to his performance
of advisory and consulting services hereunder. The Company agrees to
reimburse Peterson for all such expenses which are incurred by him pursuant to
directions given to him by the Company or which are approved by the Company in
advance of their incurrence. This would include, but would not be limited to
travel, lodging and meal expense to the Spring and Fall Shows as would be
appropriate for a high level executive and spouse.
11. This Agreement is not intended to and shall not be deemed to be in
lieu of any rights, benefits and privileges to which Peterson may be entitled
as an employee of the Company by reason of his employment through May 31, 1995.
In this connection, it is acknowledged and agreed that there shall be included
among such benefits the prorata share to which Peterson would be entitled
based on the Patronage Rebate Executive Pool (PREP) Plan formula which will
be determined subsequent to the end of the year 1995.
12. Neither Peterson, his spouse, nor his spouse's estate shall have the
right to assign, transfer or encumber any of the rights or interests which any
of them may have under or pursuant to this Agreement.
13. This Agreement shall be binding upon and inure to the benefit of the
Company and its successors and assigns (including, without limitation, any
entity which may acquire substantially all of the Company's assets or business
or merge or combine with it), and shall also be binding upon and inure to the
benefit of Peterson and his spouse and their respective heirs, distributee's
and personal representatives.
14. The failure of either party hereto to insist in any one or more
instances upon performance of any terms or conditions of this Agreement shall
not be construed as a waiver of future performance of any such term or
condition, but the obligations of either party with respect thereto shall
continue in full force and effect.
15. This Agreement and the construction, interpretation and enforcement
of each of the provisions hereof shall be governed in all respects by the laws
of the state of Illinois.
IN WITNESS WHEREOF, all on the day and year first above written, Ace Hardware
Corporation, a Delaware corporation, has caused this Agreement to be executed
by its Chairman of the Board of Directors, pursuant to authority vested in him
by its Board of Directors, and attested by its Secretary, with its corporate
seal affixed, and Peterson has hereunto affixed his hand and seal.
ACE HARDWARE CORPORATION,
a Delaware corporation
ATTEST:
David W. League By: Richard E. Laskowski
Secretary Chairman of the Board of Directors
(Seal)
Roger E. Peterson
ACE HARDWARE CORPORATION
OFFICER INCENTIVE PLANS
JUNE 1994
ACE HARDWARE CORPORATION
OFFICER INCENTIVE PLAN
1. ESTABLISHMENT AND PURPOSE
The Officer Incentive Compensation Plan is hereby amended,
restated and retitled as the Officer Incentive Plan.
Ace Hardware Corporation (the Corporation) has established
this officer incentive program to provide key officers with
financial motivation to act in the best interests of the
Corporation. The program consists of a Short-Term Incentive
Plan (the ST Plan) and a Value Added Long-Term Incentive
Plan (the VA Plan). More specifically, the goals of the
program are to:
- Provide award opportunities which balance short- and
long-term performance orientations,
- Provide a strong retention vehicle,
- Provide significant compensation opportunities in return
for outstanding performance,
- Reward performance measured over both short- and long-
term performance periods,
- Measure the elements of value which participants can
impact, and
- Provide a performance component for capital accumulation
through the long-term incentive compensation deferral
option plan.
2. EFFECTIVE DATES
The ST Plan is effective as of fiscal year 1994. The VA
Plan is effective for the three-year period Fiscal Year 1992
through Fiscal Year 1994. It will continue in effect for
each subsequent rolling three-year period until and unless
terminated by the Board of Directors (the Board).
3. ELIGIBILITY AND PARTICIPATION
Participants in the Program shall include those key
employees of the Corporation who meet the following
eligibility criteria:
Have an impact on both short- and long-term results,
Are in positions with long-result cycle timeframes, and
Manage distinct functions or business units.
Based on these characteristics, the Program will initially apply
to all officers, except the CEO/President, as designated on
Exhibit A. Effective January 1, 1995, the President/COO will
become eligible. The Chief Executive Officer, and or President,
may at any time recommend to the Board the addition or deletion
of Program Participants. The Board will have final authority to
approve or disapprove such recommendations. Existing
Participants' award opportunities will not be positively or
negatively affected by the addition or deletion of Participants.
