As filed with the Securities and Exchange Commission-subject to change.
Registration No. 33-58191
SECURITIES AND EXCHANGE COMMISSION
Post-Effective Amendment No. 1
To
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 this Post-Effective
Amendment to 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.
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 Outside Front Cover Page
and Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside
Pages of Prospectus 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 Outside Front Cover Page;
be Registered Description of Capital
Stock
10. Interests of Named Experts and Counsel Opinions of Experts
11. Information with Respect to the The Company's Business;
Registrant 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 Documents Incorporated by
by Reference Reference
13. Disclosure of Commission Position on Indemnification
Indemnification for Securities Act Obligations
Liabilities 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
1,852 Shares Class A (Voting) Stock, $1,000 par value
77,750 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 $ 1,852,000 None $ 1,852,000
Class C Stock
Per Share(1)(3)(4)(6) $ 100 None $ 100
Total $ 7,775,000 None $ 7,775,000
(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 1995 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, 1997.
The date of this Prospectus is , 1996
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, 1995 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 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 19, 1995, 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.
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.") Also see further description under "The Company's Business"
for a discussion of member operational requirements and material
requirements on purchases of the Company's securities. The number of
retail business outlets for which Membership Agreements have been
executed as of December 31, 1995 were 5,007. (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 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, 1995 the number of outstanding shares of the
Company's stock is Class A stock - 3,905 shares, Class B stock - 3,028
shares and Class C stock - 1,778,173 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 - 5,745
shares, Class B stock - 3,032 shares and Class C stock - 1,848,096
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>
Year ended December 31, 1995 256 $1,000 440 $2,000 99,975 $100 $10,693,500
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
</TABLE>
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
1993 through 1995 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 Company's retail business outlets. 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.")
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
182 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.
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.
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 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 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:
(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.
(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.
There is no market for the Company's stock. The redemption
prices last established by the Board of Directors for Class A, B and
C stock have not been adjusted since 1974 when the Company first
became a cooperative organization.
(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 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 Vice President, General
Counsel, David W. League. The statements made under the subheadings
"Federal Income Tax Status of Class A and Class C Shares," "Federal
Income Tax Treatment of Patronage Dividends," "Income Tax Liability
Incidental to Patronage Dividends" and "Patronage Dividends and Income
Tax Treatment Thereof" are also his opinions. Said counsel has also
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, 1995 and 1994 and for each of the years in the three-year period
ended December 31, 1995, 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, 1995 there were 5,007 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%), Illinois (approximately 8%), Texas (approximately
7%), Florida (approximately 6%), Michigan and Georgia (approximately 4%
each). States into which were shipped the largest percentages of the
merchandise sold by the Company in 1995 are California
(approximately 11%), Illinois (approximately 8%), Florida and Texas
(approximately 6% each), Michigan (approximately 5%) and Georgia
(approximately 4%). Approximately 3% of the Company's sales are made to
outlets located outside of the United States or its territories.
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>
1995 1994 1993
<S> <C> <C> <C>
Member outlets at beginning of period 4,940 4,921 4,986
New member outlets 285 198 158
Member outlets terminated 218 179 223
Member outlets at end of period 5,007 4,940 4,921
Dealers having one or more member outlets at
end of period 4,055 4,054 4,045
</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 1995 warehouse
sales accounted for 62% of total sales and bulletin sales accounted for
3% of total sales with the balance of 35% 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 1995 1994 1993
<S> <C> <C> <C>
Paint, cleaning and related supplies 19% 19% 19%
Plumbing and heating supplies 16% 16% 15%
Hand and power tools 14% 14% 14%
General hardware 13% 13% 12%
Electrical supplies 13% 12% 12%
Garden, rural equipment and related supplies 13% 11% 12%
Sundry 7% 9% 9%
Housewares and appliances 5% 6% 7%
</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.
Invoice Amount Handling Charge (Markup)
$ 0 to $ 999.99 2.00% or $1.00 whichever is greater
$1,000.00 to $1,999.99 1.75%
$2,000.00 to $2,999.99 1.50%
$3,000.00 to $3,999.99 1.25%
$4,000.00 to $4,999.99 1.00%
$5,000.00 to $5,999.99 .75%
$6,000.00 to $6,999.99 .50%
$7,000.00 to $7,999.99 .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% applies to various categories of sales
of merchandise exported to certain dealers located outside of the United
States and its territories and possessions. Ace dealers located outside
of the United States and its territories and possessions not subject
to the additional 3% markup are assessed a flat 2% markup on all direct
shipment sales.
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").
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.")
The Company has an ongoing strategic planning process and has focused
its strategic plans around four cornerstones for future growth and
success in this competitive industry. The four cornerstones are: Retail
Success (store operations), Wholesale Success (distribution),
International growth and new member growth. Dealer retail success is a
primary objective since it drives both retail performance and wholesale
growth of the Company. The Company has accellerated its efforts in
assisting member dealers in "retail success initiatives" designed to
document and improve their retail performance and competitiveness. The
retail success initiatives include retail goals which each dealer should
strive for within their store and local competitive environment, but do
not dictate material restrictions or requirements on member dealers.
Minimum requirements for acceptance of a member dealer by the Company are
outlined only in the Membership Agreement and in the Member Operational
Requirements under the Ace Hardware Membership Agreement. The Operational
Requirements do require that, within one year from the Company's
acceptance of the Agreement, the member dealer make Ace their primary
source of supply and terminate participation in the program of any other
major hardware wholesaler. There are currently no specific requirements
as to percentage of purchases required through Ace or minimum retail
performance which must be achieved (i.e. sales dollars per square foot).
This strategic plan, referred to as "The New Age of Ace" is an extension
of previous strategic efforts under Ace 2000 and is not in conflict with
these efforts.
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., another 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 facilities
owned by it in Matteson and Chicago Heights, Illinois. These facilities
now constitute the primary source of such products offered for sale by
the Company to its dealers. The Company's paint manufacturing business 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.
The Company makes available some services to members which are related
to the operation of their retail business. These services (such as
advertising, store supplies and training programs) are provided in order
to assist members and/or to utilize the centralized buying power of the
Company. Members are rebilled in order to reimburse the Company for
related expenses paid on their behalf. The special charges and
assessments described below are similar in nature and are intended only
to reimburse the Company for related expenses.
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 purchases of lumber, LTL, LTL Plus, building
materials products and PACE hardware and software computer systems), with
the current minimum annual assessment for each dealer location being
established at $1,560.00 (or such greater amount as would be required to
maintain such minimum assessment at 1.25% of the annual volume of
purchases required in order for a retail outlet to avoid imposition of
the low volume account service charge) for 1996 ($1,300.00 for 1995),
subject to: 1) a maximum annual assessment for each dealer location for
which a membership agreement has been entered into with the Company of
$5,000.00 for 1996 ($4,750.00 for 1995); 2) a maximum total annual
assessment for any one dealer determined by multiplying the number of
such dealer's retail outlets supplied by the Company which serve the
general public by $5,000.00 with certain exemptions from or adjustments
to the national advertising assessment for dealer outlets located outside
of the contiguous 48 states of the United States and the District of
Columbia, based on the evaluation by the Company's management 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.
A special low volume account service charge of $30.00 per bi-weekly
billing statement period is imposed on all stores whose purchases
(exclusive of lumber and LTL purchases) during such period are less than
$4,800.00 or, effective January 1, 1996 a $50.00 per bi-weekly billing
statement on all stores whose annual purchases are less than $50,000. Any
such charges imposed on a store during a specified year will be
automatically refunded to the store if its total purchases (exclusive of
lumber and LTL purchases) exceed $124,800 for 1996 ($104,000.00 for 1995)
during the year. All stores are exempted from such special charge during
the first 12 months from the date that they are affiliated as Ace
dealers. Exceptions to the low volume account service charge are as
follows:
1. when a dealer has purchased $124,800.00 for 1996 ($104,000.00
for 1995) of merchandise (exclusive of carload lumber
purchases) during the applicable year, the dealer will be given
credit on the next bi-weekly billing statement for any low
volume charges which have been added to the account during such
year and the low volume charge shall no longer be added on any
of such dealer's bi-weekly billing statements during the
remainder of such period even if the current purchases shown on
the billing statement are less than $4,800.00; and
2. the low volume account service charge will not be billed on a
bi-weekly basis to those accounts whose previous year's sales
volume exceeded the low volume purchases minimum ($124,800.00
for 1996; $104,000.00 for 1995) for the previous year, but the
full annual low volume account service charge will be billed on
the last billing statement of the year to those accounts if the
minimum purchases to avoid imposition of the charge have not
been met for the current 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
$16.00 for 1996 ($14.50 for 1995) for each single store or parent store
and $11.00 for 1996 ($10.00 for 1995) 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.
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 $32.00
for 1996 ($30.00 for 1995) for each single store or parent store and
$16.00 for 1996 ($15.00 for 1995) 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>
"ACEHARDWARE" with winged
emblem design Service Mark 840,176 December 5, 2007
"ACEHARDWARE" 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 STRIKER" 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
"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
"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
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 OAKBROOK 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 OAKBROOK 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
"CELEBRATIONS" Service Mark 1,918,785 September 12, 2005
Repetitive Stylized "A" design Service Mark 1,926,798 October 10, 2005
"The NEW AGE OF ACE" design Service Mark 1,937,008 November 21, 2005
"ACE RENTAL PLACE" in stylized
lettering design Service Mark 1,943,140 December 19, 2005
</TABLE>
Currently, the Company has a applications pending before the U.S.
Patent and Trademark Office for Registration of "GREAT FINISHES" for
paints, paint-like coatings, primers, lacquers, stains and varnishes,
"WOOD ROYAL" for paint, exterior stains and wood cleaners, "ROYAL SHIELD"
for paints, primers, stains, lacquers and varnishes, "ROYAL TOUCH" for
paints, primers, stains, lacquers and varnishes and "SEALTECH" for
acrylic waterproof coatings for porous surfaces. In addition, the Company
also has service mark applications pending for "ACE HOME CENTER," "HELPFUL
HARDWARE FOLKS," 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 and increasing 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, Sears,
and Lowe's, 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.
Employees
The Company employs 3,917 full-time employees, of which 1,194 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.
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 the dealer, 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:
1995 1994 1993
Warehouse Sales 4.42965% 4.64117% 4.94434%
Bulletin Sales 2.0% 2.0% 2.0%
Direct Shipment Sales 1.0% 1.0% 1.0%
Paint Sales 6.8725% 8.2205% 7.9389%
In addition to the dividends described above, patronage dividends are
calculated separately and distributed on sales of lumber products,
building material and millwork products and less-than-truckload (LTL)
sales of lumber and building material products. Patronage dividends equal
to .3560%, .4073% and .1763% 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
1995, 1994 and 1993, 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 1995, 1994 and 1993.
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 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 four sales categories involving these types of
products. These four categories are (a) lumber products (other than less-
than-truckload sales); (b) building materials products (other than less-
than-truckload sales); (c) millwork products and (d) 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 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
(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 was 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
(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), (b) sales of
building materials (other than LTL sales), (c) sales of millwork product
and (d) 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), (b) purchases of building
materials products (other than LTL purchases) or (c) purchases of
millwork product 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 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 cashportion 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 per location 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 per location 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 per location 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 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 45% 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 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 and Non-Member Accounts
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,
1995, 1994 and 1993, International Retail Merchant volume accounted for
approximately 3% of the Company's total sales in each such year. In 1995,
the Company's Board of Directors authorized the Company to affiliate non-
member retail accounts, which are not entitled to membership in the
cooperative, and which therefore will neither own stock in the Company,
nor receive partronage dividends. (See Appendix A, Article XXV, Sections
3 and 4 of the By-laws regarding International Retail Merchants and non-
member accounts.)
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>
Oak Brook, Illinois 206,030 Leased September 30, 2009
Oak Brook, Illinois (1) 70,508 Owned
Markham, Ontario, Canada (2) 15,372 Leased February 28, 2006
Distribution Warehouses:
Lincoln, Nebraska 346,000 Leased December 31, 2006
Arlington, Texas 313,000 Leased July 31, 1997
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 (3) 250,000 Leased September 30, 1999
Chicago, Illinois (4) 18,168 Leased May 31, 1997
Brantford, Ontario, Canada (5) 354,000 Leased March 31, 2006
Baltimore, Maryland (6) 158,485 Leased March 31, 1998
Print Shop Facility:
Downers Grove, Illinois 41,000 Leased January 31, 1998
Paint Manufacturing Facilities:
Matteson, Illinois 356,000 Owned
Chicago Heights, Illinois 194,000 Owned
Other Property:
Aurora, Illinois 72 acres Owned
</TABLE>
<TABLE>
<CAPTION>
Square Feet Owned Lease
of Facility or Expiration
Location (Land in Acres) Leased Date
<S> <C> <C> <C>
LaCrosse, Wisconsin (7) 3 acres Owned
Colorado Springs, Colorado (8) 42 acres Owned
Yorkville, Illinois (9) 12,500 Leased July 31, 2005
</TABLE>
(1) Includes 35,254 square feet leased to tenant until September 30, 1996.
The subject property is adjacent to the Company's general offices.
(2) This facility is leased by the Company's wholly owned subsidiary,
Ace Hardware Canada, Limited.
(3) This facility was leased by the Company in October, 1994, for use
as a bulk merchandise redistribution center.
(4) This facility was leased by the Company in June, 1994 for use
as a freight consolidation center.
(5) This facility is leased by the Company's wholly owned
subsidiary, Ace Hardware Canada, Limited.
(6) This facility was leased by the Company in February, 1995 for
use as a redistribution center.
(7) This land is adjacent to the Company's LaCrosse, Wisconsin
warehouse.
(8) This property was purchased by the Company in March, 1995. A
distribution warehouse containing approximately 493,000 square
feet is currently under construction and expected to be in
operation during the second quarter of 1996.
(9) This facility is a retail hardware store leased by the
Company's wholly owned subsidiary, A.H.C. Store Development Corp.
The Company also leases a fleet of transportation equipment for the
primary purpose of delivering merchandise from the Company's warehouses
to its dealers.
THIS PAGE INTENTIONALLY
LEFT BLANK
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report 33
Balance Sheets as of December 31, 1995 and 1994 34
Statements of Earnings for the three years
in the period ended December 31, 1995 36
Statements of Member Dealers' Equity for
the three years in the period ended
December 31, 1995 37
Statements of Cash Flows for the three years
in the period ended December 31, 1995 38
Notes to Financial Statements 39
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ace Hardware Corporation:
We have audited the accompanying balance sheets of Ace Hardware
Corporation as of December 31, 1995 and 1994 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, 1995. 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 as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
January 31, 1996
<TABLE>
ACE HARDWARE CORPORATION
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
<CAPTION>
1995 1994
(000's omitted)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,853 $ 4,868
Receivables:
Dealers 248,572 228,525
Other 39,916 32,377
288,488 260,902
Less allowance for doubtful receivables (1,410) (1,350)
Net receivables 287,078 259,552
Inventories (Note 2) 254,451 270,391
Other current assets 9,324 7,189
Total current assets 563,706 542,000
Property and equipment (Note 9):
Land 16,063 14,219
Buildings and improvements 145,359 135,252
Warehouse equipment 51,396 48,947
Office equipment 61,568 54,056
Manufacturing equipment 12,697 12,165
Transportation equipment 14,763 14,557
Leasehold improvements 13,498 10,928
Construction in progress 12,449 7,561
327,793 297,685
Less accumulated depreciation and amortization (136,289) (120,577)
Net property and equipment 191,504 177,108
Other assets 3,923 4,502
$759,133 $723,610
See accompanying notes to financial statements.
</TABLE>
<TABLE>
ACE HARDWARE CORPORATION
BALANCE SHEETS
December 31, 1995 and 1994
LIABILITIES AND MEMBER DEALERS' EQUITY
<CAPTION>
1995 1994
(000's omitted)
<S> <C> <C>
Current Liabilities:
Current installments of long-term debt (Note 4) $ 7,378 $ 7,369
Short-term borrowings (Note 3) 13,000 30,000
Accounts payable 337,414 291,185
Patronage dividends payable in cash (Note 5) 23,522 27,302
Patronage refund certificates payable (Note 5) 12,641 1,315
Accrued expenses 35,397 38,659
Total current liabilities 429,352 395,830
Long-term debt (Note 4) 57,795 64,287
Patronage refund certificates payable (Note 5) 54,741 63,666
Member dealers' equity (Notes 5 and 8):
Class A Stock of $1,000 par value 3,905 3,924
Class B Stock of $1,000 par value 6,499 6,499
Class C Stock of $100 par value 177,817 164,666
Class C Stock of $100 par value, issuable to
dealers for patronage dividends 27,506 21,766
Additional stock subscribed, net 515 555
Retained earnings 4,650 5,624
Contributed capital 3,295 3,295
224,187 206,329
Less: Treasury stock, at cost (6,942) (6,502)
Total member dealers' equity 217,245 199,827
Commitments (Notes 6 and 9)
$759,133 $723,610
See accompanying notes to financial statements.
</TABLE>
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF EARNINGS
<CAPTION>
Years Ended December 31,
1995 1994 1993
(000's omitted)
<S> <C> <C> <C>
Net sales $2,436,012 $2,326,115 $2,017,763
Cost of sales 2,252,125 2,152,835 1,866,768
Gross profit 183,887 173,280 150,995
Operating expenses:
Warehouse and distribution 31,476 30,056 31,432
Selling, general and administrative 59,157 52,662 46,706
Retail success and development 18,889 14,798 7,891
Total operating expenses 109,522 97,516 86,029
Operating income 74,365 75,764 64,966
Interest expense (Note 11) (13,137) (13,474) (10,355)
Other income, net 3,908 3,716 2,909
Income taxes (Note 7) (1,394) (1,484) (428)
Net earnings $ 63,742 $ 64,522 $ 57,092
Retained earnings at beginning of year $ 5,624 $ 5,622 $ 7,553
Net earnings 63,742 64,522 57,092
Patronage dividends (Notes 5 and 8) (64,716) (64,520) (59,023)
Retained earnings at end of year $ 4,650 $ 5,624 $ 5,622
See accompanying notes to financial statements.
</TABLE>
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF MEMBER DEALERS' EQUITY
Three Years Ended December 31, 1995
(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, 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
Net earnings - - - - -
Net payments on subscriptions - - - - 1,580
Patronage financing deductions - - - (15) -
Stock issued 237 - 23,149 (21,751) (1,620)
Stock repurchased - - - - -
Stock retired (256) - (9,998) - -
Stock issuable as patronage dividends - - - 27,506 -
Patronage dividends payable - - - - -
Balance at December 31, 1995 $3,905 $6,499 $177,817 $27,506 $ 515
</TABLE>
<TABLE>
*Additional stock subscribed is comprised of the following amounts at December 31, 1993, 1994 and 1995:
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Class A Stock $ 223 $ 291 $ 332
Class B Stock - - -
Class C Stock 1,952 2,180 2,332
2,175 2,471 2,664
Less unpaid portion 1,562 1,916 2,149
$ 613 $ 555 $ 515
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Retained Contributed Treasury
Earnings Capital Stock Total
<S> <C> <C> <C> <C>
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
Patronage financing deductions - - - (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
Net earnings 63,742 - - 63,742
Net payments on subscriptions - - - 1,580
Patronage financing deductions - - - (15)
Stock issued - - - 15
Stock repurchased - - (10,694) (10,694)
Stock retired - - 10,254 -
Stock issuable as patronage dividends - - - 27,506
Patronage dividends payable (64,716) - - (64,716)
Balance at December 31, 1995 $ 4,650 $ 3,295 $(6,942) $217,245
</TABLE>
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
(000's omitted)
Operating Activities: 1995 1994 1993
<S> <C> <C> <C>
Net Earnings $63,742 $64,522 $57,092
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 16,837 16,963 16,166
Loss on sale of property and equipment 3 175 460
Increase in accounts receivable, net (27,526) (46,950) (18,878)
Decrease (Increase) in inventories 15,940 (6,815) (50,099)
Decrease (Increase) in
other current assets (2,135) 153 (70)
Increase in accounts payable and
accrued expenses 42,967 63,437 57,898
Net Cash Provided by Operating
Activities 109,828 91,485 62,569
Investing Activities:
Purchase of property and equipment (31,263) (28,285) (16,350)
Proceeds from sale of property and equipment 27 187 238
Decrease (Increase) in other assets 579 7,711 (2,092)
Net Cash Used in Investing Activities (30,657) (20,387) (18,204)
Financing Activities:
Payments of short-term borrowings (17,000) (8,500) (17,500)
Proceeds from notes payable - - 30,000
Principal payments on long-term debt (6,483) (10,337) (1,092)
Payment of cash portion of patronage dividend (27,302) (25,766) (27,538)
Payments of patronage refund certificates
and patronage financing deductions (11,287) (18,886) (19,451)
Proceeds from sale of common stock 1,580 1,394 1,049
Repurchase of common stock (10,694) (8,277) (7,835)
Net Cash Used in
Financing Activities (71,186) (70,372) (42,367)
Increase in Cash and Cash Equivalents 7,985 726 1,998
Cash and Cash Equivalents at beginning of year 4,868 4,142 2,144
Cash and Cash Equivalents at end of year $12,853 $ 4,868 $ 4,142
See accompanying notes to financial statements.
</TABLE>
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
primarily in the United States, 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
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 to be cash equivalents.
(c) Receivables
Receivables from dealers include amounts due from the sale of
merchandise and special equipment used in the operation 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 are generally 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 Accelerated
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) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(h) Reclassifications
Certain financial statement reclassifications have been made to prior
year amounts to conform to comparable classifications followed in 1995.
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 $66,319,000 and $65,052,000 at
December 31, 1995 and 1994, 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 1995 and 1994. The maximum
amount outstanding at any month-end during the period was $95,000,000 in
1995 and $115,500,000 in 1994. The interest rate effective as of December
31, 1995 and 1994 was 6.13% and 6.5%, respectively. Short term borrowings
outstanding as of December 31, 1995 and 1994 were $13,000,000 and
$30,000,000 respectively. At December 31, 1995 the Company has available
a revolving credit facility with a group of banks providing for $100
million in committed lines and also has available $85 million in
uncommitted lines. The aggregate unused line of credit available at
December 31, 1995 and 1994 was $172,000,000 and $120,000,000,
respectively. At December 31, 1995 the Company had no compensating
balance requirements.
(4) Long-Term Debt
Long-term debt is comprised of the following:
<TABLE>
December 31,
<CAPTION>
1995 1994
(000's omitted)
<S> <C> <C>
Industrial Development Revenue Bond -
$125,000 payable quarterly through December 1, 1996 with
interest at 65% of the prime rate $ 500 $ 1,000
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% 16,757 18,919
$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% 16,190 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) 816 726
Installment notes with maturities through 1999 with
various interest rates 910 1,011
65,173 71,656
Less current installments 7,378 7,369
$57,795 $64,287
</TABLE>
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
Prime interest rates in effect ranged from 8.5% to 9.0% in 1995 and
from 6.0% to 8.5% in 1994.
Aggregate maturities of long-term debt are $7,378,000, $6,460,000,
$6,222,000, $6,052,000 and $3,115,000 in 1996 through 2000, respectively.
The fair value of the Company's debt based upon discounting future
cash flows does not materially vary from the carrying value of such debt
as of December 31, 1995 and 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 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 1995, 1994 and 1993 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>
1995 $23,522 $5,032 $27,506 $8,656 $64,716
1994 27,302 9,920 21,766 5,532 64,520
1993 25,766 12,728 19,064 1,465 59,023
</TABLE>
Patronage dividends are allocated on a calendar year basis with issuance
in the following year.
The patronage refund certificates outstanding at December 31, 1995 are
payable as follows:
<TABLE>
<CAPTION>
Interest
January 1, Amount Rate
(000's omitted)
<S> <C> <C>
1996 $12,641 7.0%
1997 14,303 6.25
1998 13,981 6.0
1999 11,902 6.0
2000 9,523 7.0
2001 5,032 6.0
</TABLE>
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
(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, 1995 plan assets were held
primarily in equities, mutual funds and group annuity contracts.
Pension income for the years 1995, 1994 and 1993 included the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
(000's omitted)
<S> <C> <C> <C>
Service cost-benefits earned during the
period $ 355 $ 323 $ 292
Interest cost on projected benefit obligation 845 805 752
Actual return on plan assets (2,288) (121) (1,104)
Net amortization and deferral 1,257 (1,073) (169)
Net periodic pension expense (income) $ 169 $ (66) $ (229)
</TABLE>
In December 1995 the plan settled a portion of the liability to
retirees and vested terminated participants through lump sum payments and
the purchase of single premium annuity contracts. In addition to the net
periodic pension expense in 1995, the Company recognized a net loss of
$1,380,100 related to this settlement.
The following table sets forth the funded status of the plans and
amounts recognized in the Company's Balance Sheet at December 31, 1995
and 1994 (December 31, 1995 and September 30, 1994 measurement dates):
<TABLE>
<CAPTION>
1995 1994
(000's omitted)
<S> <C> <C>
Accumulated benefit obligation, including vested
benefits of $7,383,000 and $10,919,000 $ 7,613 $11,384
Plan assets at fair value $ 9,932 $13,654
Projected benefit obligation for service rendered
to date 8,832 12,364
Plan assets in excess of projected benefit obligation $1,100 $ 1,290
Unrecognized net gain from past experience
different from that assumed and effects of changes
in assumptions 1,775 3,361
Remaining unrecognized net asset being amortized
over participants average remaining service period (1,672) (1,983)
Prepaid pension cost included in other assets $ 1,203 $ 2,668
</TABLE>
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 1995 and
1994. The related expected long-term rate of return was 8.0% in 1995 and
1994. The rate of increase in future compensation was projected using
actuarial salary tables plus 1.0% in 1995 and 1994.
The Company also participates in several multi-employer plans covering
union employees. Amounts charged to expense and contributed to the plans
totaled approximately $275,000, $282,000 and $275,000, in 1995, 1994 and
1993, respectively.
The Company's profit sharing plan contribution for the years ended
1995, 1994 and 1993 was approximately $9,902,000, $9,381,000 and
$8,690,000, respectively.
(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 1995, 1994 and 1993 provisions for federal income taxes were $939,000,
$924,000 and $141,000, respectively, and for state income taxes were $455,000,
$560,000 and $287,000, respectively.
The Company made tax payments of $1,685,000, $1,428,000 and $357,000
during 1995, 1994 and 1993, respectively.
(8) Member Dealers' Equity
The Company's classes of stock are described below:
<TABLE>
<CAPTION>
Number of Shares
at December 31,
1995 1994
<S> <C> <C>
Class A Stock, voting, redeemable at par value-
Authorized 10,000 10,000
Issued and outstanding 3,905 3,924
Class B Stock, nonvoting, redeemable at not less than
twice par value-
Authorized 6,500 6,500
Issued 6,499 6,499
Outstanding 3,028 3,248
Treasury stock 3,471 3,251
Class C Stock, nonvoting, redeemable at not less
than par value-
Authorized 2,000,000 2,000,000
Issued and outstanding 1,778,173 1,646,656
Issuable as patronage dividends 275,059 217,658
Additional Stock Subscribed:
Class A Stock 332 291
Class B Stock - -
Class C Stock 23,320 21,800
</TABLE>
At December 31, 1995 and 1994 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.
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
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. Class C stock issuable as patronage dividends are
issued in the following year and are not issued in excess of amounts
authorized. Additional Stock Subscribed in the accompanying statements
represents the par value of shares subscribed, reduced by the unpaid
portion.
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, 1994 and 1995 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 -
Stock issued - - -
Stock repurchased 256 220 99,975
Stock retired (256) - (99,975)
Balance at December 31, 1995 - 3,471 -
</TABLE>
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
(9) Commitments
Leased property under capital leases is included as "Property and Equipment"
in the balance sheets as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
(000's omitted)
<S> <C> <C>
Buildings and improvements $3,422 $3,422
Data processing equipment 1,441 723
Less: Accumulated depreciation and amortization (4,106) (3,609)
$ 757 $ 536
</TABLE>
The Company rents buildings and warehouse, office and certain
other equipment under capital and operating leases. At
December 31, 1995 annual minimum rental commitments under
leases that have initial or remaining noncancelable terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Capital Operating
(000's omitted)
<S> <C> <C>
1996 $515 $13,383
1997 257 12,269
1998 77 10,116
1999 - 8,555
2000 - 7,744
Thereafter - 33,304
Total minimum lease payments $849 $85,371
Less amount representing interest 33
Present value of total minimum lease payments $816
</TABLE>
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
$25,024,000, $21,814,000 and $21,444,000 in 1995, 1994 and 1993, respectively.
Rent expense includes $4,724,000, $4,382,000 and $4,282,000 in contingent
rentals paid in 1995, 1994 and 1993, respectively, primarily for
transportation equipment mileage.
(10) Media Expense
The Company expenses media costs the first time the advertising takes place.
Gross media expense, prior to income offsets from dealers and suppliers,
amounting to $59,167,000, $52,185,000 and $48,293,000 were charged to
operations in 1995, 1994 and 1993, respectively.
(11) Interest Expense
Capitalized interest totaled $497,000, $213,000 and $29,000 in 1995, 1994
and 1993, respectively. Interest paid was $13,574,000, $13,518,000 and
$10,670,000 in 1995, 1994 and 1993, respectively.
<TABLE>
SELECTED FINANCIAL DATA
Income Statement Data:
<CAPTION>
For The Years Ended December 31,
1995 1994 1993 1992 1991
(000's omitted)
<S> <C> <C> <C> <C> <C>
Net sales $2,436,012 $2,326,115 $2,017,763 $1,870,625 $1,704,203
Cost of sales 2,252,125 2,152,835 1,866,768 1,722,493 1,569,871
Gross profit 183,887 173,280 150,995 148,132 134,332
Total expenses 120,145 108,758 93,903 87,365 75,175
Net earnings $ 63,742 $ 64,522 $ 57,092 $ 60,767 $ 59,157
Patronage dividends
(Notes A,B,5 and 8) $ 64,716 $ 64,520 $ 59,023 $ 63,207 $ 57,729
</TABLE>
<TABLE>
Balance Sheet Data:
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
(000's omitted)
<S> <C> <C> <C> <C> <C>
Total assets $ 759,133 $ 723,610 $ 666,022 $ 593,399 $ 539,753
Working capital 134,354 146,170 135,224 105,641 107,408
Long-term debt 57,795 64,287 71,286 51,696 38,737
Patronage refund certificates payable,
long-term debt 54,741 63,666 56,270 55,389 58,559
Member dealers' equity 217,245 199,827 186,028 175,681 164,411
</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, 1995, patronage dividends were payable as follows:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
(000's omitted)
<S> <C> <C> <C> <C> <C>
In cash $ 23,522 $ 27,302 $ 25,766 $ 27,538 $ 26,864
In patronage refund certificates payable 5,032 9,920 12,728 14,598 15,176
In Class C Stock 27,506 21,766 19,064 20,301 14,841
In patronage financing deductions 8,656 5,532 1,465 770 848
Total patronage dividends $ 64,716 $ 64,520 $ 59,023 $ 63,207 $ 57,729
</TABLE>
(C) Numbered notes refer to Notes to Financial Statements, beginning on
page 39.
(5) & (8) Refers to Notes 5 and 8 of the financial statements included in
pg. 41, 43 and 44 of this Form S-2.
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).
The Company's long and short-term liquidity is dependent on retail
growth as described under the "Company's Business." Nothing in the
Company's plans as discussed under the "Company's Business" has led or is
expected to lead to any material change in pricing, margins or product
focus or is expected to materially impact the results or operations or
liquidity of the Company. The Company's long-term strategic plan is only
for a renewed focus on supporting retail growth. Retail growth provides
equity growth for the Company. Recognizing the need for equity growth in
order to properly capitalize the Company, the patronage stock formula for
years beginning in 1995 was changed. See "Forms of Patronage Dividend
Distributions." Additionally, to help ensure adequate accessibility to
cash, the Company established a revolving credit facility in 1994. The
Company believes that these changes and the retail growth of the
membership will provide adequate liquidity for the long-term.
The Company has an established unsecured revolving credit facility
with a group of banks. During 1995, the Company increased its unsecured
lines of credit to $185.0 million of which $172.0 million was available
at December 31, 1995. 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. The Company's
credit facilities provide that certain ratios be maintained with the only
material convenant related to fixed charge coverage. The Company is in
compliance with all debt covenants.
Capital expenditures for new and improved facilities were $31.3, $28.3
and $16.3 million in 1995, 1994 and 1993, respectively. During 1995, the
Company financed the $31.3 million of capital expenditures out of current
and accumulated internally generated funds and short-term borrowings.
1996 capital expenditures are anticipated to be approximately $49.0
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"). Prior to 1994, patronage dividends
were distributed on the basis of taxable income. Accordingly, patronage
dividends can exceed net income or be less than net income due to the
timing of certain items for income tax purposes. The Board of Directors
does have the authority to determine reasonable reserves for purposes of
ensuring the welfare of the Company, but it has been the practice of the
Company to distribute substantially all patronage sourced earnings in the
form of patronage dividends. Non-patronage sourced earnings (including
international earnings) have been minimal in all years presented except
for capital gains related to the sale and leaseback of a distribution
center in 1991 which resulted in nonpatronage sourced income not
available for distribution as patronage dividends.
No adverse trends in revenue or net income have occurred since the end
of the Company's last reported financial period. 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 working capital requirements and patronage dividend
and capital expenditure programs.
Operations-1995 Compared to 1994
Net sales increased 4.7% in 1995 due to increases in existing dealer
volume, new store development and increased store conversions. 1995 net
sales were affected by slow retail and economic growth, moderate seasonal
sales primarily related to late spring weather, and lumber price
declines. International sales also decreased in 1995 due to the peso
devaluation resulting in lower export sales to Mexico. Sales of basic
hardware and paint merchandise (including warehouse, bulletin and direct
shipments) increased 4.3%. Lumber and building material sales experienced
slightly higher percentage increases in 1995 due to accelerated sales
efforts, but were affected by industrywide lumber price declines. Net
dealer outlets increased in 1995 due to targeted sales efforts on new
store development and conversions to the Ace program and increased
emphasis on dealer retail success.
Gross profit increased $10.6 million or 6.1% and increased as a percent
of sales to 7.55% from 7.45% in 1994 due primarily to shifts in the Company's
sales mix towards the warehouse categories and higher merchandise
discounts and allowances. Growth in competitively priced and promotional
items within the overall sales mix moderated resulting in a slight gross
profit improvement as a percent of sales. However, emphasis on upfront
rebates through reduced handling charges and low upfront pricing programs
and discounts continued with total upfront rebates increasing 9.5% in 1995.
Warehouse and distribution expenses increased $1.4 million or 4.7% due
to increased building and distribution costs to support the sales growth.
Warehouse productivity improvements and increased freight consolidation
revenue offset these increases resulting in total warehouse and
distribution expenses remaining comparable to 1994 levels as a percent of
sales.
Selling, general and administrative expenses increased by $6.5 million
or 12.3% and as a percent of sales due to increased data processing and
personnel costs.
Retail success and development expenses increased by $4.1 million or
27.6% due to increased personnel costs for field retail support and new
business development. Decreased advertising income resulting from
industrywide paper price increases also contributed to the 1995 expense
increase. Increases in this category are directly related to retail
support of the Ace dealer as the Company continues to make retail
investments in our dealer base.
Paint Division sales increased 6.2% to $90.2 million due to strong
dealer support. As a separate division of the Company, the Paint Division
produced net manufacturing profits of $5.8 million in 1995 vs. $6.7
million in 1994. The decreased net manufacturing profit is a result of
increased raw material prices and costs associated with opening a second
facility. Paint is the only product manufactured by the Company. As
discussed on page 22, patronage dividends are calculated separately for
paint sales and decreased to 6.87% in 1995 from 8.22% in 1994.
Interest expense decreased $337,000 or 2.5% due to lower borrowing
levels resulting from improved inventory turnover. The use of both short-
term borrowings and long-term financing is expected to continue to fund
planned capital expenditures in 1996.
Other income increased $192,000 or 5.2% due primarily to the growth in
dealer financing 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 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 $22.3 million or 14.8% 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. The impact of
LIFO inventory accounting on gross profit and results of operations was
immaterial in both 1994 and 1993.
Warehouse and distribution expenses decreased by $1.4 million or 4.4%
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.
Selling, general and administrative expenses increased by $6.0 million
or 12.8% and as a percent of sales due to increased building, data
processing and purchasing costs.
Retail success and development expenses increased by $6.9 million due
to reduced net advertising income, increased personnel costs for field
retail support and increased marketing costs. Increases within these
categories are directly related to retail support of Ace dealers.
Paint Division sales increased 24% to $84.9 million due to strong
dealer support and growing recognition of Ace Paint as a quality private
label brand. Paint is the only product manufactured by the Company.
Manufacturing margins are characteristically higher than distribution
margins due to the inherent risks and capital invested in the
manufacturing process. As a separate division of the Company, the Paint
Division produced net manufacturing profits of $6.7 million in 1994 vs.
$5.1 million in 1993. Price increases did not occur in 1994 or contribute
to the sales or income increase. Rather, a drop in raw material prices
and the increase in production volume which improved absorption of fixed
overhead costs were the major factors leading to increased manufacturing
profits.
Interest expense increased $3.1 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.
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.
MANAGEMENT
The directors and the executive officers of the Company are:
Name Age Position(s) Held
Jennifer C. Anderson 45 Director
Michael C. Bodzewski 46 Vice President-Merchandising
Lawrence R. Bowman 49 Director
David F. Hodnik 48 President and Chief Executive
Officer
Paul M. Ingevaldson 50 Vice President-Corporate Strategy
and International Business
Mark Jeronimus 47 Director
Howard J. Jung 48 Director
Rita D. Kahle 39 Vice President-Finance
John E. Kingrey 52 Director
Richard E. Laskowski 54 Chairman of the Board and Director
David W. League 56 Vice President-General Counsel
William A. Loftus 57 Senior Vice President-Retail Operations
and Marketing
David F. Myer 50 Vice President-Retail Support and
New Business
Fred J. Neer 56 Vice President-Human Resources
Ray W. Osborne 59 Director
Roger E. Peterson 58 Director
Donald L. Schuman 57 Vice President-Information Systems
Jon R. Weiss 60 Director
Don S. Williams 54 Director
James R. Williams 48 Director
The primary type of business in which each director other than Mr.
Peterson has been engaged during the past 5 years is that of the
operation of one or more retail hardware stores. Prior to his election as
director in June, 1995, Mr. Peterson was President and Chief Executive
Officer of the Company (December, 1989-December, 1994) and Chief
Executive Officer of the Company (January, 1995-May, 1995).
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, but non-dealer directors
may not exceed 25% of the total number of directors in office at any one
time. 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;
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 3, 1996
as directors of the classes, from the regions, and for terms as indicated
below:
Nominee Class Region Term
John E. Kingrey Third 6 3 years
Jon R. Weiss Third 4 3 years
Mr. Howard Jung is not eligible for reelection as a director
commencing in 1996. The person named below has been selected as the
nominee for election to the Board for the first time at the 1996 annual
meeting as a dealer director of the class, and for the term indicated:
Nominee Age Class Region Term
James T. Glenn 36 Third 2 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.
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.
ACE HARDWARE CORPORATION
1,852 Shares of Class A
(Voting) Stock
$1,000 par value
77,750 Shares of Class C
(Non-voting) Stock
$100 par value
PROSPECTUS
Dated: , 1996
No dealer, salesman, or any other person has been authorized by
the Company to give any information or make any representations other
than those contained in this Prospectus in connection with the offering
described herein. This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, to any person in any state in which
it is unlawful to make such 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.
In Florida the securities covered by this Prospectus are being offered
pursuant to a 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
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 32
Independent Auditors' Report 33
Financial Statements 34
Selected Financial Data 46
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 47
Management 50
Indemnification Obligations of Company
and S.E.C. Position on Securities Act
Indemnification 51
Appendix A-By-laws of Ace Hardware
Corporation A-1
APPENDIX A
BY-LAWS
OF
ACE HARDWARE CORPORATION
(As Amended through September 19, 1995)
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.
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 notice 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
there at 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 a Board of Directors, which shall be comprised
of no fewer than 9 and no greater than 12 directors, as shall be fixed
from time to time by the Board of Directors. A minimum of 9 of the
directors shall be dealer directors. No person shall be eligible for
election or appointment as a dealer director (whether as a regional
dealer director or as a dealer director at large), or to continue to
hold office as a dealer director, unless such person is either 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. Dealer
directors representing the regions established under Article IV,
Section 4 hereof, shall be regional dealer directors. Subject to
Article IV, Section 4(b) hereof, any additional dealer director(s)
may be dealer director(s) at large, rather than regional dealer
director(s). A maximum of 2 of the directors of Ace Hardware
Corporation 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.
SECTION 2. The directors shall be divided into three classes, as
nearly equal in number as possible, as determined by the Board of
Directors. The first of said classes shall include 4 dealer directors
elected for 3-year terms at the annual meeting of stockholders held
in 1994. The second of said classes shall include 3 dealer directors,
elected for 3-year terms at the annual meeting of stockholders held
in 1993. The third of said classes shall include 3 dealer directors,
elected for 3-year terms at the annual meeting of stockholders held
in 1992, plus 1 non-dealer director position for a 3-year term to be
filled at the 1995 annual meeting of stockholders. 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 be 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 3. 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, a dealer director ceases to satisfy the eligibility
requirements which are applicable to his/her position as a director,
his/her membership on the Board of Directors shall thereupon
immediately terminate. No director elected or appointed shall be
eligible for subsequent election or appointment to any position on
the Board if such election or appointment would result in his/her
being elected or appointed to serve a total of more than 9 years as
such a director, except (1) that a dealer director that has been
elected and holds the office of Chairman of the Board shall be
eligible for election for one additional 3-year term, and (2) 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. 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.
SECTION 4. The following procedure shall be utilized in determining
dealer director regions:
(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 regional 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 regional dealer director to
be elected at such meeting shall be chosen. No dealer director
shall be eligible to serve as a regional 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. If the Board determines that all regions have
representation by regional dealer director(s) and the maximum
number of directors would not thereby be exceeded, then dealer
director(s) at large may be elected.
(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.
SECTION 5. 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. At the time that the Board
determines the regions from which regional dealer directors are to be
elected at the next annual meeting of the stockholders, the Board
shall also determine whether each incumbent 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. If the Board
determines that proxies shall be solicited on its behalf for the
election of a director at the next annual meeting of stockholders of
a non dealer director or a dealer director at large, the Board shall
make a timely determination to this effect. The following procedure
shall be applied by the Board in selecting all other Board-endorsed
regional 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 regional 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.
(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 regional dealer director.
SECTION 6. 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 dealer 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 in the case
of a non-dealer director nominee or a dealer director at large
nominee, the Board may endorse another non-dealer candidate or dealer
director at large candidate, as the case may be, on whose behalf
proxies will be solicited at the next annual meeting as a Board-
endorsed nominee for election as a director. In case of a regional
dealer director nominee, 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 regional dealer director.
SECTION 7. The number of non-dealer directors elected or appointed
to office shall be limited so that non-dealer directors shall not
exceed twenty-five percent (25%) of the total number of directors in
office at any one time. The foregoing twenty-five percent (25%)
limitation on the number of non-dealer directors may be further
amended, repealed, or added to only at a regular or special meeting
of the shareholders in accordance with Article XXIII, Section 2.
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;
(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.
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.
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.
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 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 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 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.
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.
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 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 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 percent (50%) of the assets or profit
shares therein, or more than fifty percent (50%) of the
capital stock of a corporation becoming the owner of such
outlet, continues to 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 percent (50%) of
the capital stock of said corporation, or more than fifty
percent (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;
(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.
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 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 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 percent (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
percent (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
percent (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 percent (50%) or more of its capital stock (if
incorporated) or fifty percent (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 percent (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
percent (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 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 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 percent (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 percent
(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 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 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 NON-MEMBER ACCOUNTS
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, whether located within or
outside the United States of America, its territories and
possessions, Ace Hardware Corporation may approve the sale of
merchandise for delivery to such an outlet under the terms of a
written 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
member dealers. No party approved as an International Retail Merchant
or other non-member retail account 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 such party. Such purchases of
merchandise shall be made in accordance with the terms of the
applicable written agreement and such other terms as may be imposed
by Ace Hardware Corporation from time to time with regard to
particular accounts. Only with the express written consent of an
executive officer whom its President has vested with authority to
grant such consents, can these purchases include items carried under
"Ace" or "Ace Hardware" brand names or under other private label
names owned by, or licensed to, Ace Hardware Corporation. No such
party shall have authority or be permitted to use names "Ace" or "Ace
Hardware" or any other trade name, trademark or service mark owned or
register (sic) 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 the applicable written agreement
specifically grants the right to such use. All of the terms and
conditions contained in the respective written agreements imposed
upon such accounts (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
accounts) 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 such party 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 account in a particular location.
SECTION 4. Each person, partnership or corporation accepted by Ace
Hardware Corporation as a member dealer or non-member account 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 account 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.
PARTII
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.
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
(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 through September 19, 1995
(included as Appendix A to the Prospectus constituting a part of
this Post-Effective Amendment No. 1 to the Registrant's Form S-2
Registration Statement) and incorporated herein by reference.
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.
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
herein 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 (Registration 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 Post-Effective Amendment No. 1 to the Registrant's Form
S-2 Registration Statement) and incorporated herein by reference.
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 Post-Effective Amendment No.
1 to the Registrant's Form S-2 Registration Statement) and
incorporated herein by reference.
5 Opinion of David W. League, Vice President, General Counsel of the
Registrant, as to legality of securities being registered.
6 No exhibit.
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 Exhibit 5 addresses tax matters as required in Exhibit 8; the
opinions of David W. League, Vice President, General Counsel of the
Registrant, as to certain tax matters are set forth in statements
attributed to him under the subheading "Federal Income Tax Status of
Class A and Class C Shares" and subheading "Federal Income Tax
Treatment of Patronage Dividends" in the Prospectus constituting a
part of the Post-Effective Amendment No. 1 to the Registrant's 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 Supplemental 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 filed as Exhibit 10-F to
the Registrant's Form S-2 Registration Statement (Registration No.
33-58191) on or about March 23, 1995 and incorporated herein by
reference.
10-G Copy of Employment Agreement dated October 4, 1994 between Ace
Hardware Corporation and David F. Hodnik filed as Exhibit 10-G to
the Registrant's Form S-2 Registration Statement (Registration No.
33-58191) on or about March 23, 1995 and incorporated herein by
reference.
10-H Copy of Employment Agreement dated October 12, 1994 between Ace
Hardware Corporation and William A. Loftus filed as Exhibit 10-H to
the Registrant's Form S-2 Registration Statement (Registration No.
33-58191) on or about March 23, 1995 and incorporated herein by
reference.
Exhibit
No.
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.
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 $9,000,000 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 the 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.
Exhibit
No.
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.
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 filed
as Exhibit 10-Y to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 23, 1995 and
incorporated herein by reference.
10-Z Copy of Lease dated May 4, 1994 for freight consolidation center of
the Registrant in Chicago, Illinois filed as Exhibit 10-Z to the
Registrant's Form S-2 Registration Statement (Registration No. 33-
58191) on or about March 23, 1995 and incorporated herein by
reference.
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 filed as Exhibit 10-a-1 to the
Registrant's Form S-2 Registration Statement (Registration No.
33-58191) on or about March 23, 1995 and incorporated herein by
reference.
Exhibit
No.
10-a-2 Copy of Directors' Deferral Option Plan of the Registrant
effective January 1, 1995 adopted by its Board of Directors on
December 6, 1994 filed as Exhibit 10-a-2 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) on
or about March 23, 1995 (Registration No. 33-58191) and
incorporated herein by reference.
10-a-3 Copy of Employment Agreement dated March 22, 1994 between Ace
Hardware Corporation and Fred J. Neer filed as Exhibit 10-a-3 to
the Registrant's Form S-2 Registration Statement (Registration
No. 33-58191) on or about March 23, 1995 and incorporated herein
by reference.
10-a-4 Copy of Employment Agreement dated March 22, 1994 between Ace
Hardware Corporation and Donald L. Schuman filed as Exhibit 10-
a-4 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 23, 1995 and
incorporated herein by reference.
10-a-5 Copy of Employment Agreement dated December 13, 1993 between Ace
Hardware Corporation and David W. League filed as Exhibit 10-a-5
to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 23, 1995 and
incorporated herein by reference.
10-a-6 Copy of Employment Agreement dated December 15, 1993 between Ace
Hardware Corporation and David F. Myer filed as Exhibit 10-a-6
to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 23, 1995 and
incorporated herein by reference.
10-a-7 Copy of Employment Agreement dated March 24, 1994 between Ace
Hardware Corporation and Michael C. Bodzewski filed as Exhibit
10-a-7 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 23, 1995 and
incorporated herein by reference.
10-a-8 Copy of Employment Agreement dated December 15, 1993 between Ace
Hardware Corporation and Rita D. Kahle filed as Exhibit 10-a-8
to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 23, 1995 and
incorporated herein by reference.
10-a-9 Copy of Agreement dated January 6, 1995 between Ace Hardware
Corporation and Roger E. Peterson filed as Exhibit 10-a-9 to the
Registrant's Form S-2 Registration Statement (Registration No.
33-58191) on or about March 23, 1995 and incorporated herein by
reference.
10-a-10 Copy of Ace Hardware Corporation Officer Incentive Plan for
Fiscal Year 1994 filed as Exhibit 10-a-10 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) on
or about March 23, 1995 and incorporated herein by reference.
10-a-11 Copy of Lease dated July 28, 1995 between A.H.C. Store
Development Corp. and Tri-R Corporation for retail hardware
store premises located in Yorkville, Illinois.
10-a-12 Copy of Lease dated October 31, 1995 between Brant Trade
& Industrial Park, Inc. and Ace Hardware Canada Limited for
warehouse space in Brantford, Ontario, Canada.
10-a-13 Copy of Lease dated November 27, 1995 between 674573 Ontario
Limited and Ace Hardware Canada Limited for general office space
in Markham, Ontario, Canada.
Exhibit
No.
10-a-14 Copy of Lease dated February 9, 1995 between Leroy M. Merritt
and the Registrant for its Baltimore, Maryland redistribution
center.
10-a-15 Copy of First Amendment to the Ace Hardware Corporation Long-
Term Incentive Compensation Deferral Option Plan effective
December 5, 1995.
10-a-16 Copy of First Amendment to the Ace Hardware Corporation
Directors' Deferral Option Plan effective December 5, 1995.
10-a-17 Copy of Form of Executive Officer Employment Agreement effective
January 1, 1996.
10-a-18 Copy of Ace Hardware Corporation Executive Benefit Security
Trust Agreement effective July 19, 1995.
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) Independent Auditors' Consent, Dated March 8, 1996.
(b) Consent of Counsel, Legal Opinions-Exhibit 5 and Exhibit 7.
24 Powers of Attorney.
25 No exhibit.
26 No exhibit.
27 Financial Data Schedule.
28 Not applicable.
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 of
any of the securities being registered which remain unsold at the
termination of the offering.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933,
the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-2 and has duly
caused this Post-Effective Amendment No. 1 to the Registrant's Form S-2
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Village of Oak Brook, State of
Illinois, on the day of March 11, 1996.
ACE HARDWARE CORPORATION
RICHARD E. LASKOWSKI
(Richard E. Laskowski,
Chairman of the Board and Director)
Pursuant to the requirement of the Securities Exchange Act of 1933,
this registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
RICHARD E.LASKOWSKI Chairman of the Board March 11, 1996
(Richard E. Laskowski) and Director
DAVID F. HODNIK President and Chief March 11, 1996
(David F. Hodnik) Executive Officer
RITA D. KAHLE Vice President-Finance March 11, 1996
(Rita D. Kahle) (Principal Financial and
Accounting Officer)
Jennifer C. Anderson, Lawrence R. Bowman, Directors
Mark Jeronimus, Howard J. Jung,
John E. Kingrey, Ray W. Osborne,
Roger E. Peterson, Jon R. Weiss,
Don S. Williams and James R. Williams, Jr.
*BY DAVID F. HODNIK March 11, 1996
David F. Hodnik
*BY RITA D. KAHLE March 11, 1996
Rita D. Kahle
*Attorneys-in-fact
INDEX TO EXHIBITS FILED TO
THE POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT
ON FORM S-2 OF ACE HARDWARE CORPORATION
Exhibit
Number Exhibit
4-B By-laws of the Registrant as amended through September 19, 1995
(included as Appendix A to the Prospectus constituting a part of
this Post-Effective Amendment No. 1 to the Registrant's 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 Post-Effective Amendment No. 1 to
the Registrant's 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 Post-Effective Amendment No. 1 to the Registrant's
Form S-2 Registration Statement).
5 Opinion of David W. League, Vice President and General Counsel of
the Registrant as to legality of securities being registered.
10-a-11 Copy of Lease dated July 28, 1995 between A.H.C. Store
Development Corp. and Tri-R Corporation for retail hardware
store premises located in Yorkville, Illinois.
10-a-12 Copy of Lease dated October 31, 1995 between Brant Trade
& Industrial Park, Inc. and Ace Hardware Canada Limited
for warehouse space in Brantford, Ontario, Canada.
10-a-13 Copy of Lease dated November 27, 1995 between 674573 Ontario
Limited and Ace Hardware Canada Limited for general office
space in Markham, Ontario, Canada.
10-a-14 Copy of Lease dated February 9, 1995 between Leroy M. Merritt
and the Registrant for its Baltimore, Maryland
redistribution center.
10-a-15 Copy of First Amendment to the Ace Hardware Corporation Long-
Term Incentive Compensation Deferral Option Plan effective
December 5, 1995.
10-a-16 Copy of First Amendment to the Ace Hardware Corporation
Directors' Deferral Option Plan effective December 5, 1995.
10-a-17 Copy of Form of Executive Officer Employment Agreement effective
January 1, 1996.
10-a-18 Copy of Ace Hardware Corporation Executive Benefit Security
Trust Agreement effective July 19, 1995.
Exhibit
Number Exhibit
23(a) Independent Auditors' Consent, Dated March 8, 1996.
(b) Consent of Counsel, Legal Opinions-Exhibit 5 and Exhibit 7.
24 Powers of Attorney.
27 Financial Data Schedule.
The various exhibits incorporated by reference are listed in Item 16
of this Post-Effective Amendment No. 1 to the Form S-2 Registration
Statement of Ace Hardware Corporation.
EXHIBIT 5
March 11, 1996
To the Board of Directors
Ace Hardware Corporation
2200 Kensington Court
Oak Brook, Illinois 60521
Re: Total Shares Offered By Prospectus
1,852 Class A
77,750 Class C
Gentlemen:
This opinion relates to the legality of 1,852 unsold shares of
Class A voting stock (par value $1,000 per share) and 77,750
unsold shares of Class C nonvoting stock (par value $100 per
share) of Ace Hardware Corporation (the "Company"), a Delaware
corporation, previously registered with the Securities and
Exchange Commission. Of the foregoing shares, 1,500 unsold
shares of Class A stock and 40,000 of Class C stock were
previously registered under Registration Statement No. 33-58191,
and 352 unsold shares of Class A stock and 37,750 shares of Class
C stock were previously registered under Registration Statement
No. 33-46449. These shares, pursuant to Rule 429 of Regulation C
of the Securities Act of 1933, constitute the shares being
offered by the Prospectus filed as a part of the Post-Effective
Amendment No. 1 to Registration Statement No. 33-58191 with
respect to which said opinion is furnished.
As General Counsel of the Company since January 1, 1989 and as a
former 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.
VALIDITY OF SHARES OF STOCK
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,
Missouri, 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 Post-Effective Amendment No. 1 to
Registration Statement No. 33-58191 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.
This opinion also relates to the preference in excess of par
value to which shares of Class "B" stock (par value $1,000.00 per
share) of Ace Hardware Corporation (the "Company"), a Delaware
corporation, are entitled in the event of the involuntary
liquidation of the Company. The restated Certificate of
Incorporation authorizes the Company to issue 6,500 shares of
Class "B" stock, of which 3,028 shares are presently issued and
outstanding.
I have examined the restated Certificate of Incorporation and the
By-laws of the Company, and note that the matter of distribution
of the net assets of the Company in the event of a involuntary
liquidation is provided for in Article Fourth (j) of the restated
Certificate of Incorporation. It is stated therein that, in the
event of a liquidation (voluntary or involuntary), there shall be
added together the total par value of all of the issued and
outstanding shares of Class "A" stock, the total purchase or
redemption price of all of the shares of Class "A" stock, the
total purchase or redemption price of all of the issued and
outstanding shares of Class "B" stock as last determined by the
Board of Directors, and the total purchase price of all of the
issued and outstanding shares of Class "C" stock as last
determined by the Board of Directors. It is further provided
that each share of Class "B" stock shall share in the
distribution of the net assets in the proportion which the
purchase price or redemption price thereof last determined by the
Board of Directors bears to said total dollar amount.
Since Article Fourth (g) and Article Fourth (h) of the restated
Certificate of Incorporation of the Company provide that the
purchase or redemption price to be paid by the Company for shares
of its Class "B" stock must at all times be equal to 20 times the
per share purchase price last established by the Board of
Directors with respect to purchases by the Company of its Class
"C" stock and that the purchase or redemption price to be paid by
the Company for its Class "B" stock shall in no event be less
than twice the par value thereof, the shares of Class "B" stock
could have a preference in excess of par value in the event of
involuntary liquidation.
PREFERENCE OF CLASS B STOCK IN VOLUNTARY LIQUIDATION
In my opinion the provisions of the restated Certificate of
Incorporation providing for such preference with respect to the
shares of Class "B" stock of the Company are legally permitted
and have been legally adopted in accordance with Section 151(d)
of the General Corporation Law of Delaware.
It is my further opinion that the aforementioned preference of
the Class "B" stock in the event of involuntary liquidation of
the Company does not require, and does not have the effect of,
placing any restrictions upon surplus by reason of the potential
preference in excess of par value attached to the Class "B"
shares. In view of the fact that Article Fourth (f) of the
restated Certificate of Incorporation expressly prohibits the
Company from declaring dividends on any of the shares of any
class of stock of the Company, it is also my opinion that the
holders of any shares of the Company would have any remedies
before or after payment of any dividend which would reduce
surplus to an amount less than the amount of such excess.
TAX ISSUES
Statements made under subheadings "Federal Income Tax Status of
Class A and Class C Shares," pp. 8-9 and "Federal Income Tax
Treatment of Patronage Dividends," pp. 27-29 of the Prospectus
that is part of the aforesaid Post-Effective Amendment No. 1 to
Registration Statement No. 33-58191 also represent my opinion
concerning said matters.
CONSENT
I understand that this opinion is to be used in connection with
the aforesaid Post-Effective Amendment No. 1 to Registration
Statement No. 33-58191, 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 "Opinion of Experts".
10-K CONSENT
I further consent to "Federal Income Tax Treatment of Patronage
Dividends," pages 14-15 of the 10-K which is incorporated by
reference into the Company's S-2 Registration Statement and which
also represents my opinion concerning said matters.
Sincerely,
David W. League
Vice President and General Counsel
Ace Hardware Corporation
EXHIBIT 10-a-11
LEASE
This Lease Agreement made as of the 28th day of July,
1995, by and between TRI-R Corporation, an Illinois
corporation, with its principal offices at 9620 Route 34,
Suite E, Yorkville, Illinois 60560 (hereinafter referred to
as "Landlord") and A.H.C. STORE DEVELOPMENT CORP., an
Illinois corporation, with its principal offices at 2200
Kensington Court, Oak Brook, Illinois 60521 (hereinafter
referred to as "Tenant").
WITNESSETH:
Whereas, Landlord is the owner of a certain parcel of real
estate located at 9620 Route 34, Yorkville, Kendall County,
Illinois, more particularly described on Exhibit A attached
hereto, which includes a two story, 15,700 square foot
commercial building (the "Premises").
Whereas, Landlord desires to lease to Tenant or its
permitted assignee the retail store consisting of 12,500
square feet located on the first floor of the Premises, and
the existing parking areas adjacent to the north, west and
south sides of the building, but excluding ten (10) parking
spaces on the west side of the Premises which Landlord
reserves for the use of other tenants (the "Leased
Premises").
Now, Therefore, Landlord and Tenant hereby agree as follows:
1. LEASED PREMISES: Landlord hereby leases to Tenant and
Tenant hereby takes from Landlord, the Leased Premises,
together with all rights, privileges, easements and
appurtenances including the building and other
improvements now situated or to be erected upon the
Leased Premises. The Leased Premises shall exclude the
second floor offices of the Premises.
2. TERM AND RENEWAL OPTIONS: The initial term of this
Lease shall commence on August 1, 1995, (the
"Commencement Date") and shall terminate ten (10) years
thereafter. Tenant shall have the option of renewing
this Lease for one (1) additional renewal term of five
(5) years upon the same terms and conditions set forth
herein, except for rent, provided it shall give
Landlord written notice of its intention to do so not
less than six (6) months prior to the expiration of the
initial term.
3. RENT:
A. Minimum Rent: Tenant shall pay to Landlord at the
address set forth in Paragraph 28 hereof, or at such
other address as Landlord shall from time to time
designate in writing, without demand, except as in this
Lease otherwise specifically provided, in equal,
monthly installments in advance no later than the fifth
day of each and every month during the initial term and
renewal terms, if any, the minimum annual rent set
forth in the Rent Schedule attached hereto as Exhibit B
(the "Minimum Annual Rent").
B. Percentage Rent: In addition to the payment of the
Minimum Annual Rent, Tenant shall pay to the Landlord
as additional rent for each lease year, the amount, if
any, by which five percent (5%) of Tenant's gross sales
exceeds the Minimum Annual Rent. As used in this
paragraph, the term "lease year" shall mean the first
consecutive 12-month period beginning the first day of
the first full month hereunder, and each succeeding 12-
month period. The term "gross sales" shall mean the
gross amount of sales of merchandise at the Leased
Premises, either cash or credit, but excluding: (1)
credits, allowances and refunds from the return of
merchandise by Tenant's customers; (2) merchandise
discounts and mark downs; (3) charges to customers for
credit service, extension of credit, deferred payments
and layaways; (4) proceeds from vending machines; (5)
sales taxes added to the price of the merchandise;
and, (6) sales of merchandise to Landlord.
C. Annual Adjustment and Audit: Tenant shall pay the
percentage rent due pursuant to paragraph 3B above, if
any, within thirty (30) days after the end of each
Lease year, and shall concurrently submit to Landlord a
statement of Tenant's gross and net sales during the
preceding Lease year. Landlord may, by giving written
demand within sixty (60) days after the end of each
Lease year, have Tenant's records of gross and net
sales for the preceding Lease year inspected at
Tenant's offices by a licensed accountant of Landlord's
choice. Landlord's failure to make a timely written
demand for inspection shall constitute an acceptance of
the accuracy of Tenant's statement. All sales figures
and other financial information disclosed to Landlord
by Tenant shall be kept confidential by Landlord.
4. USE OF PREMISES: The Leased Premises may be used and
occupied by Tenant for any lawful purpose (subject to
Section 12 hereof) including, but not limited to, the
operation of a hardware/home center/lumber/rental
store.
5. COMPLIANCE WITH LAW: Tenant shall comply with all
governmental laws, ordinances and regulations
applicable to the use of the Leased Premises, and
shall, subject to Section 7D. herein, promptly comply
with all governmental orders and directives for the
correction, prevention and abatement of nuisance in or
upon, or connected with the Leased Premises, all at the
Tenant's sole expense.
6. REAL ESTATE TAXES AND ASSESSMENTS:
A. In addition to the Rent, Tenant shall pay all real
estate taxes, governmental impositions, levies, and
special or general assessments (sometimes collectively,
the "Impositions") which are levied or assessed against
Leased Premises and the common areas of the Premises,
as defined in Section 9 hereof, when they shall
respectively become due and payable, up to a maximum of
$15,000.00 per year. If, during the term of the Lease
or any renewal term, the amount of the Impositions
increases above $15,000.00, then Landlord and Tenant
shall each pay 50% of such increase. All Impositions
assessed prior to but payable in whole or in
installments after the Commencement Date, and all
Impositions assessed during the term of this Lease but
payable in whole or in installments after the term of
this Lease, shall be adjusted and prorated so that the
Landlord shall pay its prorated share for the periods
preceding and following the term of this Lease, and
Tenant shall pay its prorated share for the term of
this Lease. Notwithstanding the foregoing, Tenant
shall not be chargeable with or nor obligated to pay
any income, inheritance, gift, franchise, corporate,
gross receipts (except as provided below), capital
levy, or estate tax, which may be at any time levied or
assessed against, or become a lien upon, Landlord's
parcel or the rents payable hereunder, but Landlord, at
its own cost and expense, shall discharge same so as to
keep the Leased Premises free of the liens of same, it
being the intent hereof that Tenant shall be required
to pay only such Impositions as are properly known as
real estate taxes or real estate assessments and are
assessed against the real estate, including the
buildings and improvements thereon, as such.
B. If there shall be any refunds or rebates on account of
any Imposition paid by Tenant, such proportionate share
of such refund or rebate shall belong to Tenant. Any
such refunds or rebates received by Landlord shall be
trust funds and shall be forthwith paid to Tenant.
Landlord shall, on request of Tenant, sign any receipt
which may be necessary to secure the payment of any
such refund or rebate, and shall pay over to Tenant
such refund or rebate as received by Landlord.
C. Special or general assessments for local improvements
or betterments which have become liens upon the
building on or before the Commencement Date, shall be
payable in full by Landlord and not be deemed
Impositions for the purpose of this Section.
D. Within forty-five (45) days following the end of each
year of this Lease, Landlord shall furnish Tenant a
statement covering the year just expired showing the
Impositions separately for land and improvements
payable by Tenant for such year and copies of receipts
evidencing payment thereof by Landlord. Within thirty
(30) days after receipt of such statement and receipts,
Tenant shall pay Landlord its proportionate share of
the Impositions.
E. Tenant may, in its own name or in the name of Landlord,
contest the validity or amount of any such taxes or the
assessments upon which the same are based, and Landlord
agrees to render to Tenant all assistance reasonably
possible, including joining in and signing any protest
or pleading which Tenant may deem advisable. If any
rebate of such taxes is made, the rebate shall belong
to Tenant, to the extent Tenant has so reimbursed
Landlord for the year from which such rebate is made.
Landlord shall from time to time furnish Tenant with a
copy of each receipted tax bill with respect to the
premises, together with a statement in reasonable
detail showing the amount, if any, due from Tenant
supported by evidence reasonably satisfactory to Tenant
with respect to the method of calculation of said
amount and the basis therefore. Subject to
verification by Tenant as to the amount due and payment
of such taxes, Tenant shall within thirty (30) days
after receipt of the applicable tax bills, statement
and evidence, remit to Landlord the amount due. If the
minimum rent abates or is apportioned for any reason,
the amounts due pursuant to this Section shall
similarly abate or be apportioned.
7. MAINTENANCE BY LANDLORD:
A. Landlord shall, at its expense, maintain the structural
portions of the Premises and the Leased Premises
including, but not limited to, the roof, foundation,
underground or otherwise concealed plumbing and
exterior walls (excluding all windows, window glass,
plate glass and all doors) of the building in good
repair and condition. Tenant shall give immediate
written notice to Landlord of the need for repairs or
corrections and Landlord shall proceed promptly to make
such repairs or corrections.
B. Landlord represents that, as of the Commencement Date,
the plumbing, heating and air conditioning system and
equipment are in good operating condition, and were
built in accordance with applicable building codes in
existence at the time of construction.
C. Landlord agrees, at its expense, to re-seal and
restripe the parking areas and to repair all existing
roof leaks no later than thirty (30) days after the
Commencement Date. Landlord agrees to be liable for
maintaining the stairway leading up to the second floor
offices.
D. Landlord agrees that if any federal, state or municipal
government, or any department or division thereof,
subsequent to Tenant's occupancy of the Leased
Premises, requires any rebuilding, alterations, repairs
or installations to the interior of Tenant's Leased
Premises so as to put the Leased Premises in conformity
with the laws, regulations or ordinances relating to
the use, occupancy and construction thereof, Landlord
shall immediately, at its own cost and expense, rebuild
or make such alterations, installations and repairs as
may be necessary to comply with such laws, ordinances
or requirements. Said rebuilding, alterations or
repairs to the interior also includes but is not
limited to all entrances and exits to the Leased
Premises.
8. MAINTENANCE BY TENANT:
A. Tenant shall, at its expense and risk, maintain all
other parts of the building and other improvements on
the Leased Premises in good repair and condition,
including, but not limited to, repairs (including all
necessary replacements) to the interior plumbing,
windows, window glass, plate glass, doors, heating
system, air conditioning equipment and the interior of
the Leased Premises in general. Should Tenant be
required to replace any of the aforementioned items,
then Landlord and Tenant agree to prorate the cost
thereof based on the value of the unused portion of the
useful life of the item and the length remaining under
the term of the Lease. The useful life of each major
component of the heating and air conditioning equipment
shall be agreed to in writing on or before the
Commencement Date. Tenant must obtain Landlord's
approval of the replacement of the item before
incurring the cost thereof. The Tenant shall be
responsible for usual and customary maintenance of the
septic system. The Landlord shall be liable for repair
or replacement of the septic system. Tenant shall
maintain the landscaping and the parking area (sealing
and patching, when necessary).
B. Tenant shall throughout the Lease term take good care
of the Leased Premises and other improvements and keep
them free from waste or nuisance, and properly service
and maintain the heating and air conditioning equipment
and shall deliver up the premises broom clean at the
termination of this Lease in good repair and condition
(reasonable wear and tear excepted).
C. In the event Tenant or Landlord should neglect to
fulfill their respective maintenance obligations
hereunder after written notice from the other party,
then the other party shall have the right (but not the
obligation) to cause repairs or corrections to be made
and any reasonable costs therefore shall be payable by
Tenant or offset against rent by Tenant, as the case
may be, on the next rental installment date.
9. ALTERATIONS, ADDITIONS AND IMPROVEMENTS: Tenant shall
not create any openings in roof or exterior walls nor
make any alterations, additions or improvements to the
Leased Premises without prior written consent of
Landlord. Consent for nonstructural alterations,
additions or improvements shall not be unreasonably
withheld by Landlord. Tenant shall have the right at
all times to erect or install shelves, bins, machinery,
air conditioning or heating equipment, and trade
fixtures, provided that Tenant complies with all
applicable governmental laws, ordinances and
regulations. Tenant shall have the right to remove at
the termination of this Lease such items so installed,
however, Tenant shall, prior to the termination of his
Lease, repair any damages caused by such removal.
Tenant shall indemnify Landlord from any mechanic's
liens and shall within fifteen (15) days of completion
of said work, provide Landlord with copies of validly
executed waivers of liens and sworn contractor's
affidavits. All alterations, additions or improvements
made by Tenant shall become the property of the
Landlord at the termination of this Lease. Tenant has
the right to make alterations to the interior of the
Leased Premises provided the cost of which does not
exceed an amount equal to three (3) months' rent
without prior consent of Landlord, at Tenant's sole
expense.
10. SIGNS: Tenant shall have the right to erect signs on
any of the four exterior facias of the building
securely attached to and parallel to said facia,
subject to applicable laws, regulations, ordinances of
the governmental authorities having jurisdiction.
Landlord also agrees to give Tenant permission to alter
the existing pylon sign. This would include removal of
the existing reader board sign, thereby allowing the
installation of a larger, two-sided illuminated Ace or
Ace Hardware sign on top of pylon. Tenant shall assume
all expenses and responsibilities relative to the
maintenance and use of pylon sign, provided, however,
that Landlord shall, at its expense, ensure that the
pylon sign and wiring comply with applicable building
and electrical codes. Tenant shall remove all signs at
the termination of this Lease, and shall repair any
damage and close any holes caused by such removal.
11. INCREASING PREMIUMS OR CAUSING SUSPENSION OR
CANCELLATION OF LANDLORD'S INSURANCE POLICY: Tenant
shall not permit any operation to be conducted in the
Leased Premises that would cause suspension or
cancellation of the fire and extended coverage
insurance policy carried by Landlord. Any insurance
which may be carried by Landlord or Tenant against loss
or damage to the building and other improvements
situated on Leased Premises shall be for the sole
benefit of the party carrying such insurance and under
its sole control.
12. WAIVER OF SUBROGATION: Each party hereto waives
(insofar as it is possible to do so without impairing
or invalidating that party's insurance coverage) any
and every claim which arises or may arise in its favor
and against the other party hereto during the term of
this Lease or any renewal or extension thereof for any
and all loss of, or damage to, any of its property
located within or upon, or constituting a part of, the
premises leased to Tenant hereunder, which loss or
damage is covered by valid and collectible fire and
extended coverage insurance policies, to the extent
that such loss or damage is recoverable under said
insurance policies. Said mutual waivers shall be in
addition to, and not in limitation or derogation or,
any other waiver or release contained in this Lease
with respect to any loss of, or damage to, property to
the parties hereto. Inasmuch as the above mutual
waivers preclude the assignment of any aforesaid claim
by way of subrogation (or otherwise) to an insurance
company (or for any other person), each party hereto
hereby agrees immediately to give to each insurance
company which has issued to it policies of fire and
extended coverage insurance, written notice of the
terms of said mutual waivers, and to have said
insurance policies properly endorsed, if necessary, to
prevent the invalidation of said insurance coverages by
reason of said waivers.
13. LANDLORD'S RIGHT OF ENTRY: Landlord and its authorized
agents shall have the right to enter the Leased
Premises during normal working hours and upon
reasonable prior notice for the following purposes:
(a) inspecting the general conditions and state of
repair of the premises; (b) the making of repairs
required of Landlord; (c) the showing of the premises
to any prospective purchaser; (d) or for any other
reasonable purpose. If Tenant shall not have renewed
or extended this Lease prior to the final one hundred
eighty (180) day period of the Lease term, Landlord and
its authorized agents shall have the right to erect on
or about the Leased Premises a customary sign
advertising the property for lease or for sale.
14. UTILITY SERVICES: Landlord shall provide at the
beginning date of this Lease the normal and customary
utility service connections in the Leased Premises.
The Leased Premises are presently serviced by a private
well and septic system, which Landlord represents are
in good working order as of the Commencement Date. If,
during the term of this Lease or any renewal term, the
Leased Premises are to be connected to the municipal
water and sewer systems, the Landlord shall pay any
required hook up costs and fees. Tenant shall pay all
charges for gas, water and electricity used on the
Premises, and for all electric light lamps or tubes
used on the Leased Premises.
15. ASSIGNMENT AND SUBLEASING: The Tenant may not, without
the written consent of the Landlord, assign or sublet
this Lease. The consent of Landlord shall not be
unreasonably withheld if such consent is requested, but
Tenant may in no event assign this Lease or sublet the
premises for a use which is more hazardous or more
destructive to the premises than the use permitted
hereunder. Landlord will not withhold its consent to
an assignment or sublease from Tenant to another entity
in which Tenant holds the majority interest. In the
event of any assignment agreed upon between Landlord
and Tenant, the Tenant shall not be released from any
liability under this Lease or other related agreements
signed among the parties.
16. FIRE AND CASUALTY DAMAGE: Should the building or other
structures be damaged or destroyed by fire, tornado or
other casualty which can be reasonably insured against,
Tenant shall give immediate written notice thereof to
the Landlord. If the building is substantially or
totally destroyed, Landlord shall either rebuild the
same to substantially the same condition which it was
in immediately preceding the destruction, and there
shall be an abatement of rent for the period of time
during which the Leased Premises are unusable by
Tenant, or Landlord may terminate this Lease. If the
damage as a result of the casualty to the building is
substantial but renders the Leased Premises unusable
only in part, Landlord shall rebuild the same to
substantially the conditions in which they were
immediately preceding the damage, and there shall be an
abatement of rent in the proportion that the part of
the Leased Premises rendered unusable by the Tenant
bears to the total usable area included in the premises
immediately prior to the damage. If the Landlord has
not repaired such damage within one hundred eighty
(180) working days after the occurrence of the
casualty, then Tenant may proceed to rebuild or repair
the casualty damage to said building and other
improvements to substantially the condition in which
they existed prior to such casualty and may offset the
cost thereof against rental then becoming next due.
17. HOLD HARMLESS: Landlord shall not be liable to Tenant
or Tenant's employees, agents or invitees or to any
other person whomsoever, for any injury to person or
damage to property on or about the Leased Premises
caused by negligence or misconduct of Tenant, its
employees, or agents. Tenant agrees to indemnify
Landlord and hold it harmless from any loss, expenses
or claims arising out of any such damage or injury,
unless such damage or injury results from Landlord's
negligent or intentional acts or omissions.
18. CONDEMNATION: If, during the term of this Lease or any
extension or renewal thereof , all or a substantial
part of the Leased Premises should be taken for any
public or quasi-public use under any governmental law,
regulation, ordinance or by right of eminent domain, or
should be sold to the condemning authority under threat
of condemnation, this Lease shall terminate and the
rent shall be abated during the unexpired portion of
this Lease, effective as of the date of taking of said
premises by the condemning authority. If less than
twenty-five percent (25%) of the Leased Premises shall
be taken for any public or quasi-public use under any
governmental law, regulation, ordinance or by right of
eminent domain, or should be sold to the condemning
authority under threat of condemnation, this Lease
shall not terminate but Landlord shall forthwith at its
sole expense restore and reconstruct the building and
other improvements situated on the Leased Premises
provided such restoration and reconstruction shall make
the same reasonably Tenantable and suitable for the
uses for which the premises are leased as defined in
Section 4 above. The rent payable hereunder during the
unexpired portion of this Lease shall be adjusted
equitably on a pro rata basis. Landlord and Tenant
shall each be entitled to receive and retain such
separate awards as may be allocated to their respective
interests in any condemnation proceedings. The
termination of this Lease shall not affect the rights
of the respective parties to such awards.
Notwithstanding anything in this Section to the
contrary, if any government taking contemplated herein
renders the Leased Premises unusable for its intended
purpose, then either party may terminate this Lease by
written notice to the other and the parties will have
no further obligations hereunder.
19. DEFAULT BY TENANT: The following events shall be deemed
to be events of default by Tenant under this Lease:
A. Tenant shall fail to pay any installment of the rent on
the date that same is due and such failure shall
continue for a period of five (5) days after written
notice from Landlord.
B. Tenant shall fail to comply with any term, condition or
covenant of this Lease, other than the payment of rent
and shall not cure such default within thirty (30) days
after written notice thereof to the Tenant, or if such
default cannot reasonably be cured within the said
thirty (30) days and Tenant shall not have commenced to
cure such default within thirty (30) days after written
notice thereof to Tenant, or if such default cannot
reasonably be cured within the said thirty (30) days
and Tenant shall not thereafter with reasonable
diligence and good faith proceed to cure such default.
C. Tenant shall become insolvent, or shall make a transfer
in fraud of creditors, or shall make an assignment for
the benefit of creditors.
D. Tenant shall file a petition under any Section or
Chapter of the National Bankruptcy Act, as amended, or
under any similar law or statute of the United States
or any State thereof; or Tenant shall be adjudged
bankrupt or insolvent in proceedings filed against the
Tenant thereunder.
E. A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant.
F. Upon the occurrence of any of such events of default,
Landlord shall have the option to pursue any one or
more of the following remedies without any notice or
demand whatsoever.
(i) Terminate this Lease, in which event Tenant shall
immediately surrender the Leased Premises to
Landlord, and if Tenant fails to do so, Landlord
may, without prejudice to any other remedy which
it may have for possession or arrearages in rent,
enter upon and take possession of the Leased
Premises, and relet the premises and receive the
rent therefor; and Tenant agrees to pay to
Landlord on demand any deficiency that may arise
by reason of such reletting.
(ii) Enter upon and take possession of the Leased
Premises, without being liable for prosecution or
any claim for damages therefor, and do whatever
Tenant is obliged to do under the terms of this
Lease, and Tenant agrees to reimburse Landlord
on demand for expenses which Landlord may incur in
thus effecting compliance with Tenant's obligation
under this Lease.
Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies herein
provided or any other remedies provided by law, nor
shall pursuit of any remedy herein provided constitute
a forfeiture or waiver of any rent due to Landlord
hereunder or of any damages accruing to Landlord by
reason of the violation of any of the terms, conditions
and covenants herein contained.
20. RIGHT OF FIRST REFUSAL: If at any time during any term
of this Lease, Landlord receives and is willing to
accept a bona fide offer from a third party to purchase
the Premises, other than an offer to purchase it at any
sale incidental to the exercise of a remedy provided
for in a mortgage or other security instrument creating
a lien on the Premises, or if Landlord offers to sell
the Premises to a third party, Landlord shall promptly
transmit to Tenant its offer to sell the Premises to
Tenant upon terms and conditions substantially similar
to those offered by or to the third party, together
with a true copy of such original offer. If Tenant
does not accept such offer within thirty (30) days
after it is made, Landlord may, within one hundred
eighty (180) days after the thirty (30) day period
expires, sell the interest to a third party upon terms
and conditions substantially similar to those offered
to Tenant. If Tenant accepts such offer by notice to
Landlord within the time permitted, the offer and
acceptance shall constitute a contract for the sale by
Landlord and the purchase by Tenant of the Premises at
a closing to be held within thirty (30) days following
the receipt by Landlord of Tenant's notice of
acceptance. On the date of such purchase, Landlord
shall convey marketable title to the Premises to Tenant
against payment of the purchase price therefor.
21. ATTORNEY'S FEES: If, on account of any breach or
default by Landlord or Tenant of their obligations to
any of the parties hereto, under the terms, conditions
and covenants of this Lease, it shall become necessary
for any of the parties hereto to employ an attorney to
enforce or defend any of its rights or remedies
hereunder and should such party prevail, it shall be
entitled to any reasonable attorney's fees incurred in
such connection.
22. QUIET ENJOYMENT: Landlord warrants that it has full
right and power to execute and perform this Lease and
to grant the estate leased herein and that Tenant, on
payment of the rent and performing the covenants herein
contained, shall peaceably and quietly have, hold and
enjoy the Leased Premises during the full term of this
Lease and any renewal thereof. Tenant's interest in
the Leased Premises is subordinate to any mortgage or
deed of trust granted by the Landlord and Tenant agrees
upon demand to execute such further instruments,
subordinating this Lease as Landlord may request,
provided such further subordination shall be upon the
express condition that this Lease shall be recognized
by the mortgagee and that the rights of Tenant shall
remain in full force and effect during the term of this
Lease so long as Tenant shall continue to perform all
of the covenants of this Lease.
23. WAIVER OF DEFAULT: No waiver by the parties hereto of
any default or breach of any term, condition, or
covenant of this Lease shall be deemed to be waiver of
any subsequent covenant contained herein.
24. CAPTIONS: The captions or headings of paragraphs in
this Lease are inserted for convenience only, and shall
not be considered in construing the provisions hereof
if any question of intent should arise.
25. SUCCESSORS: The terms, conditions and covenants
contained in this Lease shall apply to, inure to the
benefit of, and be binding upon the parties hereto and
their respective successors in interest and legal
representatives except as otherwise herein expressly
provided. All rights, powers, privileges, immunities
and duties of Landlord under this Lease, including but
not limited to any notices required or permitted to be
delivered by Landlord to Tenant hereunder, may, at
Landlord's option, be exercised or performed by
Landlord's agent or attorney.
26. NOTICES: Any notice or document required or permitted
to be delivered hereunder shall be deemed to be
delivered when deposited in the United States mail,
postage prepaid, registered or certified mail, return
receipt requested, addressed to the parties hereto at
the respective addresses set opposite their names
below, or at such other addresses as they have
therefore specified by written notice delivered in
accordance herewith:
Landlord: Tenant:
TRI-R Corporation A.H.C. Store Development Corp.
9620 Route 34 2200 Kensington Court
Suite E Oak Brook, Illinois
Yorkville, Illinois 60521
60560
Attn: Robert Brettelle Attn: William Loftus
27. INSURANCE: During the entire term of this Lease, the
Tenant shall, at Tenant's sole cost and expense,
furnish, maintain and provide the following insurance
coverage for benefit of Landlord and Tenant:
A. General public liability insurance against claims for
personal injury, death or property damage occurring in,
upon or about the leased premises and on any sidewalks
directly adjacent to the Leased Premises. The
limitation of liability of such insurance shall be not
less than Five Hundred Thousand Dollars ($500,000) in
respect to injury or death of one person and a
limitation of One Million Dollars ($1,000,000) in
respect of any one accident, and a limitation of One
Hundred Thousand Dollars ($100,000) in respect of
property damage, or a combined single limit covering
bodily injury and property damage in the amount of
$1,000,000. Such policies may be blanket policies
covering other locations and evidence of such insurance
shall be delivered to Landlord upon demand. If Tenant
fails to obtain such insurance or to maintain same in
effect or to furnish Landlord with such evidence,
Landlord shall have the right to obtain such insurance
and to add the cost thereof to the rent then due or to
grow due hereunder.
B. At all times during the term hereof keep in force at
its own expense plate glass insurance in companies
acceptable to Landlord and naming Landlord as an
additional insured party.
C. At all times during the term hereof keep in force at
its own expense property insurance with extended
coverage in companies acceptable to Landlord, equal to
the replacement cost of the Premises, naming Landlord
as an additional insured party.
D. Prior to occupying the Leased Premises, Tenant shall
provide Landlord with a duly executed Certificate of
Insurance showing that the insurance required herein is
in full force and effect. Said certificate shall
provide that Landlord shall be given ten (10) days
notice of any cancellation or change in the insurance
set forth on said certificate.
28. SEVERABILITY: If any provisions of this Lease shall be
determined to be void by any court of competent
jurisdiction, then such determination shall not affect
any other provision hereof, all of which other
provisions shall remain in full force and effect.
29. ENVIRONMENTAL: Landlord represents and warrants that,
as of the Commencement Date, the Premises are in
compliance with all federal, state or local
environmental laws, rules and regulations including,
without limitation, laws, rules and regulations
pertaining to the transportation, treatment, storage
and disposal of hazardous materials and hazardous
wastes. Landlord shall defend, indemnify and hold
harmless Tenant, its officers, agents, employees and
assignees from any against any liability arising out of
a breach of the foregoing representation.
30. EXCLUSIVITY: Landlord agrees that during any period
that this Lease is in full force and effect, it shall
not create or lease space at the Premises to anyone
other than Tenant for the sale of hardware, paint,
wallpaper, automotive supplies, rental items or live
plants without Tenant's consent.
31. ARBITRATION: Landlord and Tenant agree that all
disputes that may arise under this Lease shall be
submitted to arbitration under the rules of the
American Arbitration Association. Such arbitration
shall take place in Chicago, Illinois.
IN WITNESS WHEREOF, the parties have executed this Lease on
the date first set forth above.
Tenant: Landlord:
A.H.C. STORE DEVELOPMENT CORP. TRI-R CORPORATION
By: WILLIAM A. LOFTUS By: TED SCHICK
William A. Loftus, President Title: PRESIDENT
ATTEST: ATTEST:
WILLIAM M. CHRISTOU ROBERT A. BRETTELLE V.P.
EXHIBIT A
[Insert Legal Description]
EXHIBIT B
RENT SCHEDULE
YEAR MINIMUM ANNUAL RENT
1. REDACTED
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
EXHIBIT 10-a-12
MULTI TENANT INDUSTRIAL BUILDING
SHORT FORM
BRANT TRADE & INDUSTRIAL PARK INC.
LANDLORD
- - and -
ACE HARDWARE CANADA LIMITED
TENANT
L E A S E
TABLE OF CONTENTS
Article
Article I
1.0 LEASE SUMMARY
Article II
2.0 DEFINITIONS
Article III
3.0 INTENT OF LEASE
3.1 Net Lease
Article IV
4.0 LEASE OF PREMISES
4.1 Premises
4.2 Term
4.3 Use Prior to Commencement Date
4.4 Acceptance of Premises
4.5 Licence to Use Common Facilities
4.6 Quiet Enjoyment
4.7 Fixturing of Premises
Article V
5.0 RENT
5.1 Tenant to Pay
5.2 Basic Rent
5.3 Additional Rent
5.4 Deemed Rent and Allocation
5.5 Monthly Payments of Additional Rent
Article VI
6.0 TAXES
6.1 Taxes Payable by Tenant
6.2 Determination of Tenant's Taxes
6.3 Business Taxes
6.4 Tax Bills and Assessment Notices
6.5 Contest of Realty Taxes
Article VII
7.0 OPERATION OF PROJECT
7.1 Operation of Project by Landlord
7.2 Tenant's Payment of Operating Costs
7.3 Adjustments to Operating Costs
Article VIII
8.0 USE OF PREMISES
8.1 Use of Premises
8.2 Conduct of Business
8.3 Tenant's Fixtures
8.4 Signs
8.5 Waste Removal
8.6 Pest Control
8.7 Waste and Nuisance
8.8 Compliance with Law
8.9 Deliveries
8.10 Prohibited Uses
Article IX
9.0 SERVICES AND UTILITIES
9.1 Utilities
9.2 Heating and Air-Conditioning
9.3 Non-Liability of Landlord
9.4 Landlord's Suspension of Utilities
9.5 Landlord's Services
9.6 Landlord's Charges for Services
Article X
10.0 MAINTENANCE, REPAIRS AND ALTERATIONS
10.1 Maintenance and Repairs of Premises
10.2 Approval of Repairs and Alterations
10.3 Repair According to Landlord's Notice
10.4 Notice by Tenant
10.5 Ownership of Leasehold Improvements
10.6 Construction Liens
10.7 Landlord's Repairs
Article XI
11.0 END OF TERM
11.1 Vacating of Possession
11.2 Removal of Trade Fixtures
11.3 Removal of Leasehold Improvements
11.4 Overholding by Tenant
Article XII
12.0 DAMAGE AND DESTRUCTION
12.1 Insured Damage to Premises
12.2 Uninsured Damage and Last Two Years
12.3 Damage to Project
12.4 Restoration of Premises or Project
12.5 Determination of Matters
Article XIII
13.0 INSURANCE AND INDEMNITY
13.1 Landlord's Insurance
13.2 Tenant's Effect on Other Insurance
13.3 Tenant's Insurance
13.4 Landlord's Right to Place Tenant's Insurance
13.5 Landlord's Non-Liability
13.6 Indemnity of Landlord
13.7 Landlord's Employees and Agents
Article XIV
14.0 ASSIGNMENT, SUBLETTING AND CHANGE OF CONTROL
14.1 Consent Required
14.2 Obtaining Consent
14.3 Landlord's Option
14.4 Terms of Consent
14.5 Effect of Transfer
14.6 No Advertising of Premises
14.7 Mortgage of Lease
14.8 Corporate Tenant
14.9 Assignment by Landlord
Article XV
15.0 STATUS AND SUBORDINATION OF LEASE
15.1 Status Statement
15.2 Subordination and Attornment
15.3 Tenant's Failure to Comply
15.4 Registration
Article XVI
16.0 DEFAULT AND REMEDIES
16.1 Default and Remedies
16.2 Interest
16.3 Costs
16.4 Distress and Tenant's Property
16.5 Security Deposit
16.6 Remedies to Subsist
16.7 Impossibility of Performance
Article XVII
17.0 CONTROL OF PROJECT
17.1 Landlord's Control
17.2 Alterations of the Project
17.3 Use of Common Facilities
17.4 Rules and Regulations
17.5 Access to Premises
17.6 Expropriation
17.7 Development of Project
17.8 Landlord's Consent
Article XVIII
18.0 MISCELLANEOUS
18.2 Complete Agreement
18.3 Time of the Essence
18.4 Applicable Law
18.5 Severability
18.6 Section Numbers and Headings
18.7 Interpretation
18.8 Successors
Article XIX
19.0 SPECIAL PROVISIONS
19.1 Conditions to Tenant's Rights
19.2 Renewal Option
19.3 Environmental Provisions
19.4 Right of First Refusal
19.5 Condition of Premises
19.6 Building Codes
19.7 Environmental Representation
19.8 Net Rent Free Period
19.9 Exterior Use of Premises
19.10 Non-Disturbance Agreement
19.11 Landlord's Work
19.12 Early Termination
19.13 Office Space
19.14 Close Down Period
19.15 Commissions
19.16 Mediation/Arbitration
Schedules
"A" Legal Description of Project
"B" Outline Plan of Premises
"C" Tenant Alterations
Appendix "A" Guaranty Agreement
Multi Tenant Industrial Building
Short Form
THIS LEASE dated the 31st day of October, 1995
B E T W E E N :
BRANT TRADE & INDUSTRIAL PARK INC.
(hereinafter called "Landlord")
OF THE FIRST PART
- and -
ACE HARDWARE CANADA LIMITED
(hereinafter called "Tenant")
OF THE SECOND PART
ARTICLE I.0 LEASE SUMMARY
Lease Summary
The following is a summary of some of the basic terms of
this Lease, which are elaborated upon in the balance of this Lease.
This section 1.1 is for convenience and if a conflict occurs
between the provisions of this section 1.1 and any other provisions
of this Lease, the latter shall govern.
Premises: A portion, as shown cross hatched in heavy
black on the sketch annexed hereto as Schedule "B" (the "Industrial
Space"), of the industrial building known as Building #2;
Term: Ten (10 ) years four (4) months and fifteen
(15) days;
Commencement Date: November 15, 1995;
Expiry Date: March 31, 2006;
Basic Rent (also referred to as "Net Rent"): The Net
Rent payable during the Term based on 284,000 square feet shall be
as follows:
Year Rate/Square Foot Rate/Annum Rate/Month
1 REDACTED
2
3
4
5
6
7
8
9
10
All rates and funds are in Canadian Dollars.
Rentable Area of Premises: 284,000 square feet of Industrial Space,
subject in each case to confirmation of the actual Rentable Area
in accordance with section 2.21.
In addition to the aforementioned space (284,000 square feet) the
Tenant shall utilize an additional area of up to 70,000 square feet
on an "as is" basis located on the structural mezzanine level
directly over a portion of the premises. There shall be no net
rent for the mezzanine space. Should any common area maintenance
charges become applicable during the term or any extensions
thereof, the Tenant agrees to pay half of the charge for the
mezzanine. Should any tax charges become applicable during the
term or any extensions thereof, the Tenant agrees to pay said
charges for the mezzanine;
Deposits:
(i) Prepaid Rent: Ninety-four thousand six hundred
sixty-six dollars and sixty-six cents ($94,666.66),
to be applied against the first two monthly payments
of Net Rent;
(ii) Security Deposit: Nil;
Use of Premises: Warehousing, outside storage,
distribution and associated offices;
Address for Service of Notice on Tenant or Guarantor, if any:
at the Premises;
with a copy to: Real Estate Department
Ace Hardware Corporation
Ace Hardware Corporate Offices
2200 Kensington Court
Oak Brook, Illinois 60521
Address for Service of Notice on Landlord:
Unit 28
2104 Highway 7
Concord, Ontario
L4K 2S9
Special Provisions;
See Article XIX.
ARTICLE II.0 DEFINITIONS
Definitions
Where used in this Lease, the following words or phrases
shall have the meanings set forth in the balance of this Article.
"Additional Rent" shall have the meaning given to it in
section 5.3.
"Architect" means a professionally accredited architect,
engineer, surveyor or other qualified person appointed by Landlord
from time to time.
"Basic Rent" shall have the meaning given to it in
section 5.2.
"Building" means the industrial building in which the
Leased Premises are situated.
"Business Hours" means 24 hours per day, seven days per
week, subject to applicable Laws.
"Commencement Date" shall have the meaning given to it in
section 1.1.
"Common Facilities" means the facilities, areas, lands,
systems, improvements, fixtures and equipment which serve or
benefit other Leaseable Areas of the Project in addition to the
Premises, including without limitation roadways, driveways and
walkways, whether or not such Common Facilities are located within
the Project, and to the extent that the same are designated by
Landlord to be part of the Common Facilities from time to time.
"Fiscal Year" means the period used by Landlord for
fiscal purposes in respect of the Project. Unless otherwise
determined by Landlord by written notice to Tenant at any time or
times, each Fiscal Year shall be a calendar year. In the event of
a change in the Fiscal Year, or with respect of a partial Fiscal
Year at the beginning or end of the Term, all appropriate
adjustments resulting from a Fiscal Year being shorter or longer
than twelve (12) months shall be made.
"Landlord's Work" means the leasehold improvements which
Landlord is required, by this Lease, to make to the Premises on or
after the Commencement Date.
"Lands" means the lands included in the Premises.
"Laws" means all statutes, regulations, by-laws, orders,
rules, requirements and directions of all governmental authorities
having jurisdiction.
"Lease Year" means each consecutive period of three
hundred and sixty-five (365) days (or three hundred and sixty-six
(366) days in the case of a Lease Year which includes the month of
February in a leap year), the first Lease Year commencing on the
Commencement Date and ending on the day before the anniversary of
the Commencement Date (unless the Commencement Date is not the
first day of a calendar month, in which case the first Lease Year
shall commence on the Commencement Date and end on the day before
the anniversary of the first day of the first full month of the
Term), and each successive Lease Year commencing on the
anniversary of the first day of the first full month of the Term.
"Leasable Areas" means all areas and spaces of the
Project to the extent designated or intended from time to time by
Landlord to be leased to tenants, whether leased or not.
"Operating Costs" means the aggregate of all expenses and
costs of every kind for each fiscal period designated by Landlord,
as determined without duplication, incurred by or on behalf of
Landlord with respect to the operation, maintenance, repair,
replacement and management of the Common Facilities, and all
insurance relating to the Project, provided that if the Project is
less than 100% completed or occupied during the whole of any fiscal
period, the Tenant shall only be responsible for its share of the
actual Operating Costs, determined to be a fraction which has as
its numerator the Rentable Area of the Premises and which has as
its denominator the aggregate Rentable Area of Leasable Areas with
in the Project that have been leased during such fiscal period.
Without in any way limiting the generality of the foregoing,
Operating Costs shall include all cost in respect of the following:
all remuneration, including wages and fringe benefits,
of employees directly engaged in the operation, maintenance,
repair, replacement and management of the Common Facilities;
fire sprinkler maintenance and monitoring, if any, of the
Project, excluding the cost of such services charged directly to
tenants of the Project;
waste removal, landscaping, grass cutting, snow and ice
clearing and removal and salting in respect of the Common
Facilities;
all utilities supplied to the Project including, without
limitation, water, gas, electricity and sewer charges, excluding
those charged directly to tenants of the Project;
depreciation or amortization, over a period reasonably
determined by Landlord, of all costs, including capital costs, of
all improvements, furnishings, fixtures, equipment, machinery,
systems and facilities constructed or installed in or used in
connection with the Common Facilities, which by their nature
require periodic or substantial repair or replacement, or which
are constructed or installed or used primarily to reduce the cost
of other items included in Operating Costs, whether or not such
other costs are in fact reduced;
all insurance which Landlord obtains and the cost of any
deductible amounts payable by Landlord in respect of any insured
risk or claim;
policing, supervision, security and traffic control;
maintenance, repairs and replacements in respect of the
Common Facilities including structural maintenance, repairs and
replacements;
all costs in the nature of Operating Costs in respect of
areas, services and facilities outside the Project, such as
sidewalks and boulevards, off-site utilities and other service
connections, and in respect of areas, services and facilities
shared by users of the Project and users of any other property, to
the extent Landlord performs or contributes to the same as a result
of its ownership of the Project;
engineering, accounting, legal and other consulting and
professional services related to Common Facilities;
capital taxes payable by Landlord in respect of its
ownership or other interest in the Project, namely any tax or taxes
payable under any provincial or federal legislation based upon or
computed by reference to the paid-up capital or place of business
of Landlord as determined for the purposes of such tax or based
upon or computed by reference to the taxable capital employed
in Canada, or any similar tax levied, imposed or assessed in the
future in lieu thereof or in addition thereto by any governmental
authority;
(xii) costs of Landlord's administration in respect of
Realty Taxes, including, without limitation, all costs incurred by
Landlord in contesting any Realty Taxes or appealing any
assessments relating thereto, all costs and expenses of any kind
incurred by Landlord acting reasonably in obtaining or attempting
to obtain information in respect of, or a reduction or
reallocation of, Realty Taxes or any assessments related thereto,
and all legal, appraisal, administration and overhead costs;
(xiii) repair or replacement of the roof membrane of
Building 2, provided that the Tenant shall only be responsible for
its pro rata share of the cost thereof, determined by multiplying
the cost by a fraction, which has as its numerator the area of the
Leased Premises and which has as its denominator the aggregate
leaseable area on the ground floor of Building 2.
Operating Costs, however, shall be reduced by the
following to the extent actually received by Landlord:
proceeds of insurance and damages received by Landlord
from third parties to the extent of costs otherwise included in
Operating Costs;
contributions from parties other than tenants of the
Project, if any, in respect of Operating Costs, such as
contributions made by parties for sharing the use of Common
Facilities, but not including rent or fees charged directly for the
use of any Common Facilities such as parking fees;
amounts in the nature of Excess Costs, as defined in
subsection 7.3(a), to the extent received by Landlord from tenants
of the Project.
Operating Costs, however, shall exclude the following:
Realty Taxes;
expenses incurred by Landlord in respect of other tenants'
leasehold improvements;
capital costs except to the extent included as set forth
above;
depreciation, except to the extent included as set forth
above; and repairs or replacements to the extent that the cost of
the same is recovered by Landlord pursuant to original construction
warranties.
"Premises" shall have the meaning given to it in section 4.1.
"Project" means those lands described in Schedule "A"
hereto and all buildings, structures, improvements, equipment and
facilities of any kind erected or located thereon from time to
time, as such lands, buildings, structures, improvements, equipment
and facilities may be expanded, reduced or otherwise altered by
Landlord in its sole discretion from time to time.
"Proportionate Share" means a fraction which has as its
numerator the Rentable Area of the Premises and which has as its
denominator the aggregate Rentable Area of Leasable Areas within
the Project, subject to adjustment pursuant to subsection 7.3(b).
"Realty Taxes" means all taxes, rates, duties, levies,
fees, charges, local improvement rates, levies and assessments
whatever ("Taxes"), whether municipal, provincial, federal or
otherwise, which may be levied, assessed or charged against or in
respect of the Project or any part thereof or any fixtures,
equipment or improvements therein, or against Landlord in
respect of any of the same or in respect of any rental or other
compensation receivable by Landlord in respect of the same, and
including all Taxes which may be incurred by or imposed upon
Landlord or the Project in lieu of or in addition to the foregoing
including, without limitation, any Taxes on or in respect of real
property rents or receipts as such (as opposed to a tax on such
rents as part of the income of Landlord) business transfer taxes,
sales taxes, goods and services taxes, value-added taxes, and other
such taxes to the extent charged on or calculated on the basis of
Rent or any portion thereof, any Taxes based in whole or in part on
the value of the Project, any commercial concentration levy in
respect of the Project, and any licence fee measured by rents or
other charges payable by occupants of space in the Project.
"Rent" shall have the meaning given to it in section 5.1.
"Rentable Area" when applied to the Premises or any
Leaseable Areas means the area measured from the exterior face of
exterior walls and windows, from the exterior face of all walls and
windows dividing any Leaseable Areas from Common Facilities, and
from the centre line of all interior walls separating any Leaseable
Areas from other Leaseable Areas, all without deduction for any
space occupied by structures, columns, beams, conduits, ducts or
projections of any kind, and all without deduction for the
recessing of any entrance way or boundary wall from the lease line.
Every Rentable Area shall also include a pro rata share (defined
below) of all areas in the Building, such as, by way of example
only and without limitation, lobbies, corridors and entranceways,
which form part of the Common Facilities but are used exclusively
or primarily by certain tenants of the Project; the "pro rata
share" shall be the floor area of such area(s), measured as set out
above, and divided by the number of tenants whose premises are
served by such area(s). Every Rentable Area shall be as determined
by Landlord and, upon Tenant's request, Landlord shall, within a
reasonable time thereafter, provide Tenant with an Architect's
certificate as to the Rentable Area of the Premises, which
certificate shall be conclusive and binding upon the parties
hereto.
"Term" shall have the meaning given to it in section 4.2.
ARTICLE III.0 INTENT OF LEASE
Net Lease
It is the intent of the parties hereto that, except as
expressly herein set out, this Lease be absolutely net to Landlord,
and Landlord not be responsible for any expenses or obligations of
any kind whatsoever in respect of the Premises or the Project.
ARTICLE IV.0 LEASE OF PREMISES
Premises
Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord those premises ("Premises") being part of the
Building and shown cross hatched in heavy black on the plan
attached hereto as Schedule "B". The purpose of Schedule "B" is to
show the approximate location of the Premises and its contents are
not intended as a representation as to the precise size or
dimensions of the Premises or any other aspects of the Building or
the Project. Tenant reserves the right to install a security fence
around the perimeter of the shipping area on the east side of the
leased premises subject to the Tenant providing the Landlord with
a drawing for approval by the Landlord.
Term
The term of this Lease (the "Term") shall be for the period
described as the Term in section 1.1 hereof, commencing on the
Commencement Date and ending on the Expiry Date, both dates as
described in section 1.1.
Use Prior to Commencement Date
If Tenant uses or occupies the whole or any part of the
Premises in any way prior to the Commencement Date without entering
into a lease with Landlord in respect of such use or occupancy,
then during that period Tenant shall be a tenant of Landlord
subject to all the terms and conditions contained in this Lease,
provided that the inclusion of this section shall not be deemed to
authorize or permit Tenant to use or occupy the whole or any
portion of the Premises in any way prior to the Commencement Date.
Acceptance of Premises
Tenant accepts the Premises in the state and condition in
which they are received from Landlord and, except only to the
extent of any deficiency that may be found in the Landlord's Work
described in section 19.11, and any other deficiency set out in a
written list or videotape to be given by Tenant to Landlord within
thirty (30) days after Tenant takes possession of the Premises,
Tenant's entering into possession of the Premises shall be
conclusive evidence of the acceptance by Tenant of the condition
and state of repair of the Premises. It is understood and
acknowledged by Landlord that Tenant shall have no responsibility
or liability with respect to the repair or replacement of any of
the above referenced deficiencies, unless the same shall have been
repaired or replaced by Landlord.
Licence to Use Common Facilities
Subject to all other relevant provisions of this Lease,
Landlord grants to Tenant the non-exclusive licence during the Term
to use for their intended purposes, in common with others entitled
thereto, such portions of the Common Facilities as are reasonably
required for the use and occupancy of the Premises during Business
Hours and such other hours, if any, as the Common Facilities are
open for use, as determined by Landlord from time to time.
Quiet Enjoyment
Subject to Tenant's complying with all of the terms of
this Lease, Tenant may peaceably possess and enjoy the Premises for
the Term without interruption by Landlord or any person claiming
through Landlord.
Fixturing of Premises
By not later than June 1, 1996 the Tenant shall fully
finish, furnish, fixture and staff the whole of the Premises and
shall commence the conduct of its business in the whole of the
Premises as permitted and required pursuant hereto.
ARTICLE V.0 RENT
Tenant to Pay
Tenant shall pay in lawful money of Canada at such
address as shall be designated from time to time by Landlord Basic
Rent and Additional Rent (all of which is herein sometimes referred
to collectively as "Rent") as herein provided without any
deduction, set-off or abatement whatsoever, Tenant hereby agreeing
to waive any set-off rights it may have under any statute or at
law.
Basic Rent
Commencing on the Commencement Date Tenant shall pay to
Landlord a fixed minimum annual rent ("Basic Rent") for each Lease
Year of the Term in the annual amount(s) described as Basic Rent in
section 1.1, to be paid in equal monthly installments, as described
as Basic Rent in section 1.1, in advance on the first day of each
month during the Term. On the Commencement Date, if it is other
than the first day of a calendar month, Tenant shall pay to
Landlord for such partial month Basic Rent computed on a per diem
basis. If an amount per square foot is specified in the
description of Basic Rent in section 1.1, then the Basic Rent is
intended to be such amount per square foot of Rentable Area of the
Premises per annum, and the Basic Rent shall be subject to
adjustment based upon the Architect's certificate of Rentable Area
of the Premises to be delivered pursuant to section 2.21. Within
thirty (30) days after delivery of such certificate all necessary
adjustments will be made and Tenant shall pay to Landlord any
deficiency in previous payments of Basic Rent and Additional Rent,
and if Tenant is not in default under the terms of this Lease the
amount of any overpayment by Tenant of Basic Rent and Additional
Rent shall be paid to Tenant or credited to the account of Tenant.
Additional Rent
In addition to Basic Rent Tenant shall pay to Landlord
all other amounts as and when the same shall be due and payable
pursuant to the provisions of this Lease or pursuant to any other
obligation in respect of the Premises, all of which shall be deemed
to accrue on a per diem basis; all of such amounts are herein
sometimes referred to as "Additional Rent". Tenant shall promptly
deliver to Landlord upon request evidence of due payment of all
payments of Additional Rent required to be paid by Tenant
hereunder.