4. DEFINITIONS OF KEY TERMS
The key terms of the Program are defined in this section:
a. "Participant" means any officer designated to
participate in the Program.
b. "Performance Period" means one fiscal year for the ST
Plan and a period of three consecutive fiscal years for
the VA Plan.
c. "Base Salary" as relates to the ST Plan is the base
salary of officers' compensation, before any deferrals
and excluding any amounts paid under the VA Plan.
Base Salary as relates to the VA Plan is the cumulative
base salary of officers' compensation for a three-year
Performance Period, before any deferrals and excluding
any amounts paid pursuant to the ST Plan.
d. "Total Actual Gross Patronage Dividend" is a dividend
dollar amount derived from actual Retail Support Center
(RSC) sales combined with actual Lumber and Building
Material (LBM) sales. It specifically includes the
following components:
- Total Patronage Dividend,
- International or Other Non-Patronage Income or Loss,
- Paint International Non-Patronage Income (Loss),
- Stop Handling Charge Subsidy,
- Stop Freight Subsidy,
- LTL Plus HC Subsidy
- LBM Up front Discounts,
- Retail Support Costs, and
- Other Significant Nonrecurring Items.
e. "Total Gross Patronage Dividend Threshold" is the
minimum acceptable dividend dollar amount derived from
planned RSC sales and planned LBM sales (i.e., actual
dividends below this level do not warrant a VA Plan
payout).
f. "Permanent Sharing Ratio" is a constant percent to be
applied to the difference between the Total Actual
Gross Patronage Dividend and the Total Gross Patronage
Dividend Threshold for purposes of determining the
annual contribution/deduction to the VA Plan dollar
pool.
g. "Participant Sharing Ratio" is a unique percent
assigned to each Participant which indicates how the
total VA Plan dollar pool will be distributed. Each
Participants's ratio will be determined by his/her
Base Salary divided by the sum of all Base Salaries.
All individual Participant Sharing Ratios will total
100 percent for any given VA Plan Performance Period.
h. "Participant Account" is a record of the cumulative
annual adjustments of awards under the VA Plan
allocated to a Participant.
i. "Retirement", for the purposes of this Program only,
shall be defined as the first day of the month
following the conclusion of a Participant's active
employment.
j. "Disability" shall be defined as when a Participant
becomes totally disabled as described in the
Corporation's Long-term Disability Plan.
5. PROGRAM ADMINISTRATION
Compensation and Human Resources Committee: The Board
Compensation and Human Resources Committee (the Committee)
shall be responsible for overall Program administration
The Committee is authorized to interpret the Program, to
prescribe, amend, and rescind rules and regulations
relating to the Program, to provide for conditions and
assurances deemed necessary or advisable to protect the
interests of the Corporation, and to make all other
determinations necessary or advisable for the administration
of the Program, but only to the extent not contrary to the
express provisions of the Program.
The Committee may request the assistance of the Board in
making any determination under the Program or in carrying
out its duties hereunder. The Committee may also delegate
selected responsibilities to Corporation officers to
facilitate day-to-day Program administration.
Determinations, interpretations, or other actions made or
taken by the Committee pursuant to the provisions of the
Program shall be final, binding and conclusive for all
purposes and upon all persons whomsoever.
Amendment, Modification, and Termination of the Program: The
Board, or if designated the Committee, may at any time
terminate, and from time to time may amend or modify the
Program to meet the best interests of the Corporation (e.g.,
to modify the incentive pool calculation formula inlight of
a major acquisition or merger). Amendments to the Program
will only be made inlight of extraordinary events, under
which a failure to amend would result in a performance
award not consistent with the stated purpose of the Program.
6. ST PLAN DESIGN
Performance Measure: CEO, and/or President, and
Participants will, on a periodic basis, develop individual
business objectives for eligible participants. Once
approved, these objectives will become the primary basis for
assessing performance and assigning awards under the ST
Plan. The CEO, and/or President, at his discretion, may
also consider other factors in assessing overall
performance.
Performance Period: The ST Plan is designed to operate
with one-year Performance Periods.
Award Opportunities: The maximum award opportunity for any
given Participant will be 20 percent of his/her Base Salary.
7. VA PLAN DESIGN
Performance Measure: Participants will share in a
proportion of the value added to the Corporation over time.
Each fiscal year an adjustment (contribution or deduction)
will be made to an incentive fund for the VA Plan
Participants based on the value added to the Corporation
during the year.