Deemed Rent and Allocation
If Tenant defaults in payment of any Rent (whether to
Landlord or otherwise) as and when the same is due and payable
hereunder, Landlord shall have the same rights and remedies against
Tenant upon such default as if such sum or sums were rent in
arrears under this Lease. Landlord may allocate payments received
from Tenant among items of Rent then due and payable by Tenant. No
acceptance by Landlord of payment by Tenant of any amount less than
the full amount payable to Landlord, and no endorsement or
direction on any cheque or other written instruction or statement
respecting any payment by Tenant shall be deemed to constitute
payment in full or an accord and satisfaction of any obligation of
Tenant.
Monthly Payments of Additional Rent
Landlord may from time to time by written notice to
Tenant estimate or re-estimate any amount(s) payable by Tenant to
Landlord hereunder including without limitation, amounts in respect
of Operating Costs, Realty Taxes and utilities, for the then
current or next following fiscal period used by Landlord in respect
of each of the said amounts. The fiscal period used by Landlord
may correspond to a shorter period within any twelve month period
where an item, for example Realty Taxes, is payable in full by
Landlord over such shorter period. The amounts so estimated shall
be payable by Tenant in advance in equal monthly installments over
the fiscal period on the same days as the monthly payments of
Basic Rent. Landlord may, from time to time, alter the fiscal
period selected in each case. As soon as practicable after the
expiration of each Fiscal Year, Landlord shall furnish to Tenant
a statement of the actual amounts payable by Tenant in respect of
Operating Costs, Taxes, utilities and any other relevant provisions
hereof for such Fiscal Year. If the amount determined to be
payable by Tenant as aforesaid shall be greater or less than the
payments on account thereof previously made by Tenant, then the
appropriate adjustments will be made and Tenant shall pay any
deficiency to Landlord within sixty (60) days after delivery of
such statement, and if Tenant is not in default under the terms
of the Lease, the amount of any overpayment shall be paid to or
credited to the account of Tenant within sixty (60) days after
the delivery of said statement. Landlord shall provide
Tenant with access to its books and records for the purpose of
conducting an audit to verify the accuracy of said statement. If
the audit discloses a material discrepancy (i.e. in excess of five
percent (5%)) in such statement to the prejudice of the Tenant,
then Tenant shall have the right to recover its costs and expenses
incurred in conducting the audit.
ARTICLE VI.0 TAXES
Taxes Payable by Tenant
Commencing on the Commencement Date and thereafter
throughout the Term, Tenant shall pay to Landlord as and when due
all Realty Taxes and other taxes, if any, levied, confirmed,
imposed, assessed or charged (herein referred to as "charged")
against or in respect of the Premises and all fixtures, equipment,
improvements and alterations in the Premises, and including any
such Realty Taxes and other taxes charged against the Premises in
respect of any Common Facilities. In addition, Tenant shall pay
the Proportionate Share of Realty Taxes, if any, separately charged
against Common Facilities. To the extent of Realty Taxes received
by Landlord from Tenant, Landlord shall pay same to the taxing
authority.
Determination of Tenant's Taxes
Tenant's obligation to pay Realty Taxes charged against
or in respect of the Premises shall be determined on the basis of
a separate bill if available. If the relevant taxing authority
does not issue a separate bill for the Premises then Tenant's
obligation in respect thereof shall be computed by applying the
relevant tax rate to a separate assessment of the Premises, if any.
If there is neither a separate bill for Realty Taxes for the
Premises nor a separate assessment of the Premises for any period
of time, then for such period the Realty Taxes charged against or
in respect of the Premises shall be determined by Landlord, acting
reasonably, on the basis of the then current established principles
of assessment used by the relevant assessing authorities and on the
same basis as the assessment actually obtained for the project as
a whole or the part thereof in which the Premises are located.
Provided that Tenant shall be solely responsible for any increase
in Realty Taxes resulting from any act or election of Tenant or
from any fixtures or improvements in the Premises, and Tenant shall
not be responsible for any such increase resulting from any act or
election of Landlord or any other occupant of the Project or any
fixtures or improvements in other Leasable Areas. Any amounts
payable by Tenant on account of Realty Taxes shall be adjusted on
a per diem basis in respect of any period not falling wholly within
the Term.
Business Taxes
Tenant shall pay to the relevant taxing authority as and
when the same are due and payable all taxes charged in respect of
any business conducted on, or any use or occupancy of, the
Premises.
Tax Bills and Assessment Notices
Tenant shall deliver to Landlord forthwith upon Tenant's
receiving the same copies of all assessment notices, tax bills,
receipts and other documents received by Tenant relating to Realty
Taxes on the Premises or the Project.
Contest of Realty Taxes
Landlord may contest any Realty Taxes and appeal any
assessments related thereto and may withdraw any such contest or
appeal or may agree with the relevant authorities on any settlement
in respect thereof. Tenant will cooperate with Landlord in respect
of any such contest and appeal and shall provide to Landlord such
information and execute such documents as Landlord requests to give
full effect to the foregoing. All costs of any such contest and
appeal by Landlord shall be included in Operating Costs.
Tenant will not contest any Realty Taxes or appeal any
assessments related thereto without first obtaining Landlord's
prior written consent and delivering to Landlord such security
as may be required by Landlord, acting reasonably, against any
costs, liabilities or damages which might arise out of such contest
or appeal. Tenant shall promptly upon request pay all costs and
expenses, including without limitation reasonable legal expenses,
incurred by Landlord as a result of any such contest or appeal by
Tenant and indemnify Landlord against all costs, liabilities or
damages which may be incurred by Landlord or any other person
arising out of such contest or appeal. While any such contest or
appeal by Tenant is in progress Tenant shall continue to pay Realty
Taxes in respect of the Premises as if such contest or appeal had
not been commenced.
ARTICLE VII.0 OPERATION OF PROJECT
Operation of Project by Landlord
Landlord shall repair, maintain and operate the Common
Facilities, in a reasonable manner as would a prudent owner having
regard to its size, age, location and character.
Tenant's Payment of Operating Costs
Commencing on the Commencement Date and thereafter at all
times throughout the Term Tenant shall pay to Landlord: (i) the
Proportionate Share of Operating Costs, adjusted in accordance with
7.3; and (ii) an administration fee equal to fifteen percent (15%)
of the amount payable by the Tenant in respect of Operation Costs.
The amounts payable by Tenant pursuant to this section 7.2 may be
computed on the basis of such periods of time as Landlord shall
determine from time to time and shall be paid to Landlord within
thirty (30) days after the submission to Tenant of a statement
showing the amount payable by Tenant from time to time. All
amounts payable under this Article VII in respect of any period
not falling entirely within the Term shall be adjusted on a per
diem basis.
Adjustments to Operating Costs
If by reason of the conduct of business on the Premises
outside the normal business hours for the Project, as determined by
Landlord, or by reason of the particular use or occupancy of the
Premises or any of the Common Facilities by Tenant, its employees,
agents or persons having business with Tenant, additional costs in
the nature of Operating Costs, such as utility charges or security
costs, are incurred in excess of the costs which would otherwise
have been incurred for such items ("Excess Costs"), then Landlord
shall have the right to determine on a reasonable basis and require
Tenant to pay such Excess Costs.
If Tenant or any other tenant of the Project, pursuant to
its lease or otherwise by arrangement with Landlord, provides at
its cost any goods or services the cost of which would otherwise be
included in Operating Costs, or if any goods or services the cost
of which is included in Operating Costs benefit any portion of the
Project to a materially greater or lesser extent than any other
portion of the Project, then either the denominator for determining
a Proportionate Share, or alternatively the amount of Operating
Costs, may be adjusted as determined by Landlord acting reasonably
to provide for the equitable allocation of the cost of such goods
and services among the tenants of the Project.
ARTICLE VIII.0 USE OF PREMISES
Use of Premises
To the extent that this covenant shall run with the
Premises for the benefit for the Project, excluding the Premises,
Tenant covenants that it shall not use and shall not permit the
Premises to be used for any purpose other than as described as Use
of Premises in section 1.1 hereof, all in keeping with the
standards of a prestige industrial park, and to be no more noxious
or burdensome in terms of smoke, noise, radiation or vibration than
the business initially operated by Tenant on the Premises.
Conduct of Business
At all times throughout the Term Tenant shall
continuously and actively conduct its business in the whole of the
Premises in a first class and reputable manner.
Tenant's Fixtures
Tenant shall install and maintain in the Premises at all
times during the Term first-class trade fixtures including
furnishings and equipment adequate and appropriate for the
business to be conducted on the Premises, all of which shall be
kept in good order and condition. Tenant shall not remove any
trade fixtures or other contents from the Premises during the Term
except in the ordinary course of business or for the purpose of
replacing them with others at least equal in value and function to
those being removed.
Signs
Tenant shall not erect, install or display any sign on or
visible from the exterior of the Premises without the prior written
approval of Landlord, which approval shall not be unreasonably
withheld. Any exterior signage identifying Tenant's business on
the Premises shall be supplied and erected by Tenant at Tenant's
expense.
Waste Removal
Tenant shall not allow any refuse, garbage or any loose,
objectionable material to accumulate in or about the Premises or
the Project and will at all times keep the Premises in a clean and
neat condition. Tenant shall comply with Landlord's regulations
respecting the storage and removal of waste and shall be
responsible for all costs of removal of waste from the Premises
other than costs of routine waste removal included in Operating
Costs. Until removed from the Project all waste from the Premises
shall be kept in appropriate containers within the Premises.
Tenant shall not use the exterior portions of the Premises for
outside storage, including without limitation the storage of any
machinery, equipment or waste.
Pest Control
Tenant shall be responsible for pest extermination in
respect of the Premises and shall engage, for such purpose, such
contractors at such intervals as Landlord shall reasonably require.
Tenant shall not bring or permit to be brought onto the Premises or
the Project any animals or birds of any kind.
Waste and Nuisance
Tenant shall not cause, suffer or permit any waste or
damage to the Premises or leasehold improvements, fixtures or
equipment therein nor permit any overloading of the floors
thereof and shall not use or permit to be used any part of the
Premises for any dangerous, noxious or offensive activity or goods
and shall not do or bring anything or permit anything to be done or
brought on or about the Premises or the Project which results in
undue noise or vibration or which Landlord may reasonably deem to
be hazardous or a nuisance or annoyance to any other tenants or any
other persons permitted to be on the Project, and Tenant shall
immediately take steps to remedy, remove or desist from any
activity, equipment or goods on the Premises to which Landlord
objects on a reasonable basis. Tenant shall take every reasonable
precaution to protect the Premises and the Project from risk of
damage by fire, water or the elements or any other cause.
Tenant shall not itself, and shall not permit any of its
employees, servants, agents, contractors or persons having business
with Tenant, to obstruct any Common Facilities nor to use or permit
to be used any Common Facilities for other than their intended
purposes. Without limiting the foregoing, nothing shall be placed
or stored anywhere in or on the Common Facilities. Tenant shall
not, and shall not permit anyone else to, place anything on the
roof of the Building or go on to the roof of the Building for any
purpose whatsoever, without Landlord's prior written approval,
which may be withheld in Landlord's sole discretion acting
reasonably.
Tenant shall not use any advertising, transmitting or
other media or devices which can be heard, seen, or received
outside the Premises, or which could interfere with any
communications or other systems outside the Premises.
Tenant shall be solely responsible for any contaminant,
pollutant and toxic substance at any time affecting the Premises
resulting from any act or omission of Tenant or any other person on
the Premises or any activity or substance on the Premises during
the Term, and any period prior to the Term during which the
Premises were used or occupied by or under the control of Tenant,
and shall be responsible for the clean-up and removal of any of the
same and any damages caused by the occurrence, clean-up or removal
of any of the same, and Tenant shall indemnify Landlord in respect
thereof.
Compliance with Laws
Tenant shall be solely responsible for obtaining from all
authorities having jurisdiction all necessary permits, licences and
approvals as may be necessary to permit Tenant to occupy the
Premises and conduct its business thereon, as required by all
applicable Laws. Tenant shall comply at its own expense with all
applicable Laws respecting the use, condition and occupation of the
Premises, and all leasehold improvements, fixtures, equipment and
contents thereof.
Deliveries
All deliveries to and from the Premises shall be made
only by way of such driveways and access routes as Landlord may
from time to time designate, acting reasonably.
Prohibited Uses
Tenant shall not cause, suffer or permit the Premises or
any part thereof to be used at any time during the Term for any of
the following businesses or activities:
any type of business or business practice which would, in
the reasonable opinion of Landlord, tend to lower the character or
image of the Project or any portion thereof;
any use which in any way contravenes any restrictive
covenants in leases granted by Landlord after the date hereof;
Tenant covenants and agrees that it will not carry on in the
Premises any business which will in any way place Landlord in
breach of any such restrictive covenants and Tenant will indemnify
and save Landlord harmless from and against all actions, claims,
demands and costs with respect thereto; this subsection (ii) shall
not be interpreted to prevent Tenant from carrying on in the
Premises any business to the extent expressly permitted
pursuant to section 8.1 hereof; or
any business or activity not in compliance with all Laws.
The inclusion of the foregoing provisions of this section
8.10 shall not be deemed to be a representation or warranty of
Landlord that any of the foregoing activities will not be
authorized by Landlord to be conducted on any part of the Project.
If, in the opinion of Landlord, Tenant is in breach of
any of the provisions of this section 8.10, Tenant shall
immediately discontinue such use upon Landlord's written request.
Any restrictive covenants granted by the Landlord shall
not restrict the Tenant from carrying on its business as
contemplated herein and shall not result in any increase in charges
to the Tenant pursuant to this Lease.
ARTICLE IX.0 SERVICES AND UTILITIES
Utilities
Subject to Landlord's ability to do so, Landlord shall
supply or cause to be supplied to the Premises electricity and
other utilities for the reasonable use of the Premises for
their intended purposes. Tenant shall promptly pay for, as and
when they fall due, to Landlord or as Landlord shall from time to
time direct, all costs of supplying water, electricity, gas, steam
and other utilities to or in respect of the Premises, and all costs
for all fittings, connections and meters and all work performed in
connection with any services or utilities provided to the Premises.
Tenant shall promptly execute and deliver any agreements required
by Landlord or by utilities suppliers in respect of the supply of
any utilities to the Premises. Tenant's use of any such utilities
shall not exceed the available capacity of the existing systems
from time to time.
Should there be no individual meters for the measurement
of the consumption of any utilities supplied to the Premises then
Landlord, acting reasonably, may allocate the cost of such
utilities among the various users thereof. If required by
Landlord, Tenant shall install at its expense a separate meter or
meters to measure the consumption of any or all utilities in the
Premises. The cost of any utilities which are not charged to
tenants of the Project individually shall be included in Operating
Costs.
Heating and Air-Conditioning
Tenant shall heat and, where applicable, air-condition
the Premises in a reasonable manner at Tenant's expense using
heating and, where applicable, air-conditioning equipment installed
in the Building. If the heating, ventilating, air-conditioning or
humidity control equipment in or serving the Premises shall require
maintenance, repair or replacement, Tenant at its expense shall
promptly attend to the same in accordance with the manufacturer's
or supplier's specifications and instructions. Tenant shall at its
expense maintain a service contract for such equipment in or
serving the Premises, with a contractor approved in advance in
writing by Landlord, and shall ensure that Landlord is at all times
in possession of a copy of such service contract and shall promptly
deliver to Landlord copies of regular inspection reports and
details of repairs. Landlord shall not be responsible for the
inadequacy of any heating or air-conditioning of the Premises. If
Tenant fails to so maintain, repair or replacement of any of the
heating, ventilating, air-conditioning and humidity control
equipment, and does not rectify such failure within the applicable
cure period provided in section 16.1 after notice from Landlord,
Landlord shall be entitled thereafter to itself attend to the
maintenance, repair and replacement of such equipment, in which
case the cost of such maintenance, repairs or replacement shall
either be charged to Tenant or included in Operating Costs, as
determined by Landlord to be appropriate pursuant to the applicable
provisions of this Lease.
Non-Liability of Landlord
Landlord shall not be liable for any damages, direct or
indirect, resulting from or contributed to by any interruption or
cessation in supply of any utilities or heating, ventilating,
air-conditioning and humidity control. Without limiting or
affecting the generality or interpretation of the foregoing, and
not withstanding the foregoing, it is agreed that the Landlord
shall not be liable for any and all indirect or consequential
damages or damages for personal discomfort or illness of Tenant or
any persons permitted by it to be on the Premises, by reason of the
suspension or non-operation of any utilities, heating, ventilating,
air-conditioning or humidity control.
Landlord's Suspension of Utilities
In order to effect any maintenance, repairs, replacements
or alterations to any of such utilities, heating, ventilating,
air-conditioning or humidity control systems or any other part of
the Project, Landlord shall have the right to modify or temporarily
discontinue or suspend any such systems as required from time to
time. Where reasonably possible to do so, and except in case of
emergency when no notice shall be required, Landlord shall give
Tenant reasonable notice (which notice need not be in writing but
may be given orally, including by telephone, to a person in
apparent authority at the Premises), of any expected interruption
of the supply of utilities, heating, ventilating, air-conditioning
or humidity control systems, or any other similar services, to the
Premises.
Landlord's Services
Tenant shall pay Landlord on demand all charges as
determined and allocated by Landlord acting reasonably in respect
of all special services provided to or for the benefit of Tenant
beyond standard services for the Project the costs of which are
included in Operating Costs.
Any services in respect of the Premises requiring
drilling or otherwise penetrating floors, walls or ceilings, or for
locksmithing, security arrangements or waste removal, shall be
performed only by persons first approved in writing by Landlord,
which approval shall not be unreasonably withheld or delayed.
Landlord's Charges for Services
Unless otherwise expressly agreed between Landlord and
Tenant to the contrary in respect of any specific matter from time
to time, all work performed and materials supplied by Landlord for
Tenant or by reason of Tenant's failure to make timely repairs
respecting the Premises pursuant to the provisions hereof or
otherwise shall be paid for by Tenant to Landlord forthwith on
demand at Landlord's cost for the same plus ten percent (10%) for
inspection and supervision plus ten percent (10%) for overhead and
profit or such other reasonable amounts as may be charged by
Landlord for overhead and profit from time to time.
ARTICLE X.0 MAINTENANCE, REPAIRS AND ALTERATIONS
Maintenance and Repairs of Premises
At all times throughout the Term Tenant at its sole
expense shall perform such maintenance, repairs and replacements as
required to keep the Premises, all contents thereof and all
services and equipment located in or primarily serving the
Premises, in first-class appearance and condition, and in
accordance with all Laws and Landlord's reasonable requirements,
subject only to the obligations of Landlord expressly provided in
section 10.7. For purposes of this section 10.1, but without
affecting the interpretation of any other provision of this Lease,
Premises shall include, without limitation: all leasehold
improvements; all exterior and interior walls (repairs to exterior
walls only if damaged by Tenant), windows and doors, including the
exterior faces thereof; loading docks and bumpers; stairs;
surrounding or enclosing masonry or other materials; and all such
areas and facilities adjacent or proximate to and serving
exclusively the Premises.
Approval of Repairs and Alterations
Tenant shall not make any repairs, replacements, changes,
additions, improvements or alterations (hereinafter referred to as
("Alterations") to the Premises without Landlord's prior written
consent, which consent shall not be unreasonably withheld unless
such proposed Alterations might affect the structure of the
Building, or the coverage of the Project for zoning purposes or the
parking requirements for the Project, or impair the value or
usefulness of the Premises or the Project, in any of which cases
Landlord's consent may be unreasonably withheld in Landlord's sole
discretion. Notwithstanding anything in the foregoing to the
contrary, Tenant shall have the right to make and Landlord consents
to the Tenant's alterations set forth in Schedule "C", subject to
Landlord's prior written approval as to plans and specifications.
With its request for consent Tenant shall submit to
Landlord details of the proposed Alterations including plans and
specifications prepared by qualified architects or engineers, and
such Alterations shall be completed in accordance with the plans
and specifications approved in writing by Landlord. Unless
expressly authorized in writing by Landlord to the contrary, all
Alterations which might cost in excess of $20,000.00 to complete or
which may affect the structure or mechanical, electrical, utility,
sprinkler, communications or other similar systems of the Building,
shall be conducted under the supervision of a qualified engineer
approved by Landlord, such approval not to be unreasonably
withheld.
All Alterations shall be planned and completed in
compliance with all Laws and Tenant shall, prior to commencing any
Alterations, obtain at its expense all necessary permits and
licences. Prior to the commencement of any such Alterations Tenant
shall furnish to Landlord such evidence as reasonably required by
Landlord of the projected cost of Alterations and Tenant's ability
to pay for same, together with such indemnification against costs,
liens and damages as Landlord shall reasonably require including,
if required by Landlord, a performance, completion and labour and
materials bond acceptable to Landlord guaranteeing completion of
such Alterations.
All Alterations shall be performed at Tenant's cost,
promptly and in a good and workmanlike manner and in compliance
with Landlord's reasonable rules and regulations, by competent
contractors or workmen who shall be first approved in writing by
Landlord, which approval shall not be unreasonably withheld or
delayed. If any Alterations affect the structure or any external
portions of the Building or any mechanical, electrical, utility,
sprinkler, communications or other similar systems within the
Premises or the Project, they shall, at Landlord's option, be
performed at Tenant's expense by Landlord or by contractors
designated by Landlord and under Landlord's supervision. For all
Alterations performed by Landlord or at Landlord's expense or under
Landlord's supervision, Tenant shall pay forthwith upon request all
amounts paid or payable by Landlord to third parties and all
reasonable charges of Landlord for its own personnel, plus ten
percent (10%) for Landlord's inspection and supervision. All
Alterations, the making of which might disrupt other tenants or
occupants of the Project or the public, shall be performed outside
normal business hours.
If Tenant performs any such Alterations without
compliance with all of the foregoing provisions of this Article X,
Landlord shall have the right to require Tenant to remove such
Alterations forthwith.
Tenant shall pay to Landlord forthwith upon request all
of Landlord's reasonable costs including, without limitation, fees
of architects, engineers and designers, incurred in dealing with
Tenant's request for Landlord's consent to any Alterations, whether
or not such consent is granted, and in inspecting and supervising
any such Alterations and Landlord shall have the right to require
Tenant to pay Landlord a deposit on account of such costs as a
precondition to Landlord's granting such consent.
(g) The Tenant agrees at its expense to restore the premises
to their original condition at the expiration of the lease term or
any extensions thereof, normal wear and tear excepted, if so
requested by the Landlord.
Repair According to Landlord's Notice
Landlord or any persons designated by it shall have the
right to enter the Building at any time, during normal business
hours except in case of emergency and, except in case of emergency
when no notice shall be required, upon reasonable advance notice to
Tenant (which notice need not however exceed twenty-four (24) hours
and need not be given in writing, but may instead be given orally,
including by telephone, to any person in apparent authority at the
Premises, to view the state of repair and condition thereof and
Tenant shall promptly perform any required maintenance, repairs or
replacements according to Landlord's written notice. Any such
entry and inspection by Landlord shall not unreasonably interfere
with Tenant's quiet and peaceful enjoyment of the Premises except
in the case of an emergency.
Notice by Tenant
Tenant shall give immediate written notice to Landlord of
any accident, defect or damage in any part of the Premises or the
Project which comes to the attention of Tenant or any of its
employees or contractors notwithstanding the fact that Landlord may
have no obligation in respect of the same.
Ownership of Leasehold Improvements
All leasehold improvements installed in or about the
Premises shall forthwith upon the installation thereof become the
property of Landlord but without Landlord's thereby accepting any
responsibility in respect of the maintenance, repair or replacement
thereof. The expression "leasehold improvements" where used in
this Lease includes, without limitation, all fixtures,
installations, alterations and additions from time to time made or
installed in or about the Premises, and includes all of the
following, whether or not they are trade fixtures or easily
removable: doors, partitions and hardware; mechanical, electrical
and utility installations; heating, ventilating, air-conditioning
and humidity control equipment; lighting fixtures and built-in
furniture. The only exclusions from "leasehold improvements" are
free-standing furniture, trade fixtures and equipment not in any
way connected to the Premises or to any utilities systems located
therein, and Tenant's computer equipment.
Construction Liens
Tenant shall make all payments and take all steps as may
be necessary to ensure that no lien is registered against the
Project or any portion thereof as a result of any work, services or
materials supplied to Tenant or the Premises. Tenant shall cause
any such registrations to be discharged or vacated by payment into
court or otherwise, within ten (10) days after notice from
Landlord. If Tenant fails to cause any such registrations to be
discharged or vacated within such ten (10) day period, Tenant shall
indemnify and save harmless Landlord from and against any
liabilities, claims, liens, damages, costs and expenses, including
legal expenses, arising as a result thereof in connection with any
work, services or materials supplied to Tenant or the Premises. If
Tenant fails to cause any such registration to be discharged or
vacated within such ten (10) day period then, in addition to any
other rights of Landlord, Landlord may, but shall not be obliged
to, discharge the same by paying the amount claimed into court, and
the amounts so paid and all costs incurred by Landlord, including
legal fees and disbursements, shall be paid by Tenant to Landlord
forthwith upon demand.
Landlord's Repairs
Subject to the provisions of Article XII herein and
subject to Tenant's obligations hereunder, to the extent that the
failure to do so would materially detrimentally affect access to or
use of the Premises, Landlord shall repair all of the following:
(i) the Common Facilities; and (ii) damage to the Premises,
excluding all leasehold improvements, against which and to the
extent to which Landlord is required to be insured pursuant hereto
or is otherwise insured and against which Tenant is not required to
be insured and is not otherwise insured. Landlord's costs of
compliance with this section 10.7 shall be included in Operating
Costs to the extent set out in section 2.15. Provided that to the
extent that such repair is necessitated directly or indirectly by
any act or omission of Tenant or any servant, employee, agent,
contractor, invitee or licensee or Tenant, Tenant shall be solely
responsible for the cost of such repairs in accordance with section
9.6 and shall indemnify Landlord in respect thereof.
The Landlord at its sole expense shall be responsible for
structural repairs and replacements including those to the
foundation, exterior walls and roof, if not occasioned by the fault
of the Tenant or those for whom the Tenant is responsible. Any
such repairs or replacements shall not unreasonably interfere with
the Tenant's quiet and peaceful enjoyment of the Premises. It is
acknowledged that the roof membrane is a part of the common area
cost of the Building in which the Leased Premises are situated and
is not a structural element.
ARTICLE XI.0 END OF TERM
Vacating of Possession
Forthwith upon the expiry or earlier termination of the
Term, Tenant shall deliver to Landlord vacant possession of the
Premises in such condition in which Tenant is required to keep the
Premises during the Term pursuant hereto and shall leave the
Premises in neat and clean condition and shall deliver to Landlord
all keys for the Premises and all keys or combinations to locks on
doors or vaults in the Premises.
Removal of Trade Fixtures
Provided Tenant has paid all Rent and is not otherwise in
default hereunder, or if otherwise authorized or requested by
Landlord, at the expiry or earlier termination of the Term Tenant
shall remove its trade fixtures and repair all damage resulting
from the installation or removal of such trade fixtures. If at the
expiry or earlier termination of the Term Tenant does not remove
its trade fixtures or any of its other property on the Premises,
Landlord shall have no obligation in respect thereof and may sell
or destroy the same or have them removed or stored at the expense
of Tenant; at the option of Landlord, such trade fixtures or
property shall become the absolute property of Landlord without any
compensation to Tenant.
Removal of Leasehold Improvements
Notwithstanding that the leasehold improvements become
the property of Landlord upon installation, at the expiry or
earlier termination of the Term Tenant shall remove any or all of
such leasehold improvements made or installed in or about the
Premises by Tenant, or by Landlord as Tenant's contractor, as
required by Landlord and in so doing shall repair all damage
resulting from, and shall restore the Premises to their condition
prior to, the installation and removal of such leasehold
improvements.
Overholding by Tenant
If Tenant remains in possession of all or any part of the
Premises after the expiry of the Term with the consent of Landlord
but without any further written agreement, this Lease shall not be
deemed thereby to have been renewed and Tenant shall be deemed to
be occupying the Premises as a monthly tenant on the same terms as
set forth in this Lease insofar as they are applicable to a monthly
tenancy except that beginning with the fourth month of such
overholding by Tenant the monthly Basic Rent shall be twice the
monthly Basic Rent payable during the last twelve months of the
Term.
ARTICLE XII.0 DAMAGE AND DESTRUCTION
Insured Damage to Premises
If there is damage to or destruction of the Premises
caused by an occurrence against which, and to not more than the
extent that, Landlord either is required to insure pursuant to this
Lease or is otherwise insured ("Insured Damage"), then the
following provisions of this section 12.1 shall apply.
If such damage or destruction is such as to render the
whole or any part of the Premises unusable for the purpose of
Tenant's use and occupancy thereof, Landlord shall deliver to
Tenant within thirty (30) days following the occurrence of such
damage or destruction its reasonable opinion as to whether or not
the same is capable of being repaired, to the extent of Landlord's
repair obligations hereunder, within one hundred and eighty (180)
days following such occurrence.
If this Lease is not terminated as herein provided,
Landlord, to the extent of insurance proceeds which it receives or
would have received had it maintained such insurance as required
hereunder, shall diligently proceed to perform repairs to the
Premises to the extent of its obligations pursuant to section 10.7
hereof; and Tenant, commencing as soon as practicable but without
interfering with Landlord's repairs, shall diligently perform such
repairs as are Tenant's responsibility pursuant hereto.
If, (i) in Landlord's reasonable opinion, the Premises
are not capable of being repaired as aforesaid within one hundred
and eighty (180) days following such occurrence, or (ii)
immediately prior to the occurrence of such damage, Tenant was not
using substantially all of the Premises for the purposes permitted
by and as otherwise required pursuant hereto, or (iii) Tenant was
at the time of such damage in breach of this Lease and fails within
fifteen (15) days after notice of such default to remedy same to
the extent possible in view of such damage, Landlord may, at its
option, elect by written notice to the Tenant within thirty (30)
days after delivery by Landlord of the opinion provided for in
subsection 12.1(b) above, to terminate this Lease, whereupon Tenant
shall immediately surrender possession of the Premises and Basic
Rent and all other payments for which Tenant is liable pursuant
hereto shall be apportioned to the effective date of such
termination.
If the damage is such as to render the whole or any part
of the Premises unusable in whole or in part for the purpose of
Tenant's use and occupancy thereof and if immediately prior to the
occurrence of such damage Tenant was using substantially all of the
Premises for the purposes permitted by and as otherwise required
pursuant hereto, then the Rent payable hereunder shall abate to the
extent that Tenant's use and occupancy of the Premises is in fact
diminished, which determination shall be made by Landlord, acting
reasonably, until the earlier of (i) the thirtieth (30th) day after
the Premises are determined by Landlord to be ready for Tenant to
commence its repairs to the Premises, and (ii) the date on which
Tenant first commences the conduct of business in any part of the
Premises which had been damaged.
The respective obligations of Landlord and Tenant with
respect to repair of the Premises following any damage or
destruction shall be performed with all reasonable speed and in
accordance with all applicable obligations to repair contained
herein. Tenant acknowledges that its obligations to repair the
Premises after such damage or destruction shall be performed at its
sole cost without any contribution by Landlord provided that such
damage or destruction was not caused by Landlord's fault and
whether or not Landlord had at any time made any contribution to
the cost of any leasehold improvements in the Premises. In any
event, within thirty (30) days after Landlord has completed its
repairs to the Premises as aforesaid, Tenant shall complete its
repairs to the Premises and shall recommence the conduct of
business thereon.
Uninsured Damage and Last Two Years
If there is damage to or destruction of the Premises and
if, in Landlord's reasonable opinion, of which notice shall be
given to Tenant within fifteen (15) days after the later of the
date of such damage or destruction and the date upon which Landlord
is notified by Tenant of such damage or destruction, the Premises
are not capable of being repaired to the extent of Landlord's
repair obligations within thirty (30) days following the giving of
such notice, if (i) such damage or destruction is not Insured
Damage, or (ii) such damage or destruction occurs within the last
two (2) years of the Term and either Tenant has no remaining rights
to renew this Lease or, having the right to renew this Lease fails
to do so within fifteen (15) days after receipt of the said notice,
then Landlord, at its option to be exercised by written notice
given to Tenant within thirty (30) days after the later of the date
of such damage or destruction and the date upon which Landlord is
notified by Tenant of such damage or destruction, may terminate
this Lease whereupon Tenant shall immediately surrender possession
of the Premises and Basic Rent and all other payments for which
Tenant is liable hereunder shall be apportioned to the effective
date of such termination. If this Lease is not terminated as
aforesaid the parties shall repair as provided in subsection
12.1(c) hereof and there shall be no abatement of any Rent unless
the damage or destruction is Insured Damage and then only to the
extent expressly provided in subsection 12.1(e) above.
Damage to Project
If thirty-five (35%) percent or more of the Rentable Area
of Leasable Areas of the Project is damaged or destroyed by any
cause whatsoever, whether or not there is any damage to the
Premises, Landlord may, at its option, by notice given to Tenant
within sixty (60) days after such occurrence, terminate this Lease
as of a date specified in such notice, which date shall be not less
than thirty (30) days and not more than one hundred and eighty
(180) days after the giving of such notice. In the event of such
termination Tenant shall surrender vacant possession of the
Premises by not later than the said date of termination, and Basic
Rent and all other payments for which Tenant is liable hereunder
shall be apportioned to the effective date of termination. If
Landlord does not so elect to terminate this Lease, Landlord shall
diligently proceed to repair and rebuild the Project to the extent
of its obligations pursuant hereto to the extent of insurance
proceeds which Landlord receives or would have received had it
maintained such insurance as required hereunder, and to the extent
that any mortgagee entitled to be paid such insurance proceeds
consents to the use of same for such purpose.
Restoration of Premises or Project
If there is damage to or destruction of the Premises or
the Project and if this Lease is not terminated pursuant hereto,
Landlord, in performing its repairs as required hereby, shall not
be obliged to repair or rebuild in accordance with the plans or
specifications for the Premises or the Project as they existed
prior to such damage or destruction; rather, Landlord may repair or
rebuild in accordance with any plans and specifications chosen by
Landlord in its sole discretion provided that Tenant's use of and
access to the Premises and the general overall quality of the
Project are not materially detrimentally affected by any difference
in plans or specifications of the Premises or the Project.
Determination of Matters
For the purposes of this Article XII all matters
requiring determination such as, without limitation, the extent to
which any area(s) of the Premises or the Project are damaged or are
not capable of being used, or the time within which repairs may be
made, unless expressly provided to the contrary, shall be
determined by Landlord's Architect, such determination to be final
and binding on the parties.
ARTICLE XIII.0 INSURANCE AND INDEMNITY
Landlord's Insurance
Landlord shall obtain and maintain in full force and
effect during the Term with respect to the Project insurance
against such occurrences and in such amounts, on such terms and
with such deductible(s) as would a prudent owner of such a project.
Such insurance may include, without limitation: (i) insurance on
the Building and any improvements therein which Landlord desires to
insure, against damage by fire and other risks covered by extended
coverage fire insurance policies or, at Landlord's option, all
risks insurance; (ii) boiler and machinery insurance; (iii) rental
income insurance; (iv) public liability insurance; and (v) such
other insurance and in such amounts and on such terms as Landlord,
in its discretion, may reasonably determine. Notwithstanding that
Tenant shall be contributing to the costs of such insurance
pursuant to the terms of this Lease, Tenant shall not have any
interest in or any right to recover any proceeds under any of
Landlord's insurance policies.
Tenant's Effect On Other Insurance
Tenant shall not do or permit anywhere on the Premises or
Project anything which might: (i) result in any increase in the
cost of any insurance policy of Landlord on the Project; (ii)
result in an actual or threatened cancellation of or adverse change
in any insurance policy of Landlord on the Project; or (iii) be
prohibited by any insurance policy of Landlord on the Project.
If the cost of any insurance policies of Landlord on the
Project is increased as a result of any improvements made by Tenant
or anything done or permitted by Tenant anywhere on the Premises or
Project, Tenant shall pay the full amount of such increase to
Landlord forthwith upon demand. Tenant's responsibility for any
increased cost of insurance as aforesaid shall be conclusively
determined by a statement issued by the organization, company or
insurer establishing the insurance rates for the relevant policy.
If there is in actual or threatened cancellation of or
adverse change in any policy of insurance of Landlord on the
Project by reason of anything done or permitted by Tenant anywhere
on the Premises or Project, and if Tenant fails to remedy the
situation giving rise to such actual or threatened cancellation or
change within twenty-four (24) hours after notice from Landlord,
then Landlord may, at its option, either (i) terminate this Lease
forthwith by written notice; or, (ii) remedy the situation giving
rise to such actual or threatened cancellation or change, all at
the cost of Tenant to be paid to Landlord forthwith upon demand,
and for such purpose Landlord shall have the right to enter upon
the Premises without further notice.
Tenant's Insurance
Tenant shall, at its sole expense, maintain in full force
and effect at all times throughout the Term and such other times,
if any, as Tenant occupies the Premises or any portion thereof,
such insurance as would be maintained by a prudent tenant of
premises such as the Premises, which insurance shall include at
least all of the following:
comprehensive general liability insurance on an
occurrence basis with respect to any use and occupancy of or things
on the Premises, and with respect to the use and occupancy of any
other part of the Project by Tenant or any of its employees,
servants, agents, invitees, licensees, subtenants, contractors or
persons for whom Tenant is in law responsible, with coverage for
any occurrence of not less than Five Million Dollars ($5,000,000)
or such higher amount as Landlord may reasonably require on not
less than one (1) month's notice;
all risks insurance covering the leasehold improvements,
trade fixtures and contents on the Premises, for not less than the
full replacement cost thereof and with a replacement cost
endorsement;
broad form comprehensive boiler and machinery insurance
on all insurable objects located on or about the Premises or which
are the property or responsibility of Tenant, for not less than the
full replacement cost thereof and with a replacement cost
endorsement;
business interruption insurance in such amounts as
necessary to fully compensate Tenant for direct or indirect loss
of sales or earnings attributable to any of the perils required to
be insured against under the policies referred to in subsections
13.3(a)(ii) and (iii) and all circumstances usually insured against
by cautious tenants including losses resulting from interference
with access to the Premises or the Project as a result of such
perils or for any other reason;
tenant's legal liability insurance for the full
replacement cost of the Premises, and the loss of use thereof; and
(vi) any other insurance against such risks and in such
amounts as Landlord or any mortgagee of Landlord may from time to
time reasonably require upon not less than thirty (30) days' notice
to Tenant.
Each of Tenant's insurance policies shall either name
Landlord as an additional named insured or otherwise protect
Landlord's interest, and shall be taken out with insurers and shall
be in such form and on such terms as are satisfactory to Landlord
from time to time. Without limiting the generality of the
foregoing, each of Tenant's insurance policies shall contain:
(i) the standard mortgage clause as may be required by
any mortgagee of Landlord;
(ii) an undertaking by the insurer that no material
change adverse to Tenant or Landlord or any mortgagee of Landlord
will be made and the policy will not lapse or be terminated, except
after not less than thirty (30) days' written notice to Tenant and
Landlord and to any mortgagee of Landlord;
(iii) a provision stating that Tenant's insurance
policy shall be primary and shall not call into contribution any
other insurance available to Landlord;
(iv) a joint loss endorsement, where applicable;
(v) a severability of interests clause and a
cross-liability clause; and
(vi) a waiver, in respect of the interests of Landlord
and any mortgagee of Landlord, of any provision with respect to any
breach of any warranties, representations, declarations or
conditions contained in the said policy.
Tenant shall ensure that Landlord shall at all times be
in possession of either certificates or certified copies of
Tenant's insurance policies which are in good standing and in
compliance with Tenant's obligations hereunder.
Tenant hereby releases Landlord and its servants, agents,
employees, contractors and those for whom Landlord is in law
responsible from all losses, damages and claims of any kind in
respect of which Tenant is required to maintain insurance hereunder
or is otherwise insured.
Landlord's Right to Place Tenant's Insurance
If Tenant fails to maintain in force, or pay any premiums
for, any insurance required to be maintained by Tenant hereunder,
or if Tenant fails from time to time to deliver to Landlord
satisfactory proof of the good standing of any such insurance or
the payment of premiums therefor, then Landlord, without prejudice
to any of its other rights and remedies hereunder, shall have the
right but not the obligation to effect such insurance on behalf of
Tenant and the cost thereof and all other reasonable expenses
incurred by Landlord in that regard shall be paid by Tenant to
Landlord forthwith upon demand.
Landlord's Non-Liability
Tenant agrees that Landlord shall not be liable or
responsible in any way for any injury or death to any person or for
any loss or damage to any property at any time on or about the
Premises or any property owned by or being the responsibility of
Tenant or any of its servants, agents, customers, contractors or
persons for whom Tenant is in law responsible elsewhere on or about
the Project, no matter how the same shall be caused except where
contributed to by the Landlord's own negligence. Without limiting
the generality of the foregoing, Landlord shall not be liable or
responsible for any such injury, death, loss or damage to any
persons or property caused or contributed to by fire, explosion,
steam, water, rain, snow, dampness, leakage, electricity or gas
except where contributed to by the Landlord's own negligence.
Without limiting or affecting the generality or interpretation of
the foregoing, and notwithstanding the foregoing, it is agreed that
Landlord shall in no event be liable for any indirect or
consequential damages suffered by Tenant or any persons permitted
by it to be on the premises, whether or not caused by the
negligence of the Landlord, its servants, agents, employees,
contractors or persons for whom Landlord is in law responsible.
Indemnity of Landlord
Tenant shall indemnify Landlord and all of its servants,
agents, employees, contractors and persons for whom Landlord is in
law responsible against any and all liabilities, claims, damages,
losses and expenses, including all reasonable legal fees and
disbursements, arising from: (i) any breach by Tenant of any of the
provisions of this Lease; (ii) any act or omission of any person on
the Premises or any use or occupancy of or any things in the
Premises; (iii) any act or omission of Tenant or any of its
servants, agents, employees, invitees, licensees, subtenants,
concessionaires, contractors or persons for whom Tenant is in law
responsible on the Premises or elsewhere on or about the Project;
or (iv) any injury or death of persons, or any loss or damage to
property of Tenant or any of its servants, agents, employees,
invitees, licensees, subtenants, contractors or persons for whom
Tenant is in law responsible, on the Premises or elsewhere on or
about the Project; provided that, such indemnity obligation shall
not extend to any liabilities, claims, damages, losses and expenses
arising from the negligence of the Landlord and/or its agents or
employees.
Landlord's Employees and Agents
Every indemnity, exclusion or release of liability and
waiver of subrogation contained in this Lease for the benefit of
Landlord shall extend to and benefit all of Landlord's servants,
agents, employees, and others for whom Landlord is in law
responsible. Solely for such purpose, and to the extent that
Landlord expressly chooses to enforce the benefits of this section
for the foregoing persons, it is agreed that Landlord is the agent
or trustee for such persons.
ARTICLE XIV.0 ASSIGNMENT, SUBLETTING AND CHANGE OF CONTROL
Consent Required
Tenant shall not assign this Lease in whole or in part
and shall not sublet or part with or share possession of all or any
part of the Premises and shall not grant any licences or other
rights to others to use any portion of the Premises (all of the
foregoing being hereinafter referred to as a "Transfer"; a party
making a Transfer is referred to as a "Transferor" and a party
taking a Transfer is referred to as a "Transferee") without the
prior written consent of Landlord in each instance, which consent
shall not be unreasonably withheld; provided that it shall be
reasonable for Landlord to withhold or delay its consent to a
Transfer unless it is shown to Landlord's satisfaction that: (i)
the proposed Transferee has a good business and personal reputation
and has financial strength at least sufficient to satisfy all the
obligations of Tenant hereunder; (ii) without affecting the
interpretation of section 8.1 or any other provision hereof, the
business proposed to be carried on by the Transferee on the
Premises will not be incompatible with the uses of other tenants of
the Project, and will not be more burdensome on the Project, in
terms of parking requirements or any other factor, than the
business previously carried on by Tenant on the Premises; and (iii)
the proposed Transferee is not an existing occupant of any part of
the Project and has not then recently been a prospect involved in
bona fide negotiations with Landlord respecting the leasing of any
premises in the Project and is not in any way affiliated with such
existing occupant or bona fide prospect. The provisions of this
Article XIV shall apply to any Transfer which might occur by
inheritance or operation of law.
If Landlord withholds, delays or refuses to give consent
to any Transfer, whether or not Landlord is entitled to do so,
Landlord shall not be liable for any losses or damages in any way
resulting therefrom and Tenant shall not be entitled to terminate
this Lease or exercise any other remedy whatever in respect thereof
except to seek the order of a court of competent jurisdiction
compelling Landlord to grant any such consent which Landlord is
obliged to grant pursuant to the terms of this Lease.
No Transfer may be made where any portion of Rent is
lower than fair market rates.
Obtaining Consent
All requests to Landlord for consent to any Transfer
shall be made to Landlord in writing together with a copy of the
agreement pursuant to which the proposed Transfer will be made,
accompanied by such information in writing as a landlord might
reasonably require respecting a proposed Transferee including,
without limitation, name, business and home addresses and telephone
numbers, business experience, credit information and rating,
financial position and banking and personal references,
description of business proposed to be conducted by the Transferee
on the Premises and parking requirements for such business. Tenant
shall promptly pay all costs incurred by Landlord in considering
and processing the request for consent including legal costs and
all costs of completing any documentation to implement any
Transfer, which shall be prepared by Landlord or its solicitor if
required by Landlord, and as a prior condition to considering any
request for consent Landlord may require from Tenant payment of a
reasonable deposit, of at least $250.00, on account of Landlord's
said costs.
Landlord's Option
Notwithstanding the other provisions contained in this
Article XIV, after Landlord receives a request for consent to a
Transfer with the information and copy of agreement hereinabove
required, it shall have the option, to be exercised by written
notice to Tenant within fifteen (15) days after the receipt of such
request, information and agreement, to: (i) terminate this Lease as
it relates to the portion of the Premises which is the subject of
the proposed Transfer ("Transferred Premises"); (ii) receive all
amounts to be paid to Tenant under the agreement in respect of such
Transfer less only the direct costs of Tenant related to the
Transfer such as legal costs and commissions, and less, in the case
of a sublease, all amounts receivable by Tenant under the sublease
equal to the amounts payable by Tenant hereunder each month during
the term of the sublease in respect of the Transferred Premises; or
(iii) take a Transfer from Tenant of the Transferred Premises on
the same terms as the Transfer in respect of which Tenant has
requested Landlord's consent, as aforesaid. If Landlord elects to
terminate this Lease as aforesaid, Tenant shall have the right, to
be exercised by written notice to Landlord within ten (10) days
after receipt of such notice of termination, to withdraw the
request for consent to the Transfer, in which case Tenant shall not
proceed with such Transfer, the notice of termination shall be null
and void and this Lease shall continue in full force and effect.
If, pursuant to this section 14.3, Landlord terminates this Lease,
or takes a Transfer of the Premises or any portion thereof,
Landlord shall be deemed to have arbitrarily and unreasonably
withheld its consent to the Transfer, as Landlord is entitled to do
pursuant to section 14.1. If Landlord terminates this Lease as it
relates to a portion of the Premises, or takes a Transfer of a
portion of the Premises, Tenant hereby grants to Landlord and any
others permitted by Landlord the right, in common with Tenant and
all others entitled to use the same, to use for their intended
purposes all portions of the Premises in the nature of common areas
(such as corridors, washrooms, lobbies and the like) or which are
reasonably required for proper access to or use of the Transferred
Premises (such as reception area, interior corridors, mechanical or
electrical systems and ducts and the like).
Terms of Consent
In the event of a Transfer Landlord shall have the
following rights, in default of any of which no such Transfer shall
occur or be effective:
to collect a deposit or further deposit to be held as a
security deposit pursuant to section 16.5 such that the security
deposit held by Landlord shall be equivalent to at least the Basic
Rent payable for the last two (2) months of the Term in respect of
the premises which are the subject of the Transfer;
to require Tenant and the Transferee and Indemnifier, if any,
to enter into a written agreement to implement any amendments to
this Lease to give effect to Landlord's exercise of any of its
rights hereunder;
to require the Transferee to enter into an agreement with
Landlord in writing and under seal to be bound by all of Tenant's
obligations under this Lease in respect of the portion of the
Premises which is the subject of the Transfer;
to require the Transferee to waive any rights, pursuant to
subsection 39(2) of the Landlord and Tenant Act (Ontario) and any
amendments thereto and any other statutory provisions of the same
or similar effect, to pay any Rent less than any amount payable
hereunder;
to require, if the Transfer is a sublease or other transaction
other than an assignment, that upon notice from Landlord to the
Transferee all amounts payable by the Transferee each month shall
be paid directly to Landlord who shall apply the same on account of
Tenant's obligations under this Lease; and
to require that this Lease be amended to delete therefrom any
right of renewal and any first right to lease premises in the
Project.
Effect of Transfer
No consent of Landlord to a Transfer shall be effective
unless given in writing and executed by Landlord and no such
consent shall be presumed by any act or omission of Landlord or by
Landlord's failure to respond to any request for consent or by
Landlord's accepting any payment of any amount payable hereunder
from any party other than Tenant. No Transfer and no consent by
Landlord to any Transfer shall constitute a waiver of the necessity
to obtain Landlord's consent to any subsequent or other Transfer.
In the event of any Transfer or any consent by Landlord
to any Transfer, Tenant shall not thereby be released from any of
its obligations hereunder but shall remain bound by all such
obligations pursuant to this Lease for the balance of the Term. If
this Lease is renewed or extended by any Transferee pursuant to any
option of Tenant, each Transferor shall be liable for all of the
obligations of Tenant throughout the Term as renewed or extended.
Every Transferee shall be obliged to comply with all of
the obligations of Tenant under this Lease, and any default of any
Transferee shall also constitute a default of Tenant hereunder. If
this Lease is ever disclaimed or terminated by a trustee in
bankruptcy of a Transferee Tenant shall nevertheless remain
responsible for fulfillment of all obligations of Tenant hereunder
for what would have been the balance of the Term but for such
disclaimer or termination, and shall upon Landlord's request enter
into a new lease of the Premises for such balance of the Term and
otherwise on the same terms and conditions as in this Lease.
No Advertising of Premises
Tenant shall not advertise this Lease or all or any part
of the Premises or the business or fixtures therein for sale
without Landlord's prior written consent.
Mortgage of Lease
The restrictions on Transfer as aforesaid shall apply to
any assigning, subletting, mortgaging, charging or otherwise
transferring of the Premises or this Lease for the purpose of
securing any obligation of Tenant.
Corporate Tenant
If Tenant or any occupant of the Premises at any time is
a corporation, the transfer of the majority of the issued shares in
the capital stock or any transfer, issuance or division of any
shares of the corporation or of any affiliate of the corporation
sufficient to transfer control to others than the then present
shareholders of the corporation shall be deemed for all purposes of
this Article XIV to be a Transfer. Upon request Tenant shall make
the corporate books and records of Tenant and of any affiliate of
Tenant available to Landlord and its representatives for inspection
in order to ascertain whether or not there has at any time during
the Term been a change in control of Tenant corporation as
aforesaid.
Assignment by Landlord
If Landlord sells, leases, mortgages or otherwise
disposes of the Project or any part thereof or assigns its interest
in this Lease, to the extent that the purchaser or assignee agrees
with Landlord to assume the covenants and obligations of Landlord
hereunder, Landlord shall thereupon be released from all liability
pursuant to the terms of this Lease.
ARTICLE XV.0 STATUS AND SUBORDINATION OF LEASE
Status Statement
Tenant shall, within ten (10) days after written request
from Landlord, execute and deliver to Landlord, or to any actual or
proposed lender, purchaser or assignee of Landlord, a statement or
certificate in such form as requested by Landlord stating (if such
is the case, or stating the manner in which such may not be the
case): (i) that this Lease is unmodified and in full force and
effect; (ii) the date of commencement and expiry of the Term and
the dates to which Basic Rent and any other Rent, including any
prepaid rent, have been paid; (iii) whether or not there is any
existing default by Landlord under this Lease and, if so,
specifying such default; and (iv) that there are no defences,
counter claims or rights of set-off in respect of the obligations
hereunder of Tenant.
Subordination
At the option of Landlord to be expressed in writing from
time to time this Lease and the rights of Tenant hereunder are and
shall be subject and subordinate to any and all mortgages, trust
deeds and charges (any of which is herein called "Mortgage") on the
Project or any part thereof now or in the future, including all
renewals, extensions, modifications and replacements of any
Mortgages from time to time. Tenant shall at any time on notice
from Landlord or holder of a Mortgage attorn to and become a tenant
of the holder of any such Mortgage upon the same terms and
conditions as set forth herein and shall execute promptly on
request any certificates, agreements, instruments of postponement
or attornment or other such instruments or agreements, including
without limitation any short form or notice of this Lease for the
purpose of registration on title to the Project, as requested from
time to time to give full effect to this Article XV. Provided
Tenant is not in default hereunder, Landlord shall use reasonable
efforts to obtain from the holder of any Mortgage, in respect of
which tenant has executed and delivered an instrument of
postponement, subordination or attornment as required hereby, its
agreement to permit Tenant to continue to occupy the Premises in
accordance with the terms of this Lease.
Tenant's Failure to Comply
If Tenant fails to execute any certificate, agreement,
instrument, or other document as required by the foregoing
provisions of this Article XV within ten (10) business days after
request by Landlord, then Landlord shall have the right, without
limiting any other rights of Landlord hereunder or at law, to
terminate this Lease or to execute any such certificate, agreement,
instrument or document on behalf of Tenant and in Tenant's name,
for which purpose Tenant hereby appoints Landlord as Tenant's
attorney pursuant to the Powers of Attorney Act (Ontario).
Registration
Tenant shall not register this Lease or any short form or
notice hereof except in such form as has been approved by Landlord
in writing, Tenant agreeing to pay Landlord's reasonable expenses,
including legal fees, of such approval. Tenant shall forthwith
provide to Landlord a duplicate registered copy of any short form
or notice of this Lease or other document registered on title.
ARTICLE XVI.0 DEFAULT AND REMEDIES
Default and Remedies
If any of the following shall occur:
Tenant fails, for any reason, to make any payment of Rent
as and when the same is due to be paid hereunder and such default
continues for five (5) days after such payment was due, whether or
not notice is given to Tenant;
Tenant fails, for any reason, to observe or perform any
obligation of Tenant pursuant to this Lease other than the payment
of any Rent, and such default continues for fifteen (15) days in
the event that third parties are affected; otherwise thirty (30)
days, or such shorter period in the event of an emergency as
expressly provided herein, or in case there is no emergency, such
longer period as is necessary to cure such default, after notice
thereof to Tenant;
any of Landlord's insurance policies on the Project are
actually or threatened to be cancelled or adversely changed as a
result of any use of or contents in the Premises;
Tenant shall purport to make a Transfer affecting the
Premises, or the Premises shall be used by any person or for any
purpose, other than in compliance with this Lease;
Tenant or any other occupant of the Premises makes an
assignment for the benefit of creditors generally or becomes
bankrupt or insolvent or takes the benefit of any statute for
bankrupt or insolvent debtors or makes any proposal or arrangement
with creditors, or Tenant makes any sale in bulk of any property on
the Premises (other than in conjunction with a Transfer approved in
writing by Landlord and made pursuant to all applicable
legislation), or steps are taken for the winding up or other
termination of Tenant's existence or liquidation of its assets;
a trustee, receiver, receiver-manager, or similar person
is appointed in respect of the assets or business of Tenant or any
other occupant of the Premises;
Tenant attempts to or does abandon the Premises, or if
the Premises are vacant or unoccupied for a period of five (5)
consecutive days or more without the prior written consent of
Landlord;
this Lease or any other property of Tenant in the
Premises is at any time seized or taken in execution which remains
unsatisfied for a period of five (5) days or more;
termination or re-entry by Landlord is permitted under
any provision of this Lease or at law;
then the then current and the next three (3) months' Rent shall be
forthwith due and payable and, in addition to any other rights or
remedies to which Landlord is entitled hereunder or at law,
Landlord shall have the following rights and remedies, which are
cumulative and not alternative, namely:
(i) to terminate this Lease in respect of the whole or
any part of the Premises by written notice to Tenant;
(ii) as agent of Tenant to relet the Premises and take
possession of any furniture, fixtures, equipment or other property
thereon and, upon giving notice to Tenant, to store the same at the
expense and risk of Tenant or sell or otherwise dispose of the same
at public or private sale without further notice, and to make
alterations to the Premises to facilitate their reletting and to
apply the net proceeds of the sale of any furniture, fixtures,
equipment, or other property or from the reletting of the Premises,
less all expenses incurred by Landlord in making the Premises ready
for reletting and in reletting the Premises, on account of the Rent
due and to become due under this Lease and Tenant shall be liable
to Landlord for any deficiency and for all such expenses incurred
by Landlord as aforesaid; nothing done by Landlord shall be
construed as an election to terminate this Lease unless written
notice of such termination is given by Landlord to Tenant;
(iii) to remedy any default of Tenant in performing any
repairs, work or other obligations of Tenant hereunder, and in so
doing to enter upon the Premises, without any liability to Tenant
therefor and without constituting a re-entry of the Premises or
termination of this Lease or breach of the Landlord's covenant of
quiet enjoyment, and, in such case, Tenant shall pay to Landlord
forthwith upon demand all reasonable costs of Landlord in remedying
or attempting to remedy any such default plus ten (10%) percent for
inspection and supervision plus ten (10%) percent for overhead and
profit or such other reasonable amounts as may be charged by
Landlord for overhead and profit from time to time; and
(iv) to obtain damages from Tenant including, without
limitation, if this Lease is terminated, all deficiencies between
all amounts which would have been payable by Tenant for what would
have been the balance of the Term, but for such termination, and
all net amounts actually received by Landlord for such period.
Interest
All amounts of Rent shall bear interest from their
respective due dates until the dates of payment at the rate of five
(5%) percent per annum in excess of the prime rate of interest
charged by Landlord's bank in Ontario from time to time.
Costs
Tenant shall pay to Landlord forthwith upon demand all
costs incurred by Landlord, including, without limitation,
reasonable legal expenses on a solicitor and his own client basis
and reasonable compensation for all time expended by Landlord's own
personnel, arising as a result of any default in Tenant's
obligations under this Lease.
Distress and Tenant's Property
Tenant hereby waives and renounces the benefit of any
present or future statute taking away or limiting Landlord's right
of distress and agrees with Landlord that, notwithstanding any such
statute, all goods and chattels from time to time on the Premises
shall be subject to distress for Rent. All Tenant's personal
property on the Premises shall at all times be the unencumbered
property of Tenant.
Security Deposit
NOT APPLICABLE
Remedies to Subsist
No waiver of any of Tenant's obligations under this Lease
or of any of Landlord's rights in respect of any default by Tenant
hereunder shall be deemed to have occurred as a result of any
condoning, overlooking or delay by Landlord in respect of any
default by Tenant or by any other act or omission of Landlord
including, without limitation, the acceptance of any Rent less than
the full amount thereof or the acceptance of any Rent after the
occurrence of any default by Tenant. The waiver by Landlord of any
default of Tenant or of any rights of Landlord, which shall be
effected only by an express written waiver executed by Landlord,
shall not be deemed to be a waiver of any term, covenant or
condition in respect of which such default or right has been waived
and shall not be deemed to be a waiver of any subsequent default of
Tenant or right of Landlord. All rights and remedies of Landlord
under this Lease and at law shall be cumulative and not
alternative, and the exercise by Landlord of any of its rights
pursuant to this Lease or at law shall at all times be without
prejudice to any other rights of Landlord, whether or not they are
expressly reserved. Tenant's obligations under this Lease shall
survive the expiry or earlier termination of this Lease and shall
remain in full force and effect until fully complied with.
Impossibility of Performance
If and to the extent that either Landlord or Tenant shall
be delayed in the fulfillment of any obligation under this Lease,
other than the payment by Tenant of any Rent, by reason of
unavailability of material, equipment, utilities, services or by
reason of any Laws, or by reason of any other similar cause beyond
its control and not avoidable by the exercise of reasonable
foresight (excluding the inability to pay for the performance of
such obligation), then the party being delayed shall be entitled to
extend the time for fulfillment of such obligation by a time equal
to the duration of such delay and the other party shall not be
entitled to any compensation for any loss or inconvenience
occasioned thereby. The party delayed will, however, use its best
efforts to fulfill the obligation in question as soon as is
reasonably practicable by arranging an alternate method of
providing the work, services or materials.
ARTICLE XVII.0 CONTROL OF PROJECT
Landlord's Control
The Project is at all times subject to the exclusive
control and management of Landlord. Without limiting the
generality of the foregoing, Landlord shall have the right to
obstruct or close off or restrict entry to all or any part of the
Project for purposes of performing any maintenance, repairs or
replacements or for security purposes or to prevent the accrual of
any rights to any person or the public or any dedication thereof,
provided that in exercising any such right Landlord shall use
reasonable best efforts to minimize interference with Tenant's
access to and use of the Premises.
Alterations of the Project
At any time or times Landlord shall have the right to
make any changes in, additions to, deletions from or relocations of
any part of the Project including any of the Common Facilities (any
of which are herein referred to as "Changes") as Landlord shall
consider desirable. If Landlord makes any Changes to the Premises,
subject to Tenant's prior written approval which will not be
unreasonably withheld, Landlord shall ensure that the Premises, as
affected by such Changes, shall be substantially the same in size
and shall be in all other material respects reasonably comparable
to the Premises originally demised hereby. If the Premises are
relocated as a result of such Changes, Landlord shall be
responsible for the direct cost of moving Tenant to the relocated
Premises and constructing replacement leasehold improvements
therein, but not for any indirect costs or losses of Tenant.
Tenant shall not have the right to object to or make any claim on
account of the exercise by Landlord of any of its rights under this
section 17.2, except that Tenant shall be entitled to an abatement
of Basic Rent, pro rata in proportion to the premises so affected,
for any period of time in excess of one (1) day that Tenant is
unable to conduct business in the Premises as a result of the
making of such Changes. Landlord shall make any such Changes as
expeditiously as is reasonably possible and so as to interfere as
little as is reasonably possible with Tenant's business on the
Premises.
Tenant acknowledges that portions of the Project may be
under construction during the Term, and that such construction
activities may cause temporary noise and disturbance to existing
tenants of the Project. Landlord will use reasonable efforts to
minimize interference with Tenant's occupation of the Premises as
a result of such construction activities, but Tenant acknowledges
that in no event shall any noise or other disturbance caused by
such construction constitute a breach of Tenant's right to quiet
enjoyment of the Premises.
Use of Common Facilities
Tenant shall not itself and shall not permit any of its
employees, servants, agents, contractors or persons having business
with Tenant, to obstruct any Common Facilities including driveways,
laneways or access routes, or to park vehicles in any portion of
the Common Facilities other than such areas, if any, as expressly
authorized by Landlord. Tenant shall ensure that its employees,
customers, and others doing business with it, shall not park
vehicles anywhere on the Project other than on the Premises.
Landlord shall have the right, at Tenant's expense payable on
demand, to remove any such obstruction or improperly parked
vehicles, without any liability for any damage caused thereby.
Rules and Regulations
Landlord may from time to time make and amend reasonable
rules and regulations for the management and operation of the
Project and Tenant and all persons under its control shall comply
with all of such rules and regulations of which notice is given to
Tenant from time to time, all of which shall be deemed to be
incorporated into and form part of this Lease. Landlord shall not
make any rules or regulations which conflict with any express
provision of this Lease unless and only to the extent required by
any applicable Laws. Landlord shall act reasonably in enforcing
such rules and regulations but shall not be liable for their
non-enforcement.
Access to Premises
Without limiting any other rights Landlord may have
pursuant hereto or at law, Landlord shall have the right to enter
the Premises, including the building, at any time for any of the
following purposes: (i) to examine the Premises and to perform any
maintenance, repairs or alterations to any part of the Premises or
to any equipment and services serving the Premises or any other
part of the Project; (ii) in cases of emergency; (iii) to read any
utility or other meters; (iv) during the last twelve (12) months of
the Term to show the Premises to prospective tenants and to permit
prospective tenants to make inspections, measurements and plans;
and (v) at any time during the Term to show the Premises to
prospective purchasers or lenders.
Landlord shall have the right to run through the Premises
conduits, wires, pipes, ducts and other elements of any systems for
utilities, heating, ventilating, air-conditioning and humidity
control, telephone and other communications systems and any other
such systems to serve the Premises or the Project.
Landlord shall exercise its rights pursuant to this
section 17.5 in such manner and at such times as Landlord, acting
reasonably but in its sole discretion, shall determine. At any
time that entry by Landlord is desired in case of emergency, and if
no personnel of Tenant are known by Landlord to be present on the
Premises or if such personnel fail for any reason to provide
Landlord immediate access at the time such entry is desired,
Landlord may forcibly enter the Premises without liability for
damage caused thereby.
Expropriation
If the Premises or any part thereof shall be expropriated
(which for the purposes of this Article XVII shall include a sale
by Landlord to any authority with the power to expropriate) by any
competent authority then:
Landlord and Tenant shall co-operate with each other so
that Tenant may receive such award to which it is entitled in law
for relocation costs, business interruption, and the value of
leasehold improvements paid for by Tenant and the amortized
portion, if any, of leasehold improvements paid for by Landlord,
and so that Landlord may receive the maximum award to which it may
be entitled in law for all other compensation arising from such
expropriation including, without limitation, all compensation for
the value of Tenant's leasehold interest in the Premises;
except for such compensation to which Tenant shall be
entitled as aforesaid, all Tenant's other rights in respect of such
expropriation are hereby assigned to Landlord, and within ten (10)
days after request by Landlord Tenant shall execute such further
documents as requested by Landlord to give effect to such
assignment, failing which Landlord is hereby irrevocably appointed,
pursuant to the Powers of Attorney Act (Ontario) Tenant's attorney
to do so on behalf of Tenant and in its name; and
Landlord shall have the option, to be exercised by
written notice to Tenant, to terminate this Lease, effective on the
date the expropriating authority takes possession of the whole or
any portion of the Premises.
If the whole or any part of the Project shall be
expropriated, then subject to the foregoing provisions respecting
expropriation of the Premises:
all compensation resulting from such expropriation shall
be the absolute property of Landlord and all of Tenant's rights, if
any, to any such compensation are hereby assigned to Landlord and
within ten (10) days after request by Landlord Tenant shall execute
such further documents as requested by Landlord to give effect to
such assignment, failing which Landlord is hereby irrevocably
appointed, pursuant to the Powers of Attorney Act (Ontario),
Tenant's attorney to do so on behalf of Tenant and in its name; and
if the expropriation of part of the Project is such as to
render undesirable, in Landlord's reasonable opinion, the
continuing operation of the portion of the Project in which the
Premises are situate, Landlord shall have the right to terminate
this Lease as of the date the expropriating authority takes
possession of all or any portion of the Project.
Development of Project
Landlord shall be entitled from time to time to make any
application it considers necessary or desirable in respect of the
Project, including applications for any re-zoning, variance,
severance, or by-law amendment or enactment. Promptly upon request
from Landlord, Tenant will provide its consent and co-operation in
respect of any application made by Landlord in the process of
developing the Project, and will execute all documents and make all
attendances required in connection therewith. Without limiting the
generality of the foregoing, Tenant agrees that it will not contest
or object to any application or other process initiated or
supported by Landlord in respect of the development of the Project,
including without limitation any local improvements or any
assessments in respect thereof required or imposed by governmental
authorities.
Landlord may from time to time grant, and whenever
requested by Landlord tenant will consent to or co-operate or join
in the granting of, any licences, easements, rights-of-way and
other rights in the nature of the foregoing, in favour of any
municipal, governmental or public utility authorities or companies,
which Landlord deems necessary or desirable for the provision to
the Project of roadways, utilities, services or amenities or
otherwise for the furtherance of the development of the Project.
17.8 Landlord's Consent
If Landlord withholds, delays or refuses to give consent as
provided by the terms of this Lease, whether or not Landlord is
entitled to do so, Landlord shall not be liable for any losses or
damages in any way resulting therefrom and Tenant shall not be
entitled to terminate this Lease or exercise any remedy whatever in
respect thereof except to seek the order of a court of competent
jurisdiction compelling Landlord to grant any such consent which
Landlord is obliged to grant pursuant to the terms of this Lease.
ARTICLE XVIII.0 MISCELLANEOUS
Notices
All notices, statements, demands, requests or other
instruments ("Notices") which may be or are required to be given
under this Lease shall be in writing and shall be delivered in
person or sent by prepaid registered Canadian mail addressed, if to
the Tenant, at the Address for Service of Notice on Tenant, if to
the Guarantor, if any, at the Address for Service of Notice on
Guarantor, and if to the Landlord at the Address for Service of
Notice on Landlord, all as provided in section 1.1 hereof.
All such Notices shall be conclusively deemed to have
been given and received upon the day the same is personally
delivered or, if mailed as aforesaid, four (4) business days
(excluding Saturdays, Sundays, holidays and days upon which regular
postal service is interrupted or unavailable for any reason) after
the same is mailed as aforesaid. Any party may at any time by
notice in writing to the other change the Address for Service of
Notice on it. If two or more persons are named as Tenant or
Indemnifier, any Notice given hereunder shall be sufficiently given
if delivered or mailed in the foregoing manner to any one of such
persons.
Complete Agreement
There are no covenants, representations, agreements,
warranties or conditions in any way relating to the subject matter
of this Lease or the tenancy created hereby, expressed or implied,
collateral or otherwise, except as expressly set forth herein, and
this Lease constitutes the entire agreement between the parties and
may not be modified except by subsequent written agreement duly
executed by Landlord and Tenant.
Time of the Essence
Time is of the essence of all terms of this Lease.
Applicable Law
This Lease shall be governed by and interpreted in
accordance with the laws of the Province of Ontario. The parties
agree that the Courts of Ontario shall have jurisdiction to
determine any matters arising hereunder.
Severability
If any provision of this Lease is illegal, unenforceable
or invalid, it shall be considered separate and severable and all
the remainder of this Lease shall remain in full force and effect
as though such provision had not been included in this Lease but
such provision shall nonetheless continue to be enforceable to the
extent permitted by law.
Section Numbers and Headings
The table of contents and all section numbers and
headings of this Lease are inserted for convenience only and shall
in no way limit or affect the interpretation of this Lease.
Interpretation
Whenever a word importing the singular or plural is used
in this Lease such word shall include the plural and singular
respectively. Where any party is comprised of more than one
entity, the obligations of each of such entities shall be joint and
several. Words importing persons of either gender or firms or
corporations shall include persons of the other gender and firms or
corporations as applicable. Subject to the express provisions
contained in this Lease, words such as "hereof", "herein",
"hereby", "hereafter", and "hereunder" and all similar words or
expressions shall refer to this Lease as a whole and not to any
particular section or portion hereof.
Successors
This Lease shall enure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors,
administrators, successors assigns and other legal representatives
except only that this Lease shall not enure to the benefit of any
of such parties unless and only to the extent expressly permitted
pursuant to the provisions of this Lease.
ARTICLE XIX
19.0 SPECIAL PROVISIONS
19.1 Conditions to Tenant's Rights
If Tenant has duly and punctually performed each and
every of its obligations under this Lease and is not in continuing
default of this Lease, and has not made an assignment for the
benefit of creditors and has not taken the benefit of any statute
in force for bankrupt or insolvent debtors, no petition in
bankruptcy or receiving order has been made against Tenant, and no
receiver or other similar person has taken control of the assets or
business of Tenant or a substantial portion thereof, and Tenant has
not sublet or parted with possession of all or any part of the
Premises, then and only then shall sections 19.2, apply.
19.2 Renewal Option
The Tenant shall have the Option to Renew the herein
Lease for two (2) additional period of five years each upon the
same terms and conditions, save and except for the rental rates
which shall be as follows, provided that the Tenant exercises such
option by notice in writing delivered to the Landlord no later than
nine (9) months prior to the expiration of the Lease Term.
Option Number 1:
Year Rate/Sq.Ft. Rate/Annum Rate/Month
11 $3.10 $ 880,400.00 $73,366.67
12 $3.30 $ 937,200.00 $78,100.00
13 $3.50 $ 994,000.00 $82,833.33
14 $3.70 $1,050,800.00 $87,566.67
15 $3.90 $1,107,600.00 $92,300.00
Option Number 2:
Year Rate/Sq.Ft. Rate/Annum Rate/Month
16 To be negotiated based upon market rental rates for similar
17 space in the Brantford, Ontario area. Failing agreement
18 to this, all parties agree to refer this matter to arbitration.
19
20
19.3 Environmental Provisions
(a) For the purposes of this Lease "Environmental Laws" shall
mean all applicable federal, provincial, municipal, or local laws,
statutes, regulations, by-laws and orders, directives and decisions
rendered by any ministry, department or administrative or
regulatory agency.
(b) The Landlord represents and warrants that at the
commencement of the term, the Buildings and Leased Premises are in
compliance with all Environmental Laws affecting their condition
and use.
(c) The Landlord hereby releases and agrees to defend,
indemnify and hold the Tenant harmless from and against all claims,
demands, liabilities, losses, damages, expenses, costs and
reasonable attorney's fees arising out of or resulting from the
presence of any Hazardous Substance (as defined below) upon, in or
under the Leased Premises on and prior to the date on which this
Lease commences, including and without limiting the generality of
the foregoing, the presence of any Hazardous Substance in the tow
motor line; in the drainage trough directly north of the tow motor
line; in the air, soil or ground water; and in capacitors,
transformers, light ballasts or other electrical equipment. The
term "Hazardous Substance" means asbestos, polychlorinated
biphenyls, nuclear fuel or materials, chemical wastes, radioactive
materials, explosives, known carcinogens, petroleum products and
any other dangerous, toxic, or hazardous pollutant, contaminant,
chemical, material or substance defined as hazardous or as a
pollutant or contaminant in, or the release or disposal of which is
regulated by, any existing federal, provincial, municipal, local or
other statute, law, ordinance or regulation, which may relate to or
deal with human health or the environment.
(d) The Tenant represents and warrants that there are no
judgements, decrees or orders outstanding and no litigation or
administrative, arbitrable, or governmental or quasi-governmental
proceedings or inquiries pending or, to the best of the Tenant's
knowledge, threatened against or related to, in whole or in part,
the Tenant, including, without limitation, those relating to
Environmental Laws.
(e) The Tenant will carry on business upon and with respect
to the Leased Premises in compliance in all material respects with
all permits, licences, registrations and approvals necessary to
carry on its business, including, without limitation, all
applicable environmental permits, licences, consents, approvals,
orders and authorizations required under applicable Environmental
Laws.
(f) The business which the Tenant intends to conduct upon and
with respect to the Leased Premises is not in breach of any
applicable covenant, restriction or Environmental Laws currently
enforced.
(g) If the Tenant receives any notice, citation, summons or
order or learns of any complaint which has been filed with respect
to the business carried on by the Tenant on the Leased Premises
concerning any alleged violation of any Environmental Laws or with
respect to any alleged failure to have any environmental permits or
approvals required in connection with the conduct of its business,
or any alleged violation with respect to compliance with the terms
or conditions of any environmental permits or approvals in
connection with the conduct of its business, the Tenant shall
forthwith notify the Landlord thereof in writing.
(h) On the termination of this Lease for any reason the
Tenant will surrender the Leased Premises to the Landlord in the
condition in which they are required by the Lease to be kept by the
Tenant and as closely as is reasonably possible to their condition
at the Lease Commencement Date, all at the Tenant's expense.
(i) The Tenant shall indemnify and hold the Landlord harmless
from and against any claims, demands, liabilities, losses, damages
and expenses suffered by the Landlord arising out of or in
connection with any and all environmental liabilities relating to
the activities of the Tenant upon or with respect to the Leased
Premises from and after the date on which this Lease commences.
(j) The Landlord or the Landlord's Authorized Agent shall
have the right to perform an environmental inspection of the Leased
Premises, including any testing therein, upon providing the Tenant
with twenty-four (24) hours prior written notice of the Landlord's
or the Landlord Authorized Agent's intent to do so. The Tenant
shall fully cooperate with the Landlord or the Landlord's
Authorized Agent.
19.4 Right Of First Refusal (Warehouse and/or Office Space)
The Tenant shall have the Right of First Refusal to lease
all or part of the space identified as "X" and in black on Schedule
"B" at any time during the original term of the lease, or during
any subsequent renewal term of this lease, if, as and when said
space becomes vacant. Pursuant to this right of first refusal, the
Landlord will notify the Tenant when the said space becomes vacant
and a bonafide offer acceptable to the Landlord is received, in
which event the Tenant shall have forty-eight (48) hours to make
the same offer which the Landlord must accept.
19.5 Condition Of Premises
The Landlord represents to the best of its knowledge and
belief that the premises are free of any material structural
defect, and the roof, plumbing, heating, air-conditioning,
electrical, drainage, sprinkler, lighting, and, in general all
systems contained herein are in good working condition and fully
operational.
19.6 Building Codes
The Landlord represents to the best of its knowledge and
belief that the building meets all provincial and municipal
Building Codes and By-laws.
19.7 Environmental Representation
The Landlord represents to the best of its knowledge and
belief, that the premises are in compliance with all environmental
laws and regulations. The Landlord agrees to indemnify, defend and
hold Tenant harmless against any liability for the failure of the
premises to comply with environmental laws and regulations prior to
the date of Tenant's occupancy.
19.8 Net Rent Free Period (Early Occupancy)
The Landlord agrees to grant a Net Rent Free Period
(Early Occupancy) from November 15, 1995 to March 31, 1996 equal to
four months and fifteen days. It is understood and agreed by both
the Landlord and the Tenant that all Additional Rent shall apply
during this "period".
19.9 Exterior Use of Premises
The Tenant shall be allowed unobstructed and exclusive
use of its area of the shipping/receiving yard and parking areas
adjacent to the demised premises as shown on Schedule "B" during
the lease term or option periods thereof if exercised.
19.10 Non-Disturbance Agreement
The Landlord shall obtain from any existing holder of a
mortgage, charge, or encumbrance, a non-disturbance agreement in
favour of the Tenant whereby the Tenant's use and occupation of the
Leased Premises will not be interfered with by any such mortgagee,
chargor, encumbrancer provided that the Tenant shall not be in
continuous breach of any of its covenants or obligations under the
Lease. If this is not available then it shall not represent a
default by the Landlord.
19.11 Landlord's Work
It is understood and agreed that the Landlord at the
Landlord's expense, shall be responsible for the following work
which shall be performed by the Landlord and/or its agents in a
proper and workmanlike manner using new materials and shall comply
with the Ontario Building Code and municipal codes and bylaws:
a) Remove all debris and obstructions and fill in all pits,
excluding the floor level conveyor, and depressions providing a
levelled floor suitable for the Tenant's business,
b) Clean and repair floors, (remove, scrub, degrease and
power sweep ready for floor sealant,
c) Make all necessary repairs to the roof, walls and yard,
d) Provide seventeen (17) truck level doors with heavy duty
automatic levellers, overhead doors, tracks and door seals. This
work shall include grading, paving and concrete dolly pads, if not
existing, for truck access to the shipping/receiving doors. Two
(2) of the truck level doors shall be constructed on the south side
of the Building and Landlord shall remove the existing cement block
office structure at this location to provide access to these doors;
and, five (5) of the truck level doors shall be constructed on the
east side of the Building,
e) Provide up to one hundred and fifty (150) parking spaces
in the existing employee parking lot area on the south side of the
subject premises for the exclusive use of the Tenant,
f) Remove the portable shop office and related equipment in
the premises and replace the fence to secure the transformers,
g) Provide, if required by the Tenant, a new entrance to the
office area of the premises,
h) Provide, if required by the Tenant, two (2) floor level
doors in the north wall of the premises.
i) With the Tenant's prior written authorization, remove and
dispose of all paint and other residue and curbing from the
concrete floor of the mezzanine area in accordance with all local,
provincial and federal laws, rules and regulations. The above work
shall include alteration of the protective railing around floor
openings. Tenant shall reimburse Landlord for the cost of such
work plus applicable taxes, if any, but the Landlord shall not
contract for any such work without the prior written consent of the
Tenant.
19.12 Early Termination
The Tenant may exercise its right of early termination of
the Lease for any reason as follows:
a) The right of termination is only exercisable by the
Tenant after the seventy-eighth month of the initial Term,
b) The Tenant must give the Landlord six months prior
written notice of its intent to terminate the Lease,
c) The Tenant shall at the end of the aforementioned six
month notice period pay to the Landlord an amount equivalent to the
net rent for the next twelve (12) month period, and
d) The Tenant shall provide the Landlord with vacant
possession of the premises at the end of the six month notice
period, in accordance with the terms in the Lease.
19.13 Office Space
If available, the Tenant shall have the right, within
ninety (90) days from the commencement date herein, to lease all
the office space in Building No. 1, consisting of approximately
25,000 square feet, in the Brant Trade & Industrial Park. If the
Tenant exercises said option then the office space shall be leased
at the same rental rates and term as provided for herein. The
Tenant shall improve the premises at its sole cost and expense.
19.14 Close Down Period (Hold Over)
The Tenant at the end of the Lease term and any of the
Option periods to renew, if exercised shall have an additional
three (3) months as a "Close Down Period". It is understood and
agreed by both the Landlord and the Tenant that the net rental and
all additional rents shall apply during this period as per the last
month's rates of the Lease.
19.15 Commissions
a) Each party shall be responsible for the payment of
its own broker's commissions, finder's fees or similar charges.
b) Landlord shall indemnify and hold the Tenant harmless
from any liabilities, losses, damages and expenses suffered by
Tenant arising out of or resulting from any claims or demands for
broker's commissions, finder's fees or similar charges by anyone
with whom Landlord has dealt in connection with this Lease.
c) The Tenant shall indemnify and hold the Landlord
harmless from any liabilities, losses, damages and expenses
suffered by Landlord arising out of or resulting from any claims or
demands for broker's commissions, finder's fees or similar charges
by anyone with whom Tenant has dealt in connection with this Lease.
19.16 Mediation/Arbitration
The exclusive procedure for resolution of any disputes or
controversies arising under this Lease or the transactions
contemplated hereunder shall be as follows:
The parties shall attempt in good faith to resolve by
mediation any and all disputes and differences of any kind between
the parties arising under this Lease or the transactions
contemplated hereunder which cannot be settled amicably by the
parties. The mediator shall be a mutually acceptable third party,
who shall be responsible for the conduct of the mediation process.
If the matter or dispute has not been resolved pursuant to the
aforesaid mediation procedure within sixty (60) days of the
commencement of such procedure (which period may be extended by
mutual agreement), if either party does not participate in such
mediation, or if the parties cannot agree on a mutually acceptable
mediator within thirty (30) days of delivery of notice by one party
to the other of its intention to mediate a dispute, the parties
shall submit to arbitration. Any arbitration commenced or
conducted hereunder shall be conducted pursuant to the Arbitrations
Act 1991 (Ontario) as amended from time to time, to the extent the
provisions thereof are not inconsistent with the provisions of this
Section 19.16. Any such arbitration proceedings shall be
conducted in Toronto, Ontario by a panel of three (3) arbitrators
appointed in accordance with the following provisions:
a) Arbitration Panel:
The arbitration panel shall consist of three (3)
arbitrators. Landlord shall appoint one (1) arbitrator and Tenant
shall appoint one (1) arbitrator. The two (2) arbitrators thus
appointed shall appoint one (1) arbitrator who shall act as the
Chairman of the arbitration panel. In the event of any default in
the appointment of an arbitrator or any inability to agree on the
appointment of an arbitrator or the Chairman of the arbitration
panel, either party may apply to a judge on the Ontario Court
(General Division) to appoint an arbitrator or a third arbitrator,
as the case may be.
b) Binding Award:
The award of the arbitrators shall be final and binding
on the parties to the arbitration, their successors and assigns and
there shall be no appeal therefrom with respect to any controversy.
The costs of arbitration, and which party or parties shall bear the
costs and expenses or if all of the parties shall share the costs
and expenses and, if so, in what proportion, shall be decided by
the arbitrators taking into strict account the provisions of this
Lease.
c) Enforcement:
The award of the arbitrators shall be enforceable by any
court having jurisdiction over the party or parties against which
the award has been rendered, or where assets of the party or
parties against which the award has been rendered can be located.
Each of the parties agree to pay the amount of, and otherwise
comply with, any arbitral award and to pay any costs and expenses
of arbitration which the arbitrators determine that it is required
to pay within fifteen (15) Business Days after receipt of notice of
the arbitrators' award.
IN WITNESS WHEREOF the parties have executed this Lease.
BRANT TRADE & INDUSTRIAL PARK INC.
Per: c/s
Per:
ACE HARDWARE CANADA LIMITED
Per: DAVID F. HODNIK, PRESIDENT & CEO
Per: DAVID W. LEAGUE, SECRETARY
SCHEDULE "A"
In the City of Brantford, in the County of Brant, being
composed of Part of Lots 37, 38 and 39 in Concession 3 of the
Geographic Township of Brantford, designated as PARTS 1, 2, 3 and
4 on Reference Plan number 2R-4137, deposited in the Land Registry
Office for the Registry Division of Brant.
Subject to an Easement as described in instrument number
A89909 in favour of THE CORPORATION OF THE CITY OF BRANTFORD, its
successors and assigns, over that Part of said Lot 39 designated as
PART 3 on Reference Plan number 2R-4137.
SCHEDULE "B"
SCHEDULE "C"
TENANT ALTERATIONS
1. Refurbish 2nd floor bathrooms
2. Exterior perimeter fence - dock (east loading area)
3. Proposed parking lot
4. Clean 2nd floor structure
5. Remove paint from floor - 2nd floor
6. Painting 2nd floor
7. Re-light 2nd floor
8. Remove 2nd floor offices
9. Cover steel sash windows
10. Add stairs to 2nd floor
11. Add ramps for rail access
12. Renovate aerosol room
13. Renovate 1st floor offices
14. Add employee entrance
15. Line safety/security
16. In-rack sprinklers
17. At Tenant's option install wall mounted gas fired forced air
heaters on mezzanine level
- - 2 -
- - v -
Article
- - 42 -
EXHIBIT 10-a-13
OFFICE LEASE
674573 ONTARIO LIMITED
(Landlord)
ACE HARDWARE CANADA LIMITED
A corporation incorporated under the laws of Ontario
80 Micro Court
Markham, Ontario
TABLE OF CONTENTS
ARTICLE I Definitions
Section 1.01 "Additional Rent". . . . . . . . . . . . . . . . . . 1
Section 1.02 "Architect". . . . . . . . . . . . . . . . . . . . . 1
Section 1.03 "Building" . . . . . . . . . . . . . . . . . . . . . 1
Section 1.04 "Common Facilities". . . . . . . . . . . . . . . . . 2
Section 1.05 "Fixturing Period" . . . . . . . . . . . . . . . . . 2
Section 1.06 "Land Surveyor". . . . . . . . . . . . . . . . . . . 2
Section 1.07 "Landlord" . . . . . . . . . . . . . . . . . . . . . 2
Section 1.08 "Landlord's Work". . . . . . . . . . . . . . . . . . 3
Section 1.09 "Leasable Premises". . . . . . . . . . . . . . . . . 3
Section 1.10 "Manager". . . . . . . . . . . . . . . . . . . . . . 3
Section 1.11 "Minimum Rent" . . . . . . . . . . . . . . . . . . . 3
Section 1.12 "Mortgagee". . . . . . . . . . . . . . . . . . . . . 3
Section 1.13 "Normal Business Hours". . . . . . . . . . . . . . . 3
Section 1.14 "Person" . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.15 "Premises" . . . . . . . . . . . . . . . . . . . . . 4
Section 1.16 "Proportionate Share". . . . . . . . . . . . . . . . 4
Section 1.17 "Rent" . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.18 "Rentable Area of the Premises". . . . . . . . . . . 4
Section 1.19 "Rentable Area of the Building". . . . . . . . . . . 4
Section 1.20 "Rental Year". . . . . . . . . . . . . . . . . . . . 5
Section 1.21 "Rules and Regulations". . . . . . . . . . . . . . . 5
Section 1.22 "Tenant" . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.23 "Tenant's Work". . . . . . . . . . . . . . . . . . . 5
Section 1.24 "Term" . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.25 "Usable Floor Area". . . . . . . . . . . . . . . . . 5
Section 1.26 "Hazardous Substances" . . . . . . . . . . . . . . . 6
ARTICLE II Intent and Interpretation
Section 2.01 - Net Lease. . . . . . . . . . . . . . . . . . . . . . 6
Section 2.02 - Obligations as Covenants . . . . . . . . . . . . . . 6
Section 2.03 - Headings . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.04 - Extended Meanings. . . . . . . . . . . . . . . . . . 6
Section 2.05 - Partial Invalidity . . . . . . . . . . . . . . . . . 7
Section 2.06 - Entire Agreement . . . . . . . . . . . . . . . . . . 7
Section 2.07 - Governing Law. . . . . . . . . . . . . . . . . . . . 7
Section 2.08 - Time of the Essence. . . . . . . . . . . . . . . . . 8
ARTICLE III Grant and Term
Section 3.01 - Premises . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.02 - Use of Common Facilities . . . . . . . . . . . . . . 8
Section 3.03 - Commencement and
Ending Date of the Term. . . . . . . . . . . . . . . 8
Section 3.04 - Notice and Certificates. . . . . . . . . . . . . . . 9
Section 3.05 - Early Occupancy. . . . . . . . . . . . . . . . . . . 9
Section 3.06 - Delayed Possession . . . . . . . . . . . . . . . . . 9
Section 3.07 - Acceptance of Premises . . . . . . . . . . . . . . . 9
Section 3.08 - Landlord's and Tenant's Work . . . . . . . . . . . . 10
Section 3.09 - Relocation . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV Rent
Section 4.01 - Covenant to Pay. . . . . . . . . . . . . . . . . . . 10
Section 4.02 - Minimum Rent . . . . . . . . . . . . . . . . . . . . 10
Section 4.03 - Rent Past Due. . . . . . . . . . . . . . . . . . . . 11
ARTICLE V Taxes
Section 5.01 - Taxes - Definition . . . . . . . . . . . . . . . . . 11
Section 5.02 - Taxes Payable by the Landlord. . . . . . . . . . . . 12
Section 5.03 - Taxes Payable by the Tenant. . . . . . . . . . . . 12
Section 5.04 - Business Taxes and Other Taxes of Tenant . . . . . . 13
Section 5.05 - Tenant's Indemnification With Respect to
Taxes under Sections 5.01, 5.03 and 5.04 . . . . . . 14
Section 5.06 - Landlord's Taxes . . . . . . . . . . . . . . . . . . 14
Section 5.07 - Per Diem Adjustment. . . . . . . . . . . . . . . . . 14
ARTICLE VI Building and Common Facilities - Control and Payment
Section 6.01 - Control of the Building by the Landlord. . . . . . . 14
Section 6.02 - Tenant to Bear Share of Expense. . . . . . . . . . . 16
Section 6.03 - Payment of Tenant's Share. . . . . . . . . . . . . . 19
Section 6.04 - Landlord's Services. . . . . . . . . . . . . . . . . 19
Section 6.05 - Building Identification. . . . . . . . . . . . . . . 21
ARTICLE VII Utilities and Heating, Ventilating and Air Conditioning
Section 7.01 - Charges for Utilities. . . . . . . . . . . . . . . . 21
Section 7.02 - Lighting . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VIII Use of the Premises
Section 8.01 - Use of the Premises. . . . . . . . . . . . . . . . . 22
Section 8.02 - Conduct of Business. . . . . . . . . . . . . . . . . 23
Section 8.03 - Observance of Law. . . . . . . . . . . . . . . . . . 24
ARTICLE IX Insurance and Indemnity
Section 9.01 - Tenant's Insurance . . . . . . . . . . . . . . . . . 25
Section 9.02 - Increase in Insurance Premiums . . . . . . . . . . . 27
Section 9.03 - Cancellation of Insurance. . . . . . . . . . . . . . 27
Section 9.04 - Loss or Damage . . . . . . . . . . . . . . . . . . . 27
Section 9.05 - Landlord's Insurance . . . . . . . . . . . . . . . . 28
Section 9.06 - Indemnification of Landlord. . . . . . . . . . . . . 28
Section 9.07 - Limitations of Liability . . . . . . . . . . . . . . 29
ARTICLE X Maintenance, Repairs and Alterations
Section 10.01 - Maintenance and Repairs by Tenant . . . . . . . . . 29
Section 10.02 - Landlord's Approval of Tenant's Repairs . . . . . . 29
Section 10.03 - Maintenance by Landlord . . . . . . . . . . . . . . 31
Section 10.04 - Repair on Notice. . . . . . . . . . . . . . . . . . 32
Section 10.05 - Surrender of the Premises . . . . . . . . . . . . . 32
Section 10.06 - Repair Where Tenant at Fault. . . . . . . . . . . . 32
Section 10.07 - Tenant Not to Overload Facilities . . . . . . . . . 32
Section 10.08 - Tenant Not to Overload Floors . . . . . . . . . . . 33
Section 10.09 - Removal and Restoration by Tenant . . . . . . . . . 33
Section 10.10 - Notice by Tenant. . . . . . . . . . . . . . . . . . 34
Section 10.11 - Liens . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.12 - Signs and Advertising . . . . . . . . . . . . . . . 34
Section 10.13 - Directory Board . . . . . . . . . . . . . . . . . . 35
ARTICLE XI Damage and Destruction and Expropriation
Section 11.01 - Destruction of the Premises . . . . . . . . . . . . 35
Section 11.02 - Destruction of the Building . . . . . . . . . . . . 36
Section 11.03 - Expropriation . . . . . . . . . . . . . . . . . . . 37
Section 11.04 - Architect's Certificate . . . . . . . . . . . . . . 38
ARTICLE XII Assignment, Subletting and Change of Control
Section 12.01 - Consent Required. . . . . . . . . . . . . . . . . . 38
Section 12.02 - Conditions of Consent . . . . . . . . . . . . . . . 39
Section 12.03 - No Advertising of Premises. . . . . . . . . . . . . 41
Section 12.04 - Assignment by the Landlord. . . . . . . . . . . . . 41
ARTICLE XIII Access and Alterations
Section 13.01 - Right of Entry. . . . . . . . . . . . . . . . . . . 41
Section 13.02 - Security. . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE XIV Status Statement, Attornment and Subordination
Section 14.01 - Status Statement. . . . . . . . . . . . . . . . . . 42
Section 14.02 - Subordination and Attornment. . . . . . . . . . . . 43
Section 14.03 - Execution of Documents. . . . . . . . . . . . . . . 43
Section 14.04 - Financial Information . . . . . . . . . . . . . . . 44
ARTICLE XV Default and Landlord's Remedies
Section 15.01 - Right to Re-Enter . . . . . . . . . . . . . . . . . 44
Section 15.02 - Right to Relet. . . . . . . . . . . . . . . . . . . 46
Section 15.03 - Expenses. . . . . . . . . . . . . . . . . . . . . . 47
Section 15.04 - Removal of Chattels . . . . . . . . . . . . . . . . 47
Section 15.05 - Waiver of Exemption from Distress . . . . . . . . . 47
Section 15.06 - Landlord May Cure Tenant's Default or
Perform Tenant's Covenants . . . . . . . . . . . . 47
Section 15.07 - Lien on Personal Property . . . . . . . . . . . . . 48
Section 15.08 - Charges Collectible as Rent . . . . . . . . . . . . 48
Section 15.09 - Remedies Generally. . . . . . . . . . . . . . . . . 48
ARTICLE XVI Miscellaneous
Section 16.01 - Rules and Regulations . . . . . . . . . . . . . . . 49
Section 16.02 - Overholding - No Tacit Renewal. . . . . . . . . . . 49
Section 16.03 - Successors. . . . . . . . . . . . . . . . . . . . . 50
Section 16.04 - Tenant Partnership. . . . . . . . . . . . . . . . . 50
Section 16.05 - Waiver. . . . . . . . . . . . . . . . . . . . . . . 50
Section 16.06 - Accord and Satisfaction . . . . . . . . . . . . . . 50
Section 16.07 - Brokerage Commissions . . . . . . . . . . . . . . . 51
Section 16.08 - No Partnership or Agency. . . . . . . . . . . . . . 51
Section 16.09 - Force Majeure . . . . . . . . . . . . . . . . . . . 51
Section 16.10 - Notices . . . . . . . . . . . . . . . . . . . . . . 52
Section 16.11 - No Option . . . . . . . . . . . . . . . . . . . . . 52
Section 16.12 - Registration. . . . . . . . . . . . . . . . . . . . 52
Section 16.13 - Compliance with The Planning Act. . . . . . . . . . 52
Section 16.14 - Metric Conversion . . . . . . . . . . . . . . . . . 53
Section 16.15 - Limited Recourse and Severability . . . . . . . . . 53
Section 16.16 - Quiet Enjoyment . . . . . . . . . . . . . . . . . . 53
Section 16.17 - Tenant's Covenant to Hazardous
Substances . . . . . . . . . . . . . . . . . . . . 53
Section 16.18 - Execution of Lease By Landlord. . . . . . . . . . . 54
EXECUTION
SCHEDULE "A" - Legal Description of Lands
SCHEDULE "B" - Floor Plan
SCHEDULE "C" - Landlord's and Tenant's Work
SCHEDULE "D" - Rules and Regulations
SCHEDULE "E" - Supplementary Lease Provisions
SCHEDULE "F" - Hazardous Substances
THIS LEASE is dated the 27th day of November, 1995.
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT
BETWEEN:
674573 ONTARIO LIMITED
(hereinafter called the "Landlord"),
PARTY OF THE FIRST PART
- and -
ACE HARDWARE CANADA LIMITED
A corporation incorporated under the laws of Ontario
(hereinafter called the "Tenant")
PARTY OF THE SECOND PART
ARTICLE I
Definitions
The parties hereto agree that when used in this Lease or in any
Schedule attached to this Lease the following words or expressions
have the meaning hereinafter set forth.
Section 1.01
"Additional Rent" means any and all sums of money or charges
required to be paid by the Tenant under this Lease (except Minimum
Rent) whether or not designated as "Additional Rent" or whether or
not payable to the Landlord or to any other person.
Section 1.02
"Architect" means the architect from time to time named by the
Landlord.
Section 1.03
"Building" means all those lands and premises located at 80 Micro
Court, in the City of Markham, in the Province of Ontario, which
lands are more particularly described in Schedule "A" attached
hereto, as such lands may be altered, expanded or reduced from time
to time and the buildings, improvements, equipment and facilities
erected thereon or situate from time to time therein.
Section 1.04
"Common Facilities" means those areas, facilities, utilities,
improvements, equipment and installations which, from time to time:
(i) are not designated or intended by the Landlord to be leased to
tenants of the Building; (ii) are designated by the Landlord to
serve or benefit the Building, whether or not located within,
adjacent to, or near the Building; (iii) are designated by the
Landlord as part of the Common Facilities; (iv) are provided or
designated (and which may be changed from time to time) by the
Landlord for the use or benefit of the tenants, their employees,
customers and other invitees in common with others entitled to the
use or benefit thereof in the manner and for the purposes permitted
by this Lease. Without limiting the generality of the foregoing,
Common Facilities includes the roof and roof membrane, exterior
wall assemblies including weather walls, exterior and interior
structural elements and bearing walls in the buildings and
improvements comprising the Building, and the foundations and
footings of the Building, all parking areas, and parking garages
(if any); all entrances and exits thereto and all structural
elements thereof; employee parking areas; access roads; truck
courts; driveways; truckways; delivery passages; manual,
mechanical, electrical or automatically operated doors; package
pick-up stations; loading docks and related areas; pedestrian
sidewalks; landscaped and planted areas; foyers, atria and lobbies;
public seating and service areas; corridors; bus kiosks, if any,
roadways and stops; equipment, furniture, furnishings and fixtures;
first aid stations; stairways, escalators, ramps, moving sidewalks
and elevators and other transportation equipment and systems;
tenant common and public washrooms; electrical, telephone, meter,
valve, mechanical, mail, storage, service and janitor rooms and
galleries; music, fire prevention, security and communication
systems; pylon and other general signs; columns; pipes; electrical,
plumbing, drainage, heating, ventilating, air conditioning,
mechanical, and all other installations, equipment or services
located in the Building or related thereto as well as the
structures housing the same.
Section 1.05
"Fixturing Period" DELETED IN IT'S ENTIRETY.
Section 1.06
"Land Surveyor" means the accredited land surveyor from time to time
named by the Landlord.
Section 1.07
"Landlord" means the Party of the First Part, and is
deemed to include the word "Lessor", and in any section of this
Lease that contains exculpatory language in favour of the Landlord,
"Landlord" also includes the directors, officers, servants,
employees and agents of the Landlord.
Section 1.08
"Landlord's Work" means the work to be performed by the
Landlord as described in the provisions of Schedule "C" hereto.
Section 1.09
"Leasable Premises" means those premises (including the
Premises) in the Building which are leased to tenants or which are
designated or intended by the Landlord from time to time to be
leased or used and occupied by tenants, but shall not include any
Common Facilities and shall also not include storage space in the
Building leased to tenants or which is designated or intended by
the Landlord from time to time to be leased or occupied by tenants
for storage space in the Building.
Section 1.10
"Manager" means the Person retained by the Landlord from
time to time to manage the Building.
Section 1.11
"Minimum Rent" means the annual rent payable by the
Tenant pursuant to Section 4.02 hereof.
Section 1.12
"Mortgagee" means any mortgagee or hypothecary creditor
(including any trustee for bondholders) of the Building or any part
thereof, and any chargee or other secured creditor that holds the
Building or any part of it as security but a Mortgagee is not a
creditor, chargee or security holder of a tenant of Leasable
Premises.
Section 1.13
"Normal Business Hours" means the hours from 7:00 a.m. to
7:00 p.m. on Mondays to Fridays, unless any such day is a statutory
holiday.
Section 1.14
"Person" if the context allows, includes any person,
firm, partnership or corporation, or any group of persons, firms,
partnerships or corporations or any combination thereof.
Section 1.15
"Premises" means the premises described in Section 3.01
hereof leased to the Tenant.
Section 1.16
"Proportionate Share" means a fraction which has as its
numerator the Rentable Area of the Premises, and as its
denominator, the Rentable Area of the Building.
Section 1.17
"Rent" means all Minimum Rent and Additional Rent payable
pursuant to this Lease.
Section 1.18
"Rentable Area of the Premises" means (i) where a tenant
has leased or occupied an entire floor in the Building, all floor
area measured from the inside face of the outer building glass
surfaces and from the inside face of outer building masonry walls
including the elevator lobby, service corridors, electrical rooms,
telephone rooms, janitors' closets, men's and women's washrooms,
mechanical rooms and vending areas, but shall exclude the lobby on
the ground floor of the Building in the case of a ground floor
tenant leasing or occupying such entire floor and shall exclude the
elements of the Building that penetrate through the floor to areas
below, such as stairs, elevator shafts, flues, stacks, pipe shafts
and vertical ducts and their enclosing wall, provided that no
deduction from Rentable Area shall be made for columns or
projections necessary to the Building nor for any service areas
which are for the specific use of a particular tenant, such as
special stairs and/or elevators, or, (ii) where a floor is leased
or occupied by more than one (1) tenant, the Usable Floor Area of
the Premises multiplied by a fraction, the numerator of which shall
be the Rentable Area for that floor on which the Premises are
located, (excluding for ground floor tenants the lobby on the
ground floor of the Building) determined as if the Tenant had
leased the entire floor for its lease purposes and the denominator
of which shall be the aggregate Usable Floor Area of the same
floor. The definitions in this paragraph are in accordance with
the standard method for measuring floor area in office buildings as
sanctioned by the Building Owners and Managers Association
International (BOMA) as ANSI Z65.1 - 1980 (Reaffirmed 1989)
Section 1.19
"Rentable Area of the Building" means the aggregate of
the individual Rentable Areas (measured in accordance with the
method set out in Section 1.18) of all Leasable Premises within the
Building.
Section 1.20
"Rental Year" means a period of time, the first Rental
Year commencing on the first day of the Term hereof, and ending on
the last day of the month of December immediately following. Each
Rental Year thereafter shall consist of consecutive periods of
twelve (12) calendar months, but the last Rental Year of the Term
shall terminate on the expiration or earlier termination of this
Lease.
If, however, the Landlord considers it necessary or
convenient for the Landlord's purposes, the Landlord may at any
time and from time to time, by written notice to the Tenant,
specify a date from which each subsequent Rental Year is to
commence, and in such event, the then current Rental Year shall
terminate on the day immediately preceding the commencement of such
new Rental Year, and the appropriate adjustments shall be made
between the parties.
Section 1.21
"Rules and Regulations" means the rules and regulations
contained in Schedule "D" of this Lease and such amendments and
additions thereto which may be adopted and promulgated by the
Landlord from time to time, acting reasonably.
Section 1.22
"Tenant" means the Party of the Second Part and is deemed
to include the word "lessee" and any Person mentioned as Tenant in
this Lease, whether one or more.
Section 1.23
"Tenant's Work" means the work to be completed by the
Tenant described in the provisions of Schedule "C" hereto.
Section 1.24
"Term" means the period of time described in Section 3.03
hereof.
Section 1.25
"Usable Floor Area" means (i) where a tenant has leased
or occupied an entire floor in the Building, the Rentable Area of
the Premises, or, (ii) where a floor is leased or occupied by more
than one (1) tenant, all floor area from the inside face of the
outer building glass surfaces and from the inside face of the outer
building masonry walls to the tenant's side of corridors and/or
other permanent partitions and to the centre of partitions that
separate the Premises from adjoining tenants' premises (whether
occupied or not) but excluding elements of the Building that
penetrate through the floor to areas below, such as stairs,
elevator shafts, flues, pipe shafts, and vertical ducts and their
enclosing walls. No deduction from Usable Floor Area
shall be made for columns or projections necessary for the Building
nor for any service areas which are for the specific use of a
particular tenant, such as special stairs and/or elevators. The
definitions in this paragraph are in accordance with the standard
method of measuring floor area in office buildings as sanctioned by
the Building Owners and Managers Association International (BOMA)
as ANSI Z65.1 - 1980 (Reaffirmed 1989).
Section 1.26
"Hazardous Substances" - Schedule "F" attached forms part
of this Lease.
ARTICLE II Intent and Interpretation
Section 2.01 - Net Lease
The Tenant acknowledges and agrees that it is intended
that this Lease is a completely carefree net lease to the Landlord,
except as expressly herein set out, that during the Term the
Landlord is not responsible for any costs, charges, expenses and
outlays of any nature whatsoever arising from or relating to the
Premises, or the use and occupancy thereof, or the contents thereof
or the business carried on therein, and the Tenant shall pay all
charges, impositions, costs and expenses of every nature and kind,
extraordinary as well as ordinary and foreseen as well as
unforeseen, relating to the Premises, the use and occupancy
thereof, the contents thereof, and the business carried on therein,
except as expressly herein set out.
Section 2.02 - Obligations as Covenants
Each obligation or agreement of the Landlord or the
Tenant expressed in this Lease, even though not expressed as a
covenant, is considered to be a covenant for all purposes.
Section 2.03 - Headings
The headings introducing Sections and Articles in this
Lease are inserted for convenience of reference only and in no way
define, limit, construe or describe the scope or intent of such
Sections or Articles.
Section 2.04 - Extended Meanings
The words "hereof", "herein", "hereunder" and similar
expressions used in any Section or subsection of this Lease relate
to the whole of this Lease and not to that Section or subsection
only, unless otherwise expressly provided. The use of the neuter
singular pronoun to refer to any party is deemed a proper reference
even though the party is an individual, a partnership, a corporation
or a group of two or more individuals, partnerships or corporations.
The necessary grammatical changes required to make the provisions of
this Lease apply in the plural sense where there is more than one
Landlord or Tenant or other party and to either corporations,
associations, partnerships, or individuals, males or females, shall
in all instances be assumed as though in each case fully expressed.
Section 2.05 - Partial Invalidity
If for any reason whatsoever any term, covenant or
condition of this Lease, or the application thereof to any person
or circumstance, is to any extent held or rendered invalid,
unenforceable or illegal, then such term, covenant or condition:
(a) is deemed to be independent of the remainder of this
Lease and to be severable and divisible therefrom and its
invalidity, unenforceability or illegality does not
affect, impair or invalidate the remainder of this Lease
or any part thereof; and
(b) continues to be applicable to and enforceable to the
fullest extent permitted by law against any Person and
circumstances other than those as to which it has been
held or rendered invalid, unenforceable or illegal.
Neither party is obliged to enforce any term, covenant or
condition of this Lease against any Person, if, or to the extent by
so doing, such party is caused to be in breach of any laws, rules,
regulations or enactments from time to time in force.