The value added is based on Actual Gross Patronage Dividend
realized during the fiscal year over a Gross Patronage
Dividend Threshold for the same fiscal year. Corporation
performance (in terms of Gross Patronage Dividend) above the
threshold level will result in an increase in the incentive
fund based on the Permanent Sharing Ratio. Company
performance below the threshold will result in a deduction
from the incentive fund based on the Permanent Sharing
Ratio.
Following is a presentation of initial ratios pertaining to
the VA Plan. These ratios may be adjusted from time to time
by the Board:
Gross Patronage Dividend Threshold for actual RSC sales
is 5.5 percent
Gross Patronage Dividend Threshold for actual LBM sales
is 0.8 percent
Permanent Sharing Ratio is 3.9 percent.
A financial model which supports the VA Plan is presented in
Exhibit B.
Performance Period: The VA Plan is designed to operate with
three-year Performance Periods, with a new Performance
Period beginning each year.
Award Opportunities: The Corporation's Compensation
Strategy calls for a greater emphasis on rewarding long-term
performance. With this in mind, the VA Plan calls for
targeted award opportunities equal to 45 percent of the
CEO's, and/or President's, Base Salary, and 30 percent of
other Participants' Base Salaries. These targets are
reflected in the initial Permanent Sharing Ratio and will
be considered in establishing Permanent Sharing Ratios
for future Performance Periods.
8. ADJUSTMENTS TO THE PARTICIPANTS' VA PLAN ACCOUNTS
Collectively: Adjustments to the value-added account of
Participants will be made annually. The total performance
adjustment for all Participants as a group will be
calculated as follows:
- If the Total Actual Gross Patronage Dividend exceeds the
Total Gross Patronage Dividend Threshold, the total
amount to be added is equal to the excess multiplied by
the Permanent Sharing Ratio.
- If the Total Actual Gross Patronage Dividend is less than
the Total Gross Patronage Dividend Threshold, the total
amount to be subtracted is equal to the shortfall
multiplied by the Permanent Sharing Ratio. The
subtraction can either be applied to Participants'
current Performance Period accounts or to their deferred
nonvested award account (see Section 9).
Individually: A Participant Sharing Ratio will be assigned
to each VA Plan Participant based on his/her Base Salary
as a percentage of the total Base Salaries for all
Participants. The total funded award pool will be allocated
to individual Participants based on their respective ratios.
Individual accounts will be maintained on a yearly basis,
and Participants will receive periodic statements detailing
account value and the effect of recent financial results.
9. VA PLAN VESTING AND DISTRIBUTION
A Participant immediately vests in two-thirds of the
calculated award at the end of each Performance Period. Of
the vested amount, half will be paid in cash or deferred at
employee's option within the first quarter of the subsequent
Fiscal Year. The other half may be invested in the Pacific
Mutual or Metropolitan supplemental life insurance plans or
deferred at employee's option (See Section 10).
With regard to the remaining one-third award, it may be
immediately deferred, but it becomes vested one year
following the end of the Performance Period. For example,
the non-vested award portion applicable for the 1992-1994 VA
Plan will become vested as of the end of Fiscal Year 1995.
10. ST AND VA PLAN DEFERRAL ELECTION
Prior to or during the Performance Period, a Participant may
elect to defer to a future date any or all of his/her award
that otherwise would be payable. Such decisions are subject
to Deferral Plan provisions and shall be made prior such
sums becoming earned and payable.
11. CHANGES IN EMPLOYMENT STATUS
If a Program Participant's employment terminates during a
Performance Period because of death, retirement, or
permanent disability, the Participant (or his/her
Beneficiary) will be 100 percent vested in his/her account
and immediately payable unless otherwise deferred by the
Participant (See Section 10). In the case of voluntary
termination and involuntary termination, the Participant
will forfeit any award that is not vested or vested by
subject to the required one year deferral period.
12. CHANGES IN CONTROL
Upon the occurrence of a Change in Control of the
Corporation, Participants' awards for the Plans then in
effect shall be calculated based on a pro rata application
of the performance criteria as of the end of the date the
Change of Control is effective. All awards then made, as
well as any prior awards currently non-vested or in required
deferral, will become immediately vested with cash payments
made within a 90 day period unless otherwise deferred by
Participant (See Section 10).