Section 2.06 - Entire Agreement
This Lease and the Schedules and Riders, if any, attached
hereto form a part hereof together with the Rules and Regulations
adopted and promulgated by the Landlord pursuant to Section 16.01
hereof, sets forth all the covenants, promises, agreements,
conditions and understandings between the Landlord and the Tenant
concerning the Premises and there are no covenants, promises,
agreements, conditions or understandings, either oral or written,
between them other than are herein set forth. Except as herein
otherwise provided, no subsequent alteration, amendment, change or
addition to this Lease shall be binding unless in writing and
signed by the parties to be bound thereby.
Section 2.07 - Governing Law
This Lease shall be construed in accordance with and
governed by the laws of the Province of Ontario.
Section 2.08 - Time of the Essence
Time is of the essence of this Lease and of every part
hereof.
ARTICLE III Grant and Term
Section 3.01 - Premises
In consideration of the rents, covenants and agreements
herein contained on the part of the Tenant to be paid, observed and
performed, the Landlord leases to the Tenant, and the Tenant leases
from the Landlord, the Premises, now or hereafter to be erected as
part of the Building, which Premises consist of part of the Third
(3rd) floor of the Building, being composed of approximately
Thirteen Thousand, Eight Hundred and Forty-Six (13,846) square feet
of Usable Floor Area and approximately Fifteen Thousand, Three
Hundred and Seventy-Two (15,372) square feet of Rentable Area, as
shown outlined in red on the plan attached as Schedule "B". The
space enclosed by the boundaries of the Premises extends to the
limits of the Usable Area of the Premises determined in accordance
with Section 1.25, but it is acknowledged and agreed that the
Common Facilities which are within the space enclosed by the
boundaries of the Premises do not form part of the Premises.
Section 3.02 - Use of Common Facilities
The use and occupation by the Tenant of the Premises
includes the non-exclusive and non-transferable right or licence to
use the Common Facilities in common with others entitled thereto
for the purposes for which they are intended and during such hours
as the Building may be open for business as determined by the
Landlord from time to time, subject in each case to this Lease and
to the Rules and Regulations.
Section 3.03 - Commencement and Ending Date of the Term
The Tenant shall have and hold the Premises for and
during the Term which shall be, unless sooner terminated pursuant
to the other provisions hereof, the period of Ten (10) years, from
and including the 1st day of March, 1996 (the "Commencement Date")
up to and including the 28th day of February, 2006.
(a) expiring Ten (10) years after the last day of the
calendar month in which the Commencement Date occurs, if
the Term commences other than on the first day of a
calendar month, or, (2) the last day of the calendar
month immediately preceding the calendar month in which
the Term commences, if the Term commences on the first
day of a calendar month.
Section 3.04 - Notice and Certificates
Where reasonably possible prior to the Commencement Date
or within a reasonable period thereafter:
(a) the Landlord shall determine the actual Commencement Date
of the Term and shall send a notice to the Tenant
advising the Tenant of the actual Commencement Date and
such notice shall form a part of this Lease; and
(b) the Landlord shall, unless previously certified, provide
a certificate as to the Rentable Area of the Premises
which certificate unless disputed by the Tenant within 30
days, shall be binding on the Tenant, and shall form part
of the Lease. In the event of any dispute the Landlord's
Architect shall provide a certificate of the Rentable
Area of the Premises which certificate shall be binding
on the Landlord and the Tenant.
Section 3.05 - Early Occupancy
If the Tenant begins to conduct business in all or any
portion of the Premises before the Commencement Date, the Tenant
shall pay to the Landlord on the Commencement Date a rental in
respect thereof for the period from the date the Tenant begins to
conduct business in all or any part of the Premises to the
Commencement Date, which rental shall be that proportion of Rent
for one calendar year which the number of days in such period is
365. Except where clearly inappropriate, the provisions of this
Lease shall be applicable during such period. The Tenant shall
not, however, conduct business from the Premises before the
Commencement Date without the Landlord's prior written approval.
Section 3.06 - Delayed Possession
If for any reason the Landlord's Work has not been
completed by N/A or the Fixturing Period has not xpired on
or before the commencement date, then this Lease shall not
be void or voidable nor shall the Landlord be liable to the
Tenant for any loss or damages resulting from any delay, but unless
the same is caused by or attributable to delay in completion of the
Landlord's Work caused by or attributable to the Tenant, its
employees, servants, agents or independent contractors, Rent shall
abate until the date of expiry of the Fixturing Period, unless the
Tenant elects to take possession of a portion of the Premises, if
possession of such portion is available from the Landlord, and the
Landlord consents thereto, whereupon Rent shall be payable in
respect of such portion from the date such possession is so taken.
In the event of a dispute between the Landlord and the Tenant as to
whether there was a delay in completion of the Landlord's Work
caused by or attributable to the Tenant, its employees, servants,
agents, or independent contractors, the certificate of the
Architect as to the foregoing shall be conclusive and binding and
Rent in full shall accrue and become payable from and including the
Commencement Date.
Section 3.07 - Acceptance of Premises
The Tenant acknowledges and agrees that taking possession
of all or any portion of the Premises by the Tenant shall be
conclusive evidence as against the Tenant that the Premises
including the Landlord's Work or such portion thereof are in good
and satisfactory condition on the date of taking possession and
that all undertakings, if any, of the Landlord to alter, remodel or
improve the Premises or the Building and all representations, if
any, by the Landlord respecting the condition of the Premises or
the Building have been fully satisfied and performed by the
Landlord.
Section 3.08 - Landlord's and Tenant's Work
The Landlord agrees to undertake and install the
Landlord's Work and the Tenant agrees to undertake and install the
Tenant's Work and to complete such work during the Fixturing
Period. The Tenant shall be permitted access to the Premises
during the Fixturing Period for the purpose of undertaking and
installing the Tenants Work, and shall not be responsible for
payment of all amounts payable by it under this Lease during such
Fixturing Period, except electricity costs.
Section 3.09 - Relocation
At any time after the initial term the Landlord may
substitute for the Premises other premises in the Building (the
"New Premises"), in which event the New Premises shall be deemed to
be the Premises for all purposes under this Lease, provided that
the New Premises shall be similar to the Premises in area, location
and configuration. If the Tenant is then occupying the Premises,
the Landlord shall pay the actual and reasonable expenses of
physically moving the Tenant and its property and equipment to the
New Premises. The Landlord shall give the Tenant not less than
sixty (60) days prior written notice of such substitution and the
Landlord, at its expense, shall improve the New Premises with
improvements substantially similar to those in the Premises at the
time of such substitution if the Premises are then improved.
ARTICLE IV Rent Section 4.01 - Covenant to Pay
The Tenant shall pay Rent as herein provided which
obligation shall survive the expiration or earlier termination of
this Lease.
Section 4.02 - Minimum Rent
(a) The Tenant shall pay from and after the Commencement Date
to the Landlord at the office of the Landlord, or at such other
place designated by the Landlord, in lawful money of Canada,
without any prior demand therefor and without any deduction,
abatement, set off or compensation whatsoever, as annual Minimum
Rent, the sum of: please see Schedule "E". The Minimum Rent is
based upon an annual rate of: Please see Schedule "E"; and when
the Rentable Area of the Premises is certified as set out in
Section 3.04, the Minimum Rent shall, if necessary, be adjusted
accordingly as of the Commencement Date and from time to time
thereafter to conform with changes in the Rentable Area of the
Premises. If the Tenant has paid in excess of the amounts due on
account of Minimum Rent as a result of such adjustment, the excess
shall be credited by the Landlord against Rent, then or in the
future owing by the Tenant under this Lease. If the amount the
Tenant has paid is less than the amounts due as a result of the
adjustment, the Tenant shall pay such additional amounts due within
thirty (30) days after demand therefor.
If the Commencement Date is on a day other than the first
day of the calendar month, then the Tenant shall pay, upon the
Commencement Date, a portion of the Minimum Rent prorated on a per
diem basis from the Commencement Date to the end of the month in
which the Commencement Date occurs, based upon a period of three
hundred and sixty-five (365) days.
(b) At the Landlord's option, upon notice to the Tenant, the
Tenant shall, at the Tenant's cost, and without prejudice to any
other right or remedy of the Landlord present to the Landlord
thirty (30) days prior to the commencement of each Rental Year
throughout the Term, a series of monthly postdated cheques for each
such year of the Term in respect of the aggregate of the monthly
payments of annual Minimum Rent and any payments of Additional Rent
estimated by the Landlord in advance, and any other payments
required by this Lease to be paid by the Tenant monthly in advance.
(c) The Landlord acknowledges receipt of the Tenant's deposit
in the amount of Thirty Nine Thousand, Sixty-Four Dollars and Ten
Cents ($39,064.10) which deposit is to be held "In Trust" for the
Tenant and said deposit is to be designated for application against
the first months rent in the amount of Twelve Thousand, One Hundred
and Sixty-Nine Dollars and Fifty Cents ($12,169.50) plus G.S.T. of
Eight Hundred and Fifty-One Dollars and Eighty-Seven Cents
($851.87) and the balance to be applied towards the last two months
of the term.
Section 4.03 - Rent Past Due
If the Tenant fails to pay, when the same is due and
payable, any Rent or any other amount payable by the Tenant under
this Lease, such unpaid amounts shall bear interest (payable as
Additional Rent) from the due date thereof to the date of payment
at a rate per annum which is equal to six (6) percentage points in
excess of the prime commercial lending rate (the "Prime Rate") per
annum charged by any Canadian bank designated by the Landlord from
time to time on loans made in Canadian funds to its most favoured
commercial borrowers, calculated and compounded monthly, with any
adjustment in such rate to be effective on the first day of the
month next following such change in the Prime Rate.
ARTICLE V Taxes
Section 5.01 - Taxes - Definition
"Taxes" means all real property taxes, rates, duties and
assessments (including local improvement taxes), impost charges or
levies (collectively referred to as "real property taxes"), whether
general or special, that are levied, rated, charged or assessed
against the Building or any part thereof from time to time
(including, without limitation, the Common Facilities) by any
lawful taxing authority, whether federal, provincial, municipal,
school or otherwise, and any taxes or other amounts which are
imposed in lieu of, or in addition to, any such real property
taxes whether of the foregoing character or not or whether in
existence at the Commencement Date or not, and any such real
property taxes levied or assessed against the Landlord on account
of its ownership of or interest in the Building.
Section 5.02 - Taxes Payable by the Landlord
The Landlord shall pay all Taxes which are levied, rated,
charged or assessed against the Building or any part thereof
subject to Sections 5.03, 5.04 and, 6.02 hereof. However, the
Landlord may defer payment of any such Taxes, or defer compliance
with any statute, law, by-law, regulation or ordinance in
connection with levying of any such Taxes, in each case to the
fullest extent permitted by law, so long as it diligently
prosecutes any contest or appeal of any such Taxes and so long as
the same does not result in forfeiture by the Tenant of its
interest in this Lease or any disturbance of its right to quiet
possession hereunder.
Section 5.03 - Taxes Payable by the Tenant
(a) The Tenant shall pay, as Additional Rent, in each and
every year during the Term and within the times provided for by the
taxing authorities, to the Landlord or to the taxing authorities as
the Landlord may direct, and discharge, all Taxes that may be
levied, rated, charged or assessed against the Premises and against
all leasehold improvements situate at the Premises, or any part or
parts thereof from time to time by any taxing authority whether
federal, provincial, municipal, school or otherwise. The Tenant
agrees to provide the Landlord upon receipt by the Tenant with a
copy of any separate tax bills, and separate notices of assessments
for and in respect of the Premises and all leasehold improvements
situate at the Premises. In addition, the Tenant shall pay to the
Landlord, on demand, as Additional Rent, in each Rental Year, the
Tenant's Proportionate Share of the Taxes assessed against the
lands described in Schedule "A" and the Common Facilities.
(b) In the event that there shall not be a separate
assessment for Taxes made against the Premises, the Landlord may,
at its option, with each tax bill it receives, make an allocation
of Taxes on a reasonable and equitable basis between the lands
described in Schedule "A", the Common Facilities, the Leasable
Premises, other premises available for leasing to tenants which do
not constitute part of the Leasable Premises, and as between such
other premises, the Leasable Premises and the Premises, and as
between the assessment relating to the leasehold improvements made
to the Premises and those made to other Leasable Premises and such
other premises, and the Landlord shall be entitled to charge an
administration fee of fifteen per cent (15%) of the amount of such
Taxes so allocated to the Tenant. The Tenant shall pay its share
of Taxes so allocated against the Premises by the Landlord together
with the share of such administration charge within ten (10) days
after demand therefor by the Landlord and the Tenant in addition
shall pay to the Landlord, as Additional Rent, in each Rental Year,
the Tenant's Proportionate Share of the Taxes so allocated against
the said lands and the Common Facilities.
(c) In the event that there shall not be a separate
assessment for Taxes made against the Premises the Landlord at its
option, may include all Taxes for the lands described in Schedule
"A", the Building, the Common Facilities, the Leasable Premises and
all other premises available for leasing in the Building which do
not constitute part of the Leasable Premises, in the costs and
expenses referred to in Section 6.02(a) and (b), and the Tenant
shall pay its Proportionate Share thereof in the manner and at the
time set forth in Section 6.03 hereof.
Section 5.04 - Business Taxes and Other Taxes of Tenant
(a) In addition to the Taxes payable by the Tenant pursuant
to Section 5.03, the Tenant shall pay as Additional Rent to the
lawful taxing authorities, or to the Landlord, as it may direct,
and shall discharge in each Rental Year when the same become due
and payable (i) all taxes, rates, duties, assessments and other
charges that are levied, rated, charged or assessed against or in
respect of all improvements, fixtures, personal property, equipment
and facilities on or in the Premises or any part thereof; and, (ii)
every tax and license fee which is levied, rated, charged or
assessed against or in respect of any and every business carried on
in the Premises or in respect of the use or occupancy thereof or
any other part of the Building by the Tenant and every subtenant or
licensee of the Tenant, all of the foregoing described in
subsections (i) and (ii) aforesaid being collectively referred to
as "Business Taxes" and whether in any case, any such taxes, rates,
duties, assessments or license fees are rated, charged or assessed
by any federal, provincial, municipal, school or other body during
the Term. If there are no separate bills provided for Business
Taxes, the Tenant shall pay its Proportionate Share of all Business
Taxes with respect to the entire Building; and, (iii) all taxes
that are levied, charged, assessed or imposed wholly or partially
with respect to the Rent whether imposed upon the Tenant or the
Landlord, whether the same exist as of the date hereof, as of the
Commencement Date, or at any time thereafter; and (iv) its
Proportionate Share of all capital taxes payable by the Landlord in
respect of the Building, calculated as if the Building were its
only asset.
(b) The Tenant shall upon request of the Landlord promptly
deliver to the Landlord for inspection, receipts for payment of all
taxes payable by the Tenant pursuant to this Section 5.04, notices
of any assessments of any taxes referred to in this Section 5.04
received by the Tenant and such other information in connection
with any such taxes as the Landlord reasonably determines from time
to time.
(c) The Tenant hereby expressly agrees that it is not
permitted to contest or appeal any taxes referred to in Sections
5.01, 5.03 and 5.04, save and except with respect to its own
Business Taxes. The Tenant agrees to deliver to the Landlord, at
least ten (10) days prior to the last date permitted for filing of
an appeal, notice of any appeal or contestation that the Tenant
intends to institute with respect to its own Business Taxes and to
consult with and obtain the prior written approval of the Landlord
to any such appeal or contestation. If the Tenant obtains approval,
the Tenant shall, upon demand, deliver to the Landlord such
security for the payment of such Business Taxes as the Landlord
deems advisable and the Tenant shall diligently prosecute any such
appeal or contestation to a speedy resolution and shall keep the
Landlord informed of its progress in that regard from time to time.
Section 5.05 - Tenant's Indemnification With Respect to
Taxes under Sections 5.01, 5.03 and 5.04
The Tenant shall promptly indemnify and hold harmless the
Landlord from and against payment for any and all losses, claims,
actions, suits, proceedings, causes of action, demands, damages,
judgments, executions, liabilities, responsibilities, costs,
charges and expenses (collectively referred to in this Lease as
"Claims") occasioned by or arising from any and all taxes payable
by the Tenant hereunder including those which may in future be
levied in lieu of or in addition to such taxes referred to in
Sections 5.01, 5.03 and 5.04 or which may be assessed against any
Rent payable pursuant to this Lease whether in lieu of such taxes
or otherwise, whether against the Landlord or the Tenant including,
without limitation, any increase whensoever occurring in such taxes
arising directly or indirectly out of an appeal or contestation by
the Tenant of its own Business Taxes relating to the Premises or
the Building or any part thereof. The Tenant shall deliver to the
Landlord on demand such security for any such Taxes as the Landlord
deems advisable.
Section 5.06 - Landlord's Taxes
Notwithstanding what is otherwise herein provided for in
this Article V, but subject to the provisions of Section 5.04(a)(iii)
and (iv) hereof, the Tenant shall not be responsible for the payment
of such taxes as corporate income, profits, or excess profits taxes
assessed upon the income of the Landlord.
Section 5.07 - Per Diem Adjustment
If any Rental Year during the Term of this Lease is less
than twelve (12) calendar months, the taxes that the Tenant is
required to pay pursuant to Article V hereof shall be subject to a
per diem adjustment on the basis of a period of 365 days.
ARTICLE VI
Building and Common Facilities - Control and Payment
Section 6.01 - Control of the Building by the Landlord
The Landlord or its Manager shall operate and maintain
the Building in such manner as the Landlord determines from time to
time, and in a first-class and reputable manner as would a prudent
landlord of a similar multiple tenancy commercial office building
having regard to size, age and location.
The Building is at all times subject to the exclusive
control and management of the Landlord. Without limiting the
generality of the foregoing, the Landlord has the right, in its
control, management and operation of the Building and by the
establishment of Rules and Regulations and general policies with
respect to the operation of the Building or any part thereof at all
times during the period of time that the Tenant's Work contemplated
in Schedule "C" hereto is being undertaken and throughout the Term,
to:
(a) (i) obstruct or close off all or any part of the
Building for the purpose of maintenance, repair or
construction;
(ii) close all or any portion of the Building to such
extent as may, in the opinion of the Landlord's
counsel, be legally sufficient to prevent a
dedication thereof or the accrual of any rights to
any Person or the public therein;
(iii)grant, modify and terminate easements and other
agreements pertaining to the use and maintenance of
all or any part of the Building;
(iv) employ all personnel including supervisory
personnel and managers necessary for the operation,
maintenance and control of the Building; the Tenant
acknowledges that the Building may be managed by
the Landlord or by the Manager or such other Person
as the Landlord designates in writing from time to
time;
(v) from time to time permit the Tenant to have
exclusive use of parts of the parking areas forming
part of the Common Facilities and permit other
tenants to have the exclusive use of parts of the
parking areas;
(vi) from time to time, prohibit the Tenant and its
employees from parking anywhere in the Building; if
the Landlord designates tenant parking areas in the
Building or elsewhere, the Tenant and its employees
shall park their vehicles only in such parking
areas; the Tenant shall furnish the Landlord, upon
request, with the current licence numbers of all
vehicles owned or used by the Tenant and its
employees and such other information concerning
vehicles and parking thereof as the Landlord may
require and the Tenant shall, thereafter, notify
the Landlord of any changes within five (5) days
after such changes occur; if the Tenant or its
employees park their vehicles in any such
prohibited parking areas, the Landlord, in addition
to all rights and remedies hereunder, shall have
the right to charge the Tenant a per diem fee per
vehicle parked in any area other than a designated
area; such fee is payable as Additional Rent on
demand; subject to the provisions of Section 16.17
hereof, the Landlord reserves the right to impose
reasonable charges upon the Tenant and any person
(including the general public) for the use of
parking facilities;
(b) from time to time, change the area, level, location,
arrangement or use of the Building or any part thereof,
make alterations, additions, subtractions, or
re-arrangements to the Building or any part thereof, and
construct additional buildings, structures, improvements
or facilities in, adjoining or near to, the Building or
to construct other buildings, structures or improvements
in the Building and build additional stories on the
Building;
(c) impose such requirements with respect to access to the
Building and security measures as the Landlord deems
necessary, and the Tenant and its employees and invitees
shall abide by all such requirements and measures,
including any card-access or other security system
installed in the Building; and
(d) do and perform such other acts in and to the Building as,
in the use of good business judgment, the Landlord
determines to be advisable for the more efficient and
proper operation of the Building.
Notwithstanding anything contained in this Lease, it is
understood and agreed that if as a result of the exercise by the
Landlord of its rights set out in this Section 6.01, the Common
Facilities are diminished or altered in any manner whatsoever, the
Landlord is not subject to any liability, nor is the Tenant
entitled to any compensation or diminution or abatement of Rent,
nor is any alteration or diminution of the Common Facilities deemed
constructive or actual eviction, or a breach of any covenant for
quiet enjoyment contained in this Lease.
Section 6.02 - Tenant to Bear Share of Expense
(a) In each Rental Year, the Tenant shall pay to the
Landlord, as Additional Rent, its Proportionate Share or other
share determined by the Landlord as provided for herein, as the
case may be, of the total costs and expenses incurred, accrued,
paid, payable or attributable, whether by the Landlord or others on
behalf of the Landlord: (1) for the operation, service,
maintenance, repair, rebuilding, replacement, insurance, policing,
supervision, management, and administration of the Building, and,
(2) for the Landlord to discharge its obligations or actions under
this Lease or under other leases of premises in the Building. If
the Building is less than 100% completed or occupied for any time,
such costs and expenses shall be adjusted to mean the amount
obtained by adding to such costs and expenses during such time
additional costs as would have been incurred if the Building had
been 100% completed and occupied as determined by the Landlord
acting reasonably.
(b) The costs and expenses as set out in Section 6.02(a)
include, without limitation and without duplication, the aggregate
of:
(i) insurance on the Building and any improvements,
equipment and other property located thereon; the
Landlord's insurance may, without limitation,
include loss of insurable gross profits
attributable to the perils insured against by the
Landlord or commonly insured against by landlords,
including loss of rent and other amounts receivable
from tenants in the Building, and third party
liability coverage including the exposure of
personal injury, bodily injury, property damage
occurrence, including all contractual obligations
coverage and including actions of the employees,
contractors, subcontractors and agents working on
behalf of the Landlord;
(ii) landscaping, cleaning (including window cleaning),
painting, snow and ice removal, repaving parking
areas (including without limitation, line painting
and curb installation), garbage and waste
collection and disposal, and all costs referred to
in Section 6.04;
(iii) lighting, utilities (including, without limitation,
electricity, water, gas, steam and other fuel and
hook-up, connection or service charges for
utilities, and charges for the use of the sewage
disposal system), loudspeakers, telephones and any
telephone answering service facilities and systems,
used in or serving the Building, and the cost of
electricity for any signs designated by the
Landlord as part of the Common Facilities;
(iv) policing, security, security systems, supervision
and traffic control;
(v) in the event that the Landlord has not contracted
for the management services of the Manager or any
Person for the operation, supervision, management
and administration of the Building, remuneration
(including, without limitation, contributions and
premiums towards fringe benefits, unemployment and
Worker's Compensation insurance, pension plan
contributions and similar premiums and
contributions) of Persons to the extent engaged in
the operation, maintenance, administration,
management and supervision of the Building;
(vi) the cost of the rental of any equipment and signs,
and the cost of building supplies used by the
Landlord in the maintenance of the Building;
(vii) auditing, accounting, bookkeeping, legal and other
professional and consulting fees and disbursements;
(viii) the cost of all repairs (including, without
limitation, major repairs) and replacements to and
maintenance and operation of the Building and the
Common Facilities and the systems, facilities and
equipment serving the Building (including, without
limitation, all escalators, elevators, moving
sidewalks and other transportation equipment and
systems and all heating, ventilating and air
conditioning and climate control systems serving
the Building) except for the cost of repairing or
replacing any inherent structural defects or
weaknesses;
(ix) depreciation or amortization (1) of the cost,
including repair and replacement, of all
maintenance, cleaning and operating equipment and
master utility meters from the Commencement Date,
and, (2) of the costs incurred after the
Commencement Date for repairing or replacing all
other fixtures, equipment and facilities serving or
comprising the Building unless they are, pursuant
to Section 6.02(b)(viii), charged fully in the
Rental Year in which they are incurred in
accordance with sound accounting principles;
(x) all costs incurred in acquiring, installing,
maintaining, revising, repairing and replacing
energy conservation equipment and systems and life
safety systems for the Building and for effecting
any improvements to the Building made to comply
with air pollution or environmental control
standards;
(xi) heating, ventilating and air conditioning costs of
the Building;
(xii) subject to the provisions of Article VII hereof,
the cost of water, fuel, power, telephone and other
utilities used or consumed in or with respect to
the Building;
(xiii) reserves established by the Landlord for capital
expenditures based on $.20 per square foot, per
annum, of the Rentable Area of the Building;
(xiv) subject to the provisions of Article V hereof, the
Business Taxes of the Landlord and Taxes, and all
costs incurred by the Landlord in contesting or
appealing such taxes or related assessments
(including, without limitation, legal, appraisal
and other professional fees and administration and
overhead costs) on all or any part of the Building;
(xv) in the event that the Landlord has not contracted
for the management services of a Person for the
operation, supervision, management and
administration of the Building, an administration
fee of fifteen per cent (15%) of such total annual
costs set out in Section 6.02(b)(i) to Section
6.02(b)(xiv) inclusive (or such greater amount as
shall be standard from time to time in the property
management industry, as determined by the Landlord,
acting reasonably);
(xvi) in the event that the Landlord has hired the
services of a Manager or any Person for the
operation, supervision, management and
administration of the Building, all amounts which
the Landlord must pay to such Manager or any Person
in connection therewith, including without
limitation, management fees and disbursements
incurred by such Manager or any Person in carrying
out its obligations to the Landlord.
From the total of the above costs set out in Section 6.02(b)(i) to
Section 6.02(b)(xvi) inclusive, there shall be deducted net
proceeds received by the Landlord from insurance policies taken out
by the Landlord to the extent that such proceeds relate to the
costs and expenses incurred in the maintenance and operation of the
Common Facilities. Provided that in computing such costs and
expenses described in Section 6.02(a) and (b), if the Landlord from
time to time determines that the use of any water, fuel, power,
telephone or other utilities used or consumed in or with respect to
the Premises, or in the event that any service to or in respect of
the Premises is disproportionate to the use of other tenants or
occupants in the Building, the Landlord may adjust the Tenant's
share of the cost thereof from a date reasonably determined by the
Landlord to take into account such disproportionate use.
Section 6.03 - Payment of Tenant's Share
(a) Subject to the provisions of Articles V and VII hereof,
the amounts payable by the Tenant pursuant to Articles V, VI and
VII hereof may be estimated by the Landlord for such period as the
Landlord determines from time to time, and the Tenant agrees to
pay to the Landlord the Tenant's Proportionate Share, or other
share thereof determined by the Landlord as provided for herein, as
the case may be, as so estimated, of such amounts in monthly
instalments in advance during such period as Additional Rent on the
same dates as payments of the Minimum Rent. Notwithstanding the
foregoing, as soon as bills for all or any portion of the said
amounts so estimated are received, the Landlord may bill the Tenant
for the Tenant's Proportionate Share thereof or other share thereof
determined by the Landlord as provided for herein, as the case may
be, and the Tenant shall pay the Landlord such amounts so billed
(less all amounts previously paid by the Tenant on the basis of the
Landlord's estimate as aforesaid) as Additional Rent on demand.
Provided that in the event that the Landlord does not provide a new
estimate, notwithstanding that the period for which such previous
estimate has been given to the Tenant has expired, the Tenant shall
continue to pay its Proportionate Share, or other share thereof
determined by the Landlord as provided for herein, as the case may
be, based on the most recent estimate provided by the Landlord,
until such time as a new estimate is rendered by the Landlord
therefor.
(b) Within a reasonable period of time after the end of the
period for which such estimated payments have been made, the
Landlord shall deliver to the Tenant a statement issued by the
Landlord, which statement will set forth the amounts and costs
referred to in Articles V, VI and VII together with a statement of
the Tenant's Proportionate Share thereof, or other share thereof
determined by the Landlord as provided for herein, as the case may
be. In either case, if necessary, an adjustment shall be made
between the parties in the following manner. If the Tenant has
paid in excess of the amounts due, the excess shall be credited by
the Landlord against Rent, then or in the future owing by the
Tenant under this Lease. If the amount the Tenant has paid is less
than the amounts due, the Tenant agrees to pay such additional
amounts due with the next monthly payment of Minimum Rent. If any
Rental Year during the Term is greater or less than any such period
determined by the Landlord as aforesaid, the Tenant's Proportionate
Share or other share thereof determined by the Landlord as provided
for herein, as the case may be, shall be subject to a per diem, pro
rata adjustment. Failure of the Landlord to provide any statement
under this Section 6.03 shall not prejudice the Landlord's right to
provide such statement thereafter or with respect to any other
period. The providing of any such statement shall also not affect
the Landlord's right to subsequently provide an amended or
corrected statement. The Tenant shall have the right at it's sole
expense to inspect those records of the Landlord maintained by the
Landlord at its principal place of business as may be necessary to
verify the Landlord's calculation of Additional Rent payable by the
Tenant; such right of inspection to be exercised within thirty (30)
days of the Tenant's receipt of the Landlord's statement indicated
above.
Section 6.04 - Landlord's Services
(1) The Landlord covenants with the Tenant as follows:
(a) To provide climate control to the Premises during Normal
Business Hours to maintain a temperature adequate for
occupancy, except during the making of repairs,
alterations or improvements. The Tenant acknowledges
that the Landlord has installed in the Building a system
for the purpose of climate control, which system is
designed to heat and cool during normal occupancy of the
Premises as general offices on an open floor basis and
based on the window shading being fully closed in those
offices having exterior windows exposed to the sun,
without having regard to the Tenant's specific use
thereof or the installation of any heat generating
equipment in the Premises by the Tenant or by anyone on
behalf of the Tenant. The Tenant further acknowledges
that the climate control system may require balancing and
adjustment during the first year after installation to
achieve a level of efficient operation. Any use of the
Premises not in accordance with the design standards or
any arrangement of partitioning which interferes with the
normal operation of such system may require changes or
alterations in the system or duct through which the same
operates. Any changes or alterations so occasioned, if
such changes can be accommodated by the Landlord's
equipment, shall be made by the Tenant at its cost and
expense but only with the written consent of the Landlord
first had and obtained, and in accordance with drawings
and specifications and by a contractor first approved in
writing by the Landlord. If installations of partitions,
equipment or fixtures by the Tenant necessitates the
rebalancing of the portion of the climate control
equipment installed in the Premises, the same will be
performed by the Landlord at the Tenant's expense payable
by the Tenant upon demand as Additional Rent.
(b) Subject to the supervision of the Landlord, to furnish,
during Normal Business Hours, and during such extended
hours as the Landlord may determine, for use by the
Tenant and its employees and invitees in common with
other persons entitled thereto, passenger elevator
service to the Premises, and to furnish upon written
request for the use of the Tenant in common with others
entitled thereto at reasonable intervals and at such
hours as the Landlord may select, freight elevator
service to the Premises for the carriage of furniture,
equipment, deliveries and supplies.
(c) To provide for the use of the Tenant and its employees
and invitees in common with others entitled thereto,
washrooms on each floor of the Building upon which any
part of the Premises is located.
(d) To provide janitor and cleaning services when reasonably
necessary from time to time to the Premises and to the
Building to be rendered substantially in accordance with
the standards of a similar modern office building.
(e) To furnish appropriate facilities for bringing telephone
services to a point in the Premises, to provide to a
point or points in the Premises hot and cold water for
use in the washrooms (if any) in the Premises and to
provide washrooms with hot and cold water available for
the Tenant's use in common with others entitled thereto
when washrooms are not located within the Premises.
(2) The Landlord shall have no liability or responsibility
for failure to supply any of the foregoing services or facilities
when prevented from doing so due to repairs, alterations or
improvements, or by labour disruptions or strikes or causes beyond
the reasonable control of the Landlord.
Section 6.05 - Building Identification
Deleted.
ARTICLE VII Utilities and Heating, Ventilating and Air Conditioning
Section 7.01 - Charges for Utilities
(a) The Tenant shall be solely responsible for and shall
promptly pay to the Landlord, or as it otherwise directs, in the
manner hereinafter provided as a charge with respect to the
Premises (the "Charge") the aggregate, without duplication, of:
(i) the total cost of water, fuel, power, telephone and other
utilities (the "Utilities") used or consumed in or with
respect to the Premises at rates not in excess of public
utility rates for the same services if such utilities are
provided by public utilities; and
(ii) all costs reasonably incurred by the Landlord in
determining or allocating the Charge or determining the
Utilities including, without limitation, professional,
engineering and consulting fees and an administration fee
of fifteen per cent (15%) of the total cost hereinbefore
set out in this Section 7.01(a).
(b) The Landlord may determine in a reasonable and equitable
manner the Charge applicable to the Premises by allocating the
Utilities for the Building amongst the several components and areas
of the Building, including the Common Facilities, the Leasable
Premises, and other premises available for leasing which do not
constitute part of the Leasable Premises.
(c) Provided that notwithstanding the foregoing, the Landlord
at its option may include the cost of all Utilities for the
Building, including for Common Facilities, the Premises and all
Leasable Premises and other premises available for leasing which do
not constitute a part of the Leasable Premises which are not
separately metered in the costs and expenses referred to in Section
6.02(a) and subject to what is otherwise herein provided, the
Tenant shall pay its Proportionate Share thereof in the manner and
at the times as set forth in Section 6.03 hereof.
(d) The Tenant agrees as follows:
(i) If the Landlord elects, for the more efficient and
proper operation of the Building, or is required by
municipal by-law or the suppliers of the Utilities
to purchase the Utilities or any of them for the
Building, the Tenant shall purchase such Utilities
and pay for such Utilities as Additional Rent
forthwith on demand to the Landlord at rates not in
excess of the rates charged by such suppliers for
such Utilities, if applicable;
(ii) If requested by the Landlord, the Tenant shall
promptly install a separate check meter indicating
demand and consumption of Utilities in the Premises
at the Tenant's expense and in a location
designated by the Landlord;
(iii) If the Landlord elects, the Landlord shall be
entitled to install, at the Tenant's expense, a separate
check meter indicating demand and consumption of Utilities
in the Premises, in a location designated by the Landlord.
(e) If the suppliers of the Utilities require that the Tenant enter
into contracts or arrangements with such suppliers in connection with such
Utilities, the Tenant shall be responsible to enter into such contracts or
other arrangements and to pay whatever deposits or other amounts that are
payable under such contracts or other arrangements.
(f) In no event is the Landlord liable for, nor has the Landlord
any obligation with respect to, an interruption or cessation of, or a
failure in the supply of any such Utilities, services or systems in,
to or serving the Building or the Premises, whether or not supplied by
the Landlord or others, and whether the interruption or cessation is
caused by the Landlord's fault or not.
Section 7.02 - Lighting
The Landlord shall have the exclusive right to attend to
any replacement of electric light bulbs, tubes and ballasts in the
Premises throughout the Term. The Landlord may adopt a system of
relamping and reballasting periodically on a group basis in
accordance with good commercial practice. The Tenant shall pay to
the Landlord as Additional Rent on the first day of each and every
month during the Term a monthly charge per bulb, tube and ballast
on account of the cost of such replacement together with 15% of the
total cost thereof. If the cost of such replacement shall increase
or decrease during the Term, the Landlord shall adjust the
Additional Rent payable for such replacement hereunder on an
equitable basis and the Tenant agrees to pay such Additional Rent
as adjusted. The decision of the Landlord, acting reasonably, with
respect to any such adjustment, and Additional Rent based thereon
shall be final and binding on the parties hereto. If the Landlord
does not adopt a system of relamping and reballasting as aforesaid,
then replacement of electric light bulbs, tubes and ballasts in the
Premises shall be undertaken by the Landlord at such time as they
actually burn out and after notice from the Tenant that replacement
is required. In such event, the cost of such replacement and
installation shall be paid by the Tenant to the Landlord as
Additional Rent.
ARTICLE VIII Use of the Premises
Section 8.01 - Use of the Premises
The Tenant shall use the Premises solely for the purposes
of general offices and the Tenant will not use or permit, or suffer
the use of the Premises or any part thereof for any other business
or purpose.
Section 8.02 - Conduct of Business
The Tenant shall occupy the Premises from and after the
Commencement Date and thereafter throughout the Term shall conduct
continuously and actively the business set out in Section 8.01
hereof in the whole of the Premises. In the occupancy of the
Premises and the conduct of the Tenant's business pursuant to this
Lease, the Tenant shall:
(a) own, install in the Premises and keep in good order and
condition, free from liens or rights of third parties,
only fixtures and equipment of first class quality;
(b) abide by all Rules and Regulations and general policies
formulated by the Landlord from time to time relating to
the shipping and receiving of goods, merchandise,
materials and supplies;
(c) not commit or suffer or permit to be committed any waste
upon, or damage to, the Premises, or any nuisance or
other act or thing which in the Landlord's opinion
disturbs the quiet enjoyment of any other tenant or
occupant of premises in the Building; and not perform any
acts or carry on any practices which may damage the
Building or any part thereof;
(d) not do, nor suffer or permit to be done, any act in or
about the Building which, in the Landlord's opinion,
hinders or interrupts the flow of traffic to, in and from
the Building and not do, nor suffer or permit anything to
be done which, in the Landlord's opinion, in any way
obstructs the free movement of Persons doing business in
the Building;
(e) not solicit business, nor shall it suffer or permit its
employees or agents to solicit business in any part of
the Building other than the Premises, nor
display any merchandise elsewhere within the Building
outside of the Premises at any time without in each case
the prior written consent of the Landlord;
(f) not install or allow on the Premises any transmitting
device, nor erect any aerial on the roof of any building
forming part of the Building or on any exterior walls of
the Premises or in any of the Common Facilities;
(g) not use any travelling or flashing lights, or any signs,
television or other audio-visual or mechanical devices in
a manner so that they can be seen outside of the
Premises, and not use any loudspeakers, television,
phonographs, radio or other audio-visual or mechanical
devices in a manner so that they can be heard outside of
the Premises, without in each case the prior written
consent of the Landlord. If the Tenant uses any such
equipment without receiving the prior written consent of
the Landlord, the Landlord shall be entitled to remove
such equipment without notice at any time and such
removal shall be done and all damage as a result thereof
shall be made good, in each case, at the cost of the
Tenant, payable as Additional Rent forthwith on demand;
(h) not use, or permit to be used, any part of the Premises
for any activity or business which (in the reasonable
opinion of the Landlord) is dangerous, noxious or
offensive, or which might result in any increase of
insurance, premiums or cancellation of any insurance
maintained by the Landlord in respect of the Building;
(i) (i) cooperate with the Landlord in the conservation of
all forms of energy in the Building, including, without
limitation, in the Premises; (ii) comply with all laws,
by-laws, regulations and orders relating to the
conservation of energy affecting the Building or any part
thereof; and, (iii) promptly comply, at the Tenant's
expense, with all reasonable requests and demands of the
Landlord made with a view to such energy conservation.
Any and all costs and expenses paid or incurred by the
Landlord in installing energy conservation equipment and
systems, so far as the same apply to or are reasonably
apportioned to the Building by the Landlord, shall be
included in Section 6.02(b)(x). The Landlord shall not
be liable or responsible to the Tenant in any way for any
Claims whether direct or consequential, paid, suffered or
incurred by the Tenant due to any reduction in the
services provided by the Landlord to the Tenant or to the
Building or any part thereof as a result of the
Landlord's compliance with such laws, by-laws,
regulations or orders; and
(j) not use or permit to be used, any part of the Premises
for the preparation, cooking or consumption of food or
hot beverages, except as specifically permitted by the
Landlord in writing, in its sole discretion, and shall
not permit or allow any odours, vapours, steam, water,
vibrations, noises or other undesirable effects to
emanate from the Premises or any equipment or
installation therein which, in the Landlord's opinion,
are objectionable or cause any interference with the
safety, comfort or convenience of the Building by the
Landlord or any occupants thereof or their customers or
invitees. If required by the Landlord, the Tenant shall
install, at its expense, an exhaust system to properly
ventilate any kitchen or other source of odours, vapours
or steam. If the Tenant is in default of any of the
foregoing, the Landlord shall have the right to verbally
inform the Tenant's manager in the Premises thereof,
whereupon the Tenant shall forthwith (i) take such steps
as are necessary to cure any such default, and, (ii)
cease selling the offending item or items, as the case
may be.
Any business, conduct or practice promulgated, carried on
or maintained by the Tenant, whether through advertising or selling
procedures or otherwise, which in the opinion of the Landlord,
acting reasonably, may harm or tend to harm the business or
reputation of the Landlord or reflect unfavourably on the Building,
the Landlord or other tenants in the Building, or which may tend to
confuse, mislead, deceive or be fraudulent to the public, shall be
immediately discontinued by the Tenant at the request of the
Landlord.
Section 8.03 - Observance of Law
The Tenant shall, at its sole cost and expense and
subject to Sections 10.01 and 10.02 hereof, promptly:
(a) observe and comply with all provisions of law including,
without limitation, all requirements of all governmental
authorities, including federal, provincial and municipal
legislative enactments, by-laws and fire and other
regulations now or hereafter in force which pertain to or
affect the Premises, the Tenant's use of the Premises or
the conduct of any business in the Premises, or the
making of any repairs, replacements, alterations,
additions, changes, substitutions or improvements of or
to the Premises; and
(b) carry out all modifications, alterations or changes of or
to the Premises and the Tenant's conduct of business in
or use of the Premises which are required by any such
authorities as are set out above.
ARTICLE IX Insurance and Indemnity
Section 9.01 - Tenant's Insurance
(a) The Tenant shall throughout the period that the Tenant is
given possession of the Premises and during the entire
Term, at its sole cost and expense, take out and keep in
full force and effect, the following insurance:
(i) all-risk insurance (including but not limited to
sprinkler leakage, flood, earthquake and collapse
coverage) in an amount equal to the full
replacement cost thereof upon property of every
description and kind owned by the Tenant or for
which the Tenant is liable, or installed by or on
behalf of the Tenant and which is located within
the Building including, without limitation,
Leasehold Improvements, tenant's fixtures, the
Tenant's stock-in-trade, furniture, equipment and
all other personal property provided that if there
is a dispute as to the amount which comprises full
replacement cost, the decision of the Landlord
shall be conclusive;
(ii) business interruption insurance in such amount as
will reimburse the Tenant for direct or indirect
loss of earnings attributable to all perils insured
against in subclause (i) and other perils commonly
insured against by prudent tenants or attributable
to prevention of access to the Premises or the
Building as a result of such perils;
(iii) comprehensive general liability insurance, including
property damage and bodily injury and personal
injury liability, tenant's legal liability,
contractual liability (including contractual
liability with respect to this Lease) and owners'
and contractors' protective insurance coverage with
respect to the Premises and the Tenant's use of the
Common Facilities, coverage to include the
activities and operations conducted by the Tenant
and any other person for whom the Tenant is in law
responsible. Such policies shall be written on a
comprehensive basis with inclusive limits of not
less than Two Million Dollars ($2,000,000) for
bodily injury to any one or more persons or
property damage, and such higher limits as the
Landlord, acting reasonably, requires from time to
time, and shall contain a severability of interests
clause and a cross-liability clause;
(iv) broad form comprehensive boiler and machinery
insurance on a blanket repair and replacement basis
with limits for each accident in an amount not less
than the full replacement cost of all Leasehold
Improvements and of all boilers, pressure vessels,
air-conditioning equipment and miscellaneous
electrical apparatus owned or operated by the
Tenant or by others (other than the Landlord) on
behalf of the Tenant in or serving the Premises;
(v) motor vehicle insurance having third party
liability limits not less than Two Million Dollars
($2,000,000) covering all vehicles owned or
operated by the Tenant which are at any time used
in connection with the Tenant's business at the
Premises or which are at any time brought upon the
Lands;
(vi) any other form of insurance which the Landlord,
acting reasonably, requires from time to time in
form, in amounts and for risks against which a
prudent tenant would insure.
(b) All policies shall:
(i) be taken out with insurers acceptable to the
Landlord;
(ii) be in a form satisfactory from time to time to the
Landlord which form may include a reasonable
deductible, the amount of which will be subject to
the Landlord's approval, which approval may not be
unreasonably withheld;
(iii)be non-contributing with and shall apply only as
primary and not as excess to any other insurance
available to the Landlord;
(iv) exclude the exercise of any claim of the insurer or
insurers, whether by subrogation or otherwise,
against the Landlord and against those for whom the
Landlord is in law responsible;
(v) contain an undertaking by the insurers to notify
the Landlord in writing not less than thirty (30)
days prior to any cancellation thereof; and
(vi) name the Landlord as an insured party.
(c) Certificates of insurance or if required by the Landlord
certified copies of each such insurance policy will be
delivered to the Landlord as soon as practicable after
the placing of the required insurance and in any event
within ten (10) days of the effective date of coverage.
Provided that no review or approval of any such insurance
certificate by the Landlord shall derogate From or
diminish the Landlord's rights or the Tenant's
obligations contained in this Article.
(d) If the Tenant fails to take out or keep in force any
insurance referred to in this Section, or should any such
insurance not be approved by the Landlord and should the
Tenant not commence diligently to rectify (and thereafter
proceed diligently to rectify) the situation within
twenty-four (24) hours after written notice by the
Landlord to the Tenant (stating, if the Landlord does not
approve of such insurance, the reasons therefor), the
Landlord has the right without assuming any obligation in
connection therewith to effect such insurance at the sole
cost of the Tenant and all outlays by the Landlord shall
be paid by the Tenant to the Landlord on demand as
Additional Rent without prejudice to any other rights and
remedies of the Landlord under this Lease.
(e) The Tenant agrees that in the event of damage or
destruction to the Leasehold Improvements in the Premises
covered by insurance pursuant to subclause (a)(i), the
Tenant shall use the proceeds of such insurance for the
purpose of repairing or restoring such Leasehold
Improvements. In the event of damage to or destruction
of the Building entitling the Landlord to terminate the
Lease pursuant to Section 11.01(b) or 11.02, then if the
Premises have also been damaged or destroyed and the
Lease is terminated, the Tenant shall forthwith pay to
the Landlord all of its insurance proceeds relating to
the Leasehold Improvements in the Premises and if the
Premises have not been damaged or destroyed, the Tenant
shall upon demand deliver to the Landlord in accordance
with the provisions of this Lease the Leasehold
Improvements and the Premises.
Section 9.02 - Increase in Insurance Premiums
The Tenant shall not keep, use, sell or offer to sell in
or upon the Premises any article which may be prohibited by any
fire insurance policy in force from time to time covering the
Premises, the Building or the Lands. If:
(a) the occupation of the Premises; (b) the conduct of business
in the Premises; or (c) any act or omission of the Tenant on the
Lands or any part thereof; causes or results in any increase in
premiums for the insurance carried from time to time by the Landlord
with respect to the Building or the Lands, the Tenant shall pay any
such increase in premiums as Additional Rent forthwith upon demand
by the Landlord. In determining whether increased premiums are
caused by or result from the use or occupancy of the Premises, a
schedule issued by the organization computing the insurance rate
on the Building or the Lands showing the various components of such
rate shall be conclusive evidence of the several items and charges
which make up such rate. The Tenant shall comply promptly with
all requirements of any insurer now or hereafter in effect pertaining
to or affecting the Premises, the Building or the Lands.
Section 9.03 - Cancellation of Insurance
If any insurance policy upon the Building or the Lands or
any part thereof shall be cancelled or shall be threatened by the
insurer to be cancelled or the coverage thereunder reduced in any
way by the insurer by reason of the use or occupation of the
Premises or any part thereof by the Tenant or by any assigns or
sub-tenant of the Tenant, or by anyone permitted by the Tenant to
be upon the Premises, the Tenant shall remedy the condition giving
rise to cancellation, threatened cancellation or reduction of
coverage within twenty-four (24) hours after Notice thereof by the
Landlord.
Section 9.04 - Loss or Damage
The Landlord shall not be liable for any death or injury
arising from or out of any occurrence in, upon, at or relating to
the Building or the Lands, or damage to property of the Tenant or
of others located on the Premises or elsewhere in the Building or
on the Lands, nor shall it be responsible for any loss of or damage
to any property of the Tenant or others from any cause whatsoever,
except for any such death, injury, loss or damage which results
from the negligence of the Landlord, its agents, servants or
employees or other persons for whom it may in law be responsible
provided that in no event shall the Landlord be responsible for any
loss, injury or damage contemplated by Section 9.07(b), or for any
indirect or consequential damages sustained by the Tenant or
others. Without limiting the generality of the foregoing, the
Landlord shall not be liable for any injury or damage to persons or
property resulting from fire, explosion, dampness, falling plaster,
falling ceiling tile, falling ceiling fixtures or from steam, gas,
electricity, water, rain, flood, snow or leaks from any rentable
premises or from the pipes, sprinklers, appliances, plumbing works,
roof, windows or subsurface of any floor or ceiling of the Building
or from the street or any other place or by any other cause
whatsoever. The Landlord shall not be liable for any such damage
caused by other tenants or persons in the Building or on the Lands
or by occupants of adjacent property thereto, or the public, or
caused by construction or by any private, public or quasi-public
work. All property of the Tenant kept or stored on the Premises
shall be so kept or stored at the risk of the Tenant only and the
Tenant shall indemnify the Landlord and save it harmless from any
claims arising out of any damage to the same including, without
limitation, any subrogation claims by the Tenant's insurers.
Section 9.05 - Landlord's Insurance
The Landlord shall at all times throughout the Term
carry:
(a) insurance on the Building and any machinery, boilers and
equipment contained therein or servicing the Building and
owned by the Landlord and constituting Common Facilities
(specifically excluding any property with respect to
which the Tenant and other tenants are obliged to insure
pursuant to Section 9.01 or similar sections of their
respective leases) against damage by fire and extended
perils or all-risks coverage;
(b) public liability and property damage insurance with
respect to the Landlord's operations and interest in the
Lands and the Building;
(c) loss of rental income insurance, or loss of insurable
gross profits commonly insured against by prudent
landlords, including loss of all rentals receivable from
tenants in the Building in accordance with the provisions
of their leases, including basic and additional rentals;
and
(d) such other form or forms of insurance as the Landlord or
the Mortgagee reasonably considers advisable.
Such insurance shall be in such reasonable amounts and with such
reasonable deductibles as would be carried by a prudent owner of a
reasonably similar building, having regard to size, age, use and
location. Notwithstanding the Landlord's covenant contained in
this Section, and notwithstanding any contribution by the Tenant to
the cost of insurance premiums provided herein, the Tenant
acknowledges and agrees that no insurable interest is conferred
upon the Tenant under any policies of insurance carried by the
Landlord, and the Tenant has no right to receive any proceeds of
any such insurance policies carried by the Landlord.
Section 9.06 - Indemnification of Landlord
Except as provided in Section 9.07(a) but notwithstanding
any other provision of this Lease, the Tenant shall indemnify the
Landlord and save it harmless from and against any loss (including
loss of Minimum Rent and Additional Rent), claims, actions,
damages, liability and expenses in connection with loss of life,
personal injury, damage to property or any other loss or injury
whatsoever arising out of this Lease, or any occurrence in, upon or
at the Premises, or the occupancy or use by the Tenant of the
Premises or any part thereof, occasioned wholly or in part by any
act or omission of the Tenant or by anyone permitted to be on the
Premises by the Tenant. If the Landlord shall, without fault on
its part, be made a party of any litigation commenced by or against
the Tenant, then the Tenant shall protect, indemnify and hold the
Landlord harmless and shall pay all costs, expenses and reasonable
legal fees incurred or paid by the Landlord in connection with such
litigation. The Tenant shall also pay all costs, expenses and
legal fees that may be incurred or paid by the Landlord in
reasonably enforcing the terms, covenants and conditions in this
Lease unless a court of law having jurisdiction shall decide
otherwise.
Section 9.07 - Limitations of Liability
Notwithstanding anything else in this Lease:
(a) The Tenant shall not be liable to the Landlord in respect
of any loss, injury or damage insured by the Landlord
under Sections 9.05 (a) and (c) to the extent of any
recovery by the Landlord under such insurance; and
(b) The Landlord shall not be liable to the Tenant in respect
of any loss, injury or damage to property insured or
required to be insured by the Tenant under Sections
9.01(a)(i), (ii) and (iv).
ARTICLE X Maintenance, Repairs and Alterations
Section 10.01 - Maintenance and Repairs by Tenant
Subject to Section 10.03 and Article XI hereof, the
Tenant, shall, at all times during the Term, at its cost, keep and
maintain in good order, first-class condition and repair (which
shall include, without limitation, periodic painting and
decorating) as personally determined by the Landlord, and shall,
subject to Sections 10.02 and 10.03, make all needed repairs and
replacements with due diligence and dispatch to (i) the whole of
the Premises; (ii) all partitions, doors, and fixtures located in
or upon the Premises; and (iii) all equipment in, appurtenances of
and improvements to the Premises (including, without limitation,
electrical, lighting, wiring, plumbing fixtures and equipment and
the heating, ventilating and air-conditioning equipment within, or
installed by or on behalf of the Tenant within the Premises or the
Building, and all telephone outlets and conduits and special
mechanical and electrical equipment within or serving the
Premises).
Section 10.02 - Landlord's Approval of Tenant's Repairs
The Tenant shall not make any repairs, alterations,
replacement, decorations or improvements to any part of the
Premises without first obtaining the Landlord's written approval.
The Tenant shall submit to the Landlord: (a) details of the
proposed work including drawings and specifications prepared by
qualified architects or engineers and conforming to good
engineering practice; (b) such indemnification against liens,
costs, damages and expenses as the Landlord requires; and (c)
evidence satisfactory to the Landlord that the Tenant has obtained,
at its expense, all necessary consents, permits, licences and
inspections from all governmental and regulatory authorities having
jurisdiction. All such repairs, replacements, alterations,
decorations or improvements by the Tenant to the Premises approved
by the Landlord shall be performed: (i) at the sole cost of the
Tenant; (ii) by competent workmen, who are compatible with others
employed by the Landlord and its contractors; (iii) in a good and
workmanlike manner; (iv) in accordance with the drawings and
specifications approved by the Landlord; and (v) subject to the
reasonable regulations, controls and inspection of the Landlord.
The Tenant shall pay the fees of any architectural, engineering or
other consultant hired by the Landlord in connection with the
foregoing plus a sum equal to fifteen per cent (15%) of the total
cost thereof representing the Landlord's overhead. Any such
repair, replacement, alteration, decoration or improvement made by
the Tenant without the prior written consent of the Landlord or
which is not made in accordance with the drawings and
specifications approved by the Landlord shall, if requested by the
Landlord, be promptly removed by the Tenant at the Tenant's expense
and the Premises restored to their previous condition, failing
which the Landlord may, at its option, without notice to the Tenant
and without liability on the Landlord's part, remove same at the
Tenant's expense which shall be paid by the Tenant to the Landlord
together with fifteen (15%) percent of the cost thereof, as
Additional Rent forthwith on demand.
Notwithstanding anything contained in this Lease
including, without limitation, Section 10.01, if any maintenance,
repairs, alterations, decorations, additions or improvements to the
Premises or to any improvements installed by or on behalf of the
Tenant for the benefit of the Premises which are approved by the
Landlord (1) affect the structure of the Premises or any part of
the Building other than the Premises, or (2) are installed outside
of the Premises, or (3) are installed within the Premises but are
part of the Common Facilities, or affect any part of the Common
Facilities, such work shall, if required by the Landlord, be
performed only by the Landlord at the Tenant's sole cost and
expense. Upon completion thereof, the Tenant shall pay to the
Landlord, as Additional Rent upon demand, both the Landlord's costs
relating to any such repairs, alterations, decorations, additions
or improvements including the fees of any architectural,
engineering or other consultants plus a sum equal to fifteen
percent (15%) of the total cost thereof representing the Landlord's
overhead. No repairs, alterations, additions, decorations or
improvements to the Premises by or on behalf of the Tenant shall be
permitted which may weaken or endanger the structure or adversely
affect the condition or operation of the Premises or the Building
or diminish the value thereof, or restrict or reduce the Landlord's
coverage for zoning purposes. The Tenant agrees that it will at
the commencement of the Term and periodically throughout the Term,
including, without limitation, whenever any alterations are made to
the Premises, balance the air movement in the Premises at the
Tenant's expense and for this purpose use the air-balancer
designated by the Landlord.
Section 10.03 - Maintenance by Landlord
Subject to Article XI hereof, the Landlord shall, at all
times throughout the Term, maintain and repair, or cause to be
maintained and repaired, as would a prudent owner of a reasonably
similar building, the structure of the Building including, without
limitation, the foundations, exterior wall assemblies including
weather walls, subfloor, roof, bearing walls, and structural
columns and beams of the Building. The cost of such maintenance
and repairs (except for the cost of repairing and replacing any
inherent structural defects or weaknesses) shall be included in
Section 6.02(b)(viii) or shall be depreciated or amortized pursuant
to Section 6.02(b)(ix) hereof, unless the Landlord is required, due
to the business carried on by the Tenant, to perform such
maintenance or make such repairs by reason of the application of
laws or ordinances or the direction, rules or regulations of any
duly constituted regulatory body, or by reason of any act, omission
to act, neglect or default of the Tenant, or those for whom the
Tenant is in law responsible, in which event the Tenant shall be
liable and responsible for the total cost of any such maintenance
and repairs plus a sum equal to fifteen percent (15%) of the total
cost of such repairs representing the Landlord's overhead, which
shall immediately become due and payable to the Landlord as
Additional Rent upon demand. Notwithstanding the Landlord's
obligations contained in this Section 10.03, the Tenant shall be
liable and responsible for the cost of any maintenance and repairs
required to be made by the Landlord and which result from any of
the circumstances referred to in the immediately preceding sentence
plus a sum equal to fifteen per cent (15%) of the total cost of the
foregoing representing the Landlord's overhead.
If the Tenant refuses or neglects to carry out any
maintenance, repairs and replacements properly as required pursuant
to Section 10.01 hereof, and to the reasonable satisfaction of the
Landlord, the Landlord may, but shall not be obliged to, perform
such maintenance, repairs and replacements without being liable for
any loss or damage that may result to the Tenant's merchandise,
fixtures or other property or to the Tenant's business by reason
thereof, and upon completion thereof, the Tenant shall pay to the
Landlord the Landlord's costs relating to any such maintenance,
repairs and replacements plus a sum equal to fifteen percent (15%)
thereof representing the Landlord's overhead, as Additional Rent
upon demand.
If any elevator servicing the Building or any of the
boilers, engines, pipes, climate control equipment or other
apparatus or any of them used for the purpose of climate control or
operating any elevator, or if the water pipes, drainage pipes,
electrical, lighting or other equipment servicing the Building are
damaged or destroyed or get out of repair, the Landlord shall have
a reasonable time in which to make such repairs or replacements as
may be reasonably required for the resumption of services to the
Premises which the Landlord has by this Lease expressly agreed to
provide and the Tenant is not entitled to any compensation or
damages therefor, but if any such equipment, facilities or systems
servicing the Building or elevators become impaired, damaged or
destroyed in the circumstances referred to in Section 10.06, the
Tenant shall be responsible for the cost of repairing, restoring or
making good such damage in accordance with the provisions of
Section 10.06.
Section 10.04 - Repair on Notice
In addition to the obligations of the Tenant contained in
Section 11.01 hereof, the Tenant shall effect all work referred to
therein according to notice from the Landlord but failure to give
notice shall not relieve the Tenant from its obligations under
either Sections 10.01 or 11.01 hereof.
Section 10.05 - Surrender of the Premises
At the expiration or earlier termination of this Lease,
the Tenant shall at its expense (i) peaceably surrender and yield
up vacant possession of the Premises to the Landlord in a clean,
broom swept and tidy state, and in as good condition and repair as
the Tenant is required to maintain the Premises throughout the
Term, and (ii) surrender all keys for the Premises to the Landlord
at the place then fixed for the payment of Minimum Rent and shall
inform the Landlord of all combinations of locks, safes and vaults,
if any, in the Premises; (iii) remove all trade fixtures and such
alterations, decorations, additions, erections, fixtures,
improvements or appurtenances in, on, to, for or which service the
Premises as the Landlord shall at its option upon notice to the
Tenant require to be removed and the Tenant shall forthwith repair,
at its sole cost and expense, all damage to the Premises caused by
their installation or removal; and (iv) if the Tenant has filed or
registered against title of the Building lands or any part thereof,
a caveat, notice, caution or other document or instrument giving
notice of this Lease, it shall promptly cause the same to be
discharged. The Tenant's obligation to observe and perform the
provisions of this Section 10.05 shall survive the expiration or
earlier termination of this Lease.
Section 10.06 - Repair Where Tenant at Fault
Notwithstanding any other terms, covenants and conditions
contained in this Lease, if the Building or any part thereof
requires repair or becomes damaged or destroyed through the
negligence, carelessness or misuse of the Tenant or due to the
requirements of governmental authorities relating to the Tenant's
conduct of business or through the Tenant in any way damaging the
Building, the cost of the resulting repairs, replacements or
alterations plus a sum equal to fifteen percent (15%) of the cost
thereof representing the Landlord's overhead shall be paid by the
Tenant to the Landlord as Additional Rent forthwith upon
presentation of an account of such expenses incurred by the
Landlord.
Section 10.07 - Tenant Not to Overload Facilities
The Tenant shall not install any equipment which will
exceed or overload the capacity of any utility, electrical or
mechanical facilities in the Premises and the Tenant will not bring
into the Premises or install any utility, electrical or mechanical
facility or service which the Landlord does not approve. The
Tenant agrees that if any equipment installed by the Tenant
requires additional utility, electrical or mechanical facilities,
the Landlord may, in its sole discretion, if they are available,
elect to install them at the Tenant's expense plus a sum equal to
fifteen percent (15%) of such costs representing the Landlord's
overhead, payable by the Tenant to the Landlord as Additional Rent,
on demand, and in accordance with plans and specifications prepared
by the Tenant at the Tenant's expense to be approved in advance in
writing by the Landlord.
Section 10.08 - Tenant Not to Overload Floors
The Tenant shall not bring upon the Premises or any part
thereof, any machinery, equipment, article or thing that by reason
of its weight, size or use, might in the opinion of the Landlord
damage the Premises and shall not at any time overload the floors
of the Premises. If any damage is caused to the Premises by any
machinery, equipment, object or thing or by overloading, or by any
act, neglect, or misuse on the part of the Tenant, or any of its
servants, agents, or employees, or any Person having business with
the Tenant, the Tenant will forthwith repair such damage, or at the
option of the Landlord, pay the Landlord the cost of repairing such
damage plus a sum equal to fifteen percent (15%) of such costs
representing the Landlord's overhead, as Additional Rent upon
demand.
Section 10.09 - Removal and Restoration by Tenant
(a) All alterations, decorations, additions, erections,
fixtures, improvements and appurtenances made by the Tenant, or
made by the Landlord on the Tenant's behalf (other than the
Tenant's trade fixtures), in, on, to, for or which serve the
Premises, shall immediately become the property of the Landlord
upon affixation or installation, without compensation therefor to
the Tenant. Such alterations, decorations, additions, erections,
fixtures, improvements and appurtenances shall not be removed from
the Premises either during or at the expiration or earlier of this
Lease except that:
(i) The Tenant may during the Term in the usual or normal
course of its business and with the prior written consent
of the Landlord remove its trade fixtures, provided such
trade fixtures have become excess for the Tenant's
purposes or the Tenant is substituting new and similar
trade fixtures therefor, and provided that in each case
(1) the Tenant is not in default under this Lease; and
(2) such removal is done at the Tenant's sole cost and
expense; and
(ii) The Tenant shall, at the expiration or earlier
termination of this Lease, at its own cost, remove all
its trade fixtures and such alterations, decorations,
additions, erections, fixtures, improvements and
appurtenances in, on, to, for or which serve the Premises
as the Landlord at its option, upon notice to the Tenant
requires to be removed.
(b) If the Tenant does not remove its trade fixtures at the
expiration or earlier termination of the Term, the trade fixtures
shall, at the option of the Landlord, thereupon become the property
of the Landlord, without compensation therefor to the Tenant, and
may be removed from the Premises and sold or disposed of by the
Landlord in such manner as it deems advisable.
(c) The Tenant shall, in the case of every such installation
or removal either during or at the expiration of the Term, promptly
make good any damage caused to the Premises or the Building.
(d) For greater certainty, the Tenant's trade fixtures shall
not include (i) heating, ventilating and air-conditioning systems,
facilities and equipment in or serving the Premises; (ii) floor
covering affixed to the floor of the Premises; (iii) light fixtures
or window coverings; (iv) doors; (v) internal stairways, escalators
or elevators; and (vi) anything that would not normally be
considered a trade fixture; all of which are deemed to be leasehold
improvements.
Section 10.10 - Notice by Tenant
The Tenant shall, when it becomes aware of same, notify
the Landlord of any damage to, or deficiency or defect in any part
of the Building, including the Premises, any equipment or utility
systems, or any installations located therein, notwithstanding the
fact that the Landlord may have no obligations with respect to
same.
Section 10.11 - Liens
The Tenant shall at all times promptly pay all its
contractors, material men, suppliers and workmen and all charges
incurred by or on behalf of the Tenant for any work, materials or
services which may be done, supplied or performed at any time in
respect of the Premises and the Tenant shall do any and all things
necessary so as to ensure that no lien is registered against the
Building or any part thereof, against the Landlord's interest in
the Building, or against the Tenant's interest in the Premises, or
any fixtures, equipment or leasehold improvements therein, and if
any such lien is made, filed or registered, the Tenant shall
discharge it or cause it to be discharged forthwith at the Tenant's
expense.
If the Tenant fails to discharge or cause any such lien
to be discharged as aforesaid, then, in addition to any other right
or remedy of the Landlord, the Landlord may, but it shall not be
obligated to, discharge the same by paying the amount claimed to be
due into Court or directly to any such lien claimant and the amount
so paid by the Landlord and all costs and expenses including
without limitation solicitor's fees (on a solicitor and his client
basis) incurred as a result of the registration of the lien,
including the discharge of the lien, shall be immediately due and
payabel by the Tenant to the Landlord on demand as Additional Rent.
Section 10.12 - Signs and Advertising
Tenant shall not paint, affix, display or cause to be
painted, affixed or displayed, any sign, picture, advertisement,
notice, lettering or decoration of any kind anywhere outside the
Premises (whether on the outside or inside of the Building) or
within the Premises so as to be visible from the outside of the
Premises, without the prior written approval of the Landlord. The
Landlord will prescribe a uniform pattern of identification signs
for tenants to be placed on the outside of the doors leading into
the Premises. Any such sign shall remain the property of the
Tenant and shall be maintained at the Tenant's cost and expense.
At the expiration of the Term or earlier termination of the Lease,
the Tenant shall remove any such sign, picture, advertisement,
notice, lettering or decoration from the Premises at the Tenant's
expense and shall promptly repair all damage caused by any such
removal. The Tenant's obligation to observe and perform this
covenant shall survive the expiration of the Term or earlier
termination of the Lease.
Section 10.13 - Directory Board
The Tenant shall be entitled at its expense to have its
name shown upon the directory board of the Building and the
Landlord shall design the style of such identification and the
directory board shall be located in an area designated by the
Landlord in the main lobby of the Building.
ARTICLE XI Damage and Destruction and Expropriation
Section 11.01 - Destruction of the Premises
(a) If the Premises are at any time destroyed or damaged
(including, without limitation, smoke and water damage) as a result
of fire, the elements, accident or other casualty required to be
insured against by the Landlord pursuant to Section 9.05 hereof or
otherwise insured against by the Landlord and not caused by the
Tenant, and if as a result of such occurrence:
(i) the Premises are rendered untenantable only in part, this
Lease shall continue in full force and effect and the
Landlord shall, subject to Section 11.02 hereof, commence
diligently to reconstruct, rebuild or repair the Premises
to the extent only of the Landlord's Work and exclusive
of the Tenant's Work and only Minimum Rent (but not
Additional Rent) shall abate proportionately to the
portion of the Premises rendered untenantable from the
date of the destruction or damage and until the Premises
have been restored and rendered tenantable by the
Landlord to the extent of the Landlord's Work;
(ii) the Premises are rendered wholly untenantable, the
Landlord shall, subject to Section 11.02, hereof,
commence diligently to reconstruct, rebuild or repair the
Premises to the extent of the Landlord's Work and only
Minimum Rent (but not Additional Rent) shall abate
entirely from the date of the destruction or damage and
until the Premises have been restored and rendered
tenantable in whole or in part by the Landlord to the
extent of the Landlord's Work;
(iii) the Premises are not rendered untenantable in whole or in
part, this Lease shall continue in full force and effect,
the Rent and other amounts payable by the Tenant shall
not terminate, be reduced or abate and the Landlord
shall, subject to Section 11.02 hereof, commence
diligently to reconstruct, rebuild or repair the Premises
to the extent of the Landlord's Work.
(b) Upon the Tenant being notified in writing by the Landlord
that the Landlord's Work has been completed to such an extent that
the Tenant's Work can be commenced, the Tenant shall forthwith
complete all the Tenant.s Work and all work required to fully
restore the Premises for business fully fixtured, stocked and
staffed (in any case, without the benefit of any capital allowance
inducement to lease, or other payments made at the time of or in
conjunction with, the original construction of the Premises by the
Landlord to the Tenant in connection with the Tenant's Work). The
Tenant shall diligently complete the Tenant's Work and, if the
Premises have been closed for business, reopen for business within
ninety-five (95) days after notice from the Landlord that the
Landlord's Work has been completed to such an extent that the
Tenant's Work can be commenced.
(c) Nothing in this Section 11.01 requires the Landlord to
(i) repair or replace any improvements, equipment, furniture,
chattels or trade fixtures in the Premises which do not belong to
the Landlord, or, (ii) repair, reconstruct or rebuild the Building
or any part thereof, or the Premises or any part thereof, using the
plans and specifications and working drawings used in the original
construction of the Building or any part thereof or in the Premises
or any part thereof, provided that such plans and specifications
and working drawings so used by the Landlord in repairing,
reconstructing or rebuilding call for a quality equal to or better
than that called for in the plans and specifications and working
drawings used in the original construction.
Section 11.02 - Destruction of the Building
(a) If thirty-five per cent (35%) or more of the Rentable
Area of the Building is at any time destroyed or damaged
(including, without limitation, smoke and water damage) as a result
of fire, the elements, accident or other casualty, whether or not
the Premises are affected by such occurrence, and if, in the
opinion of the Landlord, reasonably arrived at, the Rentable Area
of the Building so damaged or destroyed cannot be rebuilt or be
made fit for the purposes of the respective tenants of such space
within one hundred and eighty (180) days of the happening of the
damage and destruction, then and so often as any of such events
occur, the Landlord may, at its option, to be exercised by written
notice to the Tenant within forty-five (45) days following any such
occurrence, elect to terminate this Lease.
(b) In the event that as a result of any damage or
destruction to the Building or to the Premises or any part or parts
thereof, the Landlord, acting reasonably, is of the opinion that it
is not economically feasible to repair, reconstruct or rebuild the
Building and that it is advisable to demolish or substantially
renovate the Building, then the Landlord may, at its option, to be
exercised by written notice to the Tenant within forty-five (45)
days following any such occurrence, elect to terminate this Lease.
(c) In the case of such election being made by the Landlord
pursuant to either Sections 11.02 (a) or 11.02 (b) hereof, the Term
and the tenancy hereby created shall expire on the thirtieth (30th)
day after such notice is given, without indemnity or penalty
payable or any other recourse by one party to or against the other
and the Tenant shall, within such thirty (30) day period, vacate
the Premises and surrender them to the Landlord with the Landlord
having the right to re-enter and repossess the Premises discharged
of this Lease and to expel all Persons and remove all property
therefrom. All Rent shall be due and payable without reduction or
abatement subsequent to the destruction or damage and until the
date of termination, unless the Premises shall have been destroyed
or damaged as well, in which event Section 11.01 shall apply.
(d) If all or any part of the Building is at any time
destroyed or damaged as set out in Sections 11.02(a) and/or
11.02(b) hereof, and the Landlord does not elect to terminate this
Lease in accordance with the rights hereinbefore granted, the
Landlord shall, following such destruction or damage, commence
diligently to reconstruct, rebuild or repair, the Premises to the
extent that the Landlord is obligated to repair the Premises as set
forth in the provisions of Section 11.01 hereof, and if necessary,
that part of the Building immediately adjacent to the Premises, but
only to the extent of the Landlord's responsibilities pursuant to
the terms of the various leases for the premises in the Building
and exclusive of any tenant's responsibilities set out therein. If
the Landlord elects to repair, reconstruct or rebuild the Building
or any part thereof, the Landlord may use plans and specifications
and working drawings other than those used in the original
construction of the Building or any part thereof provided that such
plans and specifications and working drawings so used by the
Landlord call for a quality equal to or better than that called for
in the plans and specifications and working drawings used in the
original construction.
(e) Notwithstanding any of the provisions hereinbefore set
out in this Lease: (1) in the event of damage or destruction
occurring to the Building, the Premises, or any part or parts
thereof by reason of any cause in respect of which there are no
proceeds of insurance available to the Landlord or proceeds of
insurance are available but insufficient to pay the Landlord for
the costs of rebuilding or making fit the Building or the Premises
or effecting the Landlord's Work because any Mortgagee or other
Person entitled thereto will not consent to the payment to the
Landlord of the proceeds of any insurance policy for such purpose,
or, (2) if any such damage or destruction is caused by the Tenant,
the Landlord may terminate this Lease on thirty (30) days' written
notice to the Tenant and all Rent shall be adjusted as of, and the
Tenant shall vacate and surrender the Premises on, such termination
date.
Section 11.03 - Expropriation
Both the Landlord and the Tenant agree to cooperate with
each other in respect of any expropriation of all or any part of
the Premises or any other part of the Building, so that each may
receive the maximum award in the case of any expropriation to which
they are respectively entitled at law. If and to the extent that
any portion of the Building other than the Premises is
expropriated, then the full proceeds accruing therefrom or awarded
as a result thereof, shall belong solely to the Landlord and the
Tenant will abandon or assign to the Landlord any rights which the
Tenant may have or acquire by operation of law to such proceeds or
award and will promptly execute such documents as in the opinion of
the Landlord are or may be necessary to give effect to this
intention.
If at any time during the Term, (a) more than twenty per
cent (20%) of the Rentable Area of the Building, or, (b) more than
twenty per cent (20%) of the area of the Common Facilities
(excluding the area of the parking facilities), or, (c) more than
ten per cent (10%) of the area of those Common Facilities which are
exterior or adjacent to the buildings forming part of the Building,
is acquired or expropriated by any lawful expropriating authority,
or if reasonable access to the Building is materially and adversely
affected by any such acquisition or expropriation, then in any of
such events, at the option of the Landlord, this Lease shall cease
and terminate as of the date of the interest acquired or
expropriated vesting in such expropriating authority and the Tenant
shall have no claim against the Landlord for the value of any
unexpired Term or for damages or for any reason whatsoever. If the
Landlord does not so elect to cancel this Lease by notice as
aforesaid, this Lease shall continue in full force and effect
without any reduction or abatement of Rent, provided that if any
part of the Premises is expropriated and as a result thereof the
area of the Premises is physically reduced, then from and after the
date of such physical reduction, the Rentable Area of the Premises
shall be adjusted to take into account any such reduction in area,
and the Minimum Rent payable by the Tenant pursuant to Section 4.02
shall be adjusted on the basis of the rental rate set out therein.
Section 11.04 - Architect's Certificate
The certificate of the Architect shall bind the parties
as to (a) the percentage of the Rentable Area of the Building
damaged or destroyed; (b) whether or not the Premises are rendered
untenantable and the extent of such untenantability; (c) the date
upon which the Landlord's Work is completed or substantially
completed and the date when the Premises are rendered tenantable;
(d) the state of completion of any work of either the Landlord or
the Tenant under this Lease; (e) whether reasonable access to the
Building is materially and adversely affected by any such
acquisition or expropriation; and (f) the percentage of the
Rentable Area of the Building which is acquired or expropriated
pursuant to this Lease.
ARTICLE XII Assignment, Subletting and Change of Control
Section 12.01 - Consent Required
(a) In this Article "Transfer" means (i) an assignment, a
sublease, a mortgage, charge or debenture (floating or otherwise)
or other encumbrance of this Lease or the Premises or any part of
them, (ii) a parting with or sharing of possession of all or part
of the Premises, and, (iii) a transfer or issue by sale,
assignment, bequest, inheritance, operation of law or other
disposition, or by subscription of all or part of the corporate
shares of the Tenant which results in a change in the effective
voting control of the Tenant. "Transferor" means the Person or
Persons who is or will be making a Transfer and "Transferee" means
the Person or Persons to whom a Transfer is or is to be made (it
being understood that for a Transfer described in Section
12.01(a)(iii) above the Transferor is the Person that has effective
voting control before the Transfer and the Transferee is the Person
that has effective voting control after the Transfer).
(b) The Tenant will not affect or permit a Transfer without
in each instance obtaining the prior written consent of the
Landlord, which consent will not be unreasonably withheld, except
that despite any provisions of this Lease or any statutory
provision to the contrary the Tenant hereby acknowledges that it
shall not be unreasonable for the Landlord to withhold its consent
to a Transfer if:
(i) the Tenant is then in default under any of the terms,
covenants and conditions herein on its part to be
observed and performed;
(ii) covenants, restrictions, or commitments given by the
Landlord to other tenants in the Building or to
Mortgagees or other parties regardless of when given,
prevent or inhibit the Landlord from giving its consent
to the Transfer or any Mortgagee does not consent
thereto;
(iii) the Transfer is a mortgage, charge, debenture (floating
or otherwise) of, or in respect of, this Lease or the
Premises or any part of them; and/or
(iv) the Landlord does not receive sufficient information,
material, books or records from the Tenant or the
Transferee to enable the Landlord, in the Landlord's
opinion, acting reasonably, to make a determination as to
whether or not it should give its consent.
(c) Section 12.01(b) does not apply to a Transfer described
in Section 12.01(a)(iii) which occurs when the Tenant is a
corporation whose shares are traded and listed on a stock exchange
in Canada or the United States.
(d) The Landlord shall have the right, upon notice to the
Tenant, if the Tenant requests its consent to a Transfer of the
whole of the Premises or this Lease, to terminate this Lease, or if
the request is to Transfer a part of the Premises only, to
terminate this Lease with respect to such part only, in each case
as of the termination date specified in such notice. In such event
the Tenant shall surrender the whole or part, as the case may be,
of the Premises in accordance with such notice and Rent and
Additional Rent shall be apportioned and paid to the date of
surrender and, if part only is surrendered, Rent and Additional
Rent shall thereafter abate proportionally. If the Landlord shall
not exercise the foregoing right of termination, then the
Landlord's consent to the Tenant's request for consent to the
Transfer shall be governed by Sections 12.01(b) and 12.02.
Section 12.02 - Conditions of Consent
The following terms and conditions apply in respect of
any Transfer (but this shall not imply consent by the Landlord to
any Transfer without the Tenant first complying with the provisions
of Section 12.01(b) hereof);
(a) the consent by the Landlord to any Transfer and the
deemed consent pursuant to Section 12.01(c) and/or (d)
hereof is not a waiver of the requirement for consent to
any subsequent Transfer;
(b) no acceptance by the Landlord of Rent or other payments
by a Transferee is, (i) a waiver of the requirement for
the Landlord to consent to the Transfer, (ii) the
acceptance of the Transferee as the Tenant, (subject
however to the provisions of Section 12.01(c) hereof),
or, (iii) a release of the Tenant from its obligations
under this Lease;
(c) the Landlord may apply amounts collected from the
Transferee to any unpaid Rent;
(d) the Transferor, unless the Transferee is a sub-tenant of
the Tenant, will retain no rights under this Lease in
respect of obligations to be performed by the Landlord or
in respect of the use or occupation of the Premises after
the Transfer and will execute an Indemnity Agreement on
the Landlord's standard form in respect of obligations to
be performed after the Transfer by the Transferee;
(e) the Transferor will cause the Transferee to promptly
execute an agreement (prepared by the Landlord at the
Tenant's expense) directly with the Landlord, (i)
agreeing to be bound by all of the terms of this Lease
(including, without limitation, the provisions of Section
8.01 relating to the use of the Premises) as if the
Transferee had originally executed this Lease as the
Tenant, and, (ii) amending the Lease to incorporate any
conditions imposed by the Landlord in its consent or
required by this Section 12.02; but the Transferor will
not be released from its obligations under this Lease and
shall be (and shall cause any Indemnitor to be) a party
to such agreement, and the liability of the Transferor
and Transferee shall be joint and several;
(f) if as a result of any such Transfer, the Tenant is
entitled, directly or indirectly, to receive in respect
of any such Transfer, a bonus or premium payable for any
such Transfer which relates to the Tenant's interest in
the Lease or to the Premises (excluding any consideration
for the Tenant's trade fixtures) or a Rent (whether
Minimum Rent or Additional Rent) greater than that
required to be paid to the Landlord pursuant to the
provisions of this Lease, the Tenant shall pay to the
Landlord, as Additional Rent the entire amount of any
such bonus, premium or increased Rent, as aforesaid,
forthwith upon receipt thereof by the Tenant from any
such Transferee from time to time. In this respect, the
Tenant shall make available to the Landlord upon request
any and all books and records of the Tenant so as to
enable the Landlord to verify the receipt of the amount
thereof, of any bonus, premium or greater Rent, as
aforesaid, which the Tenant has received from any such
Transferee from time to time, as aforesaid;
(g) any documents relating to a Transfer or relating to the
Landlord's consent will be prepared by the Landlord or
its solicitors and all of the legal costs of the Landlord
with respect thereto together with a reasonable
administration charge for the Landlord shall be paid by
the Tenant to the Landlord on demand, as Additional Rent;
(h) notwithstanding the effective date of any permitted
Transfer as between the Tenant and any Transferee, all
Rent for the month in which such effective date occurs
shall be paid in advance by the Tenant so that the
Landlord will not be required to accept partial payments
of Rent for such month from either the Tenant or any
Transferee; and
(i) in no event shall any Transfer to which the Landlord may
have consented release or relieve the Tenant from its
obligations fully to perform all the terms, covenants and
conditions of this Lease on its part to be performed and
in any event the Tenant shall be liable for the
Landlord's reasonable costs incurred in connection with
the Tenant's request for consent.
Section 12.03 - No Advertising of Premises
The Tenant shall not advertise the whole or any part of
the Premises or this Lease for the purpose of a Transfer and shall
not print, publish, post, display or broadcast any notice or
advertisement to that effect and shall not permit any broker or
other Person to do any of the foregoing, unless the complete text
and format of any such notice, advertisement or offer is first
approved in writing by the Landlord. Without in any way
restricting or limiting the Landlord's right to refuse any text or
format on other grounds, any text or format proposed by the Tenant
shall not contain any reference to the rental rate of the Premises.
Section 12.04 - Assignment by the Landlord
In the event of the sale, lease or disposition by the
Landlord of the Building or any part thereof, or the assignment by
the Landlord of this Lease or any interest of the Landlord
hereunder other than by way of security, the Landlord shall,
thereupon and without further agreement, be freed and relieved of
all liability with respect to such covenants and obligations.
Provided that any funds in the hands of the Landlord at the time of
such sale, lease, disposition or assignment shall be turned over to
the Person in respect of which the Landlord is entering into the
sale, lease, disposition or assignment.
ARTICLE XIII Access and Alterations
Section 13.01 - Right of Entry
(a) The Landlord and its agents have the right to enter the
Premises at all reasonable times to examine the same and to make
such repairs, alterations, changes, adjustments, improvements or
additions to the Premises or the Building or any part thereof or
any adjacent property as the Landlord considers necessary or
desirable without this constituting a re-entry or a breach of any
covenant for quiet enjoyment contained in this Lease or implied by
law. The Rent required to be paid pursuant to this Lease shall not
abate or be reduced while any such repairs, alterations, changes,
adjustments, improvements or additions are being made due to loss
or interruption of business of the Tenant, inconvenience or
otherwise, and the Landlord shall not be liable to the Tenant for
any injury or death caused to any Person or for any loss or damage
to the property of the Tenant or of others located on the Premises
as a result of such entry.
(b) The Landlord and its agents have the right to enter the
Premises at all reasonable times to show them to prospective
purchasers, lessees, insurers or mortgagees and during the twelve
(12) months prior to the expiration of the Term, the Landlord may
place upon the Premises the usual "For Rent" or "For Sale" notices
which the Tenant shall permit to remain thereon without molestation
or complaint.
(c) If the Tenant is not personally present to open and
permit an entry into the Premises at any time when for any reason
an entry therein is necessary or permissible, the Landlord or its
agents may forcibly enter the same without rendering the Landlord
or such agents liable therefor, and without in any manner affecting
the obligations and covenants of this Lease. The Tenant agrees
that no entry into the Premises or anything done in, to or for the
Premises by the Landlord pursuant to a right granted by this Lease
shall constitute a breach of any covenant for quiet enjoyment, or
(except where expressed by the Landlord in writing) shall
constitute a re-entry or forfeiture, or an actual or constructive
eviction and the Landlord shall not be liable to the Tenant for any
injury or death to any person or for any loss or damage to any
property of the Tenant or of others as a result of any such entry
or thing.
Section 13.02 - Security
The Tenant shall be issued security system access cards
to permit access to the Building at times other than Normal
Business Hours, at a ratio of one card for every 600 square feet of
Usable Floor Area of the Premises. Additional cards, if supplied,
and replacement cards will be provided upon payment to the Landlord
of its standard charge as determined by the Landlord from time to
time.
ARTICLE XIV Status Statement, Attornment and Subordination
Section 14.01 - Status Statement
Within ten (10) days after written request therefor by
the Landlord, or if upon any sale, assignment, lease or mortgage of
the Premises or the land thereunder or the Building by the
Landlord, a status statement is required from the Tenant, the
Tenant shall deliver, in a form supplied by the Landlord, a status
statement or a certificate to any proposed mortgagee or purchaser,
or to the Landlord, stating (if such is the case):
(a) that this Lease is unmodified and in full force and
effect (or if there have been modifications, that this
Lease is in full force and effect as modified and
identifying the modification agreements) or if this Lease
is not in full force and effect, the certificate shall so
state;
(b) the Commencement Date;
(c) the date to which Rent has been paid under this Lease;
(d) whether or not there is any existing default by the
Tenant in the payment of any Rent or other sum of money
under this Lease, and whether or not there is any other
existing or alleged default by either party under this
Lease with respect to which a notice of default has been
served and if there is any such default, specifying the
nature and extent thereof;
(e) whether there are any set-offs, defences or counter
claims against enforcement or the obligations to be
performed by the Tenant under this Lease; and
(f) with reasonable particularity, details respecting the
Tenant's and any Indemnitor's financial standing and
corporate organization;
or as otherwise required by the form supplied or directed to be
used by the Landlord.
Section 14.02 - Subordination and Attornment
(a) This Lease and all of the rights of the Tenant hereunder
are, and shall at all times be, subject and subordinate to any and
all mortgages, trust deeds and the charge or lien resulting from,
or any instruments of, any financing, refinancing or collateral
financing and any renewals or extensions thereof from time to time
in existence against the Building or any part thereof. Upon
request, the Tenant shall subordinate this Lease and all of its
rights hereunder in such form as the Landlord requires to any and
all mortgages, trust deeds or the charge or lien resulting from,
any instrument of, any financing, refinancing or collateral
financing and to all advances made or hereafter to be made upon the
security thereof.
(b) The Tenant shall, if possession is taken under, or any
proceedings are brought for the foreclosure of, or in the event of
the exercise of the power of sale under any mortgage, charge, lease
or sale and leaseback transaction, deed of trust, or the lien
resulting from any other method of financing, refinancing or
collateral financing made by the Landlord or otherwise in existence
against the Building, or any part thereof, attorn to the Mortgagee,
chargee, lessee, trustee, other encumbrancer or the purchaser upon
any such foreclosure or sale and recognize such Mortgagee, chargee,
lessee, trustee, other encumbrancer or the purchaser as the
Landlord under this Lease.
(c) The obligation of the Tenant to subordinate this Lease
and to attorn to the Mortgagee as provided for in Section 14.02(a)
and (b) is conditional upon the Mortgagee providing a written
acknowledgement in favour of the Tenant, that so long as the Tenant
is not in default under the covenants, obligations and agreements
on the part of the Tenant herein to be performed, the Tenant may
continue in possession of the Premises, without disturbance by the
Mortgagee.
Section 14.03 - Execution of Documents
The Tenant shall, upon request of the Landlord or the
Mortgagee or any other Person having an interest in the Building,
or any part thereof, execute and deliver promptly such instruments,
acknowledgements, statements or certificates to carry out the
intent of Sections 14.01 and 14.02 or any other provision of this
Lease subject however to the provisions of Section 14.02(c) in the
case of any instruments of subordination or attornment required
under the provisions of Sections 14.01 and 14.02 hereof. If ten
(10) days after the date of a request by the Landlord to execute
any such instruments, statements, acknowledgements or certificates
the Tenant has not executed and delivered the same to the Landlord
or to whomsoever the Landlord directs, the Tenant hereby
irrevocably appoints the Landlord as the Tenant's attorney with
full power and authority to execute and deliver in the name of the
Tenant any such instruments, statements, acknowledgements or
certificates.
Section 14.04 - Financial Information
The Tenant shall, upon request, provide the Landlord with
such information as to the Tenant's or the Indemnitor's financial
standing and corporate organization as the Landlord or the
Mortgagee requires. Failure of the Tenant to comply with the
Landlord's request herein shall constitute a default under the
terms of this Lease and the Landlord shall be entitled to exercise
all of its rights and remedies provided for in this Lease.
ARTICLE XV Default and Landlord's Remedies
Section 15.01 - Right to Re-Enter
Notwithstanding anything contained in any present or
future laws to the contrary, if and whenever:
(a) the Tenant fails to pay any Rent or other sums due
hereunder on the day or dates appointed for the payment
thereof, (provided the Landlord first gives two (2) days'
written notice to the Tenant of any such failure); or
(b) the Tenant fails to observe or perform any other of the
terms, covenants or conditions of this Lease to be
observed or performed by the Tenant (other than the
terms, covenants or conditions set out below in
subparagraphs (c) to (l), inclusive, for which no notice
shall be required) provided the Landlord first gives the
Tenant ten (10) days, or such shorter period of time as
is otherwise provided herein, written notice of any such
failure to perform and the Tenant within such period of
ten (10) days fails to commence diligently and thereafter
to proceed diligently and continuously to cure any such
failure to perform; or
(c) the Tenant or any Indemnitor of this Lease or any Person
occupying the Premises or any part thereof or any
licensee, concessionaire or franchisee operating business
in the Premises becomes bankrupt or insolvent or takes
benefit of any act now or hereafter in force for bankrupt
or insolvent debtors or files any proposal or makes any
assignment for the benefit of creditors or any
arrangement or compromise; or
(d) a receiver of a receiver and manager is appointed for all
or a portion of the Tenant's property or any such
Indemnitor's, occupant's, licensee's, concessionaire's or
franchisee's property; or
(e) any steps are taken or any action or proceedings are
instituted by the Tenant or by any other party including,
without limitation, any court or governmental body of
competent jurisdiction for the dissolution, winding-up or
liquidation of the Tenant or its assets; or
(f) the Tenant makes or attempts to make a sale in bulk of
any of its assets, wherever situated (other than a bulk
sale made to a Transferee permitted under this Lease); or
(g) the Tenant sells or disposes of the goods, trade
fixtures, equipment or chattels of the Tenant or removes
or commences, attempts or threatens to remove them from
the Premises so that in the Landlord's opinion there
would not in the event of such sale, disposal or removal
be sufficient goods of the Tenant on the Premises subject
to distress to satisfy all Rent due or accruing hereunder
for a period of at least twelve (12) months; or
(h) the Tenant abandons or attempts to abandon the Premises
or any part thereof, or the Landlord has reasonable cause
to believe that the Tenant intends to abandon or attempt
to abandon the Premises or any part thereof; or
(i) the Premises or any part thereof become and remain vacant
or unoccupied for a period of five (5) consecutive days
or more without the prior written consent of the
Landlord, or are used by any Persons other than such as
are entitled to use them; or
(j) the Tenant effects or attempts to effect a Transfer that
is not permitted by this Lease; or
(k) this Lease or any of the Tenant's assets on the Premises
are taken under any writ of execution, chattel mortgage,
charge, debenture or other security instrument; or
(l) re-entry is permitted under any other terms of this
Lease,
then and in every such case the Landlord, in addition to any other
rights or remedies it has pursuant to this Lease or at law, has the
immediate right of re-entry upon the Premises and it may repossess
the Premises and enjoy them as of its former estate, and the Tenant
hereby consents that the Landlord may expel all Persons and remove
all property from the Premises and such property may be removed and
sold or disposed of by the Landlord by public auction or otherwise,
and either in bulk or by individual item, all as the Landlord in
its sole discretion may decide (and the Tenant acknowledges and
agrees that the proceeds of such sale or disposition shall be
applied by the Landlord in the same manner as set out in the second
sentence of Section 15.02 hereof, insofar as applicable) or may be
stored in a public warehouse or elsewhere at the cost and for the
account of the Tenant, all without service of notice or resort to
legal process and without the Landlord being considered guilty of
trespass or becoming liable for any loss or damage which may be
occasioned thereby or for any claim for damages. The Tenant hereby
irrevocably waives (i) the benefit of any present or future laws
which in any way may limit or diminish the Landlord's right to
terminate this Lease or re-enter into possession of the Premises in
pursuance of its rights or remedies as set forth in this Lease,
and, (ii) any and all rights of redemption granted by or under any
present or future laws in the event of the Tenant being evicted or
dispossessed for any cause, or in the event of the Landlord
obtaining possession of the Premises by reason of the violation by
the Tenant of any of the terms or conditions of this Lease or
otherwise.
Section 15.02 - Right to Relet
If the Landlord elects to re-enter the Premises as herein
provided, or if it takes possession pursuant to legal proceedings
or pursuant to any notice provided for by law, it may either
terminate this Lease or it may from time to time without
terminating this Lease, as agent for the Tenant or otherwise, make
such alterations and repairs as are necessary in order to relet the
Premises or any part thereof for such term or terms (which may be
for a term extending beyond the Term) and at such Rent and upon
such other terms, covenants and conditions as Landlord in its sole
discretion considers advisable. Upon each such reletting all Rent
received by the Landlord from such reletting shall be applied,
first to the payment of any indebtedness other than Rent due
hereunder from the Tenant to the Landlord; second, to the payment
of any costs and expenses of such reletting including brokerage
fees and solicitor's fees and of costs of such alterations and
repairs; third, to the payment of Rent due and unpaid hereunder;
and the residue, if any, shall be held by the Landlord and applied
in payment of future Rent as the same becomes due and payable
hereunder. If such Rent received from such reletting during any
month is less than that to be paid during that month by the Tenant
hereunder, the Tenant shall pay any such deficiency, which shall be
calculated and paid monthly in advance on or before the first day
of each and every month. No such re-entry or taking possession of
the Premises by the Landlord shall be construed as an election on
its part to terminate this Lease unless a written notice of such
intention is given to the Tenant. Notwithstanding any such
reletting without termination the Landlord may at any time
thereafter elect to terminate this Lease for such previous breach.
If the Landlord at any time terminates this Lease for any breach,
in addition to any other remedies it may have, it may recover from
the Tenant all damages it incurs by reason of such breach,
including, without limitation, the cost of recovering the Premises,
solicitor's fees (on a solicitor and his client basis) and
including the worth at the time of such termination of the excess,
if any, of the amount of Rent and charges equivalent to Rent
required to be paid pursuant to this Lease for the remainder of the
Term (which Term shall be deemed for the purposes of this Section
15.02 only to continue on until its expiration as set forth in
Section 3.03) over the then reasonable rental value of the Premises
for the remainder of the Term, all of which amounts shall be
immediately due and payable by the Tenant to the Landlord. In any
of the events referred to in Section 15.01 hereof, in addition to
any and all other rights, including the rights referred to in this
Section and in Section 15.01 hereof, the full amount of the current
month's instalment of Minimum Rent and Additional Rent including,
without limitation, the aggregate of the monthly contributions
towards Taxes, insurance premiums, the Tenant's Proportionate Share
of costs of maintaining and operating the Building as set out in
Section 6.02, and any other payments required to be made monthly
hereunder, together with the next three (3) months' instalments of
Minimum Rent and the aggregate of such payments for the next three
(3) months, all of which shall be deemed to be accruing due on a
day-to-day basis, shall immediately become due and payable as
accelerated Rent, and the Landlord may immediately distrain for the
same, together with any Rent arrears then unpaid.
Section 15.03 - Expenses
If legal action is brought for recovery of possession of
the Premises, for the recovery of Rent or any other amount due
under this Lease, or because of the breach of any other terms,
covenants or conditions herein contained on the part of the Tenant
to be kept or performed, and a breach is established, the Tenant
shall pay to the Landlord as Additional Rent, upon demand, all
costs and expenses incurred therefor, including, without
limitation, any professional, consultant and legal fees (on a
solicitor and his client basis), unless a Court shall otherwise
award.
Section 15.04 - Removal of Chattels
The Tenant agrees that all goods, chattels and fixtures
when moved into the Premises shall not, except in the normal course
of business, be removed from the Premises until all Rent due or to
become due during the Term, and all other amounts payable by the
Tenant, are fully paid. In case of removal by the Tenant of the
goods and chattels of the Tenant from the Premises, the Landlord
may follow same for thirty (30) days in the same manner as is
provided for in The Landlord and Tenant Act (Ontario) or any like
legislation in any other province in Canada.
Section 15.05 - Waiver of Exemption from Distress
The Tenant hereby waives and renounces the benefit of any
present or future laws purporting to limit or qualify the
Landlord's right to distrain.
Notwithstanding any term or condition of this Lease or
anything contained in any present or future laws, none of the goods
and chattels of the Tenant at any time during the continuance of
the Term shall be exempt from levy by distress for Rent or other
sums provided in this Lease to be paid by the Tenant as Rent in
arrears, and upon any claim being made by the Landlord, this
provision may be pleaded as an estoppel against the Tenant in any
action brought to test the rights to the levying upon any such
goods as are named as exempted in such legislation, the Tenant
hereby waiving all and every benefit that it could or might have
with regard thereto.
Section 15.06 - Landlord May Cure Tenant's Default or Perform
Tenant's Covenants
If the Tenant fails to pay, when due, any Rent or other
charge required to be paid pursuant to this Lease, the Landlord,
after giving five (5) days' notice in writing to the Tenant, may,
but shall not be obligated to, pay all or any part of the same. If
the Tenant is in default in the performance of any of its covenants
or obligations hereunder (other than the payment of Rent or other
charge required to be paid pursuant to this Lease) the Landlord may
from time to time after giving such notice as it considers
sufficient (or without notice in the case of an emergency) having
regard to the circumstances applicable, perform or cause to be
performed any of such covenants or obligations, or any part
thereof, and for such purpose may do such things as may be
required, including, without limitation, entering upon the Premises
and doing such things as may be required upon or in respect of the
Premises or any part thereof as the Landlord reasonably considers
requisite or necessary. All expenses incurred and expenditures
made pursuant to this Section 15.06 plus a sum equal to fifteen per
cent (15%) thereof representing the Landlord's overhead shall be
paid by the Tenant as Additional Rent forthwith upon demand. The
Landlord shall have no liability to the Tenant for any loss or
damages resulting from any such action or entry by the Landlord
upon the Premises.
Section 15.07 - Lien on Personal Property
As security for the due payment by the Tenant of the Rent
reserved hereunder whether now due, accruing due or to fall due at
any time during the Term, and the performance by the Tenant of all
covenants, agreements, provisoes and conditions of the Tenant to be
performed hereunder, the Tenant hereby grants to the Landlord a
first lien and charge on all of the personal property of the Tenant
on, in or about the Premises. Such lien and charge shall
constitute a security agreement within the meaning of the Personal
Property Security Act (Ontario) or any like legislation in any
other province in Canada and on default of the Tenant hereunder the
Landlord shall have, in addition to any other rights and remedies
it may be entitled to under this Lease or otherwise, all the rights
and remedies of a secured party under the Personal Property
Security Act. For greater clarity, the rights of the Landlord
hereunder shall be in addition to and not in substitution for any
other rights and remedies of the Landlord. The Tenant shall not
create or permit any lien, mortgage, charge, conditional sales
agreement or other encumbrance in respect of its leasehold
improvements, trade fixtures or other personal property on, in or
about the Premises without the prior written consent of the
Landlord, which may be arbitrarily withheld. Nothing contained
herein shall prevent the Tenant from disposing of its inventory in
the ordinary course of business and for the purpose of carrying on
same. The provision of this Section 15.07 shall survive the
expiration or earlier termination of this Lease.
Section 15.08 - Charges Collectible as Rent
If the Tenant is in default in the payment of any
amounts, monies or charges required to be paid by the Tenant
pursuant to this Lease, they shall, if not paid when due, or when
otherwise provided hereunder, be collectible as Rent in arrears
together with the next monthly instalment of Minimum Rent
thereafter falling due hereunder, but nothing herein contained is
deemed to suspend or delay the payment by the Tenant of any amount,
money or charge at the time same becomes due and payable hereunder,
or limit any other remedy of the Landlord. The Tenant agrees that
the Landlord may, at its option, apply or allocate any sums
received from or due to the Tenant against any amounts due and
payable hereunder in such manner as the Landlord sees fit.
Section 15.09 - Remedies Generally
Mention in this Lease of any particular remedy of the
Landlord in respect of the default by the Tenant does not preclude
the Landlord from any other remedy in respect thereof, whether
available at law or in equity or by statute or expressly provided
for in this Lease. No remedy shall be exclusive or dependent upon
any other remedy, but the Landlord may from time to time exercise
any one or more of such remedies independently or in combination,
such remedies being cumulative and not alternative. Whenever the
Tenant seeks a remedy in order to enforce the observance or
performance of one of the terms, covenants and conditions contained
in this Lease on the part of the Landlord to be observed or
performed, the Tenant's only remedy shall be for such damages as
the Tenant shall be able to prove in a court of competent
jurisdiction that it has suffered as a result of a breach (if
established) by the Landlord in the observance and performance of
any of the terms, covenants and conditions contained in this Lease
on the part of the Landlord to be observed or performed, except
that where this Lease provides that the Landlord's consent or
approval is not to be unreasonably withheld, the Tenant's sole
remedy if the Landlord unreasonably withholds consent or approval,
shall be an action for specific performance and the Landlord shall
not be liable for any damages.
ARTICLE XVI Miscellaneous
Section 16.01 - Rules and Regulations
The Rules and Regulations adopted and promulgated by the
Landlord from time to time are hereby made a part of this Lease as
if they were embodied herein. The Rules and Regulations existing
as at the Commencement Date are those set out in Schedule "D"
hereto. The Rules and Regulations may differentiate between
different types of businesses, but the Rules and Regulations will
be adopted and promulgated by the Landlord acting reasonably and in
such manner as would a prudent landlord of a reasonably similar
building. The Tenant's failure to keep and observe the Rules and
Regulations constitutes a default under this Lease in such manner
as if the same were contained herein as covenants. The Landlord
reserves the right from time to time to amend or supplement the
Rules and Regulations applicable to the Premises or the Building.
The Landlord is not responsible to the Tenant in the event of the
non-observance or violation of any of such Rules and Regulations or
of the terms, covenants or conditions of any other lease of
premises in the Building and is under no obligation to enforce any
such Rules and Regulations or terms, covenants or conditions.
Section 16.02 - Overholding - No Tacit Renewal
If the Tenant remains in possession of the Premises after
the end of the Term with the consent of the Landlord but without
having executed and delivered a new lease, there is no tacit or
implied renewal of this Lease and the Term hereby granted,
notwithstanding any statutory provisions or legal presumption to
the contrary, and the Tenant shall be deemed to be occupying the
Premises as a Tenant from month-to-month at a monthly Minimum Rent
payable in advance on the first day of each month equal to two
times the monthly amount of Minimum Rent payable during the last
month of the Term and otherwise, upon the same terms, covenants and
conditions as are set forth in this Lease (including the payment of
all Additional Rent), so far as these are applicable to a monthly
tenancy.
Section 16.03 - Successors
All rights and liabilities herein granted to or imposed
upon the respective parties hereto, extend to and bind the
respective successors and assigns of each party hereto constituting
the Landlord and the heirs, executors, administrators and permitted
successors and assigns of the Tenant, as the case may be. No
rights, however, shall enure to the benefit of any Transferee of
the Tenant unless the Transfer to such Transferee is permitted
under the terms of this Lease. If there is more than one Tenant,
they are all bound jointly and severally by the terms, covenants
and conditions herein.
Section 16.04 - Tenant Partnership
If at any time during the Term (i) there is more than one
Tenant or more than one Person constituting the Tenant hereunder
then they shall each be liable jointly and severally for all of the
Tenant's obligations hereunder and (ii) the Tenant is a
partnership, joint venture or co-tenancy (the "Tenant
Partnership"), each Person who is presently a member of the Tenant
Partnership, and each Person who becomes a member of any successor
Tenant Partnership hereafter, shall be and continue to be liable
jointly and severally for the full and complete performance of, and
shall be and continue to be subject to the terms, covenants and
conditions of this Lease, whether or not such Person ceases to be
a member of such Tenant Partnership or successor Tenant
Partnership.
Section 16.05 - Waiver
The waiver by the Landlord of any breach of any term,
covenant or conditions herein contained is not deemed to be a
waiver of such term, covenant or condition or of any subsequent
breach of the same or of any other term, covenant or condition
herein contained. The subsequent acceptance of Rent hereunder by
the Landlord is not deemed to be a waiver of any preceding breach
by the Tenant of any term, covenant or condition of this Lease,
regardless of the Landlord's knowledge of such preceding breach at
the time of acceptance of such Rent. No term, covenant or condition
of this Lease is deemed to have been waived by the Landlord unless
such waiver is in writing by the Landlord.
All Rent to be paid by the Tenant to the Landlord
hereunder shall be paid without any deduction, abatement, set-off
or compensation whatsoever (except for Minimum Rent to the extent
it may be abated pursuant to Section 11.01), and the Tenant hereby
waives the benefit of any statutory or other rights in respect of
abatement, set-off or compensation in its favour at the time hereof
or at any future time.
Section 16.06 - Accord and Satisfaction
No payment by the Tenant or receipt by the Landlord of a
lesser amount than the monthly payment of Minimum Rent herein
stipulated is deemed to be other than on account of the earliest
stipulated Minimum Rent, nor is any endorsement or statement on any
cheque or any letter accompanying any cheque or payment as Rent
deemed an acknowledgement of full payment or an accord and
satisfaction, and the Landlord may accept and cash such cheque or
payment without prejudice to the Landlord's right to recover the
balance of such Rent or pursue any other remedy provided in this
Lease.
No receipt of monies by the Landlord from the Tenant
after the termination of this Lease in any lawful manner shall
reinstate, continue or extend the Term, or affect any notice
previously given to the Tenant, or operate as a waiver of the right
of the Landlord to enforce the payment of Rent then due or
thereafter falling due, or operate as a waiver of the right of the
Landlord, to recover possession of the Premises by proper suit,
action, proceedings or other remedy; it being agreed that, after
the service of notice to terminate this Lease and the expiration of
the time therein specified, and after the commencement of any suit,
action, proceeding or other remedy, or after a final order or
judgment for possession of the Premises, the Landlord may demand,
receive and collect any monies due, or thereafter falling due
without in any manner affecting such notice, suit, action,
proceeding, order or judgment; and any and all such monies so
collected shall be deemed payments on account of the use and
occupation of the Premises or at the election of the Landlord on
account of the Tenant's liability hereunder.
Section 16.07 - Brokerage Commissions
Unless otherwise agreed by the Landlord in writing, any
brokerage commission with respect to this Lease transaction shall
be borne exclusively by the Tenant and the Tenant shall promptly
indemnify and hold the Landlord harmless from any and all claims
with respect thereto.
Section 16.08 - No Partnership or Agency
Nothing in this Lease shall create any relationship
between the parties to this Lease other than that of Landlord and
Tenant and it is acknowledged and agreed that the Landlord does not
in any way or for any purpose become a partner of the Tenant in the
conduct of its business, or otherwise, or a joint venturer or a
member of a joint enterprise with the Tenant, nor is the
relationship of principal and agent created.