13. WITHHOLDING PAYROLL TAXES
To the extent required by the laws in effect at the time
payments are made, the Corporation shall withhold from
payments made hereunder any taxes required to be withheld
for federal, state, or local governmental purposes.
14. MODE OF PAYMENT
All payments under the Program shall be made by negotiable
check or other case equivalent.
15. BENEFICIARY DESIGNATION
If a Participant dies before receiving all the distributions
to which he/she is entitled, the remainder will be paid to
such person as may be designated by an instrument in
writing, and in a form acceptable to the Committee, executed
by the Participant and delivered to the Committee during the
Participant's lifetime, which designation the Participant
may revoke or modify from time to time by an instrument in
writing in a form acceptable to the Committee, executed by
the Participant and delivered to the Committee during the
Participant's lifetime. If no such designation is delivered
to the Committee, or if no such designated Beneficiary is
then living, then the remaining distributions shall be paid
to the surviving spouse of the Participant, or in the even
there is no such surviving spouse, to the estate of the
Participant.
16. NON-ALIENATION
A Participant shall have no right to pledge, hypothecate,
anticipate, or in any way create a lien upon any amounts
payable under this Program, and no benefit payable hereunder
shall be assignable in anticipation of payment either by
voluntary or involuntary acts, or by operation of law.
17. NO EMPLOYMENT RIGHTS
Nothing in this Program shall interfere with or limit in any
way the right of the Corporation to terminate any
Participant's employment at any time for any reason, nor
confer upon any Participant any right to continue in the
employ of the Corporation or its subsidiaries.
18. GOVERNING LAW
This Program shall be construed in accordance with the laws
of the State of Illinois.
IN WITNESS WHEREOF, The Corporation has adopted this the amended,
restated, and retitled ACE HARDWARE CORPORATION OFFICER INCENTIVE
PLAN as of June 7, 1994.
ACE HARDWARE CORPORATION,
A Delaware Corporation
BY: _______________________________
Chairman of the Board of Directors
and
BY: _______________________________
President and CEO
EXHIBIT B
E L I G I B L E O F F I C E R S
DAVE HODNIK
BILL LOFTUS
MIKE BODZEWSKI
PAUL INGEVALDSON
RITA KAHLE
DAVE LEAGUE
DAVE MYER
FRED NEER
DON SCHUMAN
EXHIBIT B
E L I G I B L E P A R T I C I P A N T S
B Y T I T L E
1 9 9 4
EXECUTIVE VICE PRESIDENT AND COO
SENIOR VICE PRESIDENT
VICE PRESIDENT
1 9 9 5
PRESIDENT AND COO
SENIOR VICE PRESIDENT
VICE PRESIDENT
Consent of Independent Auditors
The Board of Directors
Ace Hardware Corporation:
We consent to the use of our report included herein and to
the reference to our firm under the heading "Opinions of
Experts" in the Prospectus.
Chicago, Illinois
March 23, 1995
ACE HARDWARE CORPORATION: POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned
directors of ACE HARDWARE CORPORATION, a Delaware corporation, hereby
constitutes and appoints DAVID F. HODNIK and RITA D. KAHLE, and each
of them, his true and lawful attorneys-in-fact and agents, each with
full power to act without the other, with full power of substitution,
for him and in his name, place and stead, in any and all capacities,
to sign the Registration Statement on Form S-2, and any and all
amendments thereto, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as they might or could do in person,
hereby ratifying and confirming all that said attorneys and agents, or
either of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has set his or her
hand and seal as of this 22nd day of March, 1995.
Jennifer C. Anderson Richard E. Laskowski
Lawrence R. Bowman Ray W. Osborne
Mark Jeronimus Jon R. Weiss
Howard J. Jung Don S. Williams
John E. Kingrey James R. Williams, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
SEC Form S-2 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 4868
<SECURITIES> 0
<RECEIVABLES> 260961
<ALLOWANCES> 1350
<INVENTORY> 270391
<CURRENT-ASSETS> 541680
<PP&E> 297591
<DEPRECIATION> 16954
<TOTAL-ASSETS> 725481
<CURRENT-LIABILITIES> 397701
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 725481
<SALES> 2326115
<TOTAL-REVENUES> 2326115
<CGS> 2158896
<TOTAL-COSTS> 2158896
<OTHER-EXPENSES> 92894
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12035
<INCOME-PRETAX> 66006
<INCOME-TAX> 1484
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64522
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