Section 16.09 - Force Majeure
Notwithstanding anything to the contrary contained in
this Lease, if the Landlord is bona fide delayed or hindered in or
prevented from the performance of any term, covenant or act
required hereunder by reason of strikes; labour troubles; inability
to procure materials or services; power failure; restrictive
governmental laws or regulations; riots; insurrection; sabotage;
rebellion; war; act of God; or other reason whether of a like
nature or not which is not the fault of the party delayed in
performing work or doing acts required under the terms of the
Lease, (collectively referred to in this Lease as "Force Majeure")
then performance of such term, covenant or act is excused for the
period of the delay and the Landlord shall be entitled to perform
such term, covenant or act within the appropriate time period after
the expiration of the period of such delay.
Section 16.10 - Notices
Any notice, demand, request or other instrument which may
be or is required to be given under this Lease shall be delivered
in person or sent by registered mail postage prepaid and shall be
addressed (a) if to the Landlord c/o MD Realty Corporation, The
Credit Suisse Centre, 525 University Avenue, Suite 1050, Toronto,
Ontario, M5G 1X3, Attention: Regional Manager, with a copy to
such other Person or at such other address as the Landlord
designates by written notice, and (b) if to the Tenant, at the
Premises. Any such notice, demand, request or consent is
conclusively deemed to have been given or made on the day upon
which such notice, demand, request or consent is delivered, or, if
mailed, then seventy-two (72) hours following the date of mailing,
as the case may be, and the time period referred to in the notice
commences to run from the time of delivery or seventy-two (72)
hours following the date of mailing. Either party may at any time
give notice in writing to the other of any change of address of the
party giving such notice, and from and after the giving of such
notice, the address therein specified is deemed to be the address
of such party for the giving of notices hereunder. If the postal
service is interrupted or is substantially delayed, any notice,
demand, request or other instrument shall only be delivered in
person.
Section 16.11 - No Option
The submission of this Lease for examination does not
constitute a reservation of or option to lease for the Premises and
this Lease become effective as a Lease only upon execution and
delivery thereof by the Landlord and the Tenant.
Section 16.12 - Registration
The Tenant will not register or permit the registration
of this Lease or any assignment or sublease or other document
evidencing any interest of the Tenant in this Lease or the Premises
except that, at the Tenant's request, subject to the Tenant paying
the Landlord's costs and expenses, the Landlord will enter into a
short form of lease with the Tenant for registration purposes,
describing the parties, the Term, and the other minimum information
required under the applicable legislation but the short form of
lease must be in a form satisfactory to the Landlord, acting
reasonably. Upon the expiration or earlier termination of this
Lease, the Tenant shall, at its expense, forthwith remove and
discharge such short form of lease, if any, from the title of the
Building lands, and in the event of its failure to do so the
Landlord may on behalf of the Tenant and at the Tenant's expense,
as its attorney, proceed to remove and discharge such short form of
lease, and the Tenant hereby expressly appoints the Landlord its
lawful attorney in this regard.
Section 16.13 - Compliance with The Planning Act
It is an express condition of this Lease, that the
provisions of Section 49 of the Planning Act, Statutes of Ontario,
1983 c.l, as amended, be complied with if applicable in law. Until
any necessary consent to this Lease is obtained, notwithstanding
anything else contained herein, the Term (including any extensions
or renewals thereof) shall not extend for a period greater than
twenty-one (21) years less one (1) day from the Commencement Date.
The Tenant shall apply diligently to prosecute such application for
such consent forthwith upon the execution of this Lease by both the
Landlord and the Tenant, and the Tenant shall be responsible for
all costs, expenses, taxes and levies imposed, charged or levied as
a result of such application and in order to obtain such consent.
Notwithstanding the foregoing provisions of this Section 16.13, the
Landlord reserves the right at any time to apply for such consent
in lieu of the Tenant (at the Tenant's expense) and the Tenant's
application is hereby expressly made subject to any application
which the Landlord intends to make.
Section 16.14 - Metric Conversion
If measurements are expressed in metric measure in this
Lease, the following conversion factors apply: 1 metre = 3.2808
feet; 1 square metre = 10.7639 square feet; 1 foot = .3048 metres;
and 1 square foot = .0929 square metres.
Section 16.15 - Limited Recourse and Severability
If at any time during the Term, the Landlord is a
partnership, joint venture or co-tenancy, the Tenant shall look
solely to the assets of such partnership or joint venture or the
co-tenants' interest in the Building, whichever shall be the case,
for the collection or satisfaction of any money or judgment which
the Tenant may recover against the Landlord, and the Tenant shall
not look for the collection or satisfaction of any such money or
judgment to the personal assets of any person who shall at any time
be a partner, joint venturer of the co-tenant in or under such
partnership, joint venture or co-tenancy. The Tenant acknowledges
that University/Elm Holdings Inc. and 744151 Ontario Limited are
co-tenants and that the obligations of each of them under this
Lease are several and proportional to the interests of each of them
in the Building, and are not either joint or joint and several.
Section 16.16 - Quiet Enjoyment
If the Tenant pays the Rent and other sums herein
provided when due, and punctually observes and performs all of the
terms, covenants and conditions on the Tenant's part to be observed
and performed hereunder, the Tenant shall peaceably and quietly
hold and enjoy the Premises for the Term hereby demised without
hindrance or interruption by the Landlord or any other Person
lawfully claiming by, through or under the Landlord subject,
nevertheless, to the terms, covenants and conditions of this Lease.
Section 16.17 - Tenant's Covenant as to Hazardous Substances
Schedule "F" attached forms part of this Lease.
Section 16.18 - Execution of Lease By Landlord
The Tenant acknowledges that MD Realty Corporation has
executed this Lease as agent for and on behalf of, in the name of
and with the authority of the Landlord, and that the covenants and
agreements of the Landlord are obligations of the Landlord only and
are not obligations personal to or enforeceable against MD Realty
Corporation in its own right, save and except that MD Realty
Corporation covenants for itself that it is the duly authorized
agent of the Landlord with complete power to execute this Lease as
agent for and on behalf of, in the name of and with the authority
of the Landlord. The Tenant acknowledges that the obligations
arising under this Lease, or any other document entered into with
respect to this Lease, are not, and shall not be construed to be,
personally binding upon, nor shall resort be had to, nor recourse
or satisfaction sought from the private property of, any of the
trustees, unit holders, officers, employees or agents of MD Realty
Fund. The Tenant represents and warrants that neither the Tenant
nor any director or officer of the Tenant is in any way associated
or affiliated with the Canadian Medical Association, MD Management
Limited, MD Realty Fund, MD Realty Corporation or any of their
affiliates other than by direct membership as a physician in any
one or more of the Canadian Medical Association, its divisions and
affiliate societies
IN WITNESS WHEREOF, the Landlord and the Tenant have
executed this Lease.
SIGNED, SEALED AND DELIVERED )
in the presence of ) 674573 ONTARIO LIMITED
) by its authorized agent
) MD REALTY CORPORATION
)
) Per: c.s.
)
) Per: c.s.
)
)
)
) ACE HARDWARE CANADA LIMITED
)
) Per: c.s.
)
) Per: c.s.
SCHEDULE "A"
LEGAL DESCRIPTION OF LANDS
Part of Lot 24, Plan 65M-2230, Town of Markham, Regional
Municipality of York, designated as Parts 2 and 3 on Plan 65R-7173,
and
Parts of Lot 4 and 5, Concession 5, and Part of Lot 24, Plan 65M-2230,
Town of Markham, Regional Municipality of York, designated as Parts 2
and 3 on Plan 65R-12393.
SCHEDULE "B" - FLOOR PLAN
SCHEDULE "C"
LANDLORD'S WORK and TENANT'S WORK
OFFICE PREMISES
LANDLORD'S WORK
NONE. The Premises are taken on an as is basis.
TENANT'S WORK
The Tenant is taking the premises on an as is basis.
SCHEDULE "D"
RULES AND REGULATIONS
1. The Landlord shall permit the Tenant and the Tenant's
employees and all Persons lawfully requiring communication with
them to have the use, during Normal Business Hours in common with
others entitled thereto, of the main entrance and the stairways,
corridors, elevators or other mechanical means of access leading to
the Premises. At times other than during Normal Business Hours the
Tenant and the employees of the Tenant shall have access to the
Building and to the Premises only in accordance with the Rules and
Regulations and shall be required to satisfactorily identify
themselves and to register in any book which may at the Landlord's
option be kept by the Landlord for such purpose. If identification
is not satisfactory, the Landlord is entitled to prevent the Tenant
or the Tenant's employees or other Persons lawfully requiring
communication with the Tenant from having access to the Building.
In addition, the Landlord is not required to open the door to the
Premises for the purpose of permitting entry therein to any Person
not having a key to the Premises.
2. The Tenant shall permit window cleaners to clean the
windows of the Premises during Normal Business Hours.
3. The sidewalks, entrances, passages, escalators, elevators
and staircases shall not be obstructed or used by the Tenant, its
agents, servants, contractors, invitees or employees for any
purpose other than ingress to and egress from the Premises and the
Building. The Landlord reserves entire control of all parts of the
Building employed for the common benefit of the tenants and without
restricting the generality of the foregoing, the sidewalks,
entrances, corridors and passages not within the Premises,
washrooms, lavatories, air conditioning closets, fan rooms,
janitors' closets, electrical closets and other closets, stairs,
escalators, elevator shafts, flues, stacks, pipe shafts and ducts
and shall have the right to place such signs and appliances
therein, as it deems advisable, provided that ingress and egress
from the Premises is not unduly impaired thereby.
4. The Tenant, its agents, servants, contractors, invitees
or employees, shall not bring in or take out, position, construct,
install or move any safe, business machinery or other heavy
machinery or equipment or anything liable to injure or destroy any
part of the Building, including the Premises, without first
obtaining the consent in writing of the Landlord. In giving such
consent, the Landlord shall have the right in its sole discretion,
to prescribe the weight permitted and the position thereof, the use
and design of planks, skids or platforms, and to distribute the
weight thereof. All damage done to the Building, including the
Premises, by moving or using any such heavy equipment or other
office equipment or furniture shall be repaired at the expense of
the Tenant. The moving of all heavy equipment or other office
equipment or furniture shall occur only by prior arrangement with
the Landlord. Safes and other heavy office equipment and machinery
shall be moved through the halls and corridors only upon steel
bearing plates. No freight or bulky matter of any description will
be received into the Building, including the Premises, or carried
in the elevators except during hours approved by the Landlord.
5. The Tenant shall not place or cause to be placed any
additional locks upon any doors of the Premises without the
approval of the Landlord and subject to any conditions imposed by
the Landlord. Two keys shall be supplied to the Landlord for each
entrance door to the Premises and all locks shall be standard to
permit access to the Landlord's master key. If additional keys are
requested, they must be paid for by the Tenant. No one, other than
the Landlord's staff, will have keys to the outside entrance doors
of the Building.
6. The water closets and other water apparatus shall not be
used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, ashes or other
substances shall be thrown therein. Any damage resulting from
misuse shall be borne by the Tenant by whom or by whose agents,
servants or employees the same is caused. The Tenant shall not,
(1) let the water run unless it is in actual use, (2) deface or
mark any part of the Building, including the Premises, (3) drive
nails, spikes, hooks or screws into the walls or woodwork of the
Building, including the Premises, or, (4) bore, drill or cut into
the walls or woodwork of the Building, including the Premises, in
any manner or for any reason.
7. No one shall use the Premises for sleeping apartments or
residential purposes, or for the storage of personal effects or
articles other than those required for business purposes.
8. The Tenant shall not permit any cooking or any heating of
any foods or liquids in the Premises without the written consent of
the Landlord, but this shall not prevent the Tenant from having an
electric coffee maker or electric kettle on the Premises.
9. Canvassing, soliciting and peddling in or about the
Building are prohibited.
10. It shall be the duty of the Tenant to assist and
cooperate with the Landlord in preventing injury to the Premises.
11. No inflammable oils or other inflammable, dangerous or
explosive materials save those approved in writing by the
Landlord's insurers shall be kept or permitted to be kept in the
Premises.
12. No bicycles or other vehicles shall be brought within the
Building without the consent of the Landlord.
13. No animals or birds shall be brought into the Building
without the consent of the Landlord.
14. The Tenant shall not install or permit the installation
or use of any machine dispensing goods for sale in the premises or
the Building or permit the delivery of any food or beverage to the
Premises without the written approval of the Landlord or in
contravention of any Rules and Regulations fixed or to be fixed by
the Landlord. Only Persons authorized by the Landlord shall be
permitted to deliver or to use the stairs, elevators or escalators
in the Building for the purpose of delivering food or beverages to
the Premises.
15. If the Tenant desires telegraphic or telephonic
connections, the Landlord will direct the electricians as to where
and how the wires are to be introduced. No gas pipe or electric
wire will be permitted which has not been ordered or authorized by
the Landlord. No outside radio or television aerials shall be
allowed on any part of the Premises without authorization in
writing by the Landlord.
16. The Tenant shall not cover or obstruct any of the
skylights and windows that reflect or admit light into any part of
the Building except for the proper use of approved blinds and
drapes.
17. Any hand trucks, carryalls or similar appliances used in
the Building with the consent of the Landlord shall be equipped
with rubber tires, slide guards and such other safeguards as the
Landlord requires.
18. The Tenant shall not place or maintain any supplies,
merchandise or other articles in any vestibule or entry of the
Premises, on the footwalks adjacent thereto or elsewhere on the
exterior of the Premises or elsewhere in the Building.
19. The Tenant shall not do or permit anything to be done in
the Premises, or bring or keep anything therein which will in any
way increase the risk of fire or the rate of fire insurance on the
Building or on property kept therein, or obstruct or interfere with
the rights of other tenants or in any way injure or annoy them or
the Landlord, or violate or act at variance with the laws relating
to fires or with the regulations of the Fire Department, or with
any insurance upon the Building or any part thereof, or violate or
act in conflict with any of the rules and ordinances of the Board
of Health or with any statute or municipal by-law.
SCHEDULE "E"
SUPPLEMENTARY LEASE PROVISIONS
Section 4.02 - Minimum Rent
Years 1 - 4 annual minimum rent is REDACTED,
Dollars payable in equal consecutive monthly instalments of
REDACTED Dollars each in advance on the first day of each
calendar month of each Rental Year. The Minimum Rent is based
upon an annual rate of REDACTED per square foot of the
Rentable Area.
Years 5 - 7 annual minimumn (sic) rent is REDACTED Dollars
payable in equal consecutive monthly instalments of REDACTED
Dollars each in advance on the first day of each calendar month of
each Rental Year. The Minimum Rent is based upon an annual rate of
REDACTED per square foot of the Rentable Area.
Years 8 - 10 annual minimum rent is REDACTED Dollars
payable in equal consecutive monthly instalments of REDACTED Dollars
each in advance on the first day of each calendar month of each Rental
Year. The Minimum Rent is based upon an annual rate of REDACTED per
square foot of the Rentable Area.
SCHEDULE "F"
HAZARDOUS SUBSTANCES
Section 1 - Definitions
1. "Environmental Audit" means an inspection or inspections
of the Leased Premises or other affected locations at the Building
or the Lands by an independent contractor acceptable to the
Landlord together with such other tests, surveys and inquiries as
such contractor deems advisable in the circumstances into the use,
transport, storage, disposal, handling, sale or manufacture of any
Hazardous Substance in, on or about the Leased Premises, the
Building or the Lands by the Tenant, those for whom the Tenant is
in law responsible or any other person using or occupying the
Leased Premises, or into the condition or status of the Leased
Premises in relation to possible contamination by any Hazardous
Substance, and any Environmental Audit by such contractor shall
include the said contractor's written report delivered to the
Landlord summarizing the nature and results of all inspections,
tests, surveys and inquiries conducted by the contractor, and the
said contractor's recommendations for any remedial or precautionary
actions to be taken in relation to the presence of Hazardous
Substance on the Leased Premises, the Building or the Lands.
2. "Environmental Claim" means all claims, losses, costs,
expenses, fines, penalties, payments and/or damages (including,
without limitation, all solicitors' fees on a solicitor and client
basis) relating to, arising out of, resulting from or in any way
connected with the presence of any Hazardous Substance at the
Leased Premises, the Building or the Lands, including, without
limitation, all costs and expenses of any remediation or
restoration of the Leased Premises, the Building, the Lands and/or
any property adjoining or in the vicinity of the Lands required or
mandated by the Environmental Law.
3. "Environmental Law" means any law, bylaw, order,
ordinance, ruling, regulation, certificate, approval, policy,
guideline, consent or directive of any applicable federal,
provincial or municipal government, governmental department, agency
or regulatory authority or any Court of competent jurisdiction,
relating to environmental matters and/or regulating the import,
storage, distribution, labelling, sale, use, handling, transport or
disposal of any Hazardous Substance which may be in force from time
to time.
4. "Hazardous Substance" means:
(a) any substance which is hazardous to persons or property
and includes, without limiting the generality of the
foregoing, the following:
(i) radioactive materials; (ii) explosives; (iii) any
substance that, if added to any water, would degrade or
alter or form part of a process of degradation or alteration
of the quality of that water to the extent that it is
detrimental to its use by man or by any animal, fish or plant;
(b) any solid, liquid, gas or odour or combination of any of
them that, if emitted into the air, would create or
contribute to the creation of a condition of the air
that:
(i) endangers the health, safety or welfare of persons or
the health of animal life; (ii) interferes with normal enjoyment
of life or property; or (iii) causes damage to plant life or to
property;
(c) toxic substances; and
(d) any material or substance declared or deemed to be
hazardous, deleterious, caustic, dangerous, a
contaminant, a waste, a source of contaminant, a
pollutant or toxic under the Environmental Law.
Section 2 - Tenant's Covenant As To Hazardous Substances
The Tenant covenants and agrees that it will:
(a) not bring or allow any Hazardous Substance to be brought
onto the Lands, the Building or the Leased Premises
except in compliance with the Environmental Law;
(b) comply at all times and require all those for whom the
Tenant is in law responsible to comply at all times with
the Environmental Law as it affects the Leased Premises,
the Building or the Lands;
(c) give Notice to the Landlord of the presence at any time
during the Term of any Hazardous Substance on the Leased
Premises (or the Building or the Lands if such substance
is in the control of the Tenant) together with such
information concerning such Hazardous Substance and its
presence on the Leased Premises, the Building or the
Lands as the Landlord may require;
(d) give Notice to the Landlord of any occurrence which might
give rise to a duty under the Environmental Law in either
the Tenant or the Landlord with respect to the presence
of any Hazardous Substance on the Leased Premises, the
Building or the Lands including, without limitation,
Notice of any spill or escape into the environment of any
Hazardous Substance at the Leased Premises, the Building
or the Lands;
(e) in any case where the Tenant has given Notice as to the
presence of a Hazardous Substance at the Leased Premises,
the Building or the Lands or is required to give such
Notice or where the Landlord has reasonable grounds to
believe that any Hazardous Substance is or has been
brought upon the Leased Premises, the Building or the
Lands by the Tenant or any person for whom the Tenant is
in law responsible, to commission an Environmental Audit
at the Tenant's expense when required by the Landlord to
do so;
(f) comply with any investigative, remedial or precautionary
measures required under the Environmental Law or as
reasonably required by the Landlord, and the Tenant shall
be fully and completely liable to the Landlord for any
and all clean up costs or costs incurred to comply with
the Environmental Law or any request by the Landlord that
investigative, remedial or precautionary measures be
taken;
(g) protect, indemnify and save each of the Landlord and its
directors, officers, employees, agents, successors and
assigns completely harmless from and against any
Environmental Claim, directly or indirectly incurred,
sustained or suffered by or asserted against the Landlord
and/or its directors, officers, employees, agents,
successors and assigns caused by or attributable to,
either directly or indirectly, any act or omission of the
Tenant and/or any person for whom the Tenant is in law
responsible;
(h) enter into any additional contract of insurance
respecting the Leased Premises which the Landlord may
reasonably require to protect the Landlord and its
directors, officers, employees, agents, successors and
assigns from any Environmental Claim respecting the
Leased Premises;
and
(i) provide to the Landlord such security as the Landlord may
from time to time require, acting reasonably, to ensure
compliance by the Tenant of its covenants herein
contained.
Section 3 - Inquiries By Landlord
The Tenant hereby authorizes the Landlord to make
inquiries from time to time of any government or governmental
agency with respect to the Tenant's compliance with the
Environmental Law at the Leased Premises, and the Tenant covenants
and agrees that the Tenant will from time to time provide to the
Landlord such written authorization as the Landlord may reasonably
require in order to facilitate the obtaining of such information.
The Landlord or its authorized agent may inspect the Leased
Premises from time to time, without Notice, in order to verify the
Tenant's compliance with the Environmental Law and the requirements
of this Lease respecting Hazardous Substances. Upon request by the
Landlord from time to time, the Tenant shall provide to the
Landlord a certificate executed by a senior officer of the Tenant
certifying ongoing compliance by the Tenant with its covenants
contained herein.
Section 4 - Ownership Of Hazardous Substances
If the Tenant shall bring or create upon the property of
the Leased Premises, the Building or the Lands any Hazardous
Substance or if the conduct of the Tenant's business shall cause
there to be any Hazardous Substance upon the Lands, the Building or
the Leased Premises then, notwithstanding any rule of law to the
contrary, such Hazardous Substance shall be and remain the sole and
exclusive property of the Tenant and shall not become the property
of the Landlord notwithstanding the degree of affixation of the
Hazardous Substance or the goods containing the Hazardous Substance
to the Leased Premises, the Building or the Lands and
notwithstanding the expiry or earlier termination of this Lease.
Section 5 - Landlord's Remedies Upon Default
Upon the Tenant's material default under this Article and
in addition to the rights and remedies set forth elsewhere in this
Lease, the Landlord shall be entitled to the following rights and
remedies:
(a) at the Landlord's option, to terminate this Lease; and/or
(b) to recover any and all damages associated with the
material default, including without limitation, in
addition to any rights reserved or available to the
Landlord in respect of an early termination of this
Lease, cleanup costs and charges, civil and criminal
penalties and fees, loss of business and sales by the
Landlord and other tenants of the Building, any and all
damages and claims asserted by third parties and
Landlord's solicitors' fees and costs.
EXHIBIT 10-a-14
THIS LEASE, made this 9th day of February, 1995, by and
between LEROY M. MERRITT, hereinafter called "Landlord," and ACE
HARDWARE CORPORATION, hereinafter called "Tenant."
WITNESSETH, that in consideration of the rental
hereinafter agreed upon and the performance of all the conditions
and covenants hereinafter set forth on the part of the Tenant to be
performed, the Landlord does hereby lease unto the said Tenant, and
the latter does lease from the former the following premises
(hereinafter sometimes called the "premises"):
BEING those premises outlined in red on the Plat attached
hereto as Exhibit A, said premises being located within the building
known as 2601-2653 Merchant Drive, Baltimore, MD 21230; 158,485
square feet; for the term of three (3) years, beginning on the first
day of April, 1995, and ending on the last day of March, 1998, at and
for the annual rental of REDACTED Dollars) payable in advance on the
first day of each and every month during the term of this Lease, in
equal monthly installments of REDACTED Dollars. Subject also to
the renewal option in Section 44. If the term of this Lease shall
commence on a date other than the first day of a month, the rental
for the period from the date of commencement of the term to the
first day of the first full calendar month of the term shall be
prorated and shall be payable on the first day of the term; if the
term of this Lease shall end on a date other than the last day of
a month, the rent for the period from the first day of the last
month of the term to the date the term ends shall be prorated and
shall be payable on the first day of the last month of the term.
All rentals shall be paid to Landlord at 2066 Lord
Baltimore Drive, Baltimore, Maryland 21244, or at such other place
or to such appointee of the Landlord as the Landlord may from time
to time designate in writing.
This Lease is made subject to the following additional
terms, covenants and conditions:
1. Payment of Rental. Tenant covenants and agrees to pay
the rental herein reserved and each installment thereof promptly
when and as due, without setoff or deduction whatsoever.
2. Use. Tenant covenants and agrees to use and occupy the
premises solely for the following purposes:
GENERAL WAREHOUSING, DISTRIBUTION, OFFICE
Tenant agrees to comply with all applicable zoning and other laws
and regulations, and provide and install at its own expense any
additional equipment or alterations required to comply with all
such laws and regulations as required from time to time. Tenant
will not permit, allow or cause any public or private auction sales
or sheriffs' or constables' sales to be conducted on or from the
premises.
3. Utilities. Tenant agrees to pay as additional rent
Tenant's pro rata share of the water rent, sewer service charges
and public service electric costs covering the exterior common area
lighting chargeable to the total building in which the premises are
located, based upon the number of tenants occupying the same, and
not based upon the size of the premises in proportion to the total
square footage of the building. However, if in Landlord's sole
judgment, the water and sewer charges for the premises are
substantially higher than normal due to Tenant's water usage, then
Tenant agrees that it will, upon written notice from Landlord,
install a water meter at Tenant's expense and thereafter pay all
water charges for the premises based on such meter readings.
Tenant shall pay all costs of electricity, gas, telephone and other
utilities used or consumed on the premises, together with all
taxes, levies or other charges on such utilities. If Tenant
defaults in payment of any such utilities, charges or taxes,
Landlord may, at its option, pay the same for and on Tenant's
account, in which event Tenant shall promptly reimburse Landlord
therefor.
4. Compliance with Laws.
(a) Tenant covenants and agrees that it will, at its
own expense, observe, comply with and execute all laws, orders,
rules, requirements and regulations of any and all governmental
departments, bodies, bureaus, agencies and officers, and all
rules, directions, requirements and recommendations of the local
board of fire underwriters and the fire insurance rating
organizations having jurisdiction over the area in which the
premises are situated, or other bodies or agencies now or
hereafter exercising similar functions in the area in which the
premises are situated, in any way pertaining to the premises or
the use and occupancy thereof. In the event Tenant shall fail
or neglect to comply with any of the aforesaid laws, orders,
rules, requirements or recommendations, Landlord or its agents
may enter the premises and take all such action and do all
such work in or to the premises as may be necessary in order
to cause compliance with such laws, orders, rules, requirements
or recommendations, and Tenant covenants and agrees to
reimburse Landlord promptly upon demand for the expense
incurred by Landlord in taking such action and performing such
work.
(b) Without limiting the generality of paragraph (a)
hereof, regarding any improvements to the existing premises,
Tenant shall at all times keep the premises in compliance with
the Americans With Disabilities Act and its supporting regulations,
and all similar federal, state or local laws, regulations and
ordinances. In the event the space or building are required to
be modified to comply with ADA requirements, the cost of such
requirements shall be the responsibility of the Landlord,
provided the requirement is not due to the use of Tenant.
If Landlord's consent would be required for alterations to
bring the Premises into compliance, Landlord agrees not to
unreasonably withhold its consent.
5. Assignment and Subletting.
(a) Tenant covenants and agrees not to assign this Lease,
in whole or in part, nor sublet the premises, or any part or portion
thereof, nor grant any license or concession for all or any part thereof,
without the prior written consent of the Landlord in each instance first
had and obtained. Landlord's consent will not be unreasonably withheld.
If such assignment or subletting is permitted, Tenant shall not be
relieved from any liability whatsoever under this Lease. In the event
that the amount of the rent or other consideration to be paid to the
Tenant by any assignee or sublessee is greater than the rent required
to be paid by the Tenant to the Landlord pursuant to this Lease, Tenant
shall pay to Landlord any such excess as is received by Tenant from
such assignee or sublessee. Any consent by Landlord to an assignment
or subletting of this Lease shall not constitute a waiver of the
necessity of such consent as to any subsequent assignment or subletting.
An assignment for the benefit of Tenant's creditors or otherwise by
operation of law shall not be effective to transfer or assign Tenant's
interest under this Lease unless Landlord shall have first consented
thereto in writing.
(b) In the event this Lease contains a renewal option
exercisable by Tenant, Landlord's consent to an assignment or sublease
of the premises or any portion thereof during the original Lease term
shall be deemed to be conditioned upon the agreement of Tenant and such
assignee or sublessee that such renewal right or option shall terminate
and be of no further force or effect unless Landlord's consent to such
assignment or sublease expressly provides otherwise. Consequently,
unless so provided otherwise, any assignment or sublease during the
original Lease term shall automatically constitute a termination of
the right of Tenant or such assignee or sublessee to exercise any
renewal option contained herein.
6. Loading Capacity. Tenant covenants and agrees not to
load the premises beyond its present carrying or loading capacity.
7. Increase in Landlord's Insurance Rates. The Landlord
agrees to maintain insurance on the building throughout the Lease
term, sufficient to replace the building in the event of casualty
or loss. Tenant will not do, or suffer to be done, anything in or
about the premises, or keep or suffer to be kept, anything in or
about the premises which will contravene or affect any policy of
insurance against loss by fire or other hazards, including, but not
limited to, public liability, now existing or which the Landlord
may hereafter place thereon, or which will prevent the Landlord
from procuring such policies in companies acceptable to Landlord at
standard rates. Tenant will, at Tenant's sole expense, take
reasonable actions and make any installations or alterations as may
be necessary to obtain a reasonable possible reduction in the
insurance rates for the premises and the building in which the
premises are located (or, if the premises are a part of a building,
any increase in the premium of any insurance on said entire
building) caused by the occupancy of Tenant, the nature of the
business carried on by Tenant in the premises, or otherwise
resulting from any act of Tenant, its agents, servants, employees
or customers, or anything done or suffered to be done by Tenant,
its agents, servants, employees or customers. However, Tenant may
elect to pay the cost of such insurance increase rather than pay
for the alteration to the premises.
8. Insurance - Indemnity.
(a) Tenant covenants and agrees that from and after the
date of delivery of the premises from Landlord to Tenant, Tenant
will carry and maintain, at its sole cost and expense and in the
amounts specified and in the form hereinafter provided, the
following types of insurance:
(i) Public Liability and Property Damage. General
Public Liability Insurance covering the premises and Tenant's use
thereof against claims for personal injury or death and property
damage occurring upon, in or about the premises, such insurance to
afford protection to the limit of not less than $2,000,000 arising
out of any one occurrence, and against property damage to afford
protection to the limit of not less than $2,000,000; or such
insurance may be for a combined single limit of $2,000,000 per
occurrence. The insurance coverage required under this Section
8(a)(i) shall, in addition, extend to any liability of Tenant
arising out of Tenant's indemnities hereinafter provided, as well
as Independent Contractors' Liability, Products/Completed
Operations Liability, Personal Injury Liability and Contractual
Liability.
(ii) Tenant Improvements and Property. Insurance
covering all leasehold improvements and other improvements
installed by Tenant upon the premises, trade fixtures and personal
property from time to time in, on or upon the premises and any
alterations, improvements, additions or changes made by Tenant
thereto in an amount not less than one hundred percent (100%) of
their full replacement cost from time to time during the Lease
term, providing protection against perils included within the
standard Maryland form of fire and extended coverage insurance
policy, together with insurance against sprinkler leakage or other
sprinkler damage, vandalism and malicious mischief. Any policy
proceeds from such insurance, so long as this Lease shall remain in
effect, shall be held in trust by Tenant's insurance company first
for the repair, reconstruction, restoration or replacement of the
property damaged or destroyed.
(b) All policies of insurance to be provided by Tenant
shall be issued in form acceptable to Landlord by insurance
companies with general policyholder's rating of not less than B++
and a financial rating of B++ as rated in the most current
available "Best's" Insurance Reports, and qualified to do business
in Maryland. Each such policy shall be issued in the names of
Landlord and Tenant. Said policies shall be for the mutual and
joint benefit and protection of each of said parties and executed
copies of each such policy of insurance or a certificate thereof
shall be delivered to Landlord within ten (10) days after delivery
of possession of the premises to Tenant and thereafter at least
fifteen (15) days prior to the expiration of each such policy. As
often as any such policy shall expire or terminate, renewal or
additional policies shall be procured and maintained by Tenant in
like manner and to like extent. All such policies of insurance
shall contain a provision that the company writing said policy will
give to Landlord at least thirty (30) days' notice in writing in
advance of any cancellations, or lapse, or the effective date of
any reduction in the amounts of insurance. In the event Tenant
shall fail to promptly furnish any insurance herein required,
Landlord may effect the same for a period not exceeding one (1)
year and Tenant shall promptly reimburse Landlord upon demand, as
additional rent, the premium so paid by Landlord. If, upon
Tenant's failure, rather than purchase separate insurance coverage,
Landlord chooses to include Tenant's coverage under Landlord's
insurance policies, then Tenant shall promptly reimburse Landlord
upon demand, as additional rent, the greater of the increase in
Landlord's premium resulting therefrom or One Thousand Dollars
($1,000.00). All such public liability, property damage and other
casualty policies shall be written as primary policies which do not
contribute to and are not in excess of coverage which Landlord may
carry. All such public liability and property damage policies
shall contain a provision that Landlord shall nevertheless be
entitled to recover under said policies for any loss occasioned to
it, its servants, agents and employees by reason of the negligence
of Tenant or any other named assured. Any insurance provided for
may be affected by a policy or policies of blanket insurance,
covering additional items or locations; provided, however, that (i)
Landlord shall be named as an additional assured thereunder as its
interests may appear; (ii) the coverage afforded Landlord will not
be reduced or diminished by reason of the use of such blanket
policy of insurance; (iii) any such policy or policies (except any
covering the risks referred to in paragraph [i]), shall specify
therein (or Tenant shall furnish Landlord with a written statement
from the insurers under such policy specifying) the amount of the
total insurance allocated to the "Tenant Improvements and Property"
more specifically detailed in paragraph (iii), above; and (iv) the
requirements set forth herein are otherwise satisfied. Any
insurance policies herein required to be procured by Tenant shall
contain an express waiver of any right of subrogation by the
insurance company against the Landlord, and all other tenants or
occupants of space in the building.
(c) Tenant shall, and does hereby, indemnify and hold
harmless Landlord and any other parties in interest set forth in
paragraph (b), above, from and against any and all liabilities,
fines, claims, damages and actions, costs and expenses of any kind
or nature (including attorneys' fees) and of anyone whatsoever (i)
relating to or arising from the use and occupancy of the premises;
(ii) due to or arising out of any mechanic's lien filed against the
building, or any part thereof, for labor performed or for materials
furnished or claimed to be furnished to Tenant, or (iii) due to or
arising out of any breach, violation or nonperformance of any
covenant, condition or agreement in this Lease set forth and
contained on the part of Tenant to be fulfilled, kept, observed or
performed, unless such damage or injury shall be occasioned by the
negligence or willful act or omission of the Landlord, in which
event, Landlord shall indemnify and hold harmless Tenant to the
extent of such negligence or willful act or omission.
Notwithstanding the foregoing, Tenant shall at all times remain
liable for, and indemnify and hold harmless Landlord as aforesaid
against, any damage or injury arising from perils against which
Tenant is required by this Lease to insure, regardless of the
negligence or willful act or omissions of others.
9. Alterations. Tenant shall not make any alterations to
the premises, or any part thereof, without prior written consent of
Landlord in each instance first had and obtained. If Tenant shall
desire to make such alterations, plans for the same shall first be
submitted to and approved by Landlord, and all work and
installations shall be performed by Tenant at its own expense in
accordance with approved plans. Tenant agrees that all such work
shall be done in a good and workmanlike manner, that the structural
integrity of the building shall not be impaired, and that no liens
shall attach to the premises by reason thereof. Tenant agrees to
obtain, at Tenant's expense, all permits required for such
alterations.
10. Ownership of Alterations. Unless Landlord shall elect
that all or part of any alteration made by Tenant to the premises
(including any alteration consented to by Landlord pursuant to
paragraph 9 hereof) shall remain on the premises after the
termination of this Lease, the premises shall be restored to their
original condition by Tenant before the expiration of this Lease at
Tenant's sole expense. Upon such election by Landlord, any such
alterations, improvements, betterments or mechanical equipment,
including but not limited to, heating and air conditioning systems,
shall become the property of Landlord as soon as they are affixed
to the premises, and all right, title and interest thereof of
Tenant shall immediately cease, unless otherwise agreed to in
writing by Landlord. Tenant shall promptly pay any franchise,
minor privilege or other tax or assessment resulting directly or
indirectly from any alterations or improvements made by Tenant to
the premises. Tenant shall repair promptly, at its own expense,
any damage to the premises caused by bringing into the premises any
property for Tenant's use, or by the installation or removal of
such property, regardless of fault or by whom such damage shall be
caused.
11. Repairs and Maintenance.
(a) The premises hereby leased are leased to Tenant "as
is." Except as herein expressly provided, Landlord shall be under
no liability, nor have any obligation to do any work or make any
repairs in or to the premises, and any work which may be necessary
to outfit the premises for Tenant's occupancy or for the operation
of Tenant's business therein is the sole responsibility of Tenant
and shall be performed by Tenant at its own cost and expense.
Tenant acknowledges that it has fully inspected the premises prior
to the execution of this Lease, and Tenant further acknowledges
that Landlord has made no warranties or representations with
respect to the condition or state of repairs of the premises.
(b) Tenant will, during the term of this Lease, keep the
premises and appurtenances (including windows, doors, plumbing,
heating and electrical facilities and installations) in good order
and repair and will make all necessary repairs thereof at its own
expense, except that Landlord will make all necessary repairs
(except painting) to the exterior masonry walls and roof of the
premises, after being notified in writing by Tenant of the need for
such repairs, and shall have a reasonable time in which to complete
such repairs. Tenant agrees to carry a maintenance and/or service
agreement or policy on the HVAC system in the demised premises.
This agreement or policy shall be carried throughout the term of
this Lease and any renewals or extensions hereof. Tenant shall
provide Landlord with a copy of such policy or a certificate
evidencing such coverage. In the event that the repairs required
to be made by Landlord are necessitated as a result of negligence
or misuse by Tenant, its agents, servants, employees, licensees or
guests, or by any contractor engaged by or on behalf of Tenant,
such repairs shall be made by and be paid for by Tenant. Tenant
shall also maintain any driveways and parking areas designated for
its exclusive use. Tenant will, at the expiration of the term or
at the sooner termination thereof by forfeiture or otherwise,
deliver up the premises in the same good order and condition as
they were at the beginning of tenancy, reasonable wear and tear
excepted. Tenant further agrees that it will maintain the premises
at its own expense in a clean, orderly and sanitary condition, free
of insects, rodents, vermin, and other pests; and that it will not
permit undue accumulation of garbage, trash, rubbish or other
refuse, but will remove the same at its own expense and will keep
such refuse in proper containers within the interior of the
premises until called for to be removed. Tenant further agrees
that it will not install any additional electrical wiring or
plumbing unless it has first obtained Landlord's written consent
thereto, and, if such consent is given, Tenant will install the
same at its own cost and expense, and Tenant shall obtain, at
Tenant's expense, all permits required for such installation.
(c) In the event Tenant shall not proceed promptly and
diligently to make any repairs or perform any obligation imposed
upon it by subparagraphs (a) and (b) hereof within forty-eight (48)
hours after receiving written notice from Landlord to make such
repairs or perform such obligation, then and in such event,
Landlord may, at its option, enter the premises and do and per-
form the things specified in said notice, without liability on the
part of Landlord for any loss or damage resulting from any such
action by Landlord, and Tenant agrees to pay promptly upon demand
any cost or expense incurred by Landlord in taking such action.
12. Tax and Insurance Escalation.
(a) The premises hereby leased comprise approximately
one hundred percent (100%) of Merchant Drive No. 7 and thirty-five
and five tenths percent (35.5%) of Merchant Drive Nos. 1-6 of the
total land and/or building(s) within which the premises are
located. Landlord agrees to provide Tenant with copies of the
appropriate tax or insurance bill.
(b) Tenant covenants and agrees to pay Landlord, as
additional rent, one hundred percent (100%) of Merchant Drive
No. 7 and thirty-five and five tenths percent (35.5%) of Merchant
Drive Nos. 1-6 of any increase in real estate taxes assessed
against the land and/or building(s) in excess of the taxes for the
1995/1996 fiscal year whether as a result of an increase in the tax
rate, or the levy, assessment or imposition of any tax on real
estate as such not now levied, assessed or imposed, which payment
shall be due and payable within fifteen (15) days after Landlord's
written demand. The foregoing shall apply to increases in real
estate taxes assessed against the land or building(s) generally,
and not resulting from improvements placed thereon by Tenant. In
the event of any increases in real estate taxes resulting from
improvements, alterations or additions made by Tenant, Tenant shall
pay the entire amount of said increase. If this Lease shall be in
effect for less than a full fiscal year, Tenant shall pay a pro
rata share of taxes, based upon the number of months that this
Lease is in effect. "Taxes" as used herein shall include, but not
by way of limitation, all paving taxes, special paving taxes,
Metropolitan District charges, and any and all other benefits or
assessments which may be levied on the premises or the land or
building(s) in which the same are situate, but shall not include
any income tax on the income or rent payable hereunder. "Taxes"
shall also include all reasonable expenses incurred by Landlord
(including attorneys' fees and costs) in contesting any increase
in, or applying for any reduction of, a tax assessment.
(c) Tenant also covenants and agrees to pay Landlord, as
additional rent, one hundred percent (100%) of Merchant Drive
No. 7 and thirty-five and five tenths percent (35.5%) of Merchant
Drive Nos. 1-6 of any increase in insurance premiums (as
hereinafter defined) in excess of the annualized premiums for the
most recent policy period prior to the commencement of this lease,
which payment shall be due and payable within fifteen (15) days
after Landlord's written demand. As used herein, "insurance
premiums" means the total premium cost of all insurance carried by
Landlord with respect to the total land and building(s) within
which the premises are located, including, but not limited to, all
Real Property and Rental Value perils insured against under an "All
Risk" insuring agreement, primary General Liability insurance and
Umbrella and/or Excess Liability insurance.
13. Default.
(a) Any of the following events shall constitute a
default by Tenant:
(i) If the rent (basic or additional) shall be in
arrears, for a period of ten (10) days in whole or in part; or
(ii) If Tenant shall have failed to perform any
other non-rent related term, condition, or covenant of this Lease
on its part to be performed for a period of thirty (30) days after
notice of such failure from Landlord; or
(iii) If the premises are vacant, unoccupied or
deserted for a period of fifteen (15) days or more at any time
during the term; or
(iv) If Tenant is adjudicated a bankrupt or
insolvent by any court of competent jurisdiction, or if any such
court enters an order, judgment or decree finally approving any
petition against Tenant seeking reorganization, liquidation,
dissolution or similar relief or if a receiver, trustee, liquidator
or conservator is appointed for all or substantially all of
Tenant's assets and such appointment is not vacated within ten (10)
days after the appointment, or if Tenant seeks or consents to any
of the relief hereinabove enumerated in this subparagraph (iv) or
files a voluntary petition in bankruptcy or insolvency or makes an
assignment of all or substantially all of its assets for the
benefit of creditors or admits in writing of its inability to pay
its debts generally as they come due or files Articles of
Dissolution, or similar writing indicating its intention to wind up
or liquidate its business, with the appropriate authority of the
place of its incorporation; or
(v) If Tenant's leasehold interest under this Lease
is sold under execution, attachment or decree of court to satisfy
any debt of Tenant, or if any lien (including a mechanic's lien) is
filed against Tenant's leasehold interest and is not discharged
within ten (10) days thereafter. Tenant may elect to provide
Landlord with a bond in the amount of such lien in lieu of having
the lien discharged. However, tenant must have any liens
discharged prior to Landlord refinancing the building, selling the
building or Tenant's lease expiring.
(b) In the event of default as defined in paragraph (a)
hereof, Landlord, in addition to any and all legal and equitable
remedies it may have, shall have the following remedies:
(i) To distrain for any rent or additional rent in
default; and
(ii) At any time after default, without notice, to
declare this Lease terminated and enter the premises with or
without legal process; and in such event Landlord shall have the
benefit of all provisions of law now or hereafter in force
respecting the speedy recovery of possession from Tenant's holding
over or proceedings in forcible entry and detainer, and Tenant
waives any and all provisions for notice under such laws.
Notwithstanding such reentry and/or termination, Tenant
shall immediately be liable to Landlord for the sum of the
following: (a) all rent and additional rent then in arrears,
without apportionment to the termination date, including Tenant's
contribution to taxes under paragraph 12 for the year of
termination, whether such termination is before or after July lst
of such year; (b) all other liabilities of Tenant and damages
sustained by Landlord as a result of Tenant's default, including,
but not limited to, the reasonable costs of reletting the premises
and any broker's commissions payable as a result thereof; (c) all
of Landlord's costs and expenses (including reasonable counsel
fees) in connection with such default and recovery of possession;
(d) the difference between the rent reserved under this Lease for
the balance of the term and the fair rental value of the premises
for the balance of the term to be determined as of the date of
reentry; or at Landlord's option in lieu thereof, Tenant shall pay
the amount of the rent and additional rent reserved under this
Lease at the times herein stipulated for payment of rent and
additional rent for the balance of the term, less any amount
received by Landlord during such period from others to whom the
premises may be rented on such terms and conditions and at such
rentals as Landlord, in its sole discretion, shall deem proper;
and (e) any other damages recoverable by law. In the event
Landlord brings any action against Tenant to enforce compliance by
Tenant with any covenant or condition of this Lease, including the
covenant to pay rent, and it is judicially determined that Tenant
has defaulted in performing or complying with any such covenant or
condition, then and in such event, Tenant shall pay to Landlord all
costs and expenses incurred by Landlord in bringing and prosecuting
such action against Tenant, including a reasonable attorney's fee.
(c) In the event Tenant fails to pay Landlord any ren-
tal payment or other charge due hereunder within ten (10) days from
the date on which any such payment was due, Landlord may, at its
option, charge Tenant a late charge equal to five percent (5%) of
the rental payment or other such charge, which late charge shall be
collectible as additional rent and shall be payable by Tenant to
Landlord within ten (10) days after written notice from Landlord to
Tenant assessing the same. In addition, any such rental payment or
other charge which is delinquent for ten (10) days or more, shall
bear interest from the date on which same was due at the prime rate
of interest then being charged by NationsBank to its most favored
commercial customers.
14. Damage or Destruction.
(a) If, during the Lease term, the premises hereby
leased are damaged by fire or other casualty, but not to the extent
that Tenant is prevented from carrying on business in the premises,
Landlord shall promptly cause such damage to be repaired; if such
damage renders a substantial portion of the premises untenantable,
the rent reserved hereunder (except Tenant's share of any charges
for water) shall be reduced during the period of its untenantability
proportionately to the amount by which the area so rendered
untenantable bears to the entire area leased hereunder, and such
reduction shall be apportioned from the date of the casualty to
the date when the leased premises are rendered fully tenantable.
Notwithstanding the foregoing, in the event such fire or other
casualty damages or destroys any of Tenant's leasehold improvements,
alterations, betterments, fixtures or equipment, Tenant shall cause
the same to be repaired or restored at Tenant's sole cost and expense
and Landlord shall have no liability for the restoration or repair
thereof.
(b) If, during the Lease term, the premises or a
substantial portion of the building in which the premises is
situated are rendered wholly untenantable as the result of fire,
the elements, unavoidable accident or other casualty, Landlord
shall have the option either to restore the premises to their
condition immediately prior to the casualty or to terminate this
Lease, such option shall be exercised by Landlord by written notice
to Tenant within thirty (30) days after the fire, accident or
casualty. In the event of such termination, the rent reserved
hereunder shall be adjusted as of the date of the fire, accident or
casualty. If Landlord elects to restore the premises, such
restoration shall be completed as promptly and reasonably as
possible and the rent reserved hereunder shall abate until the
premises are again rendered tenantable. In no event will the
required improvement take more than one hundred twenty (120) days
in which case Tenant's lease may be terminated.
15. Possession. In case possession of the premises, in whole
or in part, cannot be given to Tenant on or before the
commencement of the term of this Lease, Landlord agrees to abate the
rent proportionately until possession is given to Tenant, and
Tenant agrees to accept such pro rata abatement as liquidated
damages for the failure to obtain possession on the commencement
date herein specified. The parties hereto covenant and agree that
if the term of this Lease commences on a date other than the date
herein specified, they will, upon the request of either of them,
execute an agreement in recordable form setting forth the new
commencement and termination dates of the Lease term. Under no
circumstances shall Landlord be under any liability for failure to
deliver possession of the premises to Tenant on the date herein
specified. In the event Landlord's improvements are not completed
within one hundred twenty (120) days of the anticipated
commencement, Tenant may terminate the Lease.
16. Exterior of Premises - Signs.
(a) Tenant covenants and agrees that it will not place
or permit any sign, billboard, marquee, lights, awning, poles,
placard, advertising matter, or other thing of any kind, in or
about the exterior of the premises or the building in which the
premises are situate, nor paint or make any change in, to or on the
exterior of said premises to change the uniform architecture, paint
or appearance of the building, without in each such instance
obtaining the prior written consent of Landlord. In the event such
consent is given, Tenant agrees to pay any minor privilege or other
tax arising as a result of any such installation immediately when
due. Tenant shall obtain, at Tenant's expense, all permits
required for such installation. Tenant further agrees to maintain
any sign, billboard, marquee, awning, decoration, placard, or
advertising matter or other thing of any kind as may be approved by
Landlord in good condition and repair at all times. Landlord has
attached a copy of Landlord's sign criteria as Exhibit "B".
(b) Tenant further covenants and agrees not to pile or
place anything on the sidewalk, parking lot or other exterior
portion of the premises or building or in the front, rear or sides
of the building, nor block the sidewalk, parking lot or other
exterior portion of the premises or building, nor do anything that
directly or indirectly will interfere with any of the rights of
ingress or egress or of light from any other tenant, nor do
anything which will, in any way, change the uniform and general
design of any property of Landlord in which the premises are
situate. In the event this Lease covers all or substantially all
of an entire building, Tenant agrees to keep all sidewalks, steps
and porches free and clear of ice, snow and debris.
17. Relocation. Landlord reserves the right at its option
and at Landlord's sole cost and expense (including all moving
expenses of Tenant) to relocate the premises hereby leased to
another area within the building or group of buildings in which the
premises hereby leased is located provided such new location shall
be comparable to the premises hereby leased or to comparable space
in another location and provided Landlord gives Tenant thirty (30)
days prior written notice of such relocation.
18. For Rent/Sale Signs. Landlord shall have the right to
for six (6) months prior to termination of this Lease, show the
premises and all parts thereof to prospective tenants between the
hours of 9:00 a.m. and 5:00 p.m. on any day except Sunday or any
legal holiday on which Tenant shall not be open for business.
Whenever possible, Landlord will provide Tenant with prior written
notice.
19. Water and Other Damage. Landlord shall not be liable
for, and Landlord is hereby released and relieved from, all claims
and demands of any kind by reason of or resulting from damage or
injury to person or property of Tenant or any other party, directly
or indirectly caused by (a) dampness, water, rain or snow, in any
part of the premises or in any part of any other property of
Landlord or of others, and/or (b) falling plaster, steam, gas,
electricity, or any leak or break in any part of the premises or
from any pipes, appliances or plumbing or from sewers or the street
or subsurface or from any other place or any part of any other
property of Landlord or of others or in the pipes of the plumbing
or heating facilities thereof.
20. Right of Entry. Landlord and its agents, servants,
employees, including any builder or contractor employed by
Landlord, shall have the absolute and unconditional right, license
and permission, at any and all reasonable times, to enter and
inspect the premises or any part thereof, and at the option of
Landlord, to make such reasonable repairs and/or changes in the
premises as Landlord may deem necessary or proper and/or to enforce
and carry out any provision of this Lease. Landlord agrees to
enter the premises during normal business hours, and provide prior
notice when possible and in non-emergency situations.
21. Termination of Term.
(a) It is agreed that the term of this Lease shall
expire and terminate at the end of the original term hereof (or at
the expiration of the last renewal term, if this Lease contains a
renewal option and the same is properly exercised), without the
necessity of any notice by or to any of the parties hereto, unless
otherwise provided herein. If Tenant shall occupy the premises
after such expiration or termination, it is understood that Tenant
shall hold the premises as a tenant from month-to-month, subject to
all the other terms and conditions of this Lease, at an amount
equal to double the highest monthly rental installment reserved in
this Lease. Landlord shall, upon such expiration or termination of
this Lease, be entitled to the benefit of all public general or
local laws relating to the speedy recovery of possession of lands
and tenements held over by Tenants that may be now in force or may
hereafter be enacted.
(b) At the time Tenant surrenders the premises to
Landlord, the premises shall be in compliance with all applicable
building code requirements insofar as such requirements relate to
Tenant's use and occupancy of the premises or to any installations,
alterations or improvements made by Tenant thereto.
22. Condemnation.
(a) If, during the term of this Lease, all or a
substantial part of the premises shall be taken by or under power
of eminent domain, this Lease shall terminate as of, and the rent
(basic and additional) shall be apportioned to and abate from and
after, the date of taking. Tenant shall have no right to
participate in any award or damages for such taking and hereby
assigns all of its right, title and interest therein to Landlord.
For the purposes of this paragraph, "a substantial part of the
premises" shall mean such part that the remainder thereof is
rendered inadequate for Tenant's business and that such remainder
cannot practicably be repaired and improved so as to be rendered
adequate to permit Tenant to carry on its business with
substantially the same efficiency as before the taking.
(b) If, during the Lease term, less than a substantial
part of the premises (as hereinabove defined) is taken by or under
power of eminent domain, this Lease shall remain in full force and
effect according to its terms; and Tenant shall not have the right
to participate in any award or damages for such taking and Tenant
hereby assigns all of its right, title and interest in and to the
award to Landlord. In such event Landlord shall, at its expense,
promptly make such repairs and improvements as shall be necessary
to make the remainder of the premises adequate to permit Tenant to
carry on its business to substantially the same extent and with
substantially the same efficiency as before the taking; provided
that in no event shall Landlord be required to expend an amount in
excess of the award received by Landlord for such taking. If, as
a result of such taking, any part of the premises is rendered
permanently unusable, the basic annual rent reserved hereunder
shall be reduced in such amount as may be fair and reasonable,
which amount shall not exceed the proportion which the area so
taken or made unusable bears to the total area which was usable by
Tenant prior to the taking. If the taking does not render any part
of the premises unusable, there shall be no abatement of rent.
(c) For purposes of this section, "taking" shall include
a negotiated sale or lease and transfer of possession to a
condemning authority under bona fide threat of condemnation for
public use, and Landlord alone shall have the right to negotiate
with the condemning authority and conduct and settle all litiga-
tion connected with the condemnation. As hereinabove used, the
words "award or damages" shall, in the event of such sale or
settlement, include the purchase or settlement price.
(d) Nothing herein shall be deemed to prevent Tenant
from claiming and receiving from the condemning authority, if
legally payable, compensation for the taking of Tenant's own
tangible property and such amount as may be payable by statute or
ordinance toward Tenant's damages for Tenant's loss of business,
removal and relocation expenses.
23. Subordination. Tenant covenants and agrees that all of
Tenant's rights hereunder are and shall be subject and subordinate
to the lien of any first mortgage hereafter placed on the leased
premises or any part thereof, except the Tenant's property or trade
fixtures, and to any and all renewals, modifications,
consolidations, replacements, extensions or substitutions of any
first mortgage. Such subordination shall be automatic, without the
execution of any further subordination agreement by Tenant. If,
however, a written subordination agreement, consistent with this
provision, is required by a mortgagee, Tenant agrees to execute,
acknowledge and deliver the same. Landlord agrees to provide
Tenant with a Lender approved non-disturbance agreement.
24. Landlord's Right to Perform Tenant's Covenants. If
Tenant shall fail to perform any covenant or duty required of it by
this Lease or by law, Landlord shall have the right (but not the
obligation) to perform the same, and if necessary to enter the
premises for such purposes without notice. The reasonable cost
thereof to Landlord shall be deemed to be additional rent hereunder
payable by Tenant, and Landlord shall have the same rights and
remedies with respect to such additional rent as Landlord has with
respect to the rental reserved hereunder.
25. Attornment.
(a) If Landlord assigns this Lease or the rents
hereunder to a creditor as security for a debt, Tenant shall, after
notice of such assignment and upon demand by Landlord or the
assignee, pay all sums thereafter becoming due Landlord hereunder
both to Landlord and such assignee. Tenant shall also, upon
receipt of such notice, have all policies of insurance required
hereunder endorsed so as to protect the assignee's interest as it
may appear and shall deliver such policies, or certificates
thereof, to the assignee.
(b) If, at any time during the term of this Lease, the
Landlord of the leased premises shall be the holder of a leasehold
estate covering premises which include the leased premises, and if
such leasehold shall terminate or be terminated for any reason, or
if, at any time during the term of Lease a mortgage to which this
Lease is subordinate shall be foreclosed, Tenant agrees at the
election and upon demand of any owner of the premises which include
the leased premises, or of any mortgagee in possession thereof, or
of any holder of a leasehold thereafter affecting premises which
include the leased premises, or of any purchaser at foreclosure, to
attorn, from time to time, to any such owner, mortgagee, holder or
purchaser upon the terms and conditions set forth herein for the
remainder of the term demised in this Lease. Provided however,
that Tenant shall not be obligated to attorn unless, if Tenant
shall so request in writing, such holder, owner, mortgagee or
purchaser shall execute and deliver to Tenant an instrument wherein
said holder, owner, mortgagee or purchaser agrees that so long as
Tenant performs all the terms, covenants and conditions of this
Lease, on Tenant's part to be performed, Tenant's possession under
the provisions of this Lease shall not be disturbed by such holder,
owner, mortgagee or purchaser.
(c) The foregoing provisions shall inure to the benefit
of any such owner, mortgagee, holder or purchaser and shall apply
notwithstanding that this Lease may terminate upon the termination
of any such leasehold estate or upon such foreclosure, and shall be
self-operative upon any such demand, without requiring any further
instrument to give effect to such provisions. Tenant, however upon
demand of any such owner, mortgagee, holder or purchaser, agrees to
execute, from time to time an instrument in confirmation of the
foregoing provisions, satisfactory to any such owner, mortgagee,
holder or purchaser, in which Tenant shall acknowledge such
attornment and set forth herein and shall apply for the remainder
of the term originally demised in this Lease.
26. Non-Waiver of Future Enforcement. The receipt of rent by
Landlord, with knowledge of any breach of this Lease by Tenant or
of any default on the part of Tenant in the observance or per-
formance of any of the conditions or covenants of this Lease, shall
not be deemed to be a waiver of any provisions of this Lease. No
failure on the part of Landlord or of the Tenant to enforce any
covenant or provision herein contained nor any waiver of any right
hereunder by Landlord or Tenant, shall discharge or invalidate such
covenant or provision or affect the right of Landlord or Tenant to
enforce the same in the event of any subsequent default. The
receipt by Landlord of any rent or any sum of money or any other
consideration hereunder paid by Tenant after the termination, in
any manner, of the term herein demised, or after the giving by
Landlord of any notice hereunder to effect such termination, shall
not reinstate, continue or extend the term herein demised, or
destroy, or in any manner impair the efficacy of any such notice of
termination as may have been given hereunder by Landlord to Tenant
prior to the receipt of any such sum of money or other
consideration, unless so agreed to in writing and signed by
Landlord. Neither acceptance of the keys nor any other act or
thing done by Landlord or any agent or employee during the term
herein demised shall be deemed to be an acceptance of a surrender
of said premises, excepting only an agreement in writing signed by
Landlord accepting or agreeing to accept such surrender.
27. Personal Property Taxes. Tenant shall be responsible for
and shall pay any taxes or assessments levied or assessed during
the term of this Lease against any leasehold interest of Tenant or
personal property or trade fixtures of Tenant of any kind, owned by
Tenant or placed in, upon or about the premises by Tenant.
28. Recordation of Lease. Tenant agrees that it will, upon
Landlord's request, and Landlord agrees that it will upon Tenant's
request, execute a Memorandum of the Lease in a form suitable for
recording under applicable Maryland law. The party recording such
Memorandum of Lease shall pay all costs of recordation, including
transfer taxes and documentary stamp taxes hereon.
29. Notices. Any notice required by this Lease shall be sent
by certified mail or by a recognized overnight delivery service
such as Federal Express with a receipt by addressee to Landlord at:
2066 Lord Baltimore Drive, Baltimore, Maryland 21244. Any notice
required by this Lease shall be sent by certified mail to Tenant
at: 2200 Kensington Court, Oak Brook, Illinois 60521 OR George Harris
(708) 990-6666 Emergency if no other address specified, such notices
to Tenant shall be addressed to the leased premises. Either party may,
at any time, or from time to time, designate in writing a substitute
address for that above set forth, and thereafter all notices to such party
shall be sent by certified mail to such substitute address.
30. Waiver of Jury Trial.
THE LANDLORD AND THE TENANT WAIVE ALL RIGHTS TO A TRIAL
BY JURY IN ANY ACTION, COUNTERCLAIM, OR PROCEEDING BASED UPON, OR
RELATED TO, THE SUBJECT MATTER OF THIS LEASE. THIS WAIVER APPLIES
TO ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS AND PROCEEDINGS,
INCLUDING PARTIES WHO ARE NOT PARTIES TO THIS LEASE. THIS WAIVER
IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE TENANT AND
THE TENANT ACKNOWLEDGES THAT NEITHER THE LANDLORD, NOR ANY PERSON
ACTING ON BEHALF OF THE LANDLORD, HAS MADE ANY REPRESENTATIONS OF
FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY
OR NULLIFY ITS EFFECT. THE TENANT FURTHER ACKNOWLEDGES THAT IT HAS
BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN
THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY
INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, IN THAT
IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
THE TENANT FURTHER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS
THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION AND AS
EVIDENCE OF THIS FACT SIGNS ITS INITIALS.
__________________________
(initials of tenant)
31. Severability.
If any terms, clause or provision of this Lease is
declared invalid by a court of competent jurisdiction, the vali-
dity of the remainder of this Lease shall not be affected thereby
but shall remain in full force and effect.
32. Non-Waiver. It is understood and agreed that nothing
herein shall be construed to be a waiver of any of the terms,
covenants or conditions herein contained, unless the same shall be
in writing, signed by the party to be charged with such waiver and
no waiver of the breach of any covenant herein shall be construed
as a waiver of such covenant or any subsequent breach thereof. No
mention in this Lease of any specific right or remedy shall
preclude Landlord from exercising any other right or from having
any other remedy or from maintaining any action to which it may be
otherwise entitled either at law or in equity.
33. Successors and Assigns. Except as herein provided, this
Lease and the covenants and conditions herein contained shall inure
to the benefit of and be binding upon Tenant, its successors and
assigns, and shall inure to the benefit of Tenant and only such
assignees of Tenant to whom an assignment by Tenant has been
consented to in writing by Landlord. In the event more than one
person, firm or corporation is named herein as Tenant, the
liability of all parties named herein as Tenant shall be joint and
several.
In the event Landlord's interest under this Lease is
transferred or assigned and written notice thereof is given to
Tenant, the Landlord herein named (or any subsequent assignee or
transferee of Landlord's interest under this Lease who gives such
notice to Tenant) shall automatically be relieved and released from
and after the date of such transfer or conveyance from all
liability hereunder. Further, Tenant specifically agrees to look
solely to Landlord's interest in the building for the recovery of
any judgment from Landlord, it being agreed that Landlord shall
never be personally liable for any such judgment. The provision
contained in the foregoing sentence is not intended to, and shall
not, limit any right that Tenant might otherwise have to obtain
injunctive relief against Landlord or Landlord's successors in
interest or any other action not involving the personal liability
of Landlord to respond in monetary damages from assets other than
Landlord's interest in the building or any suit or action in
connection with enforcement or collection of amounts which may
become owing or payable under or on account of insurance maintained
by Landlord.
34. Security Deposit. Landlord hereby acknowledges receipt
from Tenant of the sum of_______N/A_____________($___N/A____) which
sum represents a security deposit for the faithful performance of
Tenant's obligations under this Lease.
Tenant agrees that Landlord shall have the right, but not
the obligation, in its sole discretion and without notice to Tenant
to apply said security deposit or any portion thereof to cure or
remedy any default by Tenant hereunder, including default in
payment of rent. If Landlord so applies the security deposit or
any portion thereof Tenant shall, upon demand, immediately
reimburse Landlord for the portion of the security deposit so
applied; and any failure of Tenant to do so within five (5) days
after Landlord's demand therefor shall constitute an event of
default hereunder. Said sum, if not sooner applied, shall be
returned to Tenant, without interest, within thirty (30) days after
vacating of the premises by Tenant and termination of this Lease
(or upon termination of the last renewal term of this Lease if this
Lease contains a renewal and Tenant exercises said option);
provided (i) Tenant is not then in default under any of the
provisions of this Lease; (ii) there is no damage to the premises
beyond ordinary wear and tear and the premises have been left in a
clean condition and in good order with all debris, rubbish and
trash placed in proper containers; (iii) all keys to the premises
have been returned to the Landlord; and (iv) Tenant's forwarding
address has been left with Landlord.
Tenant further agrees that Landlord shall be entitled to
commingle said security deposit with its own funds.
Tenant further agrees that a mortgagee or holder of a
deed of trust on the premises hereby leased and/or a mortgagee or
trust holder thereof in possession of said premises and/or a
purchase of said premises at a foreclosure sale shall not have any
liability to Tenant for Tenant's security deposit.
35. Notices to Mortgagee. Tenant agrees that a copy of any
notice of default from Tenant to Landlord shall also be sent to the
holder of any mortgage or deed of trust on the premises; provided
Tenant has been given written notice of the fact that such mortgage
or deed of trust has been made; and Tenant shall allow said
mortgagee or holder of the deed of trust a reasonable time, not to
exceed ninety (90) days from the receipt of said notice, to cure,
or cause to be cured, any such default. If such default cannot
reasonably be cured within the time specified herein, then such
additional time as may be necessary shall be allowed, provided the
curing of such default is commenced and diligently pursued
(including, but not limited to, commencement of foreclosure
proceedings if necessary to effect such cure) in which event this
Lease shall not be terminated while such remedies are being thus
diligently pursued.
36. Estoppel Certificate. Tenant shall, at any time and from
time to time during the term of this Lease or any renewal thereof,
upon request of Landlord, execute, acknowledge, and deliver to
Landlord or its designee, a statement in writing, certifying that
this Lease is unmodified and in full force and effect if such is
the fact (or if there have been any modifications thereof, that the
same is in full force as modified and stating the modifications),
the dates to which the rents and other charges have been paid in
advance, if any, and any defaults or claimed defaults by Landlord.
Any such statement delivered pursuant to this paragraph may be
relied upon by any prospective purchaser of the estate of Landlord
or by the mortgagee or any assignee of any mortgagee or the trustee
or beneficiary of any deed of trust constituting a lien on the
premises or upon property in which the premises are situate.
37. Environmental Provisions.
(a) Tenant and its successors and assigns shall use and
operate the building, the property and the leased premises,
respectively, at all times during the term hereof, under and in
compliance with the laws of the State of Maryland and in compliance
with all applicable Environmental Legal Requirements.
"Environmental Legal Requirements" shall mean any applicable law
relating to public health, safety or the environment, including,
without limitation, relating to releases, discharges or omissions
to air, water, land or groundwater, to the withdrawal or use of
groundwater, to the use and handling of polychlorinated biphenyls
("PCB's") or asbestos, or asbestos containing products, to the
disposal, treatment, storage or management of solid or other
hazardous or harmful wastes or to exposure to toxic, hazardous or
other harmful materials (collectively "Hazardous Substances") to
the handling, transportation, discharge or release of gaseous or
liquid substance and any regulation or final order or directive
issues pursuant to such statute or ordinance, in each case
applicable to the premises, the building or its operation,
construction or modification, including without limitation the
following: the Clean Air Act, the Federal Water Pollution Control
Act ("FWPCA"), the Safe Drinking Water Act, the Toxic Substances
Control Act, the Comprehensive Environmental Response Compensation
and Liability Act, as amended by the Solid and Hazardous Waste
Amendments of 1984 ("RCRA"), the Occupational Safety and Health
Act, the Emergency Planning and Community Right-to-Know Act of
1986, the Solid Waste Disposal Act, and any state statutes
addressing similar matters, and any state statute providing for
financial responsibility for clean-up or other actions with respect
to the release or threatened release of any of the above-referenced
substances.
(b) Tenant hereby indemnifies and saves Landlord
harmless from all liabilities and claims arising from the use,
storage or placement of any Hazardous Substances upon the premises
or elsewhere within the Building or property of Landlord (if
brought or placed thereon by Tenant, its agents, employees,
contractors or invitees); and Tenant shall (i) within fifteen (15)
days after written notice thereof, take or cause to be taken, at
its sole expense, such actions as may be necessary to comply with
all Environmental Legal Requirements and (ii) within fifteen (15)
days after written demand therefor, reimburse Landlord for any
amounts expended by Landlord to comply with any Environmental
Requirements with respect to the premises or with respect to any
other portions of Landlord's Building or property as the result of
the placement or storage of Hazardous Substances by Tenant, its
agents, employees, contractors or invitees, or in connection with
any judicial or administrative investigation or proceeding relating
thereto, including, without limitation, reasonable attorneys' fees,
fines or other penalty payments.
(c) For purposes of this provision, Tenant shall be
presumptively deemed to have violated the Environmental Legal
Requirements if (i) any notice or order is directed to either
Landlord or Tenant by any governmental agency, body, or court
alleging that such violation has occurred; or (ii) if Landlord
obtains and delivers to Tenant a report prepared by an engineer or
other party engaged in the business of testing or determining the
existence of Hazardous Substances, which report states that there
are Hazardous Substances used, stored or placed upon the premises.
In the event Tenant is deemed to have violated any of the
Environmental Legal Requirements as set forth in the preceding
sentence, then Tenant shall have a reasonable period of time to
cure such violation, which need not exceed sixty (60) days. If
Tenant fails to cure such violation, then Landlord shall have the
right and option, after fifteen (15) days prior written notice to
Tenant, to terminate this lease by written notice thereof to
Tenant, in which event Landlord shall retain all rights and
remedies, and Tenant shall be subject to all liabilities, set forth
in Article 13 of this lease notwithstanding such termination.
(d) Tenant hereby grants Landlord, and Landlord's agents
and employees (including but not limited to, any engineers or other
parties engaged in the testing of Hazardous Substances) the right
to enter upon the premises for the purpose of determining whether
Tenant, its agents, employees, contractors or invitees, has
violated any of the provisions of this Section.
(e) As of the lease date the premises is in compliance
with environmental legal requirements, and the Landlord agrees to
indemnify the tenant for any liability for non-compliance or
pre-existing conditions that occurred prior to lease commencement.
38. Captions. The captions of the various sections of this
Lease are for convenience only and are not a part of this Lease.
Such captions shall not be construed to define or limit any of the
provisions of this Lease.
39. Lender's Approval. It is understood and agreed that this
Lease and the obligations of the parties hereunder are subject to
written approval of Landlord's lender, and that this Lease is not
binding upon either Landlord or Tenant unless Landlord receives
such written approval from Landlord's lender. Landlord will advise
Tenant promptly upon its receipt of approval or disapproval from
Landlord's lender. In the event Tenant has not been notified
within five (5) days of lease execution of lender's consent, the
lease will be deemed by Landlord and Tenant to have been approved
by Lender.
40. Final and Entire Agreement. This Lease contains the
final and entire agreement between the parties hereto, and neither
they nor their agents shall be bound by any terms, conditions or
representations not herein written.
41. Tenant Representative. The name, address and telephone
number of Tenant's representative to be contacted in event of
emergency: Andrew Moriarity, George Harris
42. Additional Rent.
All sums of money required to be paid by Tenant to
Landlord pursuant to the terms of this Lease, unless otherwise
specified herein, shall be considered additional rent and shall be
collectible by Landlord as additional rent, in accordance with the
terms of this Lease. Nothing herein contained shall be deemed to
suspend or delay the payment of any amount of money or charge at
the time the same becomes due and payable hereunder or to limit any
other remedy of Landlord.
43. Landlord's Work.
The Tenant space is to be provided in an "as-is"
condition except for the following items to be performed by
Landlord at Landlord's cost:
A. Replace existing dock doors that are in poor
condition.
B. Install sixteen (16) new dock doors.
C. Remove the existing office with the exception of what
is shown on the attached plan.
D. Install a security fence around the entire property
with a card accessed gate for access after dark.
E. Clean and seal the warehouse floor.
AS WITNESS the hands and seals of the parties hereto the
date and year first above written.
WITNESS: LEROY M. MERRITT
BY: THE MERRITT OPERATIONS CORPORATION,
AGENT
__________________________ __________________________(SEAL)
LANDLORD
WITNESS: ACE HARDWARE CORPORATION
__________________________ __________________________(SEAL)
TENANT
RENEWAL OPTION RIDER TO LEASE BETWEEN LEROY M. MERRITT, LANDLORD AND
ACE HARDWARE CORPORATION, TENANT. THE FOLLOWING NEW SECTION 44 IS
HEREBY ADDED TO THE ATTACHED LEASE:
44. Renewal Options.
If Tenant is not then in default under this Lease or
any of the provisions hereof, Tenant may extend the term of this
Lease for one (1) additional successive period of two (2) years
each, by notifying Landlord in writing of its intention to do so at
least one hundred eighty (180) days prior to the expiration of the
then current term. Each such renewal term shall be under the same
terms and conditions as are herein set forth except that the annual
rental for each succeeding renewal term shall be as follows:
(a) REDACTED Dollars payable in equal monthly
installments of REDACTED Dollars.
All said rental shall be payable in advance in equal
monthly installments on the 1st day of each month during said
renewal term, without setoff or deduction.
There shall be no additional right to renew or extend this Lease
except as provided herein. AS WITNESS the hands and seals of the
parties hereto simultaneously with the execution of the attached Lease.
WITNESS: LEROY M. MERRITT
BY: THE MERRITT OPERATIONS CORPORATION, AGENT
________________________
BY:______________________(SEAL)
TITLE:______________________
Landlord
WITNESS: ACE HARDWARE CORPORATION
________________________
BY:______________________(SEAL)
TITLE:______________________
Tenant
TABLE OF CONTENTS FOR LEASE BETWEEN
LEROY M. MERRITT, LANDLORD
AND ACE HARDWARE CORPORATION, TENANT.
1. Payment of Rental 1
2. Use 2
3. Utilities 2
4. Compliance with Laws 2
5. Assignment and Subletting 3
6. Loading Capacity 4
7. Increase in Landlord's
Insurance Rates 4
8. Insurance - Indemnity 5
9. Alterations 8
10. Ownership of Alterations 9
11. Repairs and Maintenance 9
12. Tax and Insurance Escalation 11
13. Default 12
14. Damage or Destruction 15
15. Possession 16
16. Exterior of Premises - Signs 16
17. Relocation 17
18. For Rent/Sale Signs 17
19. Water and Other Damage 17
20. Right of Entry 18
21. Termination of Term 18
22. Condemnation 18
23. Subordination 20
24. Landlord's Right to Perform
Tenant's Covenants 20
25. Attornment 20
26. Non-Waiver of Future
Enforcement 22
27. Personal Property Taxes 22
28. Recordation of Lease 22
29. Notices 23
30. Waiver of Jury Trial 23
31. Severability 24
32. Non-Waiver 24
33. Successors and Assigns 24
34. Security Deposit 25
35. Notices to Mortgagee 26
36. Estoppel Certificate 27
37. Environmental Provisions 27
38. Captions 29
39. Lender's Approval 29
40. Final and Entire Agreement 29
41. Tenant Representative 29
42. Additional Rent 29
43. Landlord's Work 30
44. Renewal Options 31
THIS FIRST AMENDATORY LEASE AGREEMENT made this 21st day of
February, 1995, by and between LEROY M. MERRITT, (hereinafter
called "Landlord") and ACE HARDWARE CORPORATION, (hereinafter
called "Tenant").
EXPLANATORY STATEMENT
By lease (hereinafter called the "Lease") dated February
9, 1995, Landlord leased to Tenant, and the latter rented from the
former, certain premises within the building known as 2601-2653
Merchant Drive, Baltimore, MD 21230. The parties desire to amend
the Lease as hereinafter set forth. NOW, THEREFORE, AND IN
CONSIDERATION of the mutual covenants and agreement herein contained,
the parties hereto hereby covenant and agree as follows: 1. Tenant
will hereby lease an additional 30,150 square feet located at 2626
West Patapsco Avenue for a period of two (2) months, commencing
February 17, 1995. 2. The rent for the premises will be REDACTED
Dollars per month. 3. Except as herein provided, the Lease shall remain
unchanged and in full force and effect.
IN WITNESSETH WHEREOF, the parties hereto have executed
the within Amendatory Lease Agreement as of the day and year first
above written.
WITNESS: ACE HARDWARE CORPORATION
________________________
BY:____________________ (SEAL)
Tenant
ATTEST: LEROY M. MERRITT
BY: MERRITT OPERATIONS CORPORATION, AGENT
________________________
BY:____________________ (SEAL)
Landlord
SECOND AMENDATORY LEASE AGREEMENT
THIS SECOND AMENDATORY LEASE AGREEMENT, made this day of
, 1995, by and between LEROY M. MERRITT ("Landlord"),
and ACE HARDWARE CORPORATION ("Tenant"). EXPLANATORY STATEMENT By
Lease dated February 9, 1995, Landlord leased to Tenant, and Tenant
rented from Landlord, certain premises within the building known as
2601-2653 Merchant Drive, Baltimore, Maryland 21230, which premises
are more specifically set forth in Exhibit A to said February 9, 1995
Lease (the "Premises");
By First Amendatory Lease Agreement, dated February 21, 1995, Landlord
and Tenant amended the terms and conditions of the February 9, 1995
Lease, as more specifically set forth in said First Amendatory Lease
Agreement (the February 9, 1995 Lease and the First Amendatory Lease
Agreement are hereinafter collectively referred to as the "Lease");
The parties hereto desire to modify the Lease as hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, of the good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Landlord and Tenant
agree as follows:
1. Alteration to Premises. Upon the full execution of this
Agreement, Landlord shall, at Landlord's expense, install twenty-
one (21) edges of docks and twenty-one (21) dock seals at and upon
the Premises, at a total cost of REDACTED Dollars.
2. Additional Dock Rental. Commencing August 1, 1995, and
on the first day of the succeeding thirty-one (31) remaining months
of the term of the Lease, Tenant shall pay to Landlord, in addition
to all Rent and Additional Rent to be paid by Tenant to Landlord
pursuant to the terms and conditions of the Lease, an Additional
Dock Rental payment of REDACTED Dollars.
3. Except as herein provided, all terms and conditions of
the Lease shall remain unchanged and in full force and effect.
[SIGNATURES ON NEXT PAGE]
IN WITNESS WHEREOF, the parties have executed this Second
Amendatory Lease Agreement under seal as of the day and year first
written above.
WITNESS/ATTEST:
LEROY M. MERRITT
By: Merritt Operations Corporation, Agent
________________________________
By:_____________________________ (SEAL)
LANDLORD
ACE HARDWARE CORPORATION
________________________________
By:_____________________________ (SEAL)
TENANT
EXHIBIT 10-a-15
FIRST AMENDMENT
Ace Hardware Corporation
Long-Term Incentive Compensation Deferral Option Plan
Pursuant to Section 7.1 of the Ace Hardware Corporation Long-Term
Incentive Compensation Deferral Option Plan (the "Plan"), effective
December 5, 1995, the Company hereby amends and restates Section 3.2
of the Plan to read as follows:
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 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 15th of the year preceding the Deferral Year for
which the election is being made.
Section 3.2 is the only Section affected by this Amendment.
Ace Hardware Corporation
By: David F. Hodnik
Its: President and Chief Executive Officer
EXHIBIT 10-a-16
FIRST AMENDMENT
Ace Hardware Corporation
Directors' Deferral Option Plan
Pursuant to Section 7.1 of the Ace Hardware Corporation Directors'
Deferral Option Plan (the "Plan"), effective December 5, 1995, the
Company hereby amends and restates Section 3.2 of the Plan to read
as follows:
3.2 Minimum and Maximum Deferral and Length of Participation. A
Participant in the Plan may elect to defer 5% to 100% of his/her
Compensation in 5% 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 15th of the year preceding the Deferral
Year for which the election is being made.
Section 3.2 is the only Section affected by this Amendment.
Ace Hardware Corporation
By: David F. Hodnik
Its: President and Chief Executive Officer
EXHIBIT 10-a-17
EMPLOYMENT AGREEMENT
This Employment Agreement made and entered into this ___ day of
__________, 1995 by and between ACE HARDWARE CORPORATION, a
Delaware corporation, hereinafter referred to as the "Employer",
and ________________, 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, 1996 and shall terminate on December 31, 1997,
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, 1997 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, 1997.
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, 1997 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, 1998 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, 1997. 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, 1997, 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 ________________________________ Dollars
($_________.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. 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 1996 with respect to the amount of such
salary to be paid to the Executive in 1997. In the event that this
Agreement is extended for one (1) year beyond December 31, 1997,
the Employer agrees to further review said salary at a meeting of
the Board of Directors of the Employer in 1997 with respect to the
amount thereof to be paid to the Executive in the year 1998. 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, Short-Term Incentive Plan, Long-Term Incentive
Compensation Deferral Option 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: __________________
______________________
________________________ (Seal)
Attest:
______________________ (SEAL)
Secretary
EXHIBIT 10-a-18
ACE HARDWARE CORPORATION
EXECUTIVE BENEFIT SECURITY TRUST
THIS TRUST AGREEMENT ( A AGREEMENT @ ) is made and entered
into this 1st day of January 1995 by Ace Hardware Corporation, a
Delaware corporation (the "Company"), and Harris Trust & Savings
Bank, and its successor or successors and assigns in the trust
hereby evidenced, as trustee (the "Trustee"),
WITNESSETH:
WHEREAS, the Company has adopted the Ace Hardware Corporation
Long-Term Incentive Compensation Deferral Option Plan and the
Ace Hardware Corporation Directors' Deferral Option Plan (the
"Plans") for the benefit of a select group of management and/or
highly compensated employees and directors of the Company; and
WHEREAS, the Company has incurred or expects to incur
liability under the terms of such Plans with respect to the
individuals participating in such Plans; and
WHEREAS, the Company wishes to establish a trust (hereinafter
called the "Trust") and to contribute to the Trust assets that
shall be held therein, subject to the claims of the Company's
creditors in the event of the Company's Insolvency, as herein
defined, until paid to participants of the Plans and their
beneficiaries in such manner and at such times as specified in
the Plans; and
WHEREAS, it is the intention of the parties that this Trust
shall constitute an unfunded arrangement and shall not affect
the status of the Plans as unfunded plans maintained for the
purpose of providing deferred compensation for a select group of
management or highly compensated employees and directors for
purposes of Title I of the Employee Retirement Income Security
Act of 1974; and
WHEREAS, it is the intention of the Company to make
contributions to the Trust to provide itself with a source of
funds to assist it in the meeting of its liabilities under the
Plans;
NOW, THEREFORE, the parties do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as
follows:
ARTICLE I
INTRODUCTION
1.01 The Trust, the Plans , Participants. This Agreement and
the Trust hereby evidenced shall be known as the "Ace
Hardware Corporation Executive Benefit Security Trust." The
Trust is established for the benefit of employees and
directors of the Company who are or become covered under
the Plans and their beneficiaries, as determined in
accordance with the provisions of the Plans, which
employees, directors and beneficiaries are referred to as
"Participants." However, the Participants shall not have
any right or security interest in any specific asset of the
Trust or beneficial ownership in or preferred claim on the
assets of the Trust, it being understood that the assets of
the Trust shall be available for the claims of the
Company's creditors as provided in Article V and all rights
created under the Plans or the Trust shall be unsecured
contractual rights against the Company.
1.02 Status of Trust. The Trust is intended to constitute a
grantor trust under Sections 671-678 of the Internal
Revenue Code, as amended, and shall be construed
accordingly.
(a) Company hereby deposits with Trustee in trust $100,
which shall become the principal of the Trust to be
held, administered and disposed of by the Trustee as
provided in this Agreement. At any time or from time
to time thereafter the Company may deliver to the
Trustee additional funds or other property to be held,
invested and distributed by the Trustee in accordance
with the provisions of this Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which
Company is the grantor, within the meaning of subpart
E, part I, subchapter J, chapter 1, subtitle A of the
Internal Revenue Code of 1986, as amended, and shall
be construed accordingly.
(d) The principal of the Trust, and any earnings thereon
shall be held separate and apart from other funds of
the Company and shall be used exclusively for the uses
and purposes of the Participants and general creditors
as herein set forth. Participants and their
beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plans and this
Agreement shall be mere unsecured contractual rights
of Participants and their beneficiaries against the
Company. Any assets held by the Trust will be subject
to the claims of the Company's general creditors under
federal and state law in the event of Insolvency, as
defined in paragraph 5.01 herein.
1.03 Acceptance. The Trustee accepts the duties and obligations
of the Trustee hereunder, agrees to accept delivery of
property delivered to it by the Company pursuant to
paragraph 1.02, and agrees to hold such property (and any
proceeds from the investment of such property) in trust in
accordance with this Agreement.
1.04 The Committee. The committee that is responsible for the
administration of the Plans is the Committee appointed to
administer the Plans pursuant to Article VI of the Plans.
The Committee has certain powers, rights and duties under
this Agreement as described below. An officer of the
Company will certify to the Trustee from time to time the
person or persons who are acting as the members of the
Committee or who have been delegated the authority to act
on behalf of the Committee. The Trustee may rely on the
latest certificate received without further inquiry or
verification.
ARTICLE II
MANAGEMENT OF THE TRUST FUND
2.01 The Trust Fund. Unless the context clearly implies or
indicates otherwise, the term "Trust Fund" as of any date
means all property of every kind then held under this
Agreement by the Trustee or any custodian.
2.02 Trustee's General Powers, Rights and Duties. With respect
to the Trust Fund and subject only to the limitations
expressly provided in this Agreement (including the powers
reserved to the Committee or imposed by applicable law),
the Trustee shall have the following powers, rights and
duties in addition to those vested in it elsewhere in this
Agreement or by law:
(a) When directed by the Committee, to invest and reinvest
part or all of the Trust Fund in any real or personal
property (including investments in any stocks, bonds,
debentures, mutual fund shares, notes, commercial
paper, treasury bills, any common, commingled or
collective trust funds or pooled investment funds
described in paragraph 2.03, any interest bearing
deposits held by any bank or similar financial
institution, and any other real or personal property).
(b) When directed by the Committee, to apply for, pay
premiums on and maintain in force on the lives of some
or all of the Participants individual, group term,
universal or other life insurance policies ("Policies"
or "Policy") to fund benefits under the Plans for
Participants on whose lives the Policies are issued
and containing such provisions as the Committee may
approve or direct; to receive or acquire such a Policy
from the Company or from the Participant on whose life
the Policy is issued, but the Trustee may purchase a
Policy only if the Trustee pays, transfers or
otherwise exchanges for the Policy no more than the
cash surrender value of the Policy and the Policy is
not subject to a mortgage or similar lien which the
Trustee would be required to assume; and to have with
respect to Policies any rights, powers, options,
privileges and benefits usually comprised in the term
"incidents of ownership" and normally vested in an
insured or owner of such Policies.
(c) To retain in cash such amounts as the Trustee
considers advisable and as are permitted by applicable
law and to deposit any cash so retained in any
depository (including any bank acting as Trustee)
which the Trustee may select.
(d) To manage, sell, insure and otherwise deal with all
real and personal property held by the Trustee on such
terms and conditions as the Trustee shall decide.
(e) To vote stock and other voting securities personally
or by proxy, to exercise subscription, conversion and
other rights and options, to take any action and to
abstain from taking any action with respect to any
reorganization, consolidation, merger, dissolution,
recapitalization, refinancing and any other program or
change affecting any property constituting a part of
the Trust Fund, to hold or register any property from
time to time in the Trustee's name or in the name of a
nominee or to hold it unregistered or in such form
that title shall pass by delivery and, with the
approval of the Committee, to borrow from anyone,
including any bank acting as Trustee, to the extent
permitted by law, such amounts from time to time as
the Trustee considers desirable to carry out this
Trust (and to mortgage or pledge all or part of the
Trust Fund as security).
(f) To make payments from the Trust Fund to provide
benefits that have become payable under the Plans
pursuant to paragraph 4.05 or that are required to be
made to the creditors of the Company pursuant to
paragraph 5.02.
(g) To maintain in the Trustee's discretion any litigation
the Trustee considers necessary in connection with the
Trust Fund.
(h) To withhold, if the Trustee considers it advisable,
all or any part of any payment required to be made
hereunder as may be necessary and proper to protect
the Trustee or the Trust Fund against any liability or
claim on account of any estate, inheritance, income or
other tax or assessment attributable to any amount
payable hereunder, and to discharge any such liability
with any part or all of such payment so withheld,
provided that at least ten (10) days prior to
discharging any such liability with any amount so
withheld the Trustee shall notify the Committee in
writing of the Trustee's intent to do so.
(i) To maintain records reflecting all receipts and
payments under this Agreement and such other records
as the Committee specifies and the Trustee agrees to,
which records may be audited from time to time by the
Committee or anyone named by the Committee.
(j) To furnish periodic accounts to the Committee for such
periods as the Committee may specify, showing all
investments, receipts, disbursements and other
transactions involving the Trust during the applicable
period.
(k) To furnish the Company with such information in the
Trustee's possession as the Company may need for tax or
other purposes.
(l) To employ agents, attorneys, accountants, and other
persons (who also may be employed by the Company or
the Committee), to delegate discretionary powers to
such persons, to reasonably rely upon information and
advice furnished by such persons; provided that each
such delegation and the acceptance thereof by each
such person shall be in writing; and provided further
that the Trustee may not delegate its responsibilities
as to the management or control of the assets of the
Trust Fund.
(m) To perform all other acts which in the Trustee's
judgment are appropriate for the proper management,
investment and distribution of the Trust Fund.
(n) The Trustee shall act with the care, skill, prudence
and diligence under the circumstances then prevailing
that a prudent person acting in like capacity and
familiar with such matters would use in the conduct of
an enterprise of a like character and with like aims,
provided, however, that the Trustee shall incur no
liability to any person for any action taken pursuant
to a direction, request or approval given by the
Company which is contemplated by, and in conformity
with, the terms of the Plans or this Trust and is
given in writing by the Company. In the event of a
dispute between the Company and a party, the Trustee
may apply to a court of competent jurisdiction to
resolve the dispute.
(o) Notwithstanding any powers granted to the Trustee
pursuant to this Agreement or to applicable law, the
Trustee shall not have any power that could give this
Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of
section 301.7701-2 of the Procedure and Administrative
Regulations promulgated pursuant to the Internal
Revenue Code.
2.03 Collective Investment Trusts. The Trustee may invest Trust
assets in any common, collective or commingled trust fund
or pooled investment fund that is maintained by a bank or
trust company (including a bank or trust company acting as
Trustee) provided such investments are consistent with the
investment guidelines agreed to in writing by the Company
and the Trustee. To the extent that any Trust assets are
invested in any such fund, the provisions of the documents
under which such common, collective or commingled trust
fund or pooled investment fund are maintained shall govern
any investments therein and such provisions are hereby
incorporated herein and made a part of this Agreement.
ARTICLE III
MANNER OF ACTION OF THE COMMITTEE
The Committee members may act by meeting, or by writing signed
without meeting, and may sign any document by signing one
document or concurrent documents. Any written action in lieu of
a meeting must be by unanimous consent of all disinterested
members. An action of a majority of disinterested members at a
meeting of the Committee shall be effective as if taken on or
made by all Committee members. If a member of the Committee
is a Participant, he/she may not decide or determine any matter
or questions concerning any payments to be made to him/her
from the Trust that he/she would not have the right to decide
or determine if he/she were not a member of the Committee.
ARTICLE IV
GENERAL PROVISIONS
4.01 Restrictions on Reversion. The Company shall not have any
right, title or interest in the assets of the Trust Fund,
nor will any part of the assets of the Trust Fund revert or
be repaid to the Company until all benefits due under the
Plans have been paid pursuant to the terms of the Plans and
in accordance with the provisions of paragraph 4.05, except
as follows:
(a) The assets of the Trust shall be available for the
claims of the Company's creditors under the
circumstances specified in Article V;
(b) If the Company ceases to maintain the Plans, any
balance remaining in the Trust after all benefits have
been paid pursuant to the terms of the Plans and in
accordance with the provisions of paragraph 4.05 shall
revert to the Company;
(c) Except in the event of a Change of Control (as defined
below), upon the written request of the Committee at
any time, the Trustee shall repay to the Company any
excess assets (as defined below) in the Trust,
provided that the Committee furnishes to the Trustee a
certified statement of an independent actuary as to
the then value of vested accrued benefits (as defined
below) under the Plans. For these purposes, "excess
assets" means any amount by which the sum of the cash
surrender value of Policies held in the Trust and the
fair market value of all other assets in the Trust, as
determined by the Trustee, exceeds 110 percent (110%)
of the value of vested accrued benefits under the
Plans. For purposes of this Trust, "vested accrued
benefits" shall mean the sum of (i) all Deferred
Benefit Accounts (as defined in the Plans) of
Participants, including interest credited at the
Retirement Interest Yield (as defined in the Plans),
and (ii) the present value of all other projected
benefit obligations under the Plans.
In the event of a "Change of Control", no assets of the Trust
Fund shall revert or be repaid to the Company, under any
circumstances, until all benefits due under the Plans have been
paid pursuant to the terms of the Plans and in accordance with
the provisions of paragraph 4.05. For purposes of this Trust, a
"Change of Control" shall mean the sale of the Company or
substantially all of its assets, in any form whatsoever,
including merger, consolidation, or other reorganization or the
sale of a substantial portion of the Company or its assets or
any substantial change in ownership of the outstanding shares of
stock of the Company or which the Company, in its sole
discretion, determines to be a change in control under this
paragraph.
4.02 Nonalienation of Trust Assets. To the extent permitted by
law, the rights or interests of any Participants to any
benefits or future payments hereunder shall not be subject
to attachment, garnishment, levy, execution or other legal
or equitable process by any creditor of any such
Participant, nor shall any such Participant have any right
to alienate, anticipate, commute, pledge, encumber or
assign (either at law or in equity) any of the benefits or
rights which he/she may expect to receive (contingently or
otherwise) under this Agreement, except as may be required
by the tax withholding provisions of the Internal Revenue
Code or of a state's income tax act.
4.03 Litigation. Any final judgment that is not appealed or
appealable and which may be entered in any action or
proceeding regarding this Trust shall be binding and
conclusive on the parties hereto and all persons having or
claiming to have an interest in the Trust. If the Trustee
undertakes or defends any litigation arising in connection
with this Trust, the Company agrees to indemnify the
Trustee against the Trustee's costs, expenses and
liabilities (including, without limitation, attorneys' fees
and expenses) relating thereto and to be primarily liable
for such payments. If the Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, the
Trustee may obtain payment from the Trust.
4.04 Trustee's Actions Conclusive. Except as otherwise provided
by law, the Trustee's exercise or non-exercise of its
powers and discretion in good faith shall be conclusive on
all persons. No one shall be obliged to see to the
application of any money paid or property delivered to the
Trustee. The certificate of the Trustee that it is acting
in accordance with this Agreement will fully protect all
persons dealing with the Trustee. If there is a
disagreement between the Trustee and anyone as to any act
or transaction reported in any accounting, the Trustee
shall have the right to a settlement of its account by any
proper court.
4.05 Benefit Payments. The Committee from time to time shall
direct the Trustee in writing to make distributions of
benefits from the Trust Fund that have become payable, but
that have not been paid by the Company, under the Plans to
Participants, including the amount and manner of payment of
any such benefit. If a payment required under the terms of
the Plans has not been made to a Participant (whether due
to the failure of the Committee to notify the Trustee as
required by this paragraph or otherwise), then the
Participant may notify the Trustee in writing of the amount
(or a reasonable estimate of the amount) owed to him/her
pursuant to the Plans, and the date or dates such amount
was due and payable. The Trustee shall notify the Committee
and the Company within fifteen (15) calendar days of the
receipt of such payment request. If the Committee or the
Company does not provide the Trustee with a certified
statement from either an independent actuary or from any
other independent party agreed to by the Trustee, the
Committee and the Participant, as to the proper amount due
and payable to the Participant within thirty (30) days of
the date the Trustee notified the Committee and the Company
of the payment request, the Trustee shall make the payment
or payments requested by the Participant from the Trust
Fund and may conclusively rely on such payment or payments
being the appropriate amount. The Trustee shall also notify
the Committee and the Company of any such payments. Payment
shall be made to a Participant from the Trust Fund in
accordance with the terms of the Plans until the earlier
of: (i) all benefit commitments due the Participant under
the Plans as requested by the Participant in his/her
notification to the Trustee, have been satisfied; or (ii)
the Committee or the Company provide a certified statement
as described above. If a certified statement is so
provided, appropriate adjustment, if any, in the amount
paid and to be paid to the Participant shall be made. The
Trustee shall be fully protected in acting without
Committee direction under this paragraph and shall be
indemnified and saved harmless as provided in paragraph
4.08. The Trustee shall make such distributions from the
Trust Fund in accordance with the provisions of this
paragraph 4.05, subject to the provisions of Article V. If
Trust assets are not sufficient to pay the benefits from
the Plans, the Company shall make the balance of each such
payment when due.
4.06 Missing Persons. If any payment directed to be made by the
Trustee from the Trust Fund is not claimed by the person
entitled thereto, the Trustee shall notify the Committee of
that fact. Neither the Company, the Committee nor the
Trustee shall have any obligation to search for or
ascertain the whereabouts of any payee under this Trust.
4.07 Liabilities Mutually Exclusive. To the extent permitted by
law, the Company, the Trustee, the Committee and each
member thereof shall be responsible only for their own acts
or omissions.
4.08 Indemnification. To the extent permitted by law, neither
the Trustee, any present or former Committee member, nor
any person who is or was a director, officer, or employee
of the Company, shall be personally liable for any act
done, or omitted to be done, in good faith in the
administration of this Trust. Any person to whom the
Committee or the Company has delegated any portion of its
responsibilities under the Trust, any person who is or was
a director or officer of the Company, members and former
members of the Committee, and each of them, shall, to the
extent permitted by law, be indemnified and saved harmless
by the Company (to the extent not indemnified or saved
harmless under any liability insurance or other
indemnification arrangement with respect to this Trust)
from and against any and all liability or claim of
liability to which they may be subjected by reason of any
act done or omitted to be done in good faith in connection
with the administration of the Trust or the investment of
the Trust Fund, including all expenses reasonably incurred
in their defense if the Company fails to provide such
defense after having been requested to do so in writing.
The Trustee shall be indemnified and saved harmless by the
Company (to the extent not indemnified or saved harmless
under any liability insurance or other indemnification
arrangement with respect to this Trust) only with respect
to liability or claim of liability to which the Trustee
shall be subjected by reason of its good faith compliance
with any directions given in accordance with the provisions
of the Trust by the Committee including all expenses
reasonably incurred in the Trustee's defense if the Company
fails to provide such defense after having been requested
to do so in writing.
4.09 Compensation and Expenses. All reasonable costs, charges
and expenses incurred by the Trustee pursuant to
subparagraph 2.02(g) shall be paid from the Trust Fund to
the extent not paid by the Company, and all other
reasonable compensation, costs, charges and expenses
incurred in the administration of this Trust, as agreed
upon between the Committee and the Trustee, will, to the
extent not paid by the Company be paid from the Trust Fund;
provided that expenses incurred in connection with the
sale, investment and reinvestment of the Trust Fund (such
as brokerage, postage, express and insurance charges and
transfer taxes) shall be paid from the Trust Fund.
4.10 Action by the Company. Any action with respect to this
Trust required or permitted to be taken by the Company
shall be by resolution of its Board of Directors, by a duly
authorized committee of its Board of Directors, or by a
person or persons authorized by resolution of its Board of
Directors or such committee.
4.11 Warranty. The Company warrants that all directions or
authorizations by the Committee, whether for the payment of
money or otherwise, will comply with the provisions of the
Plans and this Trust.
4.12 Evidence. Evidence required of anyone under this Agreement
shall be signed, made or presented by the proper party or
parties and may be by certificate, affidavit, document or
other information which the person acting on it considers
pertinent and reliable.
4.13 Waiver of Notice. Any notice required under this Agreement
may be waived by the person entitled to such notice.
4.14 Counterparts. This Agreement may be executed in two or more
counterparts, any one of which will be an original without
reference to the others.
4.15 Gender and Number. Where the context admits, words denoting
the masculine gender shall include the feminine gender, the
singular shall include the plural, and the plural shall
include the singular.
4.16 Scope of this Agreement. The Plans and this Trust will be
binding on all persons entitled to benefits hereunder and
their respective heirs and legal representatives, and upon
the Company, the Committee, the Trustee, and their
successors and assigns.
4.17 Severability. If any provision of this Agreement is held to
be illegal or invalid, such illegality or invalidity shall
not affect the remaining provisions of this Agreement, and
they shall be construed and enforced as if such illegal or
invalid provision had never been inserted herein.
4.18 Statutory References. Any references in this Agreement to a
section of the Internal Revenue Code shall include any
comparable section or sections of any future legislation
that amends, supplements or supersedes that section.
4.19 Applicable Law. The Trust shall be construed in accordance
with the laws of the State of Illinois.
ARTICLE V
INSOLVENCY
5.01 Insolvency. The Company shall be considered "Insolvent" for
purposes of this Trust if the Company's debts are not paid
as they mature or if its affairs become the subject of
reorganization or liquidation proceedings as a debtor under
federal bankruptcy laws.
5.02 Payments During Insolvency. At all times during the
existence of this Trust, assets and rights of the Trust
shall be subject to the claims of the Company's general
creditors. Therefore, if the Trustee knows that the Company
is Insolvent (as defined in paragraph 5.01), the Trustee
shall discontinue benefit payments that otherwise would be
paid and will deliver or otherwise make available assets of
the Trust to satisfy the claims of the Company's creditors
as directed by a court of competent jurisdiction. If the
Company becomes Insolvent, its Board of Directors and its
President shall have the duty to promptly inform the
Trustee of the Company's Insolvency. The Committee shall
have the same duty if and when it becomes aware that the
Company has become Insolvent or upon an inquiry of the
Company's solvency by the Trustee. Participants shall not
be granted greater rights to the Trust Fund by virtue of
their rights under the Plans than other general creditors
of the Company, but no provision of the Trust shall
diminish the rights of a Participant to pursue his/her
rights as a general creditor of the Company with respect to
any benefits he/she is entitled to under the Plans, or
otherwise. The Trustee shall resume payments of benefits in
accordance with the Plans after the Trustee has been
notified by the Board of Directors or the President that
the Company is no longer Insolvent.
5.03 Trustee's Reliance. Unless the Trustee has actual knowledge
of the Company's Insolvency, or has received notice from
Company or a person claiming to be a creditor alleging that
the Company is Insolvent, Trustee shall have no duty to
inquire whether the Company is Insolvent. The Trustee may
in all events rely on such evidence concerning the
Company's solvency as may be furnished to the Trustee and
that provides the Trustee with a reasonable basis for
making a determination concerning the Company's solvency.
ARTICLE VI
STATEMENT AND ACCOUNTS OF THE TRUSTEE
6.01 The Trustee shall maintain accurate and detailed records
and accounts of all investments, receipts, disbursements
and other transactions under this Agreement. All accounts,
books, and records of the Trustee under this Agreement
shall be open at all reasonable times to inspection and
audit by any person designated by the Company.
6.02 Within sixty (60) days following the close of (i) the date
of the removal or resignation of the Trustee or (ii) the
close of other periods agreed on by the Trustee and the
Company, the Trustee shall file with the Company a written
account setting forth a description of all securities and
other property purchased and sold, all liabilities
incurred, all receipts, disbursements and other
transactions effected by it during such period, at their
cost and fair market values, and all incurred but unpaid
liabilities as of the end of such period. Special reports
and accounts shall be provided by the Trustee to the
Company on a periodic basis as is mutually agreeable.
6.03 The Company shall review such written accounts within 120
days after receipt. Such accounting shall be deemed
approved, and the Trustee shall be released and discharged,
as to all items set forth in such account except with
respect to any such acts or transactions as to which the
Company shall within such 120 day period file written
objections with the Trustee.
ARTICLE VII
RESIGNATION OR REMOVAL OF TRUSTEE
7.01 Resignation or Removal of Trustee. The Trustee may resign
at any time by giving thirty (30) days advance written
notice to the Company and the Committee. The Committee may
remove a Trustee by giving written notice to the Trustee
and the Company provided that such removal shall not become
effective until the time immediately preceding the
appointment of a successor Trustee pursuant to paragraph
7.02.
7.02 Successor Trustees. In the event of the resignation or
removal of the Trustee, a successor Trustee shall be
appointed by the Committee in writing as soon as
practicable. Written notice of such appointment shall be
given by the Committee to the Company and the predecessor
Trustee.
7.03 Duties of Predecessor Trustee and Successor Trustee. A
Trustee that resigns or is removed shall promptly furnish
to the Committee and the successor Trustee a final account
of its administration of the Trust. A successor Trustee
shall succeed to the right and title of the predecessor
Trustee in the assets of the Trust Fund and, within thirty
(30) days after notice of resignation or removal is given,
the predecessor Trustee shall deliver the property
comprising the Trust Fund to the successor Trustee together
with any instruments of transfer, conveyance, assignment
and further assurances as the successor Trustee may
reasonably require. Each successor Trustee shall have all
the powers, rights and duties conferred by this Agreement
as if named the initial Trustee. Subject to applicable law,
no successor Trustee shall be personally liable for any act
or failure to act of a predecessor Trustee.
ARTICLE VIII
AMENDMENT AND TERMINATION
8.01 Amendment. This Trust may be amended from time to time by
the Company, except as follows:
(a) The duties and liabilities of the Committee and the
Trustee under this Agreement cannot be changed
substantially without their consent.
(b) Under no condition shall any amendment result in the
return or repayment to the Company of any portion of
the Trust Fund or the income therefrom except to the
extent permitted under paragraph 4.01, or result in
the distribution of the Trust Fund for any purposes
other than payment of obligations of the Company to
its creditors, including Participants.
(c) This Trust may not be amended so as to cause the
reduction or cessation of any benefits a Participant
would receive under the terms of the Plans nor may the
Trust be amended to make the Trust revocable.
8.02 Termination. This Trust shall not terminate, and all the
rights, titles, powers, duties, discretions and immunities
on or reserved to the Trustee, the Company and the
Committee shall continue in effect with respect to the
Trust, until all benefits payable to Participants under the
Plans have been paid and all assets have been distributed
by the Trustee under the Trust and the Plans.
Notwithstanding any other provision of this Trust, the
Trust shall terminate one day prior to the expiration of a
period of twenty-one (21) years after the death of the last
to die of employees or directors of the Company who are
Participants in the Plans on the day and year first above
written. Upon termination of the Trust, any assets
remaining in the Trust shall be returned to the Company.
IN WITNESS WHEREOF, the Company and the Trustee have caused
this Agreement to be executed on their behalf and by their
respective officers thereunto duly authorized, the day and year
first above written.
ACE HARDWARE CORPORATION
ATTEST/WITNESS: GARY HUNT By DAVID F. HODNIK
Its President & COO
Harris Trust & Savings Bank
ATTEST/WITNESS: IRENE DEMEUR by HOLLY S. HEEP
Its Vice-President
EXHIBIT 23(a)
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.
KPMG Peat Marwick LLP
Chicago, Illinois
March 8, 1996
EXHIBIT 24
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 Post-Effective Amendment No. 1 to 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 11th day of March, 1996.
JENNIFER C. ANDERSON RAY W. OSBORNE
Jennifer C. Anderson Ray W. Osborne
LAWRENCE R. BOWMAN ROGER E. PETERSON
Lawrence R. Bowman Roger E. Peterson
MARK JERONIMUS JON R. WEISS
Mark Jeronimus Jon R. Weiss
HOWARD J. JUNG DON S. WILLIAMS
Howard J. Jung Don S. Williams
JOHN E. KINGREY JAMES R. WILLIAMS, JR.
John E. Kingrey James R. Williams, Jr.
RICHARD E. LASKOWSKI
Richard E. Laskowski
<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>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 12,853
<SECURITIES> 0
<RECEIVABLES> 288,488
<ALLOWANCES> 1,410
<INVENTORY> 254,451
<CURRENT-ASSETS> 563,706
<PP&E> 327,793
<DEPRECIATION> 136,289
<TOTAL-ASSETS> 759,133
<CURRENT-LIABILITIES> 429,352
<BONDS> 0
<COMMON> 215,727
0
0
<OTHER-SE> 515
<TOTAL-LIABILITY-AND-EQUITY> 759,133
<SALES> 2,436,012
<TOTAL-REVENUES> 2,436,012
<CGS> 2,252,125
<TOTAL-COSTS> 109,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,137
<INCOME-PRETAX> 65,136
<INCOME-TAX> 1,394
<INCOME-CONTINUING> 63,742
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 63,742
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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